BREXIT

March 22

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BREXIT
May to launch EU divorce proceedings on March 29
By William James, Elizabeth Piper and
Gabriela Baczynska
P
rime Minister Theresa May
will trigger Britain's divorce
proceedings with the
European Union on March
29, launching two years of
negotiations that will reshape the
future of the country and Europe.
May's government said her permanent
envoy to the EU had informed
European Council President Donald
Tusk of the date when Britain intends
to invoke Article 50 of its Lisbon
Treaty - the mechanism for starting its
exit after a referendum last June in
which Britons voted by a 52-48
percent margin to leave the bloc.
The EU said it was ready to begin the
negotiations and within 48 hours of
the trigger on March 29, Tusk will
send the other 27 member states his
draft negotiating guidelines, which
means that talks could start at the
earliest in May.
Sterling slipped from a three-week
high against the dollar on what Brexit
minister David Davis described as a
The Elizabeth Tower, commonly known as Big Ben, together with walkers are seen reflected in a puddle in London, Britain, March 20.
REUTERS/Toby Melville
2
move taking Britain to "the threshold
of the most important negotiation for
this country for a generation".
May said she would negotiate for
"everyone across the United Kingdom
and all parts of the UK".
"We're going to be out there,
negotiating hard, delivering on what
the British people voted for," she told
reporters.
The 60-year-old leader hopes to
negotiate terms that keep trade,
financial and political relations with
EU member states as close as
possible after Brexit, but also satisfy
eurosceptics in her Conservative
Party who demand a complete break
from an institution they say has
stolen British sovereignty.
It will be a difficult and ambitious
balancing act. Talks on departing the
prosperous club Britain joined in 1973
are likely to be the most complex
London has held since World War
Two, with other EU leaders saying
they will not give May an easy ride.
With nationalism and anti-
establishment, anti-immigrant
sentiment spreading across Western
Europe, the EU leadership in Brussels
is anxious to avoid encouraging others
in the 28-member bloc to bolt.
At the same time, May faces threats
by Scottish nationalists to call a new
independence referendum that could
splinter the United Kingdom and fears
in Northern Ireland that a "hard
border" with EU member Ireland will
return after Brexit.
May has revealed little of her strategy
for securing what she calls "the best
possible deal" for the world's fifth
largest economy and making Brexit as
painless as possible.
Although she succeeded David
Cameron as prime minister soon after
the June 23 Brexit referendum, she
delayed triggering Article 50 to give
herself time to work on her strategy
for talks that are likely to determine
her political legacy.
FUTURE RELATIONS
Article 50 allows for two years of talks
to decide an EU member state's
divorce terms, "taking account of the
BREXIT
framework for its future relationship
with the Union".
May says that clause means the two
sides can set out deals to cover future
trade and other ties.
German Chancellor Angela Merkel
said the EU also had two tracks to
work on over the next year.
"The first track is Britain's exit,
including what all this means in terms
of future relations with Britain when
the exit terms are known," she told a
news conference alongside Japanese
Prime Minister Shinzo Abe at a
technology fair in Hanover.
"The second track is how we can
strengthen and invigorate cooperation
between the EU27 and make them
weatherproof in the 21st century."
Britain's referendum exposed
geographical and social divisions in
the country that have deepened over
arguments about its future
relationship with the EU.
Nationalists in Scotland, which voted
EU leaders to meet for special Brexit summit on April 29- Tusk
By Waverly Colville
T
he European Union's 27
leaders will meet on April 29
to agree their negotiating
lines for Brexit talks after
London sends in a formal notification
European Council President Donald Tusk takes part in a news conference in Brussels,
Belgium, March 9. REUTERS/Yves Herman
3
to remain in the bloc, have accused
the May government of pressing for a
hard Brexit by committing to
departing the EU's lucrative single
market of 500 million consumers.
Scotland's first minister, Nicola
Sturgeon, has called for a new
independence referendum.
In Northern Ireland, which also voted
to stay in the EU, the largest Irish
nationalist party, Sinn Fein, has said
it wants a referendum on splitting
from the United Kingdom and uniting
with the Republic of Ireland "as soon
as possible".
Against the backdrop of trying to
keep the UK together, May has a long
wish list for the EU - the closest
possible trading ties, security
cooperation, regaining control over
immigration and restoring
sovereignty in various policy areas.
The EU has baulked at her demands,
saying they amount to "having your
cake and eating it". May's
that it wants to leave the bloc, the
chairman of the summit, Donald
Tusk, said on Tuesday.
The meeting is a necessary step
before the negotiations between
Britain and the 27 remaining EU
government acknowledges its opening
position is bold, and is also preparing
for the possibility of crashing out of
the bloc with no deal.
While the government has signalled
areas for compromise and is keen to
remind EU leaders of the benefits of
cooperation, government
departments are still awaiting the
final word from May's office on which
economic sectors to prioritise.
Britain's commitment to payments
into the EU budget - which officials in
the bloc estimate to reach around 60
billion euros - are shaping up to be
one of the first, and possibly most
contentious, parts of the divorce talks.
Any argument over money would
underline the challenges May will
face. She wants to show goodwill in
the talks but will also be under
pressure from pro-Brexit lawmakers
for a total break - something that
could harden the case for
independence movements.
states can start formally.
London said on Monday it would send
in its exit notification on March 29.
"In view of what was announced in
London yesterday, I'd like to inform
you that I will call a European Council
on Saturday, the 29th of April, to
adopt the guidelines for the Brexit
talks," Tusk told reporters.
"You know I personally wish the UK
hadn't chosen to leave the EU, but the
majority of British voters decided
otherwise. Therefore we must do
everything we can to make the
process of divorce the least painful for
the EU."
The unprecedented talks are due to
run for two years, though many
diplomats and officials admit it would
probably take longer.
"Our main priority for the negotiations
must be to create as much certainty
and clarity as possible for all citizens,
companies and member states that
will be negatively affected by Brexit,
as well as our important partners and
friends around the world," Tusk
added.
BREXIT

FACTBOX

Countdown to Brexit
By Alastair Macdonald
Prime Minister Theresa May will trigger Britain's withdrawal from the European Union under Article 50 of the EU treaty on
March 29, her spokesman said on Monday.

