Brexit Officials Raise Prospect of Transition Deadline Slipping

(Bloomberg) -- U.K. and European officials are concerned that a March deadline to pin down the crucial Brexit transition deal may slip, according to four people familiar with the situation.

Both sides are aiming to reach an agreement in late March on the terms of the two-year period that’s designed to help businesses and institutions prepare for the change in rules that Brexit will bring. That would be one year before Brexit day and businesses have said that if it takes much longer they’ll start activating their worst-case plans.

In December, the transition was seen on both sides as little more than a formality to be signed off. As recently as last week Brexit Secretary David Davis said he was "relaxed" about the conditions the bloc is imposing for the grace period: Britain will have to abide by EU rules but won’t have a say in any new policies.

But amid pressure from euroskeptics, the U.K. government has vowed to fight Brussels on some of the conditions, including a change in the EU’s stance on the sensitive issue of EU migration. 

Suspicious Minds

The U.K. side is also concerned that France, which has consistently taken a hard line in the EU’s internal Brexit discussions, might try to stymie progress. The U.K. government has discussed the possibility that it might be in France’s interests to delay the transition accord in order to bolster its efforts to lure banks from London to Paris, according to three of the people, who declined to named.

French government officials didn’t immediately respond to requests for comment.

Davis continues to say the transition can get done by the end of the first quarter, a view reiterated by Prime Minister Theresa May’s spokesman on Thursday. The officials who spoke anonymously didn’t rule out the possibility of a March deal.

If the milestone is missed, that would leave even less time for the outline of a future trade deal to be agreed before the next deadline in October. The EU has said the final exit deal needs to be completed by then so there’s time for the EU Parliament to approve it. Davis has signaled that year-end might be a more realistic target for that final deal.

If things get pushed back, it could also increase the chances that the grace period could eventually be extended. While the EU stipulates an end-date of December 2020, and the U.K. says it will last "about" two years from March 2019, officials on both sides say in private it could run for longer.

Wasting Asset

Still, Chancellor of the Exchequer Philip Hammond in October described the transition as a “wasting asset,” suggesting that it’s worth less to Britain the later it’s secured. Earlier this week Nicole Sykes, head of EU negotiations at the Confederation of British Industry, said it was crucial that a deal on transition is signed by the end of March to give “immediate certainty.”

The U.K. wanted negotiations to take place weekly but the European Commission has insisted on talks every other week, according to another person familiar with the discussions. The Commission said that dates have not yet been fixed. Davis told Parliament on Thursday that he would meet EU chief negotiator Michel Barnier “shortly.”

“There remain a number of areas we need to discuss to ensure the period goes smoothly,” Davis said.

©2018 Bloomberg L.P.