Italy Panic Is Bad for U.K. as EU Seeks Brexit Consequences

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The crisis in Italy could be bad news for Britain.

Italians’ flirtation with parties critical of the European Union is reminding the bloc why it wants to show the U.K. what it will lose with Brexit. It doesn’t want Britain to enjoy the same benefits of membership once it’s gone in case it tempts others to follow.

The turmoil in Italy will only strengthen EU governments’ resolve that the U.K. suffer the consequences of its decision, three people familiar with the Brexit negotiations said. What makes it worse for the U.K. is that the Italian crisis, with an early election looming, coincides with the most crucial time in the U.K.’s withdrawal process.

The Italy situation “complicates matters,” pro-EU Labour lawmaker Hilary Benn, who leads the U.K.’s influential House of Commons Brexit Committee, told Bloomberg TV in an interview. “One of the motivations for the EU in these negotiations is -- as they’ve said repeatedly and publicly -- that the U.K. can’t have as good a deal outside the European Union as we have had inside.”

The EU’s chief Brexit negotiator, Michel Barnier, stepped up rhetoric last weekend on the need for the U.K. to be worse off. It was sparked by last week’s round of negotiations in Brussels in which European officials said they were taken aback by how much the British government wants to continue after Brexit as if Brexit never happened.

Read more: Bill Gross Had Nightmare Day as Italy Roiled Bonds Worldwide

“When it comes to the economy, and foreign policy, the best way to influence the decision of the European Union is to be in the European Union,” Barnier said in a speech on Saturday. Leaving the EU “has consequences,” he said.

A key effect of Britain’s decision to stop European citizens from living and working freely in the country and to end the jurisdiction of the European Court of Justice is that it can no longer retain the benefits of the bloc’s single market, the EU has said.

But the detail of future ties remains to be decided and the U.K. is pushing for a relationship of equals. That’s the sort of argument the U.K. may find more difficult to win in light of the euroskeptic surge in Italy, the people familiar with the Brexit talks said.

One indicator is the EU’s opposition to the British government’s plan for a system of mutual recognition of standards that would allow the country to have access to the EU market while being free to set its own rules. Also, the European Commission recommends that the U.K. shouldn’t be a member of law enforcement agency Europol, shouldn’t have a major role in foreign policy decision-making and shouldn’t be able to participate fully in the Galileo satellite navigation project.

It’s going to be a “very difficult summer” for Brexit if there isn’t much progress before an EU summit in June, Irish Foreign Minister Simon Coveney said in a speech in Dublin.

Italian Message

For Brexit talks to succeed, the U.K. must recognize that its “everything stays the same” stance is unacceptable to the EU, an EU official said last week.

Brexit negotiators are seeking to conclude agreements on separation and the principles of future EU-U.K. ties in October. EU officials say the deal needs to send a message to euroskeptics in Italy and elsewhere that the bloc won’t adapt its rules to suit countries that want to leave.

“One of the greatest challenges the European Union faces today is the fact that the advantages resulting from a country’s membership in the Union are simply taken for granted,” Luxembourg Prime Minister Xavier Bettel told the European Parliament on Wednesday.

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