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Brussels Insider: Fazed by Phase 1?

Posted on 21 November 2017

A deep and special partnership? The EU view on Brexit

In October this year Prime Minster Theresa May appeared confident about developing a deep and special partnership with the EU – stating plainly "the ball's in your court".  Just a few weeks later and the demarcation of that partnership doesn’t seem any closer – to some, it appears even farther away. Before sketching out that deep and special partnership, the EU wants to close talks on what it calls phase 1, which covers a financial settlement, an understanding on Northern Ireland, and how to manage the rights of EU and UK citizens that have migrated across the Channel in both directions. 

In light of this, we have spoken to many of the key decision makers on Brexit in the EU to try to gain an overview of its position.

  • Senior EU sources reiterate that Brexit isn't at the top of their priority list. They say the future of Europe is most important to EU leaders.
  • It is not certain that EU leaders will sign off on “sufficient progress” at the December EU summit on 14 and 15 December.
  • There remain significant concerns on the EU27 side across all three phase 1 issues: the financial settlement, citizens' rights and Northern Ireland.
  • If the UK does not provide a detailed proposal on the financial settlement, the sufficient progress decision will be delayed.
  • EU27 solidarity on substance and process continues to be strong.
  • Discussions on transitional arrangements or the future relationship can proceed after phase 1 is successfully achieved, but not before.  

Both sides recognise that the clock is ticking but as we approach a major milestone in the December summit, there’s a lot still to be done. And both sides are waiting for the other to act first. The UK’s continued insistence on wanting to focus on future rather than the present Phase 1 agenda items is causing the EU27, led by France and Germany, to dig in.

When it comes to the money issue, the EU27 contend that there is no point building a new partnership based on trust and goodwill, if the UK runs away from promises and commitments it made before it decided to leave. Some EU officials have used the following analogy to explain its view on the financial settlement: you organise a meal in the private room of a restaurant with 27 club-member friends. Then half way through the meal you tell everyone you are leaving. Your friends say “fine, your choice, you ordered four courses, and proposed there should be a band, so please settle your share of the bill.” Whether you do or do not will determine your relationship with your friends in the future.

May agreed in Florence to pay for the remaining two years of the seven in the EU budget planning cycle that extend beyond 2019.  But there appears to be have been no provision made for previously agreed commitments such as international aid commitments, jointly offered loan guarantees, pensions for EU officials, infrastructure projects in different parts of Europe, or the cost of moving European agencies out of London.   

Some in the UK feel that its future economic and political relationship with the rest of Europe is being held to ransom by Brussels Eurocrats. And yet, somehow, both sides will have to compromise. Of the three phase 1 issues, the money matter is perhaps the simplest one to resolve as it is a question of agreeing on a number and determining a schedule for payment. Nevertheless, it has significant potential to block movement onto Phase 2 in a timely fashion.   David Davis’ speech in Germany alluding to the fact that a decision on the money will “come later” is not likely to help.

EU Council President Donald Tusk also piled on the pressure at a summit last week “we need to see more progress from the UK side. …In order to avoid any ambiguities about our work calendar, I made it very clear to Prime Minister May that this progress needs to happen at the beginning of December at the latest”.

As things stand, with a low level of trust and goodwill on both sides, one official told us it would require a “miracle” to secure a deal in December. Other stakeholders are more optimistic, hoping that in the coming days and weeks the UK is prepared to discuss in more detail the three withdrawal priorities. Even assuming a best case scenario of a deal in December, the picture for 2018 is uncertain. Many negotiation experts are saying that Phase 2 on the future and transitional arrangements will be even more complex than Phase 1. The EU negotiator says there is really only 10 months to find an agreement if there is to be sufficient time for ratification.

Within that period, it appears the negotiators on both sides have to bring about a result that some feel is impossible: allowing the UK to exit its Union with its largest and closest trading partners while at the same time delivering a significant economic dividend to the British people. 

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