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QUEST MEANS BUSINESS

U.K. Officially Starts Brexit Process; U.K. And EU Have 2 Years to Negotiate Exit; U.K. Govt Says Will Be Consequences for British Companies; EU Parliament President Says Can Have Win-Win Deal with Britain

Aired March 29, 2017 - 16:00:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


[16:00:00] RICHARD QUEST, CNN ANCHOR: The market is down as the closing bell rings on Wall Street. Big Ben here in London, just announcing the

chime at the top of the hour. There it is, a sound that gladdens the heart as the gavel gets hit. It's Wednesday. It's the 29th of March.

Tonight, signed, sealed, and delivered. Britain officially starts to leave the European Union. Theresa May lays out her vision of a deep and special

partnership with Europe.

(BEGIN VIDEO CLIP)

JOHN KERR, AUTHOR, ARTICLE 50: Yep, I plead guilty.

QUEST: You wrote it?

KERR: I wrote it.

(END VIDEO CLIP)

QUEST: And the man who wrote article 50 tells me the U.K. is making a mistake, but this section, this article was designed for dictators. I'm

Richard Quest live in London at Westminster, where of course I mean business.

Good evening tonight from London. History was made. The United Kingdom is now officially on its way out of the European Union after Article 50 was

triggered. Now, this is the moment that formally began the two-year process. It is the U.K. ambassador to the EU delivering the letter to

European Council President, Donald Tusk. That letter, a six-page letter, outlined Britain's wish to leave. Tough negotiations now lie ahead.

Recognizing the challenge, the British Prime Minister, Theresa May shared a message of optimism today. She was speaking to Parliament a few hours ago,

and she said, Britain's best days lie ahead.

(BEGIN VIDEO CLIP)

THERESA MAY, BRITISH PRIME MINISTER: We can choose to say the task ahead is too great. We can choose to turn our face to the past and believe it

can't be done. Or we can look forward, with optimism and hope, and to believe in enduring power of the British spirit.

(END VIDEO CLIP)

QUEST: Now, contrast the best days ahead with the comment of the president of the European Council who received the letter, Donald Tusk. He said it

was not a happy day for him and many Europeans.

(BEGIN VIDEO CLIP)

DONALD TUSK, EUROPEAN COUNCIL PRESIDENT: There is nothing to win in this process, and I'm talking about both sides. In essence, this is about

damage control.

(END VIDEO CLIP)

QUEST: Now, putting all this together, a few hours ago, the German Chancellor Angela Merkel said this was a regrettable moment in European

history. But what she said of course was the theme that was echoed by just about everybody who we've heard from during the course of the day in terms

of world leaders. Every European world leader in some shape or form has given us a version of this.

(BEGIN VIDEO CLIP)

ANGELA MERKEL, GERMAN CHANCELLOR (through translator): We, Germany, but also the other partners of Great Britain and the European Union, surely did

not hope for this day. We're losing a strong and an important member state. Of course, we respect British voters' democratic decision.

(END VIDEO CLIP)

QUEST: So, that is the scenario within which we are going to spend the next hour. CNN's political contributor, Robyn Oakley is with me. There is

a formula now, don't worry about the British side, let's look at the European side. There's formula now. We didn't want it to happen. We're

very sorry you've taken this decision. But now you have, we're going to be united in negotiating against you.

ROBIN OAKLEY, CNN POLITICAL CONTRIBUTOR: The underlying theme in all of this is that the 27 members of the European Union who remain are determined

that Britain has to come out looking worse than it would if it had stayed a member of the European Union. Otherwise everybody else is going to be

tempted. Why should they accept all the rights and responsibilities they do? If Britain is going to get all the same advantages without having to

accept it.

QUEST: The irony of that is that they are threatening or they're promising against, if you like, an inferior status on economic grounds, when what

this place behind me is saying is, no, we're doing this for all Democratic reasons and because we don't believe it's the way forward.

[16:05:00] OAKLEY: Democratic reasons, sovereignty, people voted for Brexit for all sorts of issues. Immigration, a very strong one among them.

And that's the thing that has not -- we haven't heard much about immigration today, although there was a significant moment in Theresa May's

speech to the Commons when she talked about managed immigration being the objective in the future. An awful lot of the people who voted for Brexit

in Britain, voted Brexit because they didn't like the amount of immigration and they thought that numbers would come down. The British ministers

tackling this problem, have been looking at it and they know they have to keep on having people coming in from the European Union to do the

agriculture jobs and lots of others in Britain.

