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European Parliament sets out vision for EU-UK relations post-Brexit

European Parliament sets out vision for EU-UK relations post-Brexit

Tusk said this was the only kind of arrangement possible given Britain's demands, citing the EU's deal with Canada - which excludes financial services - as a model.

"In order to break the deadlock we now face, I believe it is important that the UK Government now seriously considers engaging with the European Parliament's proposal for an association agreement, as catered for by Article 217 of the EU Treaty".

Speaking at a press conference in Luxembourg, Tusk insisted that the European Union could not "agree to grant the rights of Norway with the obligations of Canada".

If Britain were to join the European Economic Area, dubbed the Norway option, it would have access to the EU single market in return for accepting free movement of EU citizens and contributing to the bloc's budget, but with no say over the EU rules it must implement.

Crucially, the bloc said Britain would be treated like any other third country when it came to financial services - which London had pressed to be included in a future free-trade deal.

"I propose that we aim for a trade agreement covering all sectors and with zero tariffs on goods.

The problem is everyone has seen this as a regulatory issue, but financial services is really a trade issue", he said.

"In fact, this will be the first free trade agreement in history that will weaken economic relations rather than strengthen them". "We should be under no illusion about the significant additional costs if this highly efficient market were to fragment", he said. That is the essence of Brexit'.

He said: "The EU could hardly have been clearer this morning in rejecting the Government's cherry-picking approach of demanding all the privileges of single market membership but rejecting the responsibilities it brings".

Responding to Mr Hammond's assertion that it was in the interest of both Britain and European Union to ensure that UK-based financial services companies had easy access to the single market, Mr Tusk said: "I fully respect the Chancellor's competence in defining what is in the UK's interest".

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Prime Minister Theresa May's spokesman, James Slack, said "we look forward to seeing the final guidelines, and hope they will provide the flexibility to allow the European Union to think creatively and imaginatively about our future economic partnership".

Before last June's general election, Labour said it would seek to bring train operators and water and energy utilities back into public ownership, and since then has said it wants to reduce the role of private contractors in providing public services.

Hammond, making a key speech in the Canary Wharf finance hub, urged Brussels to seek a bespoke free trade agreement for Britain, adding it would be in their 'mutual interest to include the sector.

Describing the City of London as a "European asset", Mr Hammond claimed any trade deal which undermined it would backfire on the EU.

The agreement may contain provisions for the trade in services, an area where the United Kingdom is particularly concerned.

A draft motion of a resolution seen Wednesday by The Associated Press states that a future trade relationship with Britain will not allow the island nation to pick and choose among sectors of the EU's internal market.

"By the same token, a pick-and-mix approach for a non-member state is out of the question".

"It would be completely irresponsible to create an atmosphere where we can say, don't worry, everything will go well and smoothly because we simply don't know", Katainen said.

But many banks like Goldman Sachs and Standard Chartered have decided not to rely on a transition deal or bet that Britain will get favourable trading terms for financial services once the political noise dies down.