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UPDATE 10-Brexit brinkmanship: Johnson says prepare for no-deal, cancels trade talks

Fri, 16th Oct 2020 08:50

* UK says talks are over unless EU changes course

* Stubborn disputes over fishing, competition rules

* Merkel: UK, though also EU, need to compromise

* Macron: 'We're stumbling over everything'

* EU says it is still working for a deal
(Adds UK saying Barnier and Frost will speak next week)

By Guy Faulconbridge and William James

LONDON, Oct 16 (Reuters) - Prime Minister Boris Johnson said
on Friday it was now time to prepare for a no-trade deal Brexit
unless the European Union fundamentally changed course, bluntly
telling Brussels that there was no point in continuing the
negotiations.

A tumultuous "no deal" finale to the United Kingdom's
five-year Brexit crisis would sow chaos through the delicate
supply chains that stretch across Britain, the EU and beyond -
just as the economic hit from the coronavirus pandemic worsens.

At what was supposed to be the "Brexit summit" on Thursday,
the EU delivered an ultimatum: it said it was concerned by a
lack of progress and called on London to yield on key sticking
points or see a rupture of ties with the bloc from Jan. 1.

"I have concluded that we should get ready for January 1
with arrangements that are more like Australia's based on simple
principles of global free trade," Johnson said.

"With high hearts and with complete confidence, we will
prepare to embrace the alternative and we will prosper mightily
as an independent free trading nation, controlling and setting
our own laws," he added.

EU heads of government, concluding a summit in Brussels on
Friday, rushed to say that they wanted a trade deal and that
talks would continue, though not at any price.

German Chancellor Angela Merkel, Europe's most powerful
leader, said it would be best to get a deal and that compromises
on both sides would be needed. French President Emmanuel Macron
said Britain needed a Brexit deal more than the 27-nation EU.

Johnson's spokesman said talks were now over and there was
no point in the EU's chief negotiator Michel Barnier coming to
London next week barring a change in approach.

However, Barnier and his British counterpart David Frost had
agreed to speak again early next week, Downing Street said.

The pound oscillated to Brexit news, dropping a cent against
the U.S. dollar on Johnson's remarks but then rising before
falling again on his spokesman's comments.

RHETORIC?

After demanding that London make further concessions for a
deal, EU diplomats and officials cast Johnson's move as little
more than rhetoric, portraying it as a frantic bid to secure
concessions before a last-minute deal was done.

Dutch Prime Minister Mark Rutte said he thought Johnson had
signalled that London was ready to compromise.

While U.S. investment banks agree that a deal is the most
likely ultimate outcome, the consensus was wrong on the 2016
Brexit referendum: when Britons voted by 52-48% to leave,
markets tumbled and European leaders were shocked.

Asked if he was walking away from talks, Johnson said: "If
there's a fundamental change of approach, of course we are
always willing to listen, but it didn't seem particularly
encouraging from the summit in Brussels.

"Unless there is a fundamental change of approach, we're
going to go for the Australia solution. And we should do it with
great confidence," he said.

A so-called "Australia deal" means that the United Kingdom
would trade on World Trade Organization terms: as a country
without an EU trade agreement, like Australia, tariffs would be
imposed under WTO rules, likely causing significant price rises.

European Commission President Ursula von der Leyen said she
was keen for a deal, though Macron was more downbeat.

"The state of our talks is not that we are stumbling over
the issue of fishing, which is the British's tactical argument,
but we're stumbling over everything. Everything," Macron said.

"The remaining 27 leaders of the EU, who chose to remain in
the EU, are not there simply to make the British prime minister
happy," he added.

Merkel called for Britain to compromise. "This of course
means that we, too, will need to make compromises," she said.

WTO TERMS

Britain formally left the EU on Jan. 31, but the two sides
have been haggling over a deal that would govern trade in
everything from car parts to medicines when informal membership
known as the transition period ends Dec. 31.

Johnson had repeatedly asserted that his preference is for a
deal but that Britain could make a success of a no-deal
scenario, which would throw $900 billion in annual bilateral
trade into uncertainty and could snarl the border, turning the
southeastern county of Kent into a vast truck park.

The EU's 27 members, whose combined $18.4 trillion economy
dwarfs the United Kingdom's $3 trillion economy, says progress
had been made over recent months though compromise is needed.

Main sticking points remain fishing and the so-called level
playing field - rules aimed at stopping a country gaining a
competitive advantage over a trade partner.

(Additional reporting by Michael Holden, Elizabeth Piper and
Kate Holton in London, Gabriela Baczynska and John Chalmers in
Brussels, Kirsti Knolle in Berlin and Michel Rose in Paris
Writing by Guy Faulconbridge
Editing by Mark Heinrich and Toby Chopra)

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