QUEST: Robin, to our dear viewer watching in Ulan Bator, Addis Ababa, Tokyo, Beirut, wherever you like, who is not in Europe and does not

necessarily understand, how big a deal is what happened today?

OAKLEY: It is a big deal. It's a huge deal. It's Britain turning its back on the European continent after 44 years. Theresa May says, of

course, oh, we're going to remain part of Europe, just not part of the European Union. But it has a huge symbolic significance. It means Britain

is heading off in a different direction, wants to be part of a global world, is talking about doing grand trade deals with America, with India,

with China, with Australia, whoever.

QUEST: Right. But Theresa May doesn't carry entirely her party all the way. Not Michael Heseltine who you'll know well from your time covering

this place. You know well from your time covering this place, Lord Michael Heseltine, earlier today, was adamant, he was a firm remainer. He was a

firm remainer. He gave up his job so he could campaign. This is what he had to say to me when I asked him what he would now do as the negotiations

got under way.

(BEGIN VIDEO CLIP)

MICHAEL HESELTINE, MEMBER OF BRITISH HOUSE OF LORDS: Everybody conservative prime minister that I've worked for prosecute Churchill on has

believed that Britain's fortunes were inextricably interwoven with those of our European allies and friends. I still believe that.

(END VIDEO CLIP)

QUEST: Every prime minister, he says, believes Britain is inextricably linked with Europe. Is it inconsistent to be inextricably linked with

Europe and not part of the European Union? Churchill, of course, you'll remember -- I can't remember the exact phraseology -- you've given me the

wry smile. We want to be in Europe but not part of it.

OAKLEY: The European Union was chugging away for a while before Britain was able to get past General De Gaulle and get into the act with other

people. So, you know, there has been a period of the EU without Britain. And Britain managed perfectly well in those days.

QUEST: How difficult is this going to be from your experience of European negotiations? Because you covered the Thatcher years with the rebate.

OAKLEY: Indeed.

QUEST: And you remember how brutal they were.

OAKLEY: And this is John Major's opt-outs at Maastricht in the rest of it. Negotiating in Europe is going to be massively difficult, all the more

difficult this time around, because of the Brexiteers in Theresa May's own party feel that they're running the show. They got what they wanted. They

now have a control over the party. She has a very small majority. If she starts making concessions to Europe's leaders in order to get a deal, to

get Britain out on comfortable terms to suit the business community, some of them are going to rebel against it and try and stop it. She is going to

have the utmost difficulty in the British House of Commons apart from the negotiations with Europe, which cannot possibly be completed, I don't

think, in two years.

QUEST: Good to see you, Robin, thank you.

This is the letter, Prime Minister May's letter to the EU which sets the stage and the tone for the negotiations. This letter from 10 Downing

Street is what we will be referring to throughout this program to guide us through this moment. We've set the parameters. You now know what

everybody thinks. This is what the British say they want. In the final paragraph, the Prime Minister tries to strike an optimistic tone. "The

task before us is momentous but should not be beyond us. I know we are capable of reaching an agreement while establishing a deep and special

partnership."

Deep and special. Those are the words used seven times in the letter. The former Finnish Prime Minister, Alexander Stubb, joins me now live from

Stockholm in Sweden. Alex, is this the new phrase du jour, "deep and special," and if so, will it wear well in Europe?

ALEXANDER STUBB, FORMER FINNISH PRIME MINISTER (via Skype): I think that would be a good way to frame it, deep and special, that's what we need.

That's actually what we had with the United Kingdom being a member of the European Union.

[16:10:00] I think we are going to see a set of two years of very difficult negotiations. I think this is like a matryoshka, a Russian doll, where you

take one doll after another, and you don't really know what's going to pop up. If at the end of the day after two years or longer, we get a deep and

special relationship, then I think we will all have done well. But I am afraid that these are lose-lose negotiations. I agree with President Tusk

on this one.

QUEST: OK. But what do you think "deep and special" means? Or is it a little like the phrase that the British always use with the U.S., a special

relationship that seems to come and go with the whim of the U.S. president? What does "deep and special" mean?

STUBB: The starting point is that the United Kingdom authority adapted all of the EU laws. So, it's basically going to have to start retracting from

those laws. And in that sense, we're going to diverge in the standards that we have. And get not going to be very deep nor is it going to be very

special. There are a few key issues that need to be dealt with first. One has to do with immigration. And that's politically very sensitive.