The country should be out in two years. Here is a timeline:

THE ARTICLE 50 LETTER

March 25 - The other 27 EU leaders meet in Rome to mark
60 years since the bloc's founding treaty. To avoid spoiling
the party, May will wait until following week to file Britain's
divorce notice.
March 29 - May will write to European Council President
Donald Tusk to trigger the withdrawal process.
DIRECTIVES
May - Ministers in the EU's normally low-key General Affairs
Council will be called, again excluding Britain, to agree
legal "negotiating directives" that will bind Barnier and his
team.
SUMMIT, GUIDELINES, RECOMMENDATIONS
March 29-31 - Within 48 hours, Tusk sends to the 27
other member states his draft negotiating guidelines.
April 29 - The other 27 EU leaders meet to agree final
guidelines and mandate the EU executive's Michel
Barnier to negotiate.
May 5 - Barnier will quickly reply to leaders with his
detailed recommendations of how to structure talks.
Holidays on May 8-9 may push him to get them to
Council within a day.

FACE TO FACE
After nearly a year of phoney war since the June 23
THE DIVORCE DEAL
referendum vote to quit, British negotiators led by
December 2017 - Brussels wants a basic deal on a
Brexit Secretary David Davis will sit down with the EU,
Withdrawal Treaty by year's end. Key issues: the exit bill for
possibly still in May. Talks may start with what to
Britain's outstanding commitments; treatment of British
discuss first and how to split up topics.
and EU expats; dealing with outstanding EU legal cases;
new border rules.

TRANSITION TO FUTURE RELATIONSHIP

2018 - May wants to negotiate a comprehensive free
B-DAY
trade deal. Few see two years as enough time to agree
March 30, 2019 (tentative) - Britain leaves. At any rate, it
one and Brussels wants to hold off starting talks until
should do so two years after May writes. It happens to be a
after a divorce deal. But London and some EU states
non-working day, a Saturday. And avoids April Fool's Day,
may push for parallel trade talks.
April 1.
October 2018 - Barnier's target to finalise the
The date could be fine-tuned. Britain could leave earlier if it
Withdrawal Treaty, to give time for ratification by the
gets a deal, and the two-year deadline can be extended if
European Parliament and a majority in the European
all agree. But Brussels wants Britain out before EU
Council by March 2019.
elections in May 2019. Despite mutual threats of no deal,
Autumn 2018 to Spring 2019 - Just to make things
few want such chaos.
complicated, the Scottish government wants an
independence vote once Brexit deal is clear. But May
has so far rejected the call for a new Scottish
A PERIOD OF TRANSITION referendum until after Britain leaves the EU.
May and EU leaders say transitional arrangements may well
be needed, to give more time to agree a future trade deal
and give people and businesses time to adjust to the
divorce. Many see another two to five years after Brexit for a
final settlement.
If Scotland votes for independence, expect more years to
negotiate its split from London and possible re-entry to the
EU.

4
BREXIT
Goldman to move staff from London pre-Brexit -Europe CEO
By Anjuli Davies
G
oldman Sachs will begin
moving hundreds of people
out of London before any
Brexit deal is struck as part
of its contingency plans for Britain
leaving the European Union, the Wall
Street firm's Europe CEO said.
"We are going to start to execute on
those contingency plans," Richard
Gnodde, chief executive officer of
Goldman Sachs International, the
European arm of the Wall Street bank,
told CNBC on Tuesday.
"For this first period, this is really the
period as we put in place contingency
plans, this is in the hundreds of
people as opposed to anything
greater than that," he said.
British Prime Minister Theresa May
will trigger EU divorce proceedings on
March 29, launching two years of
negotiations that will shape the future
of Britain and Europe.
Leading financial firms warned for
months before last year's June
referendum that they would have to
Fog shrouds the financial district of Canary Wharf in London, Britain, January 23. REUTERS/Dylan Martinez
5
move some jobs if there was a leave
vote, and have been working on plans
for how they would do so for the past
several months.
More details are emerging after May
confirmed Britain would leave the
European single market, ending
banks' hopes they might retain
"passporting" rights that let them
sell services across the EU from their
London hubs.
The bulk of Goldman's European
operations are in Britain, where it has
around 6,000 employees, providing
services including broking and
market-making in securities, foreign-
exchange trading and corporate
finance across Europe. Gnodde said
that the big question for contingency
planning is whether Britain and the
EU will agree on transitional
arrangements as they try to hammer
out a Brexit deal, which some fear
could last beyond the two-year
negotiation period. "We can't bank on
them so we have to have contingency
plans and that's what are going to
start to execute on." Initially, the Wall
Street bank will start hiring people
inside Europe and also moving some
people out of London as well as
investing in infrastructure and
technology over the next 18 months to
ensure that operations to service
clients are up and running by the time
Britain leaves the EU, said Gnodde.
He declined to say which locations
would benefit, though stated that the
firm had banking licenses in France
and Germany and offices in several
European cities. "In the next 18
months we will upgrade those
facilities, we will be taking extra space
in a number of them, and we will be
increasing headcount and capability
and infrastructure around those
facilities." "What our eventual
footprint will look like depends on the
outcome of negotiations and what
we're obliged to do because of them.
Whatever the scenario, whatever the
outcome, London will remain for us a
very significant regional hub and a
very significant global hub," he added.
BREXIT

EU to decide on relocation of banking body from London before Brexit

T
he European Commission
wants a decision on the
relocation of the European
Banking Authority (EBA)
from London before the end of
Britain's EU divorce talks, the EU
executive vice president said on
Tuesday, raising the possibility of a
merger with another EU agency based
in Frankfurt.
The EBA, whose 159 London
employees write and coordinate
banking rules across the bloc, needs
to be relocated after Britain voted to
quit the EU, because EU agencies are
all based in member states.
"We need to take this decision
relatively quickly, and not wait for the
end of the (Brexit) negotiations,
because it takes quite a lot of time of
practical preparations for the
movement from London to another
place," Valdis Dombrovskis told
reporters, shedding light on the
timing of the relocation process,
which some observers had said could
happen after Brexit. The move could
be bundled together with a merger of
EBA and the European Insurance and
Occupational Pensions Authority
(EIOPA), Dombrovskis said.
EIOPA is based in Frankfurt, meaning
that the merged authority could be
relocated in the German city, winning
competition from other EU cities, such
as Paris. Dombrovskis said, however,
that decisions on the new EBA
location and the possible merger had
not yet been made.

