Brexit Briefing No.9

This week saw Theresa May clash with Jeremy Corbyn on the Brexit negotiations amidst increased speculation that there could be no deal at all with the EU as the latest round of Brexit talks between Michel Barnier and David Davis and their teams ended in “disturbing deadlock”. Meanwhile Spain’s constitutional crisis rumbles on in the background threatening to overshadow everything else in Europe.

The headlines from Michel Barnier and David Davis’s traditional end of negotiation week press conference are dominated by the EU Negotiator’s comment that the two sides had reached a “disturbing deadlock” on the size of the UK’s post-Brexit financial commitments.

Financial Settlement

The so-called ‘divorce bill’ was always likely to be the most contentious issue in the early stages of the Article 50 process, mainly because of the EU insistence that the UK agrees to an amount covering ongoing commitments well into the 2020’s before discussing a future trade deal, which is the bit the UK really cares about.

There is a genuine difference of approach on how such a bill should be calculated. The EU insists that all commitments made as 28 member states should be honoured by the UK, but the UK views this as both politically impossible to deliver and unfair, because the UK will no longer benefit from many of these programmes and therefore shouldn’t continue to fund them.

However the PM’s speech in Florence was intended to be a big concession from the UK, as they agreed to cover payments beyond the UK leaving the EU to 2020.

The fact that this has not been enough to move the EU has not been taken well in London, as the UK feels this was a genuine and difficult series of concessions to make. The EU hasn’t responded in the same spirit and this could be a strategic mistake. This is mainly because the EU has now gained the concessions that it wanted from the UK; principally to honour the budget until 2020 and ensure that EU citizens in the UK wouldn’t be forced to leave. It has extracted what it needs and risks overplaying its hand if, even after these concessions, it continues to refuse to talk about trade or transition arrangements. The EU surely recognises that the UK can’t conceivably offer any more and that there are now only 18 months left before the UK leaves.

This is why there has been increased talk of no deal at all this week. The UK needs to show that it is ready and prepared to take this path if it has to, as in that situation the EU may not get any money or commitments for its citizens at all, even though the reality is that we are unlikely to get there, given how disastrous that would be for all sides.

So on one hand the official EU position is that not enough has been done to open trade negotiations, yet quietly, behind the scenes the EU is beginning to do the preparatory work needed for those negotiations. The EU’s Chief Negotiator Michel Barnier has also been trying to get a mandate from the big member states to start those negotiations. So far he has been rebuffed, mainly by France and Germany and we should expect that next week’s Council meeting will officially conclude that not enough progress has been made, whilst also leaving enough wriggle room to allow them some scope to start looking at the transition negotiations towards the end of the year.

Berlaymont Building

In the negotiations themselves this week, there were some concrete moves forward in the other two areas on the agenda, citizens' rights and Ireland.

On Ireland there was agreement on the joint principles of the UK/Ireland common travel area and on areas of cross border cooperation.

On citizens’ rights the UK confirmed that EU citizens in the UK who had permanent residence would be able to exchange it for “settled status” very simply and that the registration process for EU nationals in the UK would be “low cost” and “streamlined”. These had both been areas of concern for the EU.

Yet there is still space between the two sides in some areas, particularly on the rights of family members, the exporting of benefits, the ability to vote in local elections and the ability for Brits in the EU to be able to move from their current country of residence to another one.

This is slow progress and citizens' rights is a complex area, but it is not unique in that regard. There are many other highly complex areas which need addressing over the next 18 months and the pace of negotiations will have to step up significantly if a full agreement is to be found before the end of next year.

So we end the week a little bit closer to a breakthrough, even if the headlines will claim that there is deadlock. But that breakthrough, if and when it happens, will only mean the start of negotiations on the future transition agreement before discussions can start on the future trading relations.

The troubles the UK/EU had last week with the WTO ( show the difficulties that those talks will bring, especially when there is still no functioning government in Germany and the threat that Spain may break up in the near future.

That is the major problem. It will be hard for the EU to allow Mr Barnier to adjust his mandate significantly until Germany has a new government, and that will likely not be until next year. In the UK, the government has offered all it can without the promise of transition or trade talks.

So with such a limited time scale pressure is building everywhere, and there are signs of it on both sides. As physics tells us, there is only so much pressure that can accumulate until something gives.

Something will give soon, just what that is and what it will mean is anyone’s guess.