In its meeting of December 14-15, the European Council should be deciding whether to launch the second phase of the Brexit negotiation which is the discussion on the future relationship between the UK and the European Union after Brexit.

This is eighteen months after the Brexit referendum and almost nine months since British Prime Minister Theresa May triggered article 50 of the Lisbon treaty launching the two-year negotiating process allowed by the treaty to organize the withdrawal of the UK from the EU.

The political will was there on both sides but a last-minute row with the Northern Ireland Unionist party DUP is currently delaying the process, with no certain outcome at this stage.

Hoping a solution will be found, let’s look at the situation as it developed since the beginning of the negotiation.

The Division in Two Phases

When the European Council agreed on ‘guidelines’ for the Brexit negotiation on April 29 of this year, it made a clear difference between the settlement of the past and the negotiation of the future relationship between the UK and the EU 27.

According to article 50 of the EU treaty, the ‘withdrawal treaty’ is a specific instrument which should be agreed to by a qualified majority before the end of 2 years after the procedure has started. The negotiation on the future relationship however will take more time and will be conducted on the model of trade negotiations between the EU and third countries, which require, at the end of the process, an agreement by all EU member states, ratified by national parliaments.

Nothing in article 50 prevents the two negotiations from being conducted in parallel but the European Council guidelines state that the second phase will only start when there has been ‘sufficient progress’ in the first one, a formula deliberately ambiguous, leaving the last word to the EU heads of government.

The UK government at first tried to resist the phasing of the talks but ended up approving it, when its negotiating team realized that they would need time anyway to agree amongst themselves on what future status they wanted.

At this stage, the internal debate in the UK remains wide open over the nature of the new status – the remainers wanting the UK to remain at least in the customs union and internal market, like Norway. Some of the most extreme leavers are pushing for a unilateral withdrawal without any agreement, the relationship being then only based on WTO rules. In the middle are those who want to conclude an agreement similar to the Comprehensive Economic and Trade Agreement (CETA) recently concluded between the EU and Canada. This internal debate still continues and this uncertainty has had a negative effect on the discussion of the first phase.

The three issues in the first phase

Even if the withdrawal treaty will need to address many other technical problems, the EU 27 identified three main issues on which there should be ‘sufficient progress’ in order to proceed to the second phase:

  • The rights of the EU citizens who reside in the UK and of the UK citizens residing in one of the 27 other states at the time of the withdrawal: The EU point of departure was that they should continue to enjoy the same status as before. The UK side, while agreeing in principle, wanted to introduce limitations in the time and restrictions for family reunion but above all refused to recognize any continuing (direct) competence of the European Court of Justice (ECJ) in the UK after Brexit.
  • The ‘financial settlement’: from the EU point of view, it should cover all UK commitments made under the current EU multi-annual financial framework (MFF) and a proportional contribution to the pensions of EU personnel until the day of Brexit. For a long time, the UK side refused to endorse this approach, the debate in London being concentrated on the final figure, with some, even inside the government, arguing that there was no legal obligation for the UK to pay anything at all – or that the financial issue was merely a ‘payment’ from the UK for the concessions which would be included in the new trade relationship.
  • The specific problem of the border between the republic of Ireland and Northern Ireland: the absence of a border between the two was an important element of the settlement of the long conflict which ended with the conclusion of the so called ‘Good Friday’ agreement in 1998. If the UK leaves the internal market and the customs union of the EU, this border will reappear unless very specific solutions are found.

The talks on these three issues took place in a number of formal negotiating sessions presided by minister David Davis for the UK and ex – commissioner Michel Barnier for the EU 27, supported by strong teams at working level. At one point on September 22, as the negotiators were turning in circles, the British prime minister Theresa May made a speech in Florence offering some useful – but insufficient – concessions.

The aim was to achieve ‘sufficient progress’ before the European Council of 19-20 October. Substantial progress was made on the citizen’s rights issue by that time. But the UK could not agree on a position about the financial settlement other than have the prime minister offer a 20 billion contribution for a two-year transition period after Brexit. There was not the beginning of a solution to the Irish problem.

A new deadline was therefore set for the December European Council. The timing is indeed of great importance due to the fact that ‘the clock is ticking’: a final withdrawal agreement needs to be concluded by the end of March 2019 if the UK does not want to fall from the ‘cliff edge’. This must be the viewed against the backdrop of the increasingly nervousness of the financial industry in London. Leaders in that industry are unhappy about not knowing what the future will look like and are openly critical of the incapacity of the British government to get its act together.

