Brexit a 'lose-lose' for both sides, says EU's chief negotiator

Brexit a 'lose-lose' for both sides, says EU's chief negotiator

Brexit is a "lose-lose" situation for both sides but the cost to the UK will be "substantially higher", European Union chief negotiator Michel Barnier said.

The senior Brussels official warned that skills shortages could hit the NHS and dismissed the terms of Theresa May's plans for a comprehensive deal on financial services.

But he insisted there was "no intention of discriminating against the UK" and London would remain a "global financial centre" after leaving the bloc.

In a speech in Sofia he said: "Outside of the customs union and the single market, there can be no frictionless trade.

"Businesses will be faced with non-tariff barriers and border checks that do not exist today."

He added: "The situation would be made worse in a 'no deal' scenario, which would result in the return of tariffs, under WTO rules.

"So, Brexit will come at a cost.

And this cost will be substantially higher for the UK than for the EU.

The EU accounted for around 50% of UK exports and imports, while the UK was only 7% of EU exports and 4% of imports - although Mr Barnier acknowledged some regions were "more exposed" than others.

The "unavoidable friction and non-tariff barriers" after Brexit could lead some overseas firms investing in the UK to "rethink their business models", he said.

In a warning about the ability to recruit workers for health and care roles, Mr Barnier said: "EU talent may find the UK to be a less attractive place. This could generate skills shortages, for instance in the health sector."

Turning to financial services, Mr Barnier rejected the suggestion that the EU "desperately needs" the City of London.

"This is not what we hear from market participants, and it is not the analysis that we have made ourselves," he said.

He added that Mrs May had clarified that the UK was not looking for "passporting", which gives financial services firms the automatic right to operate in the EU but wanted to retain the benefits of it.

Mr Barnier said "this will not work", adding: "The EU understands that the UK does not want to become a 'rule-taker'.

"But the UK also needs to understand that the EU cannot accept mutual market access without the common safeguards that underpin it."

He defended the existing third-country "equivalence" regime, which British Chancellor Philip Hammond has rejected as "wholly inadequate" for the UK-EU relationship, saying: "Why would the equivalence system, which works well for the US industry, not work for the City?"

He added that the equivalence system will operate in a "more effective manner if the UK decides not to diverge from our financial regulation" after Brexit.

Mr Barnier said there was "difficult work ahead" before the June summit of European Union leaders and "no-one should underestimate the risk of disagreement" on the withdrawal agreement, and with it the transition period covering the months after Brexit.

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