EU Mulls Starting U.K. Trade Talks Before Fixing Brexit Bill

(Bloomberg) -- European governments may give U.K. Prime Minister Theresa May political cover by allowing Brexit talks to touch on trade before the two sides agree to a specific exit bill, two people familiar with the plan said.

Such a concession could allow May to start engaging with the EU on the “ambitious” accord she wants at a December 14 summit, by which time the new German and French governments will be in place, said one of the officials. The exact figure of the bill may not be decided until the end of the negotiations, just before the date of Brexit itself, a separate EU diplomat said on Friday.

While the 27 EU nations had wanted Britain to agree to settle its financial obligations before they talked about trade, they also recognize that a large fixed sum could make it harder for May to maintain support from those who campaigned most ardently for Brexit. Instead, negotiators will seek to agree on a formula to calculate liabilities and leave the amount until later, said the people, who asked not to be named as the negotiating strategy isn’t public.

EU demands that Britain fully repay all outstanding bills resulting from its membership of the bloc may still prove the most toxic of topics. Continental leaders in Brussels on Saturday are slated to sign off on a set of general guidelines for the talks, a draft of which explicitly calls for the U.K. to respect its “obligations” for the whole period of membership. 

“We will not discuss our future relations with the U.K. until we have achieved sufficient progress on the main issues relating to the U.K.’s withdrawal,” European Council President Donald Tusk said in a letter to the bloc’s leaders made public on Friday. This phased approach “is not only a matter of tactics, but -- given the limited time frame we have to conclude the talks -- it is the only possible approach.”

A sum of 60 billion euros ($65 billion) has been floated by EU leaders although that could run higher if they try to extend payments beyond Britain’s withdrawal date of March 2019. May’s government has said it’s willing to agree to a “fair settlement” although it has questioned the size and legality of a bill and indicated it will try to win back a share of EU assets. The challenge for May is that failure to make progress on the financial settlement may prompt the EU to hold back on discussing the trade deal she wants.

The decision on whether “sufficient progress” has been made to allow for a discussion on the future relationship will be a political call by the EU’s 27 leaders, a separate EU official told reporters in Brussels on Friday. If all goes well, this decision can be made by the end of this year, the official said, asking not to be named, in line with policy.

The official said that the cost for the relocation of the European Banking Authority and the European Medicines Agency from London to other EU countries will also be part of the exit bill settlement, while the procedure and the timeline for the transfer will be decided in the next meeting of the bloc’s leaders in June.

Summit Annexes

In addition to approving the negotiating guidelines, EU leaders at the Brussels summit will also debate the content of an annex at the request of the Irish government. Leaders will recognize that in the event of a united Ireland, Northern Ireland would become part of the EU in line with the 1998 Good Friday agreement, according to a draft obtained by Bloomberg News. Both the Irish and U.K. governments have said there’s no plan for a vote on reunification anytime soon.

Leaders may also adopt a statement clarifying that their Brexit guidelines do not constitute a legal precedent “for any relations between the Union and third countries or international organizations,” according to separate draft also obtained by Bloomberg News. Greece and other countries asked for this addition, a Greek diplomat said on condition of anonymity.

The European Commission is scheduled to circulate on May 3 a more detailed mandate for chief negotiator Michel Barnier, which national governments will also need to approve on May 22, while substantial negotiations on the terms of separation will only start after the U.K. elections on June 8.

--With assistance from Ian Wishart Eleni Chrepa Dalius Simenas Viktoria Dendrinou and Sotiris Nikas

To contact the reporters on this story: Nikos Chrysoloras in Brussels at nchrysoloras@bloomberg.net, Dara Doyle in Dublin at ddoyle1@bloomberg.net.

To contact the editors responsible for this story: Vidya Root at vroot@bloomberg.net, Andrew J. Barden, Kevin Costelloe