EU's Tusk warns "no deal" Brexit would hit Britain hardest
By Gabriela Baczynska

E
uropean Council President
Donald Tusk dismissed
suggestions that Britain
would rather leave the
European Union without a deal than
sign an unsatisfactory one as
"increasing threats".
"The claims increasingly taking the
form of threats that no agreement will
be good for the UK and bad for the EU
needs to be addressed," Tusk told the
European Parliament on Wednesday.
British Prime Minister Theresa May,
who this week won the right to launch
divorce proceedings from the EU has
said she will begin the formal process
of leaving the bloc later this month,
Britain's Prime Minister Theresa May (L) greets European Council President Donald Tusk
beginning two years of talks. in Downing Street in London, Britain September 8, 2016. REUTERS/Neil Hall
May's government said it was
preparing prepare not only for a
negotiated settlement with the Brexit, leaving those more reluctant for the bloc.
European Union but also for no Brexit member of the bloc behind. "However, considering the interests of
deal. While such options is already the community of 27 countries in the
"A no-deal scenario would be bad for stipulated in EU laws, talk of a "multi context of the upcoming Brexit
everyone, but above all for the UK -speed" Europe has intensified in negotiations... I will be urging
because it would leave a number of recent months, as Western EU states everyone to strive towards
issues unresolved. We will not be are increasingly convinced it is the maintaining political unity among the
intimidated by threats and I can only way forward for the bloc, despite 27," Tusk said.
assure you they simply will not work," objections from the easterners. German Chancellor Angela Merkel, as
Tusk, the chair of EU leaders' Tusk said there was "no doubt that well as the head of the bloc's
meetings who will play a key role in the idea of a multi-speed Europe will executive European Commission in
Brexit talks, said. be one under discussions" as the 27 Brussels are in favour of letting those
Tusk also reiterated his concerns over remaining states prepare to mark on willing to do so to deepen their
plans to allow some of the remaining March 25 the 60th anniversary on cooperation in areas they can agree
27 EU states to foster closer ties after agreements that laid the foundation on.

6
BREXIT

Brexit to shape rethink of EU financial supervision

A
more powerful securities
watchdog may be needed in
the European Union to
counter market
fragmentation after Britain, its
biggest financial centre, leaves the
bloc, an EU consultation paper said
on Tuesday.
The EU's executive European
Commission paper looks at revamping
the bloc's system of financial
supervision, which is mainly based on
three agencies covering securities,
banking and insurance.
Clearing houses, banks and insurers
use Britain as a base to serve clients
across the EU, but this will likely end
in its current form given that the UK
intends to leave the single market in
two years.
"The vote of the United Kingdom to
leave the EU, the position of the
government of the United Kingdom
that it will not be seeking
membership of the single market,
and the expected impact on the
market of those decisions also
underline the need to reflect carefully
about supervisory arrangements,"
the commission's paper said.
The euro zone has already
centralised banking supervision
under the European Central Bank,
and in the meantime the bloc has
launched a capital markets union
project to spur more funding for the
economy from securities such as
stocks and bonds.
The commission noted that the
European Securities and Markets
Authority's (ESMA) powers are
currently limited to credit rating
agencies and trade reporting bodies.
The EU executive said it wanted to
identify specific areas where stronger
European supervision will help
overcome market fragmentation.
"A possible extension of ESMA's
powers could be considered in market
segments in which there is a strong
need to support more integrated,
efficient and well-functioning financial
instruments markets," it said.
The European Banking Authority is
based in London and will have to find
another home inside the EU after
Brexit, triggering industry speculation
that it could be merged with the
Frankfurt based European Insurance
and Occupational Pensions Authority.

BMW: UK remains
important but Brexit
uncertainty looms

G
erman car manufacturer
BMW, which owns the Mini
brand, said the importance
of Britain as a
manufacturing location hinged on
how successfully it negotiates its exit
from the European Union.
BMW's factory in Oxford is currently
the main manufacturing hub for the
Mini, but the introduction of punitive
export tariffs between the European
Union and Britain could change that.
"The UK remains an important
location for us. Much will depend on
how Brexit is ultimately negotiated,"
BMW Chief Executive Harald Krueger
told journalists at a news conference.
"At the BMW Group, we are preparing
different scenarios. Our production
network offers us flexibility. Mini
models are also built at VDL Nedcar in
Born in the Netherlands," he added.
Krueger's comments comes as British
Prime Minister Theresa May this week
said she will trigger Britain's divorce
proceedings with the European Union A large image of a Mini is seen at the car making plant in Oxford, western England July 9,
on March 29. 2012. REUTERS/Eddie Keogh

