Wednesday, December 21, 2016
By Tim Ross and Ian Wishart
Bloomberg News (TNS)
LONDON - Six months on from the U.K.’s referendum, the broad outlines of Brexit are emerging through the winter gloom.
While much remains uncertain about Prime Minister Theresa May’s ambitions as she sets about leaving the European Union, one of the few certainties is her insistence that Article 50 - the mechanism that will start exit negotiations - will be triggered by the end of March.
With little more than three months before she pushes the button, Bloomberg has conducted interviews and analyzed public comments with two dozen officials on both sides of the negotiations to reveal the emerging thinking, key battle-lines and likely obstacles that lie ahead. A summit of EU leaders in Brussels on Thursday should offer a further glimpse of the challenges, and how May’s EU counterparts respond to them.
Process
The one thing London and Brussels agree on is that the time for negotiations will be short. Once May invokes Article 50, negotiators will have less than 18 months to reach a deal, allowing enough time for the European Parliament and British lawmakers to ratify it. With European elections due in 2019, negotiators on both sides worry the Parliament will prove the toughest hurdle.
Beyond this, there is little consensus. May needs to reach two main agreements: one on withdrawal from the bloc, covering borders, budgets, pensions for British EU staff, and an exit charge of up to 60 billion euros ($64 billion). The second part will cover the U.K.’s future trading relationship with the bloc.
Britain wants to work on both deals simultaneously. Michel Barnier, the chief EU negotiator, rejects this, favoring the traditional European approach of negotiating treaties one chapter at a time. He has told diplomats that a lack of resources mean parallel talks would be tough.
Transition
Barnier and U.K. ministers now believe some kind of transitional arrangement may be required to avoid a sudden, shock exit. On Monday, U.K. Chancellor of the Exchequer Philip Hammond warned publicly for the first time that the negotiations could fail to reach a final deal within the two-year timeframe, making a transition plan essential.
Brexit Secretary David Davis is reluctant to endorse the idea, but others in his department confirmed it’s under discussion. May, who will ultimately decide, has been Delphic so far, saying only that no-one wants a “cliff edge.”
EU diplomats think the transition will merely extend the U.K.’s current membership, with full single-market access in exchange for free movement of people and the rule of the European Court of Justice - conditions that British Euro-skeptics will abhor.
May will also be asked to set out her preferred shape for the permanent relationship before Barnier offers a transition package. “There would be some point and usefulness to a transitional period if it is the path to this new partnership,” Barnier said last week. But neither side wants a bridging arrangement to become permanent.
Money
As the second largest economy in the bloc, Britain’s financial might is one of its strongest bargaining chips. Hammond and Davis are considering paying the EU for access to the single market. “The major criterion here is that we get the best possible access for goods and services to the European market,” Davis explained this month.
Hard-line Euro-skeptics in May’s governing Tory party, such as Foreign Secretary Boris Johnson, disagree. Johnson campaigned to leave the EU, promising to regain 350 million pounds ($440 million) a week of British contributions to the Brussels budget.
Money talks on the other side of the Channel, too. When Britain - a net contributor to the EU - withdraws, it will severely dent the funds available for the main net recipients in eastern Europe. These states are likely to push for the U.K. to keep paying, potentially until the current budget period ends in 2020, diplomats said. U.K. officials think this could persuade eastern European countries to accept British demands for some migration controls, or single-market access.
Banks