Donald Tusk, president of the European Union (EU), center left, and Jean-Claude Juncker, president of the European Commission. (Photographer: Dario Pignatelli/Bloomberg)

Brexit Talks Set to Get Messy as Unity Hits High-Water Mark

(Bloomberg) -- The first six months of Brexit negotiations were the easy part.

The European Union’s 27 remaining countries surprised themselves by defying years of talking at cross purposes to hold a united front on their approach to the U.K.’s withdrawal. As a result, the EU stood firm in denying Britain the opportunity to discuss their future trading relationship until it had persuaded Prime Minister Theresa May to make commitments first, including a 39 billion pound ($52 billion) payment plan.

That was then. With EU leaders in Brussels set to formally agree Friday that May has complied with their conditions, there are already signs that EU unity has hit its high watermark. Diplomats are warning that the next stage could be less orderly as discussions start on what sort of relationship Britain and the EU will have after Brexit.

“I have no doubt that the real test of our unity will be the second phase of Brexit talks,” said EU President Donald Tusk, who chairs summits, echoing an earlier warning from German Chancellor Angela Merkel, who said the next stage will be “incomparably more difficult.”

Financial Services

Keeping the EU singing the same Brexit tune will be crucial, one senior EU diplomat said this week. The test will come when the negotiations start to tackle different areas of potential cooperation between the U.K. and the EU, such as aviation, financial services and trade in goods, which countries place vastly different degrees of importance on. It’s got the potential to be a mess, the diplomat said.

Despite what some in the British government might think, such disunity wouldn’t necessarily suit the U.K. because it needs the EU to be able to stitch together an agreement.

May gave a presentation to EU leaders over dinner on Thursday, and was applauded for her efforts so far. But those present also left no doubts of the task ahead.

Marathon Race

“The second phase is much more difficult than the first, and the first was very difficult,” EU Commission President Jean-Claude Juncker told reporters on Friday. Austrian Chancellor Christian Kern compared the countdown to Brexit as a marathon, “and we just finished the first mile.”

The EU still agrees on its need to know what the U.K. wants before things can move on. Based on what it understands of the British government’s red lines, like stopping European citizens having the unlimited right to live and work in the U.K., the EU has signaled it’s ready to offer a free-trade deal like the one it struck with Canada. That eliminated nearly all tariffs on goods and reduced some non-tariff barriers, but doesn’t allow the “passporting” rights that would allow non-EU banks to provide services in the bloc.

Britain has signaled that’s not good enough. It wants a free-trade deal that includes financial services and possibly greater mutual recognition of technical standards in areas such as pharmaceuticals, automobiles and agriculture. Brexit Secretary David Davis said on Sunday the U.K. was looking for an agreement best described as “Canada plus plus plus.”

Some EU countries have already hinted they would be willing to explore such a relationship. Others are giving far less generous signals.

“It comes down to the fact that countries have different economic models, different sets of existing ties to the U.K., different strategic interests,” Agata Gostyńska-Jakubowska, senior research fellow at the London-based think tank Centre for European Reform, said in an interview. “The second phase of negotiations will be much more challenging for both the U.K. and the EU and it will be much more difficult for the EU to remain aligned.”

©2017 Bloomberg L.P.

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