May and Juncker dig in after Brexit talks fail to make progress

British prime minister Theresa May's attempt to unblock stalled Brexit talks by travelling to Brussels to see European Commission president Jean-Claude Juncker yielded little, with both sides issuing a statement that entrenched their previous stances.

Ms May made the journey, after calls to Taoiseach Leo Varadkar, German chancellor Angela Merkel and French president Emmanuel Macron, to try to break a deadlock that has some senior ministers in her team doubtful that the rest of the European Union even wants a deal.

European leaders meet in Brussels on Thursday and Friday, and both the UK and EU had originally aimed to use this summit to announce that “sufficient progress” had been made in talks so far to allow discussion of trade and transition arrangements – the key questions for British businesses. The latest draft of the summit conclusions on Brexit suggests that now won’t happen.

A brief statement after Ms May and Mr Juncker's dinner on Monday gave little away. "Both sides agreed that these issues are being discussed in the framework agreed between the EU27 and the United Kingdom, " it said, adding that Ms May and Mr Juncker "reviewed the progress made in the Article 50 negotiations so far and agreed that these efforts should accelerate over the months to come".

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While the UK could take some encouragement from the word “accelerate”, the reference to working in the “framework agreed” indicated there was no prospect of the remaining EU countries agreeing to change their chief negotiator Michel Barnier’s mandate. Britain had suggested he could be given more latitude.

Mr Barnier is expected to brief the bloc’s European affairs ministers in Luxembourg on Tuesday, where the summit’s draft statement on Brexit will also be finalised.

Irish question

Talks broke up last week with each side demanding the other shift position. Britain won’t say what it’s willing to pay as it leaves the EU until it knows more about what kind of trading relationship it might get. The EU won’t discuss trade until Britain has said more about what it’s prepared to pay.

Other questions still unresolved are the rights of European citizens living in Britain, and the question of how the Irish border should be managed. Again, Britain argues that the Irish question can only be answered once the trading relationship is settled.

The latest draft of the conclusions for this week’s summit included tougher language on the progress that Britain will need to make, adding extra hurdles for the UK to clear before negotiations can move on to trade. EU leaders are set to demand a role for the European Court of Justice in guaranteeing citizens’ rights, in a direct challenge to one of Ms May’s red lines.

On the UK side, the feeling is that enough ground has been given. Speaking on condition of anonymity, a person familiar with the UK position said Ms 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 deadlock is hurting confidence. The two sides have until March 2019 to thrash out a deal on their future trading relationship as well as the divorce terms, but British chancellor of the exchequer Philip Hammond has emphasised that Ms May's proposed transition arrangement as Britain leaves the EU loses its value to business if it isn't agreed soon. The pound weakened as much as 0.3 percent against the dollar earlier on Monday, on the report of the UK's concern about the lack of agreement.

One ray of hope for the UK came with a draft German proposal calling for a “comprehensive free-trade accord” with Britain. While it doesn’t constitute the formal position of Dr Merkel’s government, it suggests that Europe’s biggest economy is looking ahead to the prospect of a future deal.

The four-page document, dated October 11th, urged the EU avoid a piecemeal approach if and when talks with the UK get under way. It proposed instead a broad partnership that includes “at a minimum” the fields of foreign and security policy; fighting terrorism; co-operation on criminal justice; agriculture and fisheries; energy; transport, and especially air transport; research and digital issues.

Bloomberg