Theresa May, U.K. primer minister, departs number 10 Downing Street to attend a weekly questions and answers session in Parliament in London, U.K. (Photographer: Luke MacGregor/Bloomberg)

U.K. Warns EU Faces Choice of May’s Brexit Plan or Risk No Deal

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The U.K. government told the European Union it must compromise on its opposition to Prime Minister Theresa May’s plans or risk a “no deal” Brexit, as the timeline for reaching an agreement slipped back.

Even so, the pound rallied to its highest level for three weeks on Wednesday, despite minimal evidence of any thaw in the frozen Brexit negotiations.

“I truly feel that we are at a fork in the road,” said David Lidington, May’s deputy, in a speech at a conference of business leaders in France. “We face the choice between the pragmatic proposals we are discussing now with the European Commission, or the risk of there being no deal.”

Lidington intervened as talks remained deadlocked, despite months of trying for a breakthrough. Negotiations will resume between the U.K. and the EU on Friday, when Brexit Secretary Dominic Raab holds a meeting in Brussels with his European Commission counterpart Michel Barnier.

Speaking to a committee of lawmakers in Parliament, Raab confirmed that the timetable for getting a deal was slipping beyond the target date of the EU leaders’ summit starting Oct. 18. He insisted that an agreement is within sight, but acknowledged there might need to be “leeway” in the October deadline.

Border Fears

The most stubborn obstacle to progress in the talks is how to avoid a hard border between the U.K. and Ireland after the divorce. Politicians fear that a return to customs checks and police on the land frontier between Northern Ireland and the Irish Republic would revive memories of violence in the past, potentially endangering the peace.

May has proposed a long-term solution that would see the U.K. keep all the EU’s rules for trade in goods and agri-food -- in theory removing the need for customs and standards checks at the border.

But under May’s blueprint, the U.K. would be able to adopt different rules from the EU on services trade, which makes up 80 percent of the British economy, as well as its own immigration and international trade regimes. EU officials regard this approach as unacceptable cherry picking.

Raab said the solution would need to be “innovative” and hinted that the U.K. is willing to take a creative approach to its own negotiating “red lines,” including potentially on a role for the European Court of Justice.

Pound Boost

Speaking in Berlin after meeting German Foreign Minister Heiko Maas, Barnier said he’d be ready to propose an unprecedented new partnership with the U.K. It was a comment he’s made several times before, but it still pushed the pound up by more than 1 percent.

“Market participants are misinterpreting what Barnier’s comments mean and British politicians likely will do so too,” said Eurasia Group’s Mujtaba Rahman. “They don’t signal any fundamental or substantive softening in the EU’s position -- regarding the integrity of the Single Market or the Union’s founding freedoms.”

The EU’s “offer” is still conditional on the U.K. accepting the bloc’s fundamental red lines, in particular on customs. Barnier’s position hasn’t changed -- he still holds that Britain can’t choose the parts of the EU’s single market it likes while discarding other elements, such as the free movement of people. The EU doesn’t see its choice as between May’s proposal and no deal; it wants to negotiate something it considers more acceptable.

Barnier also underlined that maintaining an invisible Irish border remains the most difficult area of negotiation.

Later, the German government dampened the mood further, issuing a statement on Twitter saying that its first priority was to protect the integrity of the EU, rather than offer concessions to Britain.

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