Brace for Brexit crash, EU warns, as Raab arrives

BRUSSELS (Reuters) - As London’s new Brexit secretary made his first trip to Brussels on Thursday, the EU told businesses and governments to get ready for Britain crashing out of the bloc without agreed terms to cushion the economic disruption.

Brexit campaigner Dominic Raab, appointed to the government last week after his predecessor quit over Prime Minister Theresa May’s proposals to tie Britain close to EU trading rules, will lay out her ideas to EU chief negotiator Michel Barnier later.

The resignation of his predecessor David Davis and others, and May’s battles in parliament with pro- and anti-Brexit wings of her own Conservative party, have fuelled new questions in Brussels over whether London is capable of agreeing any deal this year to avoid chaos when it leaves in March.

That, the executive European Commission insisted, was not the reason for its warning on stepping up preparedness for a “no deal” or “cliff edge” Brexit. EU officials and diplomats still think some kind of deal, including a 21-month status quo transition period to allow further talks, is more likely than not, if only because the cost for both sides would be so high.

“While the EU is working day and night for a deal ensuring an orderly withdrawal, the UK’s withdrawal will undoubtedly cause disruption, for example in business supply chains, whether or not there is a deal,” the Commission said in a statement.

“Preparedness is not a mistrust in the negotiations,” an EU official added, saying big firms seemed to be advancing in their plans but smaller companies which had never traded outside the single market before would face challenges in their paperwork.

A senior British regulator also warned Britain’s banks and insurers on Thursday to plan for a “hard” Brexit.

Barnier is due to report back on his meeting with Raab to ministers from the other 27 EU states on Friday.

EU officials and diplomats have said last week’s White Paper is a welcome if overdue starting point for negotiations on an outline of post-Brexit relations that is to accompany a binding treaty on the immediate aspects of withdrawal. But Barnier will also be posing many questions on just how some issues, notably around customs and sharing regulatory standards would work.

Getting an outline on those is vital to solving the biggest obstacle to the urgent withdrawal treaty — how to avoid customs and other friction on the new EU-UK land border in Ireland.

Officials preparing Friday’s EU ministerial meeting said it would discuss issues around preparedness but not the question of what would happen to the Irish border without any deal. Dublin and London say they are committed to avoiding a “hard border” but the EU is also determined to avoid creating a huge loophole in the external frontier of its single market and customs union.

With time running short and little sign of May quelling the revolts in her party, there has been renewed discussion among Brussels diplomats and officials about whether a deal can really be done by October, or at the latest December, to allow parliaments on both sides to ratify a withdrawal treaty before March 29.

“When I see the dynamics in Westminster, I don’t think that there is, at this stage, a majority for whatever type of thing we could ever agree with them,” one senior EU official said.