7
BREXIT
A demonstrator holds a placard during a protest in favour of amendments to the Brexit Bill outside the Houses of Parliament, in London,
Britain, March 13. REUTERS/Neil Hall
EU nationals struggle with UK residency rules as Brexit looms
By Michael Holden
A
mid the insecurity of what
will happen after Brexit,
tens of thousands of
European nationals are
struggling - and often failing - to
negotiate the bureaucracy that
decides whether they can stay in
Britain after it leaves the European
Union.
From completing the 85-page
application form to producing an
average of 7 kilos (15 lbs) of
supporting documents from tax
returns to details of their movements
over the last five years, as well as
handing over their passports to the
8
authorities for months, it's proving a
difficult and expensive task.
Government figures show
applications for permanent residency
have soared since last year's EU
referendum, with the numbers six
times higher in the last quarter of
2016 than a year earlier.
But 12,800, or more than 28 percent,
of those submitted in the last three
months of 2016 were rejected or
declared invalid.
One was Dieter Wolke, 59, a German
who is professor of psychology at the
University of Warwick in central
England.
"I had to prove I am residing here. I
have to show I earn enough money, I
needed statements from my employer
etc etc. It took me three days to get
this information," he told Reuters
from his home in Stratford-upon-
Avon, birthplace of William
Shakespeare.
"I had to give every date I had left the
UK, when I had come back, and
because I have to travel for business a
lot, there were a lot of trips where I
had to go through diaries and find out
exactly the actual date," he explained.
PASSPORT PROBLEM
The real problem was that he had to
hand in his passport, something he
BREXIT
said was impossible as he was
involved in EU projects and studies in
the United States.
So he submitted his form last October
with a lawyer-certified copy of his
passport. In January, he was rejected
because he had not submitted his
passport.
He hoped he could re-apply online
using a German national identity card,
which he obtained within three weeks,
but another change in the rules meant
he has to send in a new paper form
and compile all the supporting
evidence again.
The Home Office said there was clear
guidance on what evidence was
required and the "onus is on the
individual to submit it".
Campaigners and politicians,
including ardent Brexit supporters,
say Britain should unilaterally
guarantee that those who have been
living and working in the UK can stay
when the formal departure from the
bloc is completed, probably in 2019.
But Prime Minister Theresa May has
ruled out giving the three million EU
nationals living here any guarantees
until a reciprocal deal is agreed for
Britons living in the EU.
It's a stance that has upset many.
"I'm very disappointed that we are
being used as bargaining chips," said
teacher Monica Obiols, a Spanish
BREAKINGVIEWS
Brexit could weaken Britain's puny productivity
By Peter Thal Larsen
B
ritain’s poor productivity
faces a new threat from
Brexit. As in most developed
countries, UK companies
are finding it harder to produce more
without adding extra workers or
capital. The notable exceptions are
exporters and foreign-owned firms. If
leaving the European Union squeezes
trade and shrinks foreign investment,
British living standards will suffer.
It’s hard to pinpoint a single cause for
the slowdown in productivity growth.
Possible explanations include ageing
populations; a lack of technological
9
national who has lived in Britain since
1989.
"The form is a complete nightmare, it
is very complicated," said Obiols, 49,
who lives with her Dutch partner and
children in London.
"Unfortunately I didn't give enough
information about the children so
their indefinite leave to remain has
been rejected so I have to do it
again."
Her application was successful in the
end, but the name on her residency
card was spelled wrong so she had to
return it.
"INTIMIDATING"
"It is intimidating but the truth is the
form ... is not the problem, the
evidence is," said Barbara
Drozdowicz, chief executive of the
East European Resource Centre in
London, which provides EU nationals
with assistance.
She said people on average needed
to send 7 kilos (15 lbs) of documents
to the Home Office to prove they had
been living and working in Britain
lawfully.
"Who keeps everything forever?" she
told Reuters. "Every paper counts,
every letter, everything."
Applications can take six months to
be completed. Hilary Benn, chairman
of parliament's Brexit committee,
A foundry worker handles a mold frame during the manufacturing process of a British
Academy of Film and Television Awards mask at a foundry in west London, Britain
January 31. REUTERS/Stefan Wermuth
said the system was not fit for
purpose.
"We were told that at pre-referendum
rates of processing, giving residence
documents to all potentially eligible
applicants using the current system
would take the equivalent of 140
years," he said.
It's not just the bureaucracy. Lawyers
were charging as much 2,000 pounds
for help and criminals were exploiting
some vulnerable people, Drozdowicz
said.
"It's becoming an interesting
opportunity for all sorts of crooks," she
said.
Wolke and Obiols say the process has
made them feel like second-class
citizens and made them consider
leaving the country they love.
Wolke, who has lived here for 28
years, said two German universities
had made him offers in the last six
months, an indication of a potential
"brain drain" from Britain where he
said about 25 percent of staff in top
universities were from EU countries.
Wolke is so anglicised that he
supports England's soccer team, while
his son Max, 28, a British citizen,
represented Britain in the World
Triathlon championships last year.
In the impending Brexit divorce, EU
citizens were like helpless children, he
said, and it was not their fault.
BREXIT
innovation; memories of the financial
crisis; or low interest rates that
prevent poorly-run companies from
going bust. But as Andy Haldane,
chief economist of the Bank of
England, argued in a speech on
Monday, none of these is wholly
convincing.
What is clear, though, is that the
difference between the most and least
productive companies is wider than
before. In theory, this gap should
shrink over time as laggards mimic
the innovations of their more efficient
rivals. This is not happening - perhaps
because patents and other
protections on intellectual property
make it harder for new ideas to
UK inflation shoots above 2 pct, adding to BoE woes
By William Schomberg and David Milliken
B
ritish inflation shot past the
Bank of England's 2 percent
target last month,
potentially adding to
uneasiness among some officials at
the central bank about keeping
interest rates near zero.
Consumer prices rose by a stronger-
than-expected 2.3 percent, the
biggest annual increase in nearly
three-and-a-half years, pushed up by
an increase in global oil prices and the
impact of the Brexit vote on sterling.
Last week, one of the BoE's
10
spread. Whatever the explanation,
boosting the stragglers is a priority
for policymakers. As Haldane points
out, if UK firms in the three least
productive quartiles were able to
improve at the same rate as
companies in the quartile above,
overall UK productivity would rise by
13 percent.
But another priority is looking after
those companies which are already
highly productive. Here, two
categories stand out. British firms
that are involved in exports are, on
average, about a third more
productive than domestic peers,
Haldane says. Foreign-owned
companies, meanwhile, achieve
policymakers voted to raise record-
low borrowing costs because
of growing inflation pressures and
the economy's resilient response so
farto Britain's decision last June to
leave the European Union.
Other policymakers said they could
soon follow suit, depending
on inflation and growth data.
February's rise represented the first
time in more than three years that
inflation topped the BoE's target,
but Governor Mark Carney said it was
important not to overreact to a single
month's data.
double the rates of productivity. This
seems logical.
Companies which sell overseas are
more likely to be exposed to
international competition. Meanwhile,
foreign buyers are more likely to
target companies that lead their field.
The problem is that these sectors are
at risk from Brexit. If negotiations with
the EU go badly, British companies
