Talk is cheap, but money is still the issue for Brexit negotiators

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Theresa May has conceded ground on the divorce bill, the transition period, and the role of the ECJ (Source: Getty)

The mood music around the EU summit last week was kinder on Theresa May’s ears than most of the political noise she has been hearing lately – both Germany’s Chancellor Angela Merkel and France’s President Emmanuel Macron went out of their way to seem sympathetic.

Tone means something, but the substance has not changed. As soon as the summit was over, Merkel and Macron insisted that the UK must increase its divorce payment before talks on trade and transition can begin.

There is a political game being played here. In response to the EU playing hardball over Brexit, the UK has made significant concessions and sought to present itself as the reasonable party. To the neutral or less-partisan observer, the EU was increasingly in danger of coming across as obstinate and surly.

Read more: Tusk: EU leaders give green light to prepare for Brexit trade talks

Indeed, some member states and even some of Europe’s leading industrial groups were beginning to express concern about the delay in starting trade talks. The summit was an opportunity for EU leaders to soften the tone and appear conciliatory.

But the substance of the EU position has not changed.

The sticking point is the financial settlement.

The summit leaders stuck to the letter of the EU's Article 50 negotiating mandate that decrees a strict phasing of the negotiations.

The EU insists that it will not negotiate on future trade relations or a transition deal until the divorce bill and other first order issues such as citizens’ rights and the Northern Ireland border are settled. The UK says that it is unreasonable to expect it to settle these questions before discussing the future overall relationship, given that the issues are inextricably linked.

The EU has sought to present the UK negotiators as the intransigents for not setting down on paper and in detail the specific commitments the British government will make on the financial settlement. However, following May’s Florence speech, in which she said the UK would honour its financial obligations and pay €20bn to the EU during a transition period after March 2019 (matching the net financial contribution it would have made to the end of the current EU budget phase in 2020 had it remained as a member of the EU), it is more difficult for the EU to present the UK as the guilty party.

Following the Florence speech on 22 September, the EU’s chief negotiator, Michel Barnier, spoke of a new dynamic in the negotiations, and the government had harboured hopes of a breakthrough.

These were quickly dashed. Barnier’s reported informal request to move the negotiations to a second phase was rebuffed by a hardcore of EU states, including Germany and France.

Toeing the EU party line, Barnier repeated several times at the press conference after the fifth round of negotiations that he was not interested in the UK making concessions, but only in following the process that the EU27 had set out in the Article 50 guidance at the start of the talks.

Yet the UK has made several significant concessions to push the talks to the next stage of discussing the substantive question of future trading relations. May has conceded ground on the divorce bill, the transition period, and the role of the European Court of Justice – all at some cost to her domestic political position.

If the EU refuses to budge from its obdurate insistence on settling the divorce bill and all first stage issues before the talks move on to trade, it runs the risk of being seen – as some have suggested – to be intent on punishing the UK to prove a point. Some people may even draw the conclusion that the EU is prioritising a settlement on its own budget over the issue of trade, upon which the jobs and livelihoods of many millions across the continent depend.

A breakthrough is possible at the next EU summit in December, but the risk of breakdown is still high if the EU continues to play hardball.

The parallels between the EU’s approach to the Brexit negotiations and those with the Greek government over finishing its second bailout programme in 2015 are striking.

However, the UK is not Greece and it would be a mistake for the EU27 to proceed as if it were. Unlike the Syriza government in Greece, May’s government would not survive a humiliating deal, and would prefer to walk away than accept one.

Read more: Editor's Notes: Work on a trade deal’s begun, even if the EU hasn’t noticed