“The day after we vote to leave we hold all the cards and we can choose the path we want,” Michael Gove told his Vote Leave campaign in a speech a month before last year’s referendum. “The process and pace of change is in our hands.”
The Brexiteers have rightly been reminded of their false promises of £350m a week for the NHS. But they also misled us by suggesting that leaving the EU would be easy. Gove’s description of the balance of power is totally at odds with the four days of UK-EU negotiations in Brussels this week. UK ministers are starting to realise they were wrong to lazily assume the EU27 would give them a good deal because they want to sell German cars, Italian prosecco and French cheese to us. “We are not the side who needs a deal the most,” one EU official told me.
There is immense frustration on the EU side that the UK has not engaged on the issue that could wreck the talks – Britain’s exit payment. This week UK officials challenged the assumptions behind the EU’s calculations but said nothing about what the UK is prepared to pay. Before the session, David Davis, the Brexit Secretary, had disowned Boris Johnson’s loose talk that the EU could “go whistle” for its money. Last week, Davis hinted at payments after the 2019 leave date, saying the Government's obligations to the EU "will survive the UK's withdrawal". But this week, he rowed back, not recognising the phrase "net flow” on future payments. Even some British negotiators are privately alarmed by the ever-shifting lines of their political masters, so it’s no wonder the EU side is perplexed.
It seems the UK is stalling because “the money” is its strongest card. Michel Barnier, the EU’s chief negotiator, told Davis he wants to see UK proposals at next month’s negotiating session. But that looks unlikely even though, according to EU diplomats, Barnier issued an ultimatum to Davis this week. One source described Barnier’s message as “this is going nowhere unless you start taking clear political positions – starting on financing”. He added: “People are fed up with being messed around. They want to get down to business, but the moment they go into details they hit a brick wall.”
It is wrong to suggest that Barnier wants to punish Britain. What he does want is to succeed Jean-Claude Juncker as European Commission president; that means getting a deal to ensure stability, but one which protects the EU project by denying the UK terms as good as it enjoys now.
Some Brussels insiders expect an “autumn of discontent” and a breakdown of the talks. They suspect that Theresa May’s personal involvement would then be needed to get them back on track.
But all roads lead back to the money. May has not prepared the ground for the climbdown she will have to make to secure a deal. She is putting off the day when she breaks the bad news to hardline Brexiteers, who insist the UK should not pay a penny more than its membership fee until the day it departs. But her fragile position makes it harder to confront them.
The news that Philip Hammond, the Chancellor, is winning a cabinet battle over a transitional deal of two or three years after the UK leaves, is a welcome outbreak of sanity. But it would be worthless unless Britain strikes an agreement with the EU; we would be back to the “cliff edge” departure, which business fears and studies suggest could reduce trade by 40 per cent and annual income per head by 2.6 per cent.
At some point, May will have to bite the bullet and agree to pay up. The two sides may not be as far apart as they appear and the proposed transitional phase could bridge the divide. If the UK paid its £10bn-a-year EU subscriptions for 2018 and 2019, and continued them for another three years, the EU could claim it had squeezed £50bn out of the stingy Brits, while UK ministers could argue they had cut the EU’s outrageous £100bn demand to £30bn as we would be paying our subs until 2019 anyway.
But securing a deal will also require a different attitude and a more positive engagement by the UK. Some EU politicians suspect the mooted transitional phase is a ruse to allow the UK to keep the benefits of the single market and customs union without any of the obligations. They, like hardline Brexiteers, will insist any such deal is strictly time-limited.
The EU is not bluffing when it says Britain must show the colour of its money. Glacial progress, the UK's lack of clarity and the political uncertainty in London, have persuaded EU member states to draw up contingency plans for no deal. “We hope for the best but are preparing for the worst,” said one EU diplomat.
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