EU Said to Rule Out U.K. Trade Talks Before Brexit Bill Deal

(Bloomberg) -- European Union officials are ruling out any discussions with U.K. Prime Minister Theresa May over a post-Brexit trade deal until she agrees to settle Britain’s financial commitments to the bloc.

In a sign the EU is toughening its stance as Britain prepares to trigger two years of negotiations, two European officials familiar with the plan said in the best-case scenario it may take until early 2018 to find common ground on the bill.

The EU is determined to set its own pace and may not even reveal the sum it wants the U.K. to pay until after German elections in September, one of the officials said. Both spoke on the condition of anonymity because the deliberations are confidential.

“We have to resolve the British budget issue straight away,” Sandro Gozi, Italy’s junior minister for European affairs, said in an interview in Rome on Friday. “The U.K. will have to respect and fulfill all its obligations as a member state until the last day and the last pound.”

The EU’s hard line increases the chances of the U.K. walking away from the Brexit talks without a deal or even before the sides turn to the matter of a trade pact. May’s government has already questioned the size and legality of any exit fee and wants to discuss the divorce and future trading relationship at the same time.

The bill to settle the U.K.’s liabilities is estimated to run to about 60 billion euros ($64.5 billion). U.K. Foreign Secretary Boris Johnson told the BBC this week that “it is not reasonable, I don’t think, for the U.K. having left the EU, to continue to make vast budget payments.”

The U.K.’s EU counterparts will insist on concrete progress in the negotiations and acceptance of the bill over the initial nine months before opening the door to any planning of Britain’s post-Brexit commercial links to the bloc, both officials said. Refusal to pay up would be seen as a deal-breaker for the negotiations, leaving the U.K. without any economic arrangement with the EU.

The clock will start ticking on the two-year negotiation period as soon as May invokes Article 50 of the Lisbon Treaty, a step she’s pledged to take before the end of this month.

“The situation after Brexit cannot be as profitable, as good, as the situation before Brexit,” EU Economy Commissioner Pierre Moscovici said in a Bloomberg TV interview in Baden-Baden, Germany, on Friday.

International Courts

While some of the EU’s other 27 countries have come round to the U.K.’s way of thinking on the timetable, according to a third official, they probably don’t have sufficient influence to change the EU’s plans. The order of talks will be the first matter to be discussed when the two sides first engage.

Britain’s rejection of the bill is prompting the EU to tell companies to be prepared for business disruptions as a result of the possibility of a U.K. exit from the bloc without an agreement, according to one of the officials, who said the British government has given itself little room for compromises that would facilitate a Brexit accord.

The EU is confident that, in the event of a U.K. departure without a deal, European demands for the country to meet its financial commitments to the bloc would be legally solid and hold up in international courts, said the official, who signaled London would complicate post-Brexit life for itself by engaging in a legal battle over money while seeking to forge new economic relationships with the rest of the world.

Substantive talks won’t begin before May at the earliest, when EU member states sign off on a mandate for the EU’s chief negotiator, Michel Barnier, and will take place in successive rounds in London and Brussels. The EU isn’t prepared to accelerate the process over the Easter break, after the U.K has taken over nine months since the referendum to trigger Article 50, one of the officials said.

Barnier will operate out of the European Commission, the EU’s executive arm.

“What we have been doing here in the commission is preparing ourselves very well, both internally and in our contacts with the 27 capitals, for the formal notification that we expect to arrive soon,” spokesman Alexander Winterstein told reporters in Brussels on Friday.

--With assistance from Nikos Chrysoloras John Follain and Matthew Miller

To contact the reporters on this story: Ian Wishart in Brussels at iwishart@bloomberg.net, Jonathan Stearns in Brussels at jstearns2@bloomberg.net, Heather Harris in Brussels at hharris5@bloomberg.net.

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net, Nikos Chrysoloras, Kevin Costelloe