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EU leaders raise hopes of Brexit breakthrough

European Union leaders have raised hopes of an imminent breakthrough in the deadlocked Brexit talks, as negotiators return to the fray this week.

As Britain's Brexit secretary Dominic Raab prepares to meet his EU opposite number Michel Barnier in Brussels on Monday, the EU's top brass have been making emollient noises. And later this week the EU is expected release its own proposal to resolve the impasse.

"I have reason to think that the rapprochement potential between both sides has increased in recent days," European Commission head Jean-Claude Juncker told reporters in Austria at the weekend. Mr Barnier reportedly told Brussels-based EU diplomats that "the atmosphere has improved".

European Council President Donald Tusk separately said at the weekend that "there is a chance to have an accord by the end of the year", while Ireland's Europe Minister predicted it could even be agreed "in the next 10 days".

The flurry of activity comes before Europe's national leaders, including British prime minister Theresa May, gather at a summit in Brussels on October 17 to try and finalise the Brexit deal. This is seen as the threshold point that will signal whether a deal is achievable, although another summit is also likely in mid-November.

But beneath the optimism there are suspicions in London that the EU's newly positive rhetoric may simply be political window-dressing for Mr Barnier to again push a hard bargain onto Mr Raab, while trying to frame Britain as the intransigent party.

The EU will ramp up pressure still further on Britain this Wednesday, when it is expected to release its contingency plans for a no-deal Brexit. These plans are reportedly less extensive and flexible than those recently released by the British government. The EU's plans could spell delays and disruptions to flights and road transport in the event of a hard Brexit, increasing the urgency to find a deal.

Mr Raab and Mr Barnier are trying to finalise two separate agreements. One is the withdrawal agreement, which underpins the 'Article 50' process of Britain's official exit from the EU at midnight Brussels time on 29 March next year. This is largely agreed - the persistent snag has been a dispute about what to do with the politically volatile region of Northern Ireland if the two sides don't see eye to eye in future.

The withdrawal agreement ensures there will be a two-year transition period, so that there is no regulatory, administrative and customs 'cliff-edge' on 30 March.

The second is a 'framework' agreement that outlines what the future cross-Channel economic, political and security relationship will look like - laying the basis for another long and tough negotiation during the transition period. Mrs May's 'Chequers' proposal puts forward an intricate plan that aims to minimise disruptions to goods trade between Britain and the Continent, and also to avoid a visible, physical border or checking process either on the island of Ireland or between Northern Ireland and the rest of the UK.

Reports last week suggested that Mrs May might try to clinch the withdrawal agreement by offering to keep Britain in the EU customs union for an indefinite period, until a solution to the Irish border is found.

But she'll have to persuade the EU that she can get this past the British parliament, where many of her own backbenchers will chafe against the limits this will place on Britain's ability to strike free-trade deals with other countries such as Australia.

Meanwhile, the EU is expected to release this week its official response to the 'Chequers' proposal for the framework agreement. Media reports at the weekend suggested Brussels will reject Mrs May's proposals for a frictionless trade system, instead offering a less comprehensive trade deal and requiring closer regulatory and policy alignment with the EU.

This may prompt some leading detractors of 'Chequers' in Mrs May's own Conservative Party to demand that she swerve course and seek a free-trade agreement (FTA) more like that which Canada has with the EU. Because that FTA was designed for two countries with far less integrated economies than Britain and the EU, this proposal is known as 'Canada-Plus', 'Canada+++', or even 'Super Canada'.

"Chequers will evolve or die," said Alan Winters, director of the UK Trade Policy Observatory. "It has to evolve towards joining the European Economic Area, which leads towards full integration; or it has to evolve towards Super-Canada. But Super-Canada has all the problems of Chequers plus some more."

The Brexiteers' FTA proposal does not in and of itself resolve the issue of Northern Ireland, and would potentially require a complex and potentially costly rules-of-origin regime. But the Tory rebels may dig in, and potentially have the numbers to defeat Mrs May and her allies in parliament - unless she can take the politically difficult step of winning round some or all of the opposition Labour Party MPs.

Meanwhile, the European parliament will be watching to ensure that Britain isn't given too much latitude to pick and choose among the EU's benefits and costs.

"I'm somewhat surprised by how far the EU has gone," said Edgar Morgenroth, an economics professor at Dublin City University. "He's given away things that could potentially threaten the integrity of the single market."

Source: Financial Review

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