may have to pay tariffs when selling
abroad, while foreign investors may
be less interested in the United
Kingdom.
Looking after exporters and foreign-
owned firms will not solve Britain’s
productivity problem. Putting them at
a disadvantage would make it worse.
Carney has previously warned of
"twists and turns" ahead for Britain's
economy as the country prepares to
leave the EU, a process Prime Minister
Theresa May will start next week.
And most BoE policymakers have
noted how slowly wages are growing,
another reason to keep rates low.
But Ruth Gregory, an economist at
Capital Economics, said the latest
data would do little to reassure those
BoE rate-setters who are more
concerned about higher inflation.
"If the economy continues to hold up
well as we expect, interest rates could
be rising rather sooner than the
markets have been anticipating," she
said in a note to clients.
The increase in the annual inflation
rate between January, when it stood
at 1.8 percent, and February was the
steepest since October 2012, the ONS
said.
Economists taking part in a Reuters
poll had expected inflation would rise
to 2.1 percent.
Sterling hit its highest level against
the U.S. dollar in three weeks after the
data. British government bond prices
fell.
HIT TO CONSUMERS, HELP TO
FACTORIES
While the fall in the value of the
pound has pushed up inflation, it has
BREXIT
also given a boost to manufacturers
whose exports are more competitive
in foreign markets. A recovery in the
global economy is also helping British
factories.
Optimism among British factories
surged to a 22-year high in March as
exports rebounded, a survey showed.
Britain's vote to leave the EU last June
caused the pound to slide, pushing up
the price of imports. Furthermore,
global oil prices have risen, adding to
the squeeze on the spending power of
households.
The BoE has said it expects inflation
will peak at 2.8 percent in the second
Ignoring Scottish referendum fiat would "shatter" UK structure: Sturgeon
A design commemorating Scottish hero Robert the Bruce is seen on the gates of a
meeting point for the Flodden Border Relay in Kelso, southern Scotland September 5,
2013. REUTERS/Toby Melville
11
quarter of next year, but many
economists say it is likely to hit 3
percent. The BoE underestimated the
extent of inflation's rise after the
global financial crisis in 2007-09
which also caused a sharp fall in
sterling.
Inflation has also accelerated in the
United States and elsewhere in
Europe.
The ONS said transport costs, which
were pushed up by rising fuel costs,
were the biggest driver of inflation in
February.
Also, food prices rose in annual terms
for the first time in more than two-
and-a-half years.
Excluding oil and other volatile
components such as food, core
consumer price inflation rose to 2.0
percent, above the Reuters poll
forecast of 1.8 percent.
Data on factory gate prices
underscored the inflationary pressures
still in the pipeline.
Output prices rose 3.7 percent in
annual terms, the strongest increase
since the end of 2011.
Prices paid by factories for materials
and energy surged with the cost of
crude oil, almost doubling from a year
earlier.
By Elisabeth O'Leary
R
efusal by Britain's prime
minister to discuss an
independence referendum
would "shatter beyond
repair" the United Kingdom's
constitutional structure, Nicola
Sturgeon told her Scottish National
Party on Saturday.
Sturgeon, Scotland's First Minister,
pledged to press on with plans to hold
a new Scottish referendum as
announced earlier this week,
deepening a standoff with the UK
government.
Party faithful cheered, clapped and
leapt to their feet.
Sturgeon expects to get authorisation
from the devolved Scottish parliament
on Wednesday to seek the terms for a
new secession vote, aiming for a date
once the terms for Brexit are clear but
before Britain leaves the EU.
"To stand in defiance of (Scottish
parliamentary authorisation) would be
for the prime minister to shatter
beyond repair any notion of the UK as
a respectful partnership of equals,"
Sturgeon said.
"Scotland's future will be in Scotland's
hands."
Under the UK's constitutional
arrangements, Britain's parliament
needs to sign off on any legally
binding vote in Scotland.
Prime Minister Theresa May told
Sturgeon this week that "now is not
BREXIT
the time" for a new choice on
independence as divorce talks
between the world's fifth-largest
economy and its erstwhile EU
partners get under way.
Although May did not deny a vote
outright, Scottish nationalists predict
her words could build support for
secession because she could be seen
as telling Scotland what to do.
"(May) has time to think again and I
hope she does. If her concern is timing
then - within reason - I am happy to
have that discussion," Sturgeon said.
Britain is expected to trigger Article
50 of the EU's Lisbon Treaty within
days and start the complex Brexit
procedure.
Last June's vote to leave the EU has
shaken the ties of the United
Kingdom's four nations. England, the
most populous, and Wales voted to
leave while the Scots and Northern
Irish wanted to keep their EU
membership. May's Conservatives,
now the second biggest party in
Scotland's parliament, called
Sturgeon's speech disappointing and
negative.
Scottish Conservative deputy
leader Jackson Carlaw accused her of
"pursuing her own narrow agenda to
the detriment and against the wishes
of ordinary Scots". The Scottish
Sturgeon softens stance on possible independence vote timing
By Kylie MacLellan
S
cotland's First Minister
Nicola Sturgeon on Sunday
softened her stance on the
potential timing of a second
independence referendum after Prime
Minister Theresa May rejected her call
to hold a vote before Britain leaves the
European Union.
Sturgeon had called for a referendum
to be held between autumn 2018 and
spring 2019 but after May said "now is
not the time", the Scottish leader said
she could be prepared to hold a vote
later as long as it was not too long
after Brexit.
"It is for (May) then to say what
timescale she thinks would be
appropriate and then yes I am happy
12
Labour Party said Sturgeon failed to
mention poverty once, but mentioned
independence 13 times.
In her speech, Sturgeon contrasted
an image of an open and progressive
Scotland against May's goal of
limiting immigration across the UK.
"Scotland isn't full up. If you are as
appalled as we are at the path this
Westminster government is taking,
come and join us," she said.
A ComRes opinion poll for the
Sunday Mirror newspaper, published
on Saturday but conducted before
Sturgeon's speech, showed 59
percent of Britons think May should
insist that a Scottish independence
referendum should take place only
after Britain leaves the EU.
"TIN EAR"
Scottish nationalists say the UK
government has all but ignored their
proposals for a bespoke deal for
Scotland within Brexit.
"If (May) shows the same
condescension and inflexibility, the
same tin ear, to other EU countries as
she has to Scotland then the Brexit
process will hit the rocks," Sturgeon
said. She told Scottish television on
Friday that she still has "options" if
May refuses to acknowledge her
mandate to call for a new vote, but
Party leader Nicola Sturgeon speaks at the Scottish National Party's conference in
Aberdeen, Scotland, Britain March 18. REUTERS/Russell Cheyne
declined to say what these were.
There has been talk at the conference
of the possibility of a consultative
referendum, a poll not authorised by
the British parliament. But "this is a
step by step process. If we send an
envelope to May and she returns it
unopened, then we have the UK
government not talking to the
Scottish government," said a senior
SNP source. "That is a constitutional
crisis, or something very close to it."
Scottish voters rejected independence
in 2014 by a 10 percentage point
margin. But Sturgeon was elected last
year on a manifesto which included
the possibility of a new independence
vote if there were a change in
circumstances "such as Scotland
being taken out of the EU against our
will."
Speaking separately in Scotland,
former British prime minister Gordon
Brown - who still has sway with many
Scots who want to keep ties to the UK
- said Brexit had torn up the status
quo and there was a need for new
powers for the Scottish parliament.
"The third option, a patriotic Scottish
way and free from the absolutism of
the SNP and the do-nothing-ism of
the (Conservatives) is now essential..."
Brown, of the Labour Party, told a
Festival Of Ideas in Kirkcaldy.
BREXIT

