No compromise in sight as EU leaders meet for summit

Updated / Thursday, 19 Oct 2017 23:03

EU leaders are meeting at a summit on Brexit

The prospect of Britain achieving a breakthrough at this week’s EU summit had long been discarded. On the three key issues – Britain’s divorce bill, the rights of EU citizens and the Irish border – London has still not done enough for the EU to believe that a disorderly withdrawal can be avoided.

For those on the right of the Conservative Party, this is proof that a "greedy" EU is just after Britain’s money, and is not interested in a deal, and that it is time, therefore, to issue a credible threat to walk away.

For one senior EU diplomat this is not a time for crisis. "We're guiding the vehicle into a parking slot and it will come out again, paintwork unscratched and the tank full," he said.

The reality is probably somewhere in between.

The question is often asked: will EU rigidity on the sequencing of the negotiations – divorce first, trade later – only embolden the eurosceptics and put Theresa May’s future at risk?

For Michel Barnier's Task Force, that may well be the case, but this is a process where, so far, principle has trumped pragmatism. Europe’s overriding concern is not the survival of the Tory Party but the protection of the European project itself.

All roads in understanding this lead back to the Negotiating Guidelines, drafted by the European Council the moment Theresa May triggered Article 50 and swiftly and unanimously adopted by the EU27 on 29 April this year. 

"[T]he Union's overall objective in these negotiations will be to preserve its interests, those of its citizens, its businesses and its Member States," the guidelines state.

Brexit "creates significant uncertainties that have the potential to cause disruption, in particular in the United Kingdom but also, to a lesser extent, in other Member States. Citizens who have built their lives on the basis of rights flowing from the British membership of the EU face the prospect of losing those rights.

"Businesses and other stakeholders will lose the predictability and certainty that come with EU law … With this in mind, we must proceed according to a phased approach giving priority to an orderly withdrawal."

The EU27, in particular France and Germany, are not in a mood to compromise on this, and every hostile headline in London hardens that mood.

The key hold up is money. In her Florence speech Mrs May offered €20 billion for 2019 and 2020. 

If Britain applies for and is given a two year transition period, that would neatly square off the divorce bill in a way that would be palatable for Conservative backbenchers - €10bn for each year, roughly what the UK pays at the moment.

But what if the transition is three years or more? And what about the commitments made by the UK as a member that only fall due in the years after 2021, those long term infrastructure projects and the so-called contingent liabilities such as pensions for EU officials and MEPs?

Until Theresa May spells out how that is going to be covered the deadlock will remain. The suspicion in Brussels is that London is deliberately holding out because they want to use money as leverage once they get into negotiations on the future trade agreement.

EU leaders are not entirely tone deaf to Mrs May’s entreaties. Within the constraints of the phased approach, they will sweeten the pill with a promise to start discussing – among themselves – how a transition arrangement might work after March 2019.

Member states with the most to lose over a no-deal breakdown – Ireland, Denmark, the Netherlands – are anxious to keep the process from coming off the rails. The Dutch prime minister Mark Rutte reportedly wants to adjust the text of the summit’s final communiqué to say that transition talks could start immediately in December the moment the divorce issues have been satisfactorily dealt with.

Dublin believes that the more preparatory work on a transition deal can be done ahead of time, the less catch-up will need to be played on 1 January next year.  A transition deal will remove the immediate calamity of customs checks on the Irish border.

Aside from Brexit, Ireland will need to nail its colours to the mast on a number of key issues.

The first is Mercosur. The EU has been working on and off on a trade deal with the Mercosur countries – Argentina, Brazil, Paraguy and Uruguay – since way back in 1999. It is politically fraught at the best of times as it would mean a big increase in agriculture imports from South America. 

However, with the US retreating into protectionism under Donald Trump, the European Commission, which negotiates trade deals on behalf of member states, believes the time is right for momentum towards a deal. The EU Trade Commissioner Cecilia Malmström wants political agreement on a deal by the end of the year.

The prize for Europe, aside from showing it can carry the global trade torch ditched by Mr Trump, is for a big increase in exports of cars, machinery and pharmaceuticals to Latin America.

But the Commission is thought to be divided on the issue, with Ireland’s Phil Hogan said to be concerned about offering too generous concessions on agriculture to push the deal forward.

The Commission’s latest offer on beef, for example, has caused panic in the farming sector, with France lobbying heavily – and supported by Ireland – at EU level for Brussels to pull back its concession.

That concession is for 70,000 tonnes of beef that Mercosur farmers could sell in Europe. 

Ireland’s argument is that Brexit is already threatening a potentially catastrophic impact on the 270,000 tonnes of beef sold by Irish farmers to the UK. If there is no short term free trade agreement reached between the UK and the EU, then that trade is in jeopardy.

Throw an extra 70,000 tonnes of Latin American beef into a European market which is already 103% self sufficient, then you will have saturation.

Brexit will also mean that the agriculture import quotas from third countries into the EU as part of the Europe’s 50-odd free trade agreements will have to be distributed among the remained 27 once Britain leaves.

That process is ongoing at the WTO in Geneva and the mood in Dublin is that that it should be allowed to conclude before any deal is struck with Mercosur, otherwise Ireland could effectively be "hit twice".

Brexit is forcing Ireland into new alliances in a re-ordered Europe. We are proud members of the free trade club, much smaller now that the UK is leaving, but our credentials on that front will be sullied if we row in whole-heartedly behind the French to block the Mercosur talks.

The other challenge for Leo Varadkar is the sudden momentum at EU level towards taxing multinational tech companies where they enjoy turnover, and not where they are registered.

Ireland objects instinctively to any tampering with our corporate tax rules. But this issue has gained sudden traction, thanks to the energy and ambition of France’s new president Emmanuel Macron. Irish officials are more than irritated. The idea, they believe, has been parachuted in with no real discussion or preparation. 

And yet, it has been fast-tracked up the agenda by the European Commission, which is clearly sympathetic to the complaint that US multinationals sell billions of euro in products across Europe and yet are only taxed where they are registered, frequently Ireland.

Ireland believes that it is not alone in opposing the measure, and that in any case, it has to be done at a global level. As such, ongoing work by the OECD on taxing the digital sphere, should be allowed to continue.

The summit will also be an opportunity for the Council President Donald Tusk to convince EU leaders that the way they steer long term EU policy has to change.

Mr Tusk’s critique is that EU leaders often set high-minded objectives at their summits, which take place in Brussels four times a year, only to have their vision frustrated and held up by the sausage machine of EU ministerial councils.

He feels that the writ of heads of government at EU level should run more smoothly and swiftly – something the European Commission and the European Parliament, who have to propose, negotiate and finally adopt the new legislation – will surely take issue with.

If need be, there should be more EU summits to make this happen, says Mr Tusk, perhaps as many as seven gatherings per year.  His belief is that on the key issues – migration, terrorism, security, prosperity and jobs – European citizens should feel their leaders can deliver results quickly.

So, the summit will not be the Brexit rendezvous that Theresa May’s minority government had hoped for. She will get scant comfort from any mollifying statements about her Florence speech; and any concessions from the EU27 are, in any case, sure to be ripped up and stamped upon by emboldened eurosceptics in her party.

That in turn will keep pressure on her continued leadership. Expect the infighting within the government and the cabinet to continue.

It’s going to be a busy – and noisy – November.