Another one has to do with the cost, you know, how much is the exit of the United Kingdom going to cost. And the third one is on the jurisdiction of

the European court. All of these are complicated. But I think it's very important that these negotiations are conducted in a civil, cool, calm, and

collected manner.

QUEST: OK. If we take this idea of the Europeans or the EU 27, not exactly wishing to punish, but perhaps wishing to deter, and certainly

wishing to maintain a sense of unity. Do you think that it will be possible for Tusk and Juncker to hold the 27 together as it becomes clear

individual industries will suffer, different countries will want different things?

STUBB: Well, I do think that the 27 will stay united, because the alternative cost is simply too high. So, you're going to see very united

positions coming from EU member states. At the same time, you're probably going to see the British government trying to do bilateral deals with

various capitals. And this is going to be a slightly awkward game. Was it Robin Oakley or you who put it, quite correctly, that it's an outcome where

Britain is worse off than they were as a member. Because otherwise the idea of other member states leaving might come to the fore. I think that

Britain is going to be worse off. It's not going to have access to the internal market. It's not going to be able to deal with the rules and it's

going to have to pay a cost. The question is just how high that cost is going to be.

QUEST: Alex Stubb, who is in Stockholm this evening, joining us via Skype. Thanks, Alex.

We'll be referring throughout the course of the program to the letter that has been sent. As for the actual Article 50 that was triggered today, the

British diplomat who wrote Article 50 says it was designed for European dictators, not well-functioning western countries. Lord John Kerr told me

earlier he never thought Britain would use the exit mechanism that he designed when he was Secretary General of the European convention.

(BEGIN VIDEOTAPE)

KERR: The convention decided that it wanted an article on orderly secession and I drafted the first draft. Beautiful isn't it. Absolutely

beautiful. Not a word wasted.

QUEST: Who did you have in mind when you wrote this?

KERR: Certainly, not a sane otherwise sane Western European state like mine. I think it's very strange what we're doing. What I had in mind was

there was there was already an article which enabled the union to withdraw voting rights from a country in breach of the values of the European Union.

QUEST: Which still exists.

KERR: It's there, you're right. What happened, if you withdrew voting rights, it seemed to me possible that a dictator of this country would

leave in a huff. And there was no procedure for an orderly departure. So, I envisaged the Article 50 would be the procedure for the orderly retreat

from the European Union of a dictator. I didn't see it as a sane, modern democracy deciding to do such an insane thing.

QUEST: Right. So, you have in mind, you really tried to protect the union in this, aren't you? You're trying to get the country out with the least

fuss as possible for the union.

[16:15:06] KERR: It's in everybody's interests. If you leave with legal chaos, if you leave and nobody knowing what laws of contract apply, if you

leave without settling the bills and you have to go to a court of arbitration or something, god, a terrible mess. So, it is important to

have a procedure.

QUEST: That's what this is about.

KERR: That's all.

QUEST: This is a divorce document.

KERR: Exactly.

QUEST: It is not a future financial settlement or future trade relationship.

KERR: It's certainly not. But as you will observe, it has a link here, as they do the divorce agreement, settling the bills, acquired rights and so

on, they have to take account for the framework of the future relationship of the union.

QUEST: There are those, I've been reading about this, who say, oh, gosh, couldn't he have been a bit more precise, this is woolly framing, taking

account of the framework for its future relationship. Now everybody's poring over what that means.

KERR: Yes. But don't ask me.

QUEST: You wrote it!

KERR: It could be European Council conclusion text, it could be a treaty. It could be anywhere between these two. But clearly it covered a lot more

than just trade. It covers the security relationship, foreign policy relationship. It covers energy policy, foreign policy and so on. And that

has to be negotiated before the divorce can be settled. So, the commission, who argued that you need to settle the money before we talk

about anybody else, are wrong legally. If this framework has to exist so that the divorce lawyers can take account of it.

QUEST: Would you like to be part of the negotiation?

KERR: Certainly not.

QUEST: Oh, come on. After all are the negotiation you've done? This is the big one.

KERR: No. No. This is a mistake. I do not think the U.K. should be leaving the European Union. I think we get smaller when we leave. I was

ambassador in Washington. And I remember how President Clinton at the time, I remember how we cut much more rights, we, the Brits, than we

deserved, because you Americans thought that actually they may be able to deliver the European Union so we better take this seriously and give them a

good deal.