to have that discussion within independence at 44 percent, while 56 45 percent in a referendum in

reason," Sturgeon said during an
interview with ITV.
Asked if a vote in 2021 would be
reasonable, Sturgeon said it would
not because too much time would
have lapsed after Britain's EU exit,
due in late March 2019, and there
could have been too much divergence
in areas such as regulations.
"Then gets much harder for Scotland
to seek a different course. But if she is
talking in the spring of 2019, a bit
later perhaps than I was suggesting
then there may be some room for
discussion around that," she said.
Sturgeon's comments came as a
Panelbase poll for the Sunday Times,
carried out since her announcement
that she would seek a fresh
referendum, put support for
percent backed staying in the United
Kingdom.
It also found 51 percent of Scots did
not want a vote on independence
within the next few years.
Ruth Davidson, the leader of May's
Conservative Party in Scotland, said
any vote could not take place until
"after the Brexit process has played
out" so that the Scottish people know
what choice they face.
"I don’t think you can have an
independence referendum again if
you don’t have public consent for it
and the people of Scotland don’t
want this," she told the BBC TV.
"The SNP is not Scotland and they
are acting against the majority wishes
of the people of Scotland."
Scots rejected independence by 55-
September 2014. But majority of Scots
voted in favour of Britain staying in
the EU in June.
In a separate interview with Sky News,
Sturgeon said her party was currently
looking into the currency options for
an independent Scotland but "the
starting point of our consideration"
would be that it continues to use
sterling.
Earlier this week her predecessor,
Alex Salmond, told the Financial
Times that Scotland could abandon a
currency union with the rest of the
United Kingdom.
"We will set out a very clear
proposition but I think it is right ... that
we do very serious work before we
come to putting that proposition
forward," Sturgeon said.

ANALYSIS

Not oil but trade: the economic case for Scottish independence
By Elisabeth O'Leary

W
hile the economic case
for Scottish
independence once
centred on oil, people
like company director Niall McLean
now argue that trade is the way to
ensure their country's future
prosperity - and avoid the damage of
the United Kingdom leaving the EU.
Turning Scotland, which sells two
thirds of its exports to the rest of
Britain, into a heavyweight
international trader would be tough.
This is especially so because a dive in
global oil prices since Scots voted on -
and rejected - independence in 2014
has hit its economy hard.
With the Scottish National Party
(SNP) which runs the devolved A section of the BP Eastern Trough Area Project oil platform is seen in the North Sea,
government pushing for a new around 100 miles east of Aberdeen in Scotland February 24, 2014. REUTERS/Andy
referendum, opponents of Buchanan/Pool
dismantling the 300-year-old union
say the economy can ill-afford Union after 44 years in the trading "Independence gives us a route where
another divisive campaign and its bloc. the EU market is still open to us and
inherent uncertainty. "At the end of the uncertainty you there is a way forward for trade. Brexit
But McLean says uncertainty is a have to think of where you want to is the opposite."
given anyway as the government in be," said McLean, who sits on the His firm, Geo-Rope, provides civil
London prepares to negotiate advisory board of Business for engineering services across Britain
Britain's departure from the European Scotland, a pro-independence group. and continental Europe. And just as

