U.K. Is Said to See Brexit Breakdown Without EU Compromise

LAGOS (Capital Markets in Africa) – Brexit negotiations are heading for a catastrophic breakdown unless the European Union signals this week that it will allow talks to move on to trade, according to a person familiar with the U.K. government’s position.

Without a clear sign, that negotiations will progress to trade and transition arrangements by December at this week’s summit of EU leaders, the entire Brexit process will be in danger of collapse — and senior British ministers are losing faith in the EU’s willingness to strike a deal, the person said.

The warning came as a new draft of the European Council summit conclusions dealt a blow to British hopes of making progress. The latest text added extra hurdles for the U.K. to clear before negotiations can move on to trade. EU leaders are set to demand a guaranteed role for the European Court of Justice, in a direct challenge to one of Theresa May’s red lines.

The pound weakened as much as 0.3 percent against the dollar on the report of the U.K.’s concerns.

Speaking on condition of anonymity, the person said May took a political risk by promising to pay into the EU budget and settle the divorce bill in a speech in Florence, Italy, last month and now needs something in return before she can make further concessions.

The Brexit department rejected suggestions the negotiations are going badly. “We are making real and tangible progress – though we hope that the 27 will use the October Council this week to give Michel Barnier the means to make further steps,” the department said in an emailed statement. “We are taking forward these negotiations in a constructive and responsible way.”

The prime minister heads to Brussels for dinner on Monday with European Commission President Jean-Claude Juncker and the bloc’s chief negotiator Michael Barnier. She is also calling EU leaders individually in last-minute diplomatic efforts.

Tougher Stance
The latest draft of the summit conclusions included tougher language on the progress that Britain will need to make before the EU agrees to allow talks to progress to trade. That won’t happen until “sufficient progress” has been made on settling the divorce terms, including the bill, the Irish border, and the status of EU citizens. The new draft states that “sufficient progress” will need to be achieved in all three areas.

The new text also adds a requirement that the ECJ must have a role in guaranteeing the rights of EU citizens living in the U.K. after Brexit. May has made ending the rule of the ECJ a red line in her negotiating position — although she accepts it during the transition period.

Germany and France had made clear on Friday they wanted to toughen the tone of the summit declaration, according to an official familiar with the discussions.

A European diplomat, with knowledge of the negotiations, said it is for May, not the EU, to make further concessions and make good on pledges made in her Florence speech. The EU needs a clear commitment on where the U.K. is prepared to pay, beyond the 20 billion euros ($24 billion) promised during the two-year transition phase if there is going to be any progress, the diplomat said, on condition of anonymity because the talks are private.

The Other Side
Talks have stalled because Britain won’t detail how much it’s ready to pay as it leaves the bloc until the EU starts discussing the future trading agreement and the transition that Britain wants to smooth the split. Europe says it won’t do that until May’s government takes steps toward an agreement on the bill. With or without a deal, the U.K. will leave in March 2019.

German Chancellor Angela Merkel and French President Emmanuel Macron are the two key obstacles to allowing talks to move on to trade, according to the first official. Germany has a vested interest in delaying progress in the Brexit talks because Frankfurt is trying to tempt companies away from London, the person said.

May spoke to Macron about Brexit in a call on Monday and Merkel on Sunday. She tried last month to convince the German chancellor that a two-year bridging period after Brexit day would help both sides. So far EU leaders have refused to widen Barnier’s negotiating mandate to include trade or transition, and Merkel has been skeptical about a transition deal. The chancellor is also more preoccupied with forming a new coalition government at home.

Business leaders and the Bank of England say a transition plan must be outlined by the end of the year or it will start to lose its value as companies give up waiting and begin to move operations out of the U.K. to cities such as Frankfurt, Paris or Dublin.

On top of the U.K.’s fraught interaction with the EU, May is facing pressure from lawmakers in London. A cross-party group is planning an attempt to veto any result in which Britain would quit the bloc without a deal.

Euroskeptics in May’s Conservative Party want her to “call time” on the negotiations and walk away without a deal. She needs the EU now to create the atmosphere and space for her to make any further concessions because her political position at home is so precarious, the person said.

The premier lost authority over her Tory party when her gamble on an early election backfired, costing her government its majority in Parliament. She has since faced a succession of leadership plots but insists she wants to lead the party for at least the next five years.

The risk for May’s Conservatives is that after losing their parliamentary majority in June, the lack of a transition could cost them politically as a restless electorate bears the brunt of an economic slowdown, a senior official said. Still, with hardliners loath to compromise and a pro-EU faction seeking to tie May’s hands in Parliament, the prospect of a no deal could jolt both sides into working out what they want as an end deal, the official said.

Source: Bloomberg Business News