I was the British negotiator in Brussels for years and years. Every now and again I would say, and sometimes it was true, if you -- instead of

doing what's being proposed, if you follow a different course, which I will now describe, I have reason to believe that the Americans might support it.

They got out their pens and wrote that down. It isn't just the Brits. It isn't just Kerr. This is for real. Now that wrong made us stronger in the

world because we were stronger in Europe, stronger in Europe, stronger in the world. And were going to lose all of that.

(END VIDEOTAPE).

QUEST: That is Lord John Kerr, the man who actually wrote Article 50 of the Lisbon Treaty that everybody is talking about today. There are three

particular industries. Let's turn our attention way back into the business world. Three particular industries that are crucial if the whole Brexit

process is to be a success. The auto industry, the financial services, and airlines. Now, we're discussing Article 50 with the chief marketing

officer of Ryanair after the break. We're live tonight. We are at Westminster. It is quarter past 9:00. Big Ben is going to chime any time

now.

[16:20:00] (COMMERCIAL BREAK)

QUEST: The British government's letter to the European Council, the letter that we are following closely and we are dissecting, pretty much section by

section, because this is setting out from number 10 what they believe the position should be. The Prime Minister, the U.K. Prime Minister admitted

there will be consequences for British companies.

In her letter, she says, "We recognize there can be no cherry picking. We also understand that there will be consequences for the U.K. of leaving the

EU. We also know that U.K. companies will, as they trade within the union, have to align with rules agreed by institutions of which we are no longer a

part."

The British government is prioritizing banks, airlines, and car makers in these negotiations. We heard from all three today. Ford says no new trade

deal would be worst case scenario and the automaker is warning that a transitional period to ensure free trade is, in their words, critical.

Goldman Sachs has reassured its London staff with a voicemail from its Europe CEO. It's planning to move hundreds of staff to Europe. Ryanair

says aviation should top the U.K. agenda of Brexit. Its low-cost rival EasyJet is also calling for an aviation agreement to be hashed out between

the U.K. and Europe. The Kenny Jacobs is the chief marketing officer at Ryanair. He now joins me on the phone from Dublin. Mr. Jacobs, Ryanair

has suggested today that if no deal is reached, no aviation deal, then effectively the planes would stop from the U.K. to the rest of Europe.

That's a bit alarmist, isn't it?

KENNY JACOBS, CHIEF MARKETING OFFICER, RYANAIR: It's alarmist, Richard, but it's an option that's on the table that nobody wants, we certainly

don't want it. But what we have at the moment is we're in unknown territory here. The U.K. is coming out of Europe, that's what we decided

to do. The UK will come out of open skies. And open skies is what governs how airlines fly from the U.K. to Europe but also from the U.K. to the U.S.

So, this is unprecedented territory. We need a new solution. That solution will be found, it's going to be ultimately a new bilateral

agreement between the U.K. and the EU, including every member state within it.

That's going to take some time. Are they going to do that in two years? I think at this point we don't know. We certainly would hope so. We would

like them to prioritize air travel and ideally find a solution at the end of this year or the start of next year, because airlines, as you know, we

plan our capacity, we plan where we're putting aircraft about a year in advance. So, we'd like clarity and we're calling for urgency both in

London and Brussels that a solution is found for air travel.

QUEST: Right. Now in terms of a large part of your European or intra- European travel, that's straightforward, because you will be flying either under an AOC from another European country or under the Irish AOC, Airline

Operating Certificate. That's clear enough. Surely, it's not that difficult for the U.K. and the EU to basically agree, what we would call

third and fourth freedom rights. Isn't it? You can fly to us, we can fly to you.

JACOBS: If this were in the hands of business decision makers and consumers in the U.K. and Europe, everyone would want to continue the

status quo. That's rational thinking. But we're in emotional territory here. I think I would describe it like a bad force that's coming. I think

everyone in London on the political side is saying, we want to talk access to markets first and then we'll talk the settlement. Everyone in Brussels

is talking about, let's talk the settlement first and then we'll talk about access to the market.

We're saying today, can everybody please think about the consumers in the middle? Theresa May's letter today called on protecting consumers. If you

would ask consumers in London and the rest of the UK today, is air travel a higher priority for them than some other industries, they would say yes.

[16:25:00] And they would say yes because the citizens from the UK whichever way they voted are Europe's number one air travelers. And they

do not want to have restricted movements. They don't want to have higher airfares. But what I said at the start, we're in unknown territory and

every airline is looking for a solution as quickly as possible.