13
BREXIT
McLean needs the bloc as a market,
he also needs it as recruitment pool:
his 200 staff include many citizens of
other EU countries whose future right
to work in Britain remains uncertain
after Brexit.
Last June's vote by Britons to quit the
EU has altered the political
landscape; England, the United
Kingdom's most populous nation,
opted along with Wales to leave; the
Scots and Northern Irish wanted to
keep their EU membership.
Scotland's First Minister and SNP
leader Nicola Sturgeon says Brexit has
dissolved the certainty that the United
Kingdom once offered; faced with
being taken out of the EU against the
will of the majority, Scots must have a
new choice, she argues. Independence
offers them an opportunity to stay in
the bloc, or at least its single market,
after Britain exits.
British Prime Minister Theresa May,
who would have to sign off on any
14
binding referendum, has said now is
"not the time" for one but Sturgeon is
raising the pressure for a vote
between the autumn of next year and
spring of 2019.
MARKET, WHICH MARKET?
Campaigning for succession in 2014,
the SNP argued that tax revenues
from North Sea oil production which
go to the UK exchequer should
belong to an independent Scotland,
providing a cushion of prosperity for
its five million citizens.
In the end a majority did not see the
sense of breaking with Scotland's
biggest trading partner and its
currency, the pound. Since then, oil
prices have dived from $100 a barrel
to half that, leading to a collapse in
North Sea tax revenues and hurting
Scottish regions that service the
offshore energy industry, notably
around the east coast city of
Aberdeen.
Nationalists and unionists both want
expanded trade, but argue over which
market should take priority.
With 8 percent of the UK population
and annual economic output of 150
billion pounds, Scotland sells 50
billion pounds ($62 billion) in goods
and services to the rest of Britain. In
2015, that amounted to 63 percent of
Scottish exports, compared with just
16 percent to other EU member states,
Scottish government figures show.
"If everyone in Scotland agrees that
free trade with Europe is important -
and we do - it is literally impossible to
deny that trade with the rest of the UK
matters four times as much," Ruth
Davidson, who leads May's
Conservatives in Scotland, said earlier
this year. This opinion is shared by
many in the divided business
community.
Oil no longer dominates Scotland's
trade. In 2015 petroleum and
chemicals were only the third biggest
BREXIT
Scotland's First Minister Nicola Sturgeon is welcomed by European Commission President
Jean-Claude Juncker ahead of a meeting at the EC in Brussels, Belgium, June 29, 2016.
REUTERS/Eric Vidal
international export industry, earning
2.8 billion pounds. By contrast food
and drink, including Scotch whisky
exports, brought in 4.8 billion.
If another referendum is held, SNP
projections will assume oil produces
no tax revenues, its economic
strategist has said.
As in most developed economies,
services are by far the biggest sector,
accounting for 75 percent of Scottish
gross domestic product. Among these
are tourism, a large financial industry
centred on Edinburgh and firms like
Geo-Rope.
The SNP denies independence would
mean business turning its back on
neighbouring British markets.
Scottish Economy Secretary Keith
Brown has cited Canada, which sells
75 percent of its exports to the United
States. "Are our opponents really
saying that Canada cannot be
independent because their largest
trading partner is America?" he asked.
"Of course not, because their
argument is illogical nonsense."
GATEWAY TO THE EU
Economists are divided over the long-
term consequences of Brexit but
15
Simon Wren-Lewis, Professor of
Economic Policy at Oxford University,
estimates it could cut average British
incomes by 10 percent by 2030.
"If Scotland, by becoming
independent, can avoid that fate then
you have a clear long-term economic
gain right there. But it is more than
that. If Scotland can remain in the
(EU) single market it could be the
destination of the foreign investment
that once came to the UK as a
gateway into the EU," he said.
The question of what currency an
independent Scotland would use
remains open. In 2014 the SNP
proposed keeping the pound despite
the implied dependence on the Bank
of England and the British
authorities' rejection of the idea.
Sturgeon has said using sterling is a
"starting point" for an independent
Scotland. Former Bank of England
governor Mervyn King has said he
does not think using the pound would
be a major complication, but he
pointed to another - public finances.
NO ISSUE WITH BORDERS
Before 2014, Scotland's economy
grew for a few years in line with
broader British GDP but this changed
after oil fell that year. In the third
quarter of 2016, Scottish GDP rose
just 0.7 percent year-on-year
compared with 2.2 percent for Britain.
Scotland ran a estimated 15 billion
pound fiscal deficit in the year to
March 2016, equal to around 10
percent of its annual GDP. EU states
are supposed to limit their deficits to 3
percent; the UK figure was 3.8
percent.
David Eiser, a fellow at economic
thinktank Fraser of Allander Institute
and an adviser to the Scottish
parliament, said tough questions
would face an independent Scotland.
"How do you fill what is a very large
gap? Are there types of economic
activity that aren't being taxed at the
moment, such as in the digital
economy ... and where do you cut
chunks of public spending?" he asked.
Businesses are keen to keep free
movement of EU labour which has
helped redress an ageing and
shrinking population. About 181,000
citizens of other EU states live in
Scotland, around 3.4 percent of the
population. A third work in hotels and
restaurants and around 20,000 in the
14 billion pound food and drink sector,
much of which is in outlying areas.
Tom Barrie runs a transport and
logistics firm employing around 450
drivers from Britain, France and the
Netherlands. "If we don't have free
movement of trade and free
movement of labour, that will damage
my business," said Barrie, who
supports independence and wants
Scotland to keep the pound.
Barrie is confident that, post-
independence, a deal could be struck
with London avoiding trade barriers,
citing the example of the open frontier
between British Northern Ireland and
the Irish Republic, which uses the
euro. "In Ireland they have two
currencies and one country and don't
have a border. I'm a frequent visitor
and it has no detrimental effect to life
there."
BREXIT

