European Union and the UK agree to a Brexit transition period of 21 months

The U.K. will remain in the European Union until the end of 2020, but with restricted powers, officials announced Monday.

The EU and the United Kingdom have agreed to a transition process of 21 months — from 29 March 2019 until the end of 2020 — before the country leaves the member bloc completely.

During that period, the "U.K. will no longer participate in European decision-making procedures," the EU's chief negotiator Michel Barnier told reporters in Brussels Monday.

Starting March, 30 of 2019, European laws will continue to apply in the U.K., but London will not have any say in decision-making that involves the future of the European Union.

The transition period is aimed at giving businesses and citizens, both in Britain and the EU, more time to prepare for the U.K.'s complete departure from the bloc. It will also allow negotiators time to conclude their talks on how the relationship between the EU and the U.K. will be starting from 2021 — which at the moment is far from certain.

"We're not at the end of the road," Barnier warned at the start of his address. One the biggest sticking points, the Irish border, remains unsolved.

The U.K. has agreed to insert in the legal text, which will outline all the details of its departure, a "backstop" solution for the Irish border. But for the moment there isn't a compromise on what that solution will look like.

The EU proposed that Northern Ireland should continue following EU rules, even if that would mean being isolated from the British mainland. But the U.K. hasn't agreed to that. According to Barnier, that arrangement will only apply if other solutions aren't found.

The EU published Monday the draft of the withdrawal agreement, highlighting its sections with different colors to show where there has been progress.

U.K. Prime Minister Theresa May wanted to get a deal on the transition phase by the end of this month. The U.K.'s chief Brexit negotiator David Davis said Monday that the agreement is a "decisive step" towards Brexit and that the 21 months are "near enough" the two years that London had initially asked for.

Speaking in Brussels, Davis told reporters the transition period is "also about beginning life outside the European Union," including preparing and signing new trade deals.

The pound hit a one-month high on Monday's announcements, as investors turned slightly more positive that there will be an agreement between the EU and the U.K., reducing the chances of a complete break-up between both sides of the English Channel.

Source: Bloomberg Pro Terminal

Jr Trader Alexander Kumanov

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