QUEST: What do the airlines need to do? I saw airlines for Europe has put out a statement today, EasyJet has put out a statement, you've put out a

statement. I'm guessing that really, it's only if all the airlines, and that includes obviously, the mainland carriers, Lufthansa, Air France and

everybody else, if everybody basically says you got to sort this out and it has to be your priority.

JACOBS: Absolutely. And I think you're seeing every airline, as you mentioned, saying the same thing, that we want a solution and we need a

solution before March 20, `19. It's about 365 days from now. So, next spring, we will be planning where we're going to put our aircraft in Europe

and other airlines will be doing the same. What's right for the British consumer is there is a prioritization of which industry they pick first.

And we would say, go and ask consumers what is the higher priority for you. And people in the U.K., they love the sunshine. 75 percent of British

tourists go to Europe on their holiday and want to continue to do so.

QUEST: Kenny, thanks for joining us tonight on QUEST MEANS BUSINESS. Much appreciated, as always, thank you, sir.

The founder of the British pub chain, Wetherspoon, says if it stops selling champagne, the entire French economy will enter recession. He backed the

leave campaign and says British trade deficit with the EU gives it the upper hand in the negotiations. I asked Tim Martin what sort of new deal

he would like to see over the coming two years.

(BEGIN VIDEOTAPE)

[16:26:43] TIM MARTIN, FOUNDER, WETHERSPOON: The key thing for me is not to worry about a deal. I'm really worried that everyone things you need a

deal. You don't. We don't have a trade deal with America. Here's CNN parked on our lawn, running its business over here. Facebook, and many

other companies. We haven't got a trade deal with America yet we have a trade surplus with America, amazingly enough. That's true of the EU. It

doesn't have trade deals with most of the major economies in the world. The danger with really thinking you need one is you get a bad deal.

QUEST: But the U.K.'s trade relationship with the EU, you would accept, is greater than any other single deal that it has or relationship with any

other part of the world. A good 50-odd percent of trade is at risk if we revert to WTO terms with the EU.

MARTIN: I don't think it is. Because we buy twice as much from them as they buy from us. If Wetherspoon stops selling French champagne, the whole

French economy will go into recession. We buy a lot of wine from them. We buy a lot of food products and cars and so on. The person or the country

with the trade deficit has the commercial advantage.

QUEST: And yet at the same time, you're not factoring in the politics in that answer, and the politics being the need to make sure that the U.K.'s

relationship with Europe trade-wise is less good than it currently is. Do you accept that the final look has to be less good, otherwise membership is

meaningless?

MARTIN: No. I think the whole concept of free trade is a good one. You don't need it. The much more important factor is democracy. The Europeans

need us. They're our friends. And free trade always wins.

QUEST: Should there be a final referendum once the deal is known but before it is implemented, on the basis that the people -- you like

democracy, don't you, you love democracy.

MARTIN: Yes.

QUEST: The people voted for a concept. Now they'll see the reality. Should they have a second vote?

MARTIN: I think they voted for a reality. And the reality is that parliament in this country takes control of our laws. That's reality.

They didn't know exactly what trade deal you could get with Asia or with China or with Europe. They wanted democracy. And democracy, wherever you

see it in the world, produces good trade deals. That's the key, not a wretched trade deal with the protectionist EU. It's a protectionist

system.

QUEST: What's so wrong with allowing the people to have a second say, once the deal is known? I agree you can't go backwards and forwards, until you

get the right answer. But that's not the case here. Here you actually now have the concrete deal or will have on the back of the referendum.

MARTIN: The reason is we weren't voting for a trade deal. We were voting for democracy, in the same way that when America took its independence from

Britain, it was voting for independence and the ability to make its own laws, not for some wretched trade deal.

QUEST: You'll still buy French champagne?

MARTIN: Of course.

QUEST: We'll share a bottle when the deal is finally announced. Thank you very much.

MARTIN: Thank you.

(END VIDEOTAPE)

QUEST: As we continue tonight, remember, we are dissecting the six-page letter from the British prime minister. It is the letter from 10 Downing

Street that sets out the policies that hopes to follow during the negotiation. We'll talk about the art of the Brexit deal and that deep and

special relationship, next.

[16:00:00] (COMMERCIAL BREAK)

QUEST: I'm Richard Quest. There's more QUEST MEANS BUSINESS in just a moment. A European parliament minister tells us his priority for the

Brexit talks in the U.K. And we'll speak to one of Brussels' most experienced negotiators. As we continue tonight, BIG BEN over my shoulder.

