The European Central Bank has said preparation should be made for a so-called ‘hard Brexit’ where the UK exits the European Union (EU) with no ‘transitional arrangement’ in place.
The call from the bank’s Italian president, Mario Draghi, comes after the European Commission’s chief negotiator doubled down on his uncompromising Brexit position, insisting the UK government’s preferred trading arrangement is impossible.
“We always prepare for any eventuality but at the same time we are assessing the direction, probability and potential impact of risk,” Mr. Draghi told members of the European Parliament in Strasbourg Monday.
“The bottom line is this one: either the negotiation is well managed and there won’t be substantial risk, or it is not and then the risks will be there, so we’re certainly looking at that and we’ve got to be prepared.”
With Article 50 triggered, Britain will leave the EU in March 2019 and the prime minister has said there will be a two-year “transition period” after the divorce date, with the country remaining tied to the bloc and its rules.
However, advisers to Michel Barnier, the European Commission’s chief Brexit negotiator, have said the transition period has not yet been agreed.
Mr. Draghi also claimed on Monday that the UK has not been clear about its Brexit stance. “At this stage, we do not have clarity regarding the shape of the UK’s future relationship with the EU,” he said.
He warned banks and regulators should be ready for “an operating environment in a state of flux” if “no transitional agreement is reached between the EU and the UK”.
He also insisted the European Central Bank and Bank of England should maintain close cooperation after Brexit.
“As far as our role is concerned as supervisors, good cooperation with the Bank of England is quite important in coping with potential risks, especially risks of any potential cliff-edge effects,” he said.
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