“Miracles” needed for Brexit progress

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European Commission President Jean-Claude Juncker said trade talks would only commence next month if “miracles happen.”

Theresa May said she was “pleased” with recent developments, but did not specify when she expected to move onto the next phase of negotiations.

Speaking from Estonia, where she is attending an EU security summit, May told reporters that progress had been

But Juncker was less optimistic.

“I am saying there will be no sufficient progress from now until October, unless miracles would happen,” he said, when asked about trade talks.

Juncker has demanded that a breakthrough is reached on three key withdrawal topics – citizens’ rights, the UK’s financial settlement to the union and Northern Ireland’s border – before May is allowed to discuss her plans for a “comprehensive and ambitious” UK-EU trade deal.

The EU commissioner struck a much more pessimistic tone than EU chief negotiator Michael Barnier, who completed the fourth round of Brexit talks on Thursday (28 September).

Despite warning that it could take several months before trade discussions start, Barnier said there was a “new dynamic” to the negotiations after May’s speech in Florence last week.

German Chancellor Angela Merkel commended May on her speech and said “good progress” had been made during talks this week.

The fifth round of negotiations will begin on 9 October.

Banks

Banks in the European Union face large capital gaps if the bloc and Britain do not agree on how to treat their loss-absorbing debt after Brexit, the head of the EU banking watchdog said on Friday.

Under new banking rules meant to reduce taxpayers’ costs in banking crisis, EU lenders are required to issue a sufficient amount of debt that would be written down, or bailed-in, to absorb losses if they fail.

The European Banking Authority estimated that 276 billion euros (243.59 billion pounds)of debt will have to be issued by banks in the EU to meet the regulatory targets, warning that markets may find it difficult to absorb it.

Brexit may make things more complicated.

Most banks in the EU have issued loss-absorbing capital under British law, which could make it not compliant with EU rules on bank rescues in the event of a hard Brexit, Andrea Enria told a banking conference in Brussels.

“What will happen to these instruments if the UK becomes a third country? Banks need to start thinking about that and authorities need to prepare,” Enria said.

Regulators face this problem for all bank debt issued under foreign jurisdictions that, in the absence of mutual recognition agreements, may not allow it to be wiped out to rescue a bank.

With Brexit the headache would be exponentially bigger because most EU banks’ debt is currently issued under British law.

Part of this debt, known as MREL, is short-term and will be paid back before Britain leaves the bloc in 2019, but the longer-term liabilities are likely to remain pending after Brexit, Enria told Reuters on the sidelines of the conference.

Without a deal on how to treat them, banks may not be able to use them to absorb losses and would in turn be obliged to issue new MREL debt.

Enria said that contractual clauses may need to be inserted into debt contracts to address this uncertainty. “Or banks should rather issue (debt) under different law,” he said.

Reform

Leaders of the EU member states agreed on the need to reform the bloc and to use the new methods for its further development, French President Emmanuel Macron said on Friday.

Late on Thursday, leaders of the EU member states held an informal dinner in the Estonian capital of Tallinn discussing the future of the bloc.

“Yesterday’s discussions as well as bilateral talks, which we conducted, were productive and show the collective understanding of the need for a breakthrough in Europe, the use of new methods … Today we are sure that Europe must develop faster and more intensively in order to boost sovereignty, unity and democracy. I can say there is a consensus on [the need] to move forward,” Macron said on the doorstep of the Digital Summit in Tallinn.

The French leader added that in the coming weeks European Council President Donald Tusk would announce the specific plans and projects that would be implemented by the European Union.

On Tuesday, Macron held a speech at the Sorbonne University in Paris saying that the European countries could not cope with the modern challenges alone. From his point of view, the issues of migration, security and defense, economic development, fight against climate change and development of digital technologies should be solved by European countries together.