This is CNN. On this network, the news always comes first.

The Brexit process has officially begun. Nine months after the U.K. voted to leave the European Union, British prime minister's six-page letter was

sent to Brussels and formally triggered the negotiating process. She now has two years to negotiate the terms of the divorce from the EU.

A short while ago, the U.S. senate intelligence committee announced it's planning to question at least 20 people in its investigation into Russian

interference in the president's election. Whether members of team Trump colluded with the Russians. Donald Trump's son-in-law are among those who

agreed to testify.

A driver was taken into custody after she nearly ran over police officers near the capital building in Washington. No one was injured but shots were

fired. The women ran into another vehicle. Police say the incident is treated as a criminal matter with no apparent connections to terrorism.

The president of the European parliament says its single biggest priority is that of the rights of European citizens in the U.K. to be protected, and

that a win-win deal is possible.

(BEGIN VIDEO CLIP)

ANTONIO TAJANI, EUROPEAN PARLIAMENT PRESIDENT: We start with this letter. It's possible to achieve a good agreement. And after the Brexit, we need

to work for a good win-win agreement for the future, because the United Kingdom will leave the European Union, but will be a European country.

[16:35:00] ERIN MCLAUGHLIN, CNN INTERNATIONAL CORRESPONDENT: What will provoke parliament to use its veto power?

TAJANI: I am Italian. I want to be an optimist. I think finally, I hope we will have a good agreement. And we will have the most important points

of the European parliament, the parliament will vote in favor. It's not that I am against. But we need to put inside the agreement our most

important points. And as I said, our most important points are the points in favor of the European citizens.

(END VIDEO CLIP)

QUEST: Now, the letter that Theresa May sent which is forming the backbone of our program tonight as we dissect exactly what the British position is

when it comes to trade, it calls for a bold and ambitious trade agreement. The European parliament's top negotiator warns there will be no talks

behind Brussels' back. But the letter triggering article 50, the British prime minister says, read what she said, this should be a greater scope and

ambition than any such agreement before it. Brexit negotiator for the European parliament is adamant the U.K. will not be able to negotiate one

on one.

(BEGIN VIDEO CLIP)

GUY VERHOFSTADT, EUROPEAN PARLIAMENT NEGOTIATOR: We made very clear in our resolution that we will never accept, for example, that behind our back,

the U.K. is starting trade negotiations with other countries before the withdrawal.

(END VIDEO CLIP)

QUEST: Now, Mogens Peter Carl spent years heading the European Union's trade department. He joins me via skype from France. I read your

interesting article in "Friends of Europe," and you basically say that everything is doable with a bit of goodwill, that it is possible to

negotiate the divorce and at the same time negotiate the trade agreement, provided expectations are modest.

MOGENS PETER CARL, FORMER EU DIRECTOR GENERAL: I wouldn't say modest. Provided that both sides understand where the red lines of the other party

are. Now, the president of the European parliament put it very clearly. I listened to him on Italian radio early on this evening. In Italian, he was

much clearer than he was in the English version that you were just broadcasting. He made it clear that a precondition would be that the U.K.

recognized the continued rights of European citizens, residents in the U.K., before anything else were to happen. I think he is absolutely right.

This is my own conclusion in my paper. There cannot be any agreement on anything unless that basic point of principle is acknowledged and accepted.

My advice to Theresa May and to the British government and people would be that they accept this and that they, as soon as possible, make it clear

that all European residents in the U.K. as of the date of departure of the U.K. from the EU, continue to have the same rights as today.

QUEST: The U.K. basically offered that after the referendum and in this intervening period. The Germans said we will not agree to that principle

until you invoke article 50. Theresa May said in her letter that solving this is going to be a priority. Do you expect it to be a difficult issue

to put to bed?

CARL: It may be, because perceptions are different, because our history diverged more than 70 years ago. We in continental Europe have seen

deportations. We've seen brutality. We've seen people being moved by force from one country to the next. That is completely unthinkable here.

So therefore, the idea that our citizens of the U.K. would not continue to be treated as they are today is simply beyond the pale. We do not

understand why the British government cannot make a simple statement to that effect, why it has to make it a negotiating point. It's not a

negotiating point. As I put in my paper, it's an albatross around the neck of the British government. It's not a negotiating card.

QUEST: On the question of trade, when the prime minister says the trade agreement should be of a greater scope and ambition than any such agreement

before it, so it covers sectors crucial to our linked economies such as financial services, is she being realistic to expect such a wide-ranging

agreement?

