(Bloomberg) -- Brexit talks resume on Monday with Prime Minister Theresa May under pressure on two fronts: European negotiators are pushing her to reveal her hand, while the opposition Labour Party has made a bid to lure May’s critics to their side.
Labour’s announcement that it wants Britain to stay in the European Union’s single market and customs union for up to four years after it leaves the bloc -- and possibly longer -- looks set to strengthen the hand of anti-Brexit Conservatives to push for a softer split. The proposal, if it shifts the debate, will delight business leaders who fear the government’s plan to leave the single market in 2019 will cause catastrophic economic damage.
The move comes just as May’s deeply divided cabinet had started to reach a consensus about what Brexit -- and the first years after the split -- should look like. As the next round of divorce talks gets under way, shifting domestic politics in Britain will once again hang over the negotiations.
“May could be forced to change her approach to the negotiations after a significant change of policy by the Labour opposition,” said Mujtaba Rahman, managing director of Eurasia Group in London.
While it’s not clear whether European officials would welcome the Labour proposal, the party will soon have the chance to test support at home for its idea. Legislation that seeks to prepare Britain for leaving the EU returns next month to Parliament, and lawmakers are expected to battle over amendments.
“Labour has created an opportunity for Britain to avoid inflicting on itself the economic costs inherent in the government’s chosen path,” former Labour Business Secretary Peter Mandelson, usually a critic of his party’s current leadership, wrote in the Financial Times.
“But achieving this depends on what others in Parliament do, including those on the Tory benches who know the risks of turning a crisis into an economic calamity. Labour has done Parliament and the public a big favor in starting what will be a complicated debate,” he said.
May’s government wants to leave the single market and customs union in March 2019, but then have a transition period of up to three years to allow both sides to adapt. Labour argues there isn’t time to negotiate a transitional arrangement as well as a final deal. Many who oppose Brexit like the Labour idea because it would also give voters more time to change their minds as the consequences of the split become clearer.
Pro-Brexit Conservatives have tended to oppose a long transition not only because it could be a first step toward reversing the referendum result, it would also mean several more years with the U.K. open to EU migration and paying into the common budget. The Tories would face fighting the next election -- due by 2022 -- open to the criticism that Britain hadn’t really left the EU at all.
“May would have a huge dilemma if a majority of MPs were to back Labour’s policy,” said Rahman at Eurasia Group. “If she accepted a Commons vote in favor of it, she would face a backlash from hardline Brexiteer Tory MPs, who might well try to oust her by forcing a Tory leadership contest.”
The next round of talks will begin about 5 p.m. Brussels time on Monday, as the EU tells the U.K. it needs more details of its position. EU officials have signaled they expect little movement, despite a series of U.K. position papers published during the last two weeks. Still, Brexit Secretary David Davis will ask his EU counterpart Michel Barnier to use “flexibility and imagination” to allow talks to move forward.
“For the U.K., the week ahead is about driving forward the technical discussions across all the issues,” Davis will say on Monday, according to his office. “We want to lock in the points where we agree, unpick the areas where we disagree, and make further progress on a range of issues.”
His goal is to make enough progress by October, when EU leaders meet for a summit, to get approval for the talks to move on to trade -- something EU officials currently say privately is unlikely as they key obstacle of the exit bill hasn’t been tackled.
The European Commission insists that some kind of progress on the divorce bill, the issue of EU citizens’ rights and a workable solution for the Northern Irish border has to be made before discussions move on to trade. A senior EU official on Friday downplayed the chance of any major advances this week in key areas such as the exit bill, while German Chancellor Angela Merkel reminded Britain on Saturday that it had to settle its dues.
Writing in the Guardian on Monday, Charles Grant, director of the Centre for European Reform, said behind the scenes talks have taken place that could unblock the issue of the financial settlement. The U.K. needs to ask for an “off-the-shelf” transitional arrangement -- meaning single market membership -- and pay out its outstanding budget commitments. Davis and Chancellor of the Exchequer Philip Hammond back the principles of such a deal, as do some senior EU officials and France, but the sequencing remains a problem, he wrote.
The Telegraph newspaper, citing U.K. officials, said there were signs of splits between EU countries, with France potentially willing to back the negotiations moving to trade in October. France proposed the U.K. continue paying into the EU budget during the transition period, the paper said.
Davis and Barnier will meet to formally open talks, and officials will then hold working groups to discuss technical details behind each side’s proposals. Davis and Barnier will then close the round of negotiations on Thursday.