The Progress Made in the Last Weeks

There is a lot of political will on both sides to reach an agreement in December. A major breakthrough came at the end of November when the British government accepted in principle the methodology suggested by the EU for the financial settlement. Work had also progressed on the two other issues, even if the Irish problem continues to be under active discussion. There is thus reasonable hope that an agreement will be reached in time on a common document, which the EU side would consider achieving ‘sufficient progress’ in order to start the second phase.

Theresa May was invited for a lunch with the President of the European Council Jean Claude Juncker on December 4 in order to finalize the document, which had been elaborated in almost nonstop talks at working level in the weeks before. Here are the main agreements it contains:

  • On citizen’s rights, the UK agreed to take ‘due regard’ of ECJ rulings before Brexit and will in certain cases ask the ECJ opinion on the interpretation of EU law. These opinions will not be binding and the ECJ’s supervision of EU citizens’ rights will end after a certain number of years (still to be agreed, probably 10). A new independent authority will be created in the UK to monitor individual citizen’s rights cases. Still under discussion is the definition of family reunion (what the EU asks goes beyond what the UK offers its own citizens) and the right of British citizens living in an EU country on Brexit Day to retain the ‘right … to reside and move freely in the whole EU’ (and not only where they reside at that time).
  • On the financial settlement, as mentioned above, the UK now accepts the methodology suggested in the EU guidelines. This means that it will cover its budget share in the EU’s current multi-annual financial framework (MFF) until it runs up at the end of 2020 (this is what Theresa May had already accepted in her Florence speech) plus the so called ‘reste a liquider’ (the outstanding commitments for projects in the budget which are not yet completed) and contingent liabilities, like loans to third countries. The UK will also cover the ongoing costs of funding the European Union civil servants’ pensions. All these contributions will only be made, as for the remaining member states, when the contribution needs to be paid (which for some pensions, for example, might be payable in more than 30 years from now).
  • Major efforts were made in the last week of November to accommodate the Irish prime minister Leo Varadkar who threatened to block the agreement if a satisfactory solution was not found to the Irish problem. He was all the more nervous since his minority government was about to lose a confidence vote in the Irish Parliament. This did not happen and an ambiguous language was introduced in the text ensuring a continuing ‘regulatory alignment’ between the North and the South of Ireland for the matters mentioned in the Good Friday agreement.

The Phone Call from the DUP

Prime minister Varadkar agreed with the text on the morning before the lunch between Theresa May and Jean Claude Juncker on December 4. But the Irish were so relieved by this outcome that they leaked the text leak before the lunch. When it fell into the hands of the leaders of the Belfast Unionists of the DUP party, they interpreted the formula as implying that EU regulations would continue to apply to Northern Ireland, separating it ‘de facto’ from the UK regulatory regime. This in their view, might be a step towards the reunification of the Island to which they are vehemently opposed.

The chair of the party Arlene Foster telephoned Theresa May during the lunch to express her disagreement. She said (and repeated publically later) that her party could never countenance ‘any form of regulatory divergence which separates Northern Ireland economically or politically from the rest of the United Kingdom’.

Theresa May decided it was wise not to go further before sorting out this problem. Rightly so, given that the Tories were obliged to forge an alliance with DUP in the House of Commons after the Conservative party lost its majority in the June 8 election. The situation is also rendered delicate by the fact that there is currently no executive-body governing Northern Ireland.

At this stage there is no solution in sight and some representatives of the DUP said that they needed time and did not consider themselves bound by the deadline imposed by the EU 27. On the other hand, the ‘regulatory alignment’ formula has reopened the fight in London between those who would like the UK to remain ‘aligned’ with the EU by staying in the EU internal market and the customs union and those who do not want any alignment at all anymore between the EU and the UK.

The Way Forward

A certain time is needed before the 14 December European Council to allow EU capitals to look at the common draft. It was foreseen also that the European Council would agree on ‘guidelines’ for the negotiation of the second phase, or at least for the transition period needed to negotiate the future relationship. This is why the president of the European Council Donald Tusk imposed a deadline for the agreement by the end of this week, Friday 8 December.

The agreement should at least be made before the Foreign and Europe ministers meet in the framework of the General Affairs Council on December 12 to prepare the conclusions of the European Council. It is not customary for the European Council to proceed itself to a drafting exercise at the last minute, even if there are some exceptions to this rule.

The political will on both sides of the channel should be strong enough to allow a solution to be found to the Irish problem and a decision to go to the second phase by the end of this year at the latest. The negotiators know that the industry and the London financial institutions would react dramatically if the Brexit talks gave way to a ‘no-deal’ outcome.

A no-deal would also be catastrophic for the DUP and Ireland in general. Their leaders know it very well.