CARL: With all due respect, she wants her cake and to eat it. I read her letter in detail. She says in her letter she basically wants to continue

free trade with Europe in all areas. But she also says implicitly or explicitly, there will not be free movement of persons from the U.K. to the

EU. To the EU, that is anathema. The free movement of persons is one of the greatest achievements that we have, the greatest.

QUEST: Good to talk to you, sir, thank you for joining us tonight. Again, it was an excellent article, giving great guidance in the whole issue.

Thank you, sir.

Now, Britain is leaving the European Union and wants to keep the world's biggest banks in London. We're discussing if there's room for optimism

with a prominent figure in the leave campaign. Essentially, why the leave campaign does believe passporting will be part of the future. It's a cool

but clear and certainly classic night in London.

[16:10:00] (COMMERCIAL BREAK)

QUEST: Critics of Brexit have repeatedly warned it will lead to an excess of bankers from London moving to the continent. Now an official of

Bundesbank has told Reuters that banks are already having discussions with German officials. Former conservative party leader Ian Duncan Smith told

Max Foster it is in everyone's interest to keep London as Europe's financial capital.

(BEGIN VIDEO CLIP)

IAN DUNCAN SMITH, FORMER CONSERVATIVE PARTY LEADER: The U.S. banks have their headquarters in London because they can put all their debts in here

and because this is a global center in the right time zone that allows them to make deals on both sides of the world, as it were, in the course of a

working day. There are real reasons why they're here. And they are very little to do with direct access to the European Union. As I said, you have

the finance minister of Germany, very explicitly, about two weeks ago, saying we absolutely need London to thrive because this delivers us cheap

capital and access to global markets.

It's not going to anywhere in Europe if it didn't. It would go to New York or Singapore. People's reality is now striking. I think for the European

Union and the U.K., there is no issue here about you have to punish them because otherwise others will leave. I don't think that's the case at all.

The U.K. is I think in a very different position from most of the continental European nations. Most of our trade is done externa

externally. Therefore, we have to follow that process. We're not leaving Europe. We're leaving the European Union.

(END VIDEO CLIP)

[16:45:00] QUEST: It's an argument or it's a point that is made frequently in many different guises, that the basic point being that the Europeans

need the British or need London or the U.K. economy or the U.K. business more than the other way around or at least they won't cut their nose off to

spite their face. The British member of the European parliament Daniel Hannan joins me from Brussels. It's an argument that's made frequently but

it's yet to be tested in anger, hasn't it?

DANIEL HANNON, MEMBER OF EUROPEAN PARLIAMENT, CONSERVATIVE PARTY: It's always a good idea to look at what's happened rather than what people

speculate about. So far in the nine months since the vote, there has been quite a lot of investment into London, some coming from the rest of the EU

like ING, some from further afield. Wells Fargo spent 300 million pounds on a new European headquarters in London. I think the reason for this is

that London is recognized as a global financial center, which is going to carry on having world links, and which can now, if anything, become more

deregulated.

QUEST: If passporting is not agreed on the back of a failure of course to accept freedom of movement and labor, if passporting is not agreed, bearing

in mind the euro bond market and euro market is bigger or will be, it's traded in London at the moment, but there's every incentive to move it to

Frankfurt or Paris or Amsterdam.

HANNON: First of all, it's important to stress that passporting is not a legal -- is not a thing. It's a nickname for a series of arrangements.

It's not an actual entity. But you know, the short way of answering that is to look at non-EU institutions that are in London already. The U.K.'s

single biggest test nation for financial services exports by a long way is the United States. Far more than any EU country. In fact, almost as much

as the whole of the EU put together. And there's no deal whatever between the U.K. and the U.S., because there's no deal between the European Union

and the U.S. of course now that we're leaving the European Union, we will be in a position to strike a free trade deal with the U.S. which I hope can

cover services including financial services.

QUEST: You know, the discussion of the argument that you're advancing has been put in many different ways. And the other side simply say you're

living in a dream world, that the reality is you're either on grounds of deterrence or simply to hold the line are not going to grant the U.K.

anything like the access that it currently has. So, I ask you, sir, do you accept that the final trade and financial services arrangements will be

inferior to that enjoyed by single market access?