ANALYSIS

Northern Ireland vote jolts already disunited Kingdom

By Ian Graham

A
nationalist surge at
elections in Northern
Ireland and a Scottish
demand for a second
independence referendum have raised
doubts over whether the United
Kingdom can hold together after it
leaves the European Union.
Last year's referendum on EU
membership saw England and Wales
vote to leave while Scotland and
Northern Ireland voted to remain,
straining the ties that bind the UK
together.
Scottish leader Nicola Sturgeon dealt
a blow to British Prime Minister
Theresa May on Monday by
demanding a new vote on
independence in late 2018 or early Northern Ireland is seen on the left and the Republic of Ireland is seen on the right with
2019, making her move much sooner Carlingford Lough in the middle, seen from Omeath, Ireland, January 31. REUTERS/
Clodagh Kilcoyne
than expected.
But while the Scottish issue had been
well flagged since the Brexit vote, a Irish unity from voters. partly because of high awareness of
snap provincial assembly election in But May, whose party is officially the province's dependence on public
Northern Ireland produced a genuine called Conservative and Unionist, has sector jobs, welfare benefits and other
shock: for the first time since the stated a deep personal commitment flows of UK cash.
partition of Ireland in 1921, unionists to keeping the 300-year-old UK
lost their majority. together and is determined not to go "BREXIT CHANGES EVERYTHING"
Nationalist party Sinn Fein, backed by down in history as the prime minister Senia Paseta, a professor of modern
many of Northern Ireland's Catholics, who allowed it to fall apart. Irish history at the University of
narrowed the gap with the Opinion polls in the past have shown Oxford, said the economic context was
Democratic Unionist Party, whose only limited support for Irish unity, a key part of the picture south of the
support base is among pro-British including among Catholics. That is border as well.
Protestants, to just one seat.
This has revived the slow-burning
question of whether Northern Ireland
will stay in the United Kingdom over
the long term or become part of the
Republic of Ireland. This could be
achieved by a referendum, often
referred to as a border poll.
"A border poll might be 10 years away
and it might still be lost, but clearly
this election has shown a different
dynamic in Northern Ireland politics,"
said Peter Shirlow, Director of Irish
Studies at the University of Liverpool.
"This opens the door for a different
scenario."
Nationalist leader Gerry Adams, who
is 68 and still hopes to see a united Sinn Fein President Gerry Adams and Sinn Fein leader Michelle O'Neill speak to media
Ireland in his lifetime, told Reuters outside Stormont Castle in Belfast, Northern Ireland March 7. REUTERS/Clodagh
Sinn Fein had sensed new interest in Kilcoyne

16
BREXIT
People pass a mural showing the 14 victims of 1972's Bloody Sunday in the bogside area of
Londonderry June 10, 2010. REUTERS/Cathal McNaughton
"I don’t think reunification is likely in
the short to medium term, not least
because the Irish Republic is rightly
wary of taking on Northern Ireland,"
she said.
But while Irish unity may not be on the
cards anytime soon, the balance of
opinion could change over time under
the combined impact of Brexit and of
demographic shifts that could favour
Irish nationalism.
In Belfast's mainly Catholic Ardoyne
area, a frequent flashpoint of
communal tensions, no one was
17
getting carried away just yet.
"I really hope what happened will
make a border poll more likely, the
sooner the better. But there are more
of them than us still, so it would need
some Protestants to vote for unity,"
said resident Sean Doherty.
Northern Ireland's population of 1.8
million is still majority Protestant,
although demographic trends point
to Catholics becoming the majority
within a generation -- as they are in
the Republic, which has a population
of 4.8 million.
The northern province suffered three
decades of sectarian violence, known
as the Troubles, which cost 3,600
lives until the Good Friday peace
agreement was signed in 1998.
Since then, Northern Ireland had
mostly faded into the background of
British politics, until the collapse in
January of a provincial government
that shared power between the DUP
and Sinn Fein. Sinn Fein used to be
the political wing of the Irish
Republican Army, though it has long
been committed to constitutional
politics and the IRA has laid down its
arms.
Renewed momentum towards a
united Ireland and an independent
Scotland is the last thing May needs
as she begins the mammoth task of
negotiating the terms of the UK's exit
from the EU and of its future trading
relationship with the bloc.
Brexit is particularly disruptive for
Northern Ireland because its border
with the Republic is the UK's only land
border with the EU, raising the
prospect of tougher border controls
when the UK leaves the European
single market.
"On this issue, as on so many others,
Brexit changes everything," wrote
political columnist Noel Whelan in the
Irish Times last week.
"Northern nationalists have cause
now to fear being marooned
economically and politically behind a
hard border and living in a polity
where greater sovereignty over their
lives is restored to British institutions."
"IT WILL NEVER HAPPEN"
May has said she wants the border to
remain open, but has given no details
as to how this can be achieved post-
Brexit.
"No border, hard of soft, will be
accepted by the people of Ireland.
What British armoured cars and tanks
and guns couldn't do in Ireland, 27
member states will not be able to do,"
said Martina Anderson, a Sinn Fein
member of the European Parliament,
speaking in the chamber this week.
But on the other side of Northern
Ireland's political divide, opposition to
Irish unity remains strong.
BREXIT

"A united Ireland, no way, it will never
happen," said Trevor Herron, a
pensioner in Belfast's staunchly
unionist Woodvale Road area.
"They don't have the same benefits
system down south. You have to pay
to go to the doctor, pay for
prescriptions. The politicians can play
politics as much as they want but
when it comes to money, economics,
they (Catholic in Northern Ireland)
know they are better off up here."
Oxford University's Paseta has argued
that there was little appetite for unity
south of the border because the status
quo offered the Republic peaceful co-
existence with the North and some
involvement in its affairs while the
British Treasury provided economic
support.
Nevertheless, the issue of Irish unity
has been slowly inching its way into
policymakers' minds in Dublin.
Irish Prime Minister Enda Kenny has
called for the Brexit treaty, when it
happens, to specify that Northern
Ireland would join the EU
immediately if it united with Ireland.
Opposition party Fianna Fail, the
favourite to win the next Irish
elections, is preparing a plan on how
a united Ireland would work in
practice.
As well as the disruptive effect of
Brexit itself, a huge uncertainty
hanging over Northern Ireland is
what will unfold in Scotland and
what impact it will have on the
province.
Scotland voted against
independence by 55 to 45 percent in
a 2014 referendum, but that was
before the Brexit referendum.
Sturgeon and her Scottish National
Party have argued that Scotland
should not be dragged out of the EU
against its will, and hence should
have the option of a new
independence vote.
A Scottish exit would be a huge
psychological blow to Northern
Ireland's unionists, many of whom are
descended from 17th century Scottish
settlers and feel strongly about their
historic ties to Scotland and the wider
UK.
Sinn Fein's Adams said nationalists
had to win over unionists to the idea
of a unified Ireland and give them
confidence they would have a
prosperous future within it.
He did not expect this to happen
overnight.

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