Theresa May, U.K. prime minister, leaves number 10 Downing Street following a meeting with Estonia’s Prime Minister Juri Ratas in London, U.K. (Photographer: Luke MacGregor/Bloomberg)

May’s Precarious Position Makes Europe Wary of Rejecting Brexit Plan Outright

(Bloomberg) -- The European Union is set to throw embattled British Prime Minister Theresa May a lifeline in Brexit talks because of concern that the biggest risk to getting a deal done is now whether she can cling to power.

EU officials say negotiators won’t reject outright the U.K.’s blueprint for how to leave the organization despite opposing several major elements of it. May’s plan to keep the U.K. closely tied to the EU’s single market after Brexit, the core of her policy paper published on Thursday, will kick start talks that had hit a brick wall after more than a year of back and forth.

The stance highlights how precarious May’s position has become. A week that started with a rare show of unity on Brexit by her government then led to two senior ministers quitting within 24 hours of each other and rebels within her own party dismissing her plan as a betrayal of what voters decided in the 2016 referendum.

U.S. President Donald Trump then dealt a blow, saying May’s plans would end any hopes of a trade deal with the U.S. Her version of Brexit would mean negotiating with the EU rather than the U.K. “so it will probably kill the deal,” Trump said in an interview in the Sun newspaper published on Friday at the start of his three-day tour of the U.K.

Many in the EU now don’t want to risk the consequences of immediately rebuffing the U.K.’s most comprehensive policy document since the talks began, officials said.

After months of infighting in Britain as the continent looked on, it means the next hurdle will be the EU’s remaining 27 countries having to confront their own differing views on how far to push Britain into greater concessions.

Brexit Vision

The British government is proposing a wide-ranging economic and trading relationship, with interlinked customs regimes and identical regulations for industrial goods and agricultural foodstuffs. The vast U.K. services sector wouldn’t be tied closely to the EU, though, because the government in London says the bloc’s conditions would be too strict. Banks in particular are set to lose current levels of access to the EU market.

Read More: What Does the U.K. Want From Brexit?

In many areas the government’s “white paper” satisfies the EU’s most basic demands for a future relationship, and goes further than many in Brussels thought possible just a few months ago. The U.K. is promising not to undercut EU standards or antitrust policies, and to respect the European Court of Justice as the ultimate arbiter of the rules the U.K. sticks to.

But while the U.K. insists that’s a generous offer, the bloc considers it a bare minimum and it’s unlikely to trigger any wholesale concessions from its side. Michel Barnier, the EU’s chief Brexit negotiator, responded by saying an “ambitious” free-trade area deal is on offer, yet the U.K. wants a far closer relationship than that.

The “divide between EU-27 and U.K. has not significantly narrowed,” said Fabian Zuleeg, chief executive of the European Policy Center, a think tank in Brussels.

Jury Is Out

For now, May doesn’t face an immediate threat to her job. Dissidents among her governing Conservatives have begun formally calling for a vote of no confidence in her leadership, but it’s not clear that they will have enough support to force her out. Meanwhile, she’s been leaning on the biggest opposition party to see if she can get her plan through the U.K. Parliament.

Representatives of EU governments will deliver their first official verdict on the proposals when they meet in Brussels on July 20. They must decide how far to accept the U.K.’s demands for bespoke access to the EU’s markets in areas like financial services.

The U.K wants the EU to adapt its rules on equivalence for financial services, for example by abandoning the power to unilaterally withdraw rights at only 30 days notice. There are differing views within the EU on this.

The question of whether the U.K can remain in the single market for goods but not services also divides the bloc. Hard-line countries say the single market can’t be fragmented in this way, while others are more sanguine, especially if the U.K. were to cave in other areas.

The EU will make sure the plan doesn’t undermine the “integrity of the single market,” Peter Ptassek, Germany’s Brexit coordinator, said in a tweet.

Border Question

The U.K.’s customs plan will be one of the most pressing questions because Britain thinks it will solve the thorny problem of how to keep the border between Northern Ireland, a U.K. province, and the Republic of Ireland, an EU member, invisible.

Read More: QuickTake on Why Britain’s Headed for a ‘Soft’ Form of Brexit

The EU is likely to criticize the complexity of the U.K.’s customs proposals and will probably demand a rethink, two of the officials said.

Negotiators want to conclude an agreement on the future relationship by October. It won’t be legally binding, though it will form the basis of trade talks when the U.K. is out of the bloc and during a transition period lasting until 2021.

EU countries disagree on how detailed the agreement should be, meaning some of the questions raised in Thursday’s document may not be answered until the U.K. has left next March.

©2018 Bloomberg L.P.

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