HANNON: Richard, you've been doing this for long enough to know that these things are done on the basis of present interest rather than past grudges

or past gratitude. Of course, no one expects the EU to do Britain a favor. We only expect EU countries to act in their own national self-interest. We

as Britain have a strong interest in the prosperity and success of the allies we have next door. Prosperous neighbors make good customers. I

hope that argument works both ways. I think when you get to the detail of the negotiation, people will want to maximize mutual benefits through free

trade and free access. And I think that will Trump the politics.

QUEST: Daniel, I think it's two years' time, March the 28th, 2019, you'll be out of a job. What will you do?

HANNON: I've always really wanted to do your job. I particularly liked your pinstripes over the years. I can't see what you're wearing now. I

don't know if you hear of anything or any viewers hear of anything, let me know. Seriously, I will breathe a real sigh of relief on the day of my

redundancy and I hope I will join the private sector and actually do something productive rather than sitting here as a consumer of private

sector revenues.

QUEST: You're right, I am wearing pinstripes today. Next time you're in New York, come pop into the QUEST MEANS BUSINESS studio and we'll let you

have a go. You have to find some day work after your current job. Good to see you, Daniel joining us from Brussels tonight. The FTSE was among the

best performance, nearly half a percent, boosted by a fall in the value of the pound, managed British export more profitable and desirable, and

somewhat perversely, the FTSE rises. On Wall Street, the Dow avoided a ninth successive loss on Tuesday, but today it ended lower. It tells you

what he need to know about the schizophrenic nature of the market. The British prime minister described it as momentous, historic, there's no

turning back. Whichever way you look at it, it's a day that really has no precedent in history. You'll hear the best sound from the day, after the

break. It's QUEST MEANS BUSINESS, live at Westminster.

[16:50:00] (COMMERCIAL BREAK)

QUEST: Ah, a lovely evening. Westminster. The houses of parliament. The mother of parliament, as we head towards 10:00 in the evening. 44 years of

union with Europe is coming to an end. And still the United Kingdom remains starkly divided. The guests who join me are clear about one thing.

Ask anybody you ask, from prime minister to president to pundit, the road ahead is unknown, filled with uncertainty.

(BEGIN VIDEO CLIP)

THERESA MAY, PRIME MINISTER, BRITAIN: Article 50, the process is under way. The United Kingdom is leaving the

European Union.

UNIDENTIFIED MALE: There will be tough talk. There will be a lot of ups and downs. There will be divestments from the United Kingdom. But we'll

see reinvestment.

UNIDENTIFIED FEMALE: Very long term, it will all come out in the wash.

MAY: It is this generation's chance to shape a brighter future for our country. A chance to step back and ask ourselves what kind of country we

want to be.

UNIDENTIFIED MALE: Worst case scenario at the end of this is no deal and continued volatility.

UNIDENTIFIED MALE: It's of course a very, very sad move.

UNIDENTIFIED MALE: Do we seriously believe that this free trade agreement that we currently have, do we seriously believe that the 27 partner nations

wish to unravel that completely?

MAY: We are going to take control of the things that matter most to us.

UNIDENTIFIED MALE: At no time has anyone suggested that the U.K. needs to do anything other than look for a win-win.

[16:55:00] DONALD TUSK, PRESIDENT OF EUROPEAN COUNCIL: There is nothing to win in this process and I am talking about both sides.

UNIDENTIFIED MALE: Unprecedented measure, very difficult to negotiate in good spirit. It is important that both sides know what is at stake.

UNIDENTIFIED MALE: I believe that Britain will go on to make a great success of Brexit. Who knows what's next, nexit? There could be others

that follow Britain's lead.

MAY: We are going to take this opportunity to build a stronger, fairer Britain. A country that our children and grandchildren are proud that call

home.

(END VIDEO CLIP)

QUEST: The voices of London an historic day. We'll have a Profitable Moment after the break.

(COMMERCIAL BREAK)

QUEST: Tonight's Profitable Moment from Westminster. The old phrase momentous, historic, the cliches you hear in politics, government or

journalism, tonight you have to admit that is what happened. For one simple reason, for the first time a country is leaving the European Union

and four decades of the most intricate integration that's ever been tried is about to be unraveled. Now can it be done without pain? Absolutely

not. It's going to be a long, painful and difficult process. But good will on both sides, it should be at least reasonably possible to achieve.

And that's the point. Good will on both sides. Today we heard expressions of that. But in the weeks, months, and two years ahead, I guarantee that

you will evaporate. I'm Richard Quest in London. Whatever you're up to in the hours ahead, I hope it's profitable. Big Ben chimes the hour.

END