EU THROWS MAY BREXIT LIFELINE Edelman
20 October 2017
Pawel Swidlicki Brexit Analyst Pawel.Swidlicki@Edelman.com
EU leaders have thrown embattled Prime Minister Theresa May a lifeline by agreeing to begin internal preparatory discussions over the transition period and future UK-EU relations ahead of December’s summit at which these could be formally initiated. In general, EU leaders adopted a much more positive and conciliatory tone, although this is likely to provide cover for May to make further concessions – most notably over the Brexit bill – beyond those made in her Florence speech.
EU TO BEGIN INTERNAL TALKS ON ‘PHASE TWO’
This is important because the value of the transitional deal diminishes the closer we get to the Article 50 event horizon; unless businesses know they will be able to rely on the existing rules up until 2021 at least, they may initiate contingency plans premised on the worst-case, no deal scenario. In an additional win, the EU’s internal discussions will ‘take account’ of the future partnership papers published by the UK. This gives May a win of sorts to bring home, giving her some much needed breathing space vis-à-vis those Brexiteers who have been urging her to be ready to walk away from the talks. Indeed, May has used her domestic weakness to her advantage in Brussels by making it clear to her fellow leaders that a lack of progress makes it more likely she would be replaced by a proponent of a harder form of Brexit.
The mood music ahead of this week’s European Council summit was far from encouraging. Last week, Michel Barnier, the EU’s chief negotiator, said the talks had reached a disturbing deadlock with the media being briefed that Paris and Berlin were even more hawkish than the Commission over the question of the Brexit bill. Meanwhile, in the UK, Brexiteers ramped up the ‘no deal is better than a bad deal’ rhetoric.
The EU also welcomed the progress made on citizens’ rights and acknowledged that on Ireland, “there has been some progress on convergence on principles and objectives.”
However, following a short presentation by May at last night’s dinner, this morning EU leaders were much more positive, conciliatory, and explicit about their desire for close ties post-Brexit, including on trade.
However, nothing comes for free in Brussels and the price of unlocking trade talks in December is to go further than the £20bn May tentatively put on the table, or in the EU’s words, to translate her Florence pledge that no member states would lose out from Brexit “into a firm and concrete commitment.” May conceded as much over dinner, and a Number 10 source later confirmed Florence “was not the final word” on the bill.
They also unanimously agreed to start internal preparatory discussions “in relation to the framework for the future relationship and on possible transitional arrangements.” Although this falls short of May’s initial objective of getting these talks underway immediately on a bilateral basis, it is a key win nonetheless, as it means that, if as expected, “sufficient progress” has been met in December, UK-EU transition talks will not have to begin from scratch.
UK TO GO EVEN FURTHER ON SETTLING BREXIT BILL
Key bones of contention include spending commitments made under the current EU budget framework but where the actual cash payments are due post-2020, the method for calculating EU officials’ pension obligations, and whether or not the UK will continue to pay some of its foreign aid via the EU.
NEGOTIATIONS OVER TRADE WILL NOT BE EASY Given how fractious and painstakingly slow the negotiations have been, it is easy to forget that the initial withdrawal issues were supposed to be the relatively easier part of the negotiations. In terms of the transition, while the UK has largely accepted that it will be a status quo arrangement as far as customs and the single market are concerned, the EU will likely insist on a separate payment for continued access as opposed to agreeing to wrap this up with the divorce bill. Furthermore, talks over the future trading relationship – in which May broadly wants to secure a higher level of market access than afforded by a Canada-style FTA but without the onerous political and financial costs of a Norway/single market-style arrangement – will be very difficult. Put simply, such a model does not currently exist, and it is hard to see the EU agreeing to an approach which gives the UK a high degree of market access in areas like financial services and pharmaceuticals but with the ability to unilaterally deviate from EU rules – the EU has repeatedly made clear it would rather not have a FTA with the UK than enter into an arrangement that – in their view - risked the unravelling of the single market. May has managed to reassert a degree of control over her cabinet but the differences over what the so-called ‘end state’ should look like have been deferred rather than settled.
EUROPEAN LEADERS’ REACTIONS ROUND-UP British Prime Minister Theresa May: “I’ve been very clear all along as the UK has, all along throughout this, that the full and final settlement will come as part of the final agreement that we’re getting in relation to the future partnership. I think that’s absolutely right.” European Council President Donald Tusk: “Reports of the deadlock between the EU and UK have been exaggerated. And while progress is not sufficient, it doesn't mean there is no progress at all. Today the Council has agreed to start internal preparatory discussions… this would not be possible without the new momentum given by the Florence speech of Prime Minister May.” European Commission President Jean-Claude Juncker: “Our working assumption is not the no deal scenario. I hate the no deal scenario… I want to have a fair deal with Britain.” 20 October 2017
German Chancellor Angela Merkel: “From my point of view, there are absolutely no signs that we can’t succeed… We will have to say what our conclusions are if Britain wants this partnership or that partnership. And we haven’t reached final clarity on that but that will happen and it will happen within the necessary time period. I very clearly want an agreement, not any kind of unpredictable solution, and we’re working very hard on that.” French President Emanuel Macron: “I would say we are far from having reached the necessary financial commitments before we can open phase two… At no point has Theresa May raised the prospect of no deal. This is bluff, false information by secondary actors or spectators… The discussions are going forward… If there’s no agreement on the first phase, there can’t be a moving on to the second phase. And it’s principally the UK that has something to lose by that, given its very strong dependence on the EU.” Irish Taoiseach Leo Varadkar: “I thought May’s contribution was very good, I thought it was very positive. Again, the language was the right language, it was very strong.” Dutch Prime Minister Mark Rutte: “I suspect that if they want progress, the British Government will have to tell us at the very least — if they don’t give us a number — how they think they will be able to get to a number, together with Europe. Otherwise we’ll keep going round in circles.” Polish Prime Minister Beata Szydlo: “Our fates are intertwined; Great Britain and the EU and the EU and Great Britain. Our relations ought to be as good as they can be and they should be based above all else on the principle of partnership. Firstly, however, we need to resolve the issues which are currently difficult… we have reached an impasse over the issue of finances.” Italian Prime Minister Paulo Gentiloni: “December is important - either the results will have been achieved or it will be necessary to accept the consequences.”
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