Theresa May, U.K. prime minister. (Photographer: Chris Ratcliffe/Bloomberg)

May Strikes Dovish Tone as She Sees Deal Close: Brexit Update

(Bloomberg) -- Prime Minister Theresa May is addressing Parliament after Brexit talks broke down late Sunday. She said a negotiated deal would be the “best outcome” and emphasized how close the two sides were, but reiterated she wouldn’t accept any agreement that threatened the integrity of the U.K.

EU: More of a Pause Than a Breakdown (5:10 p.m.)

Over in Brussels, an EU diplomat has been explaining the bloc’s interpretation of events and giving a first reaction to May’s statement in Parliament. The mood is still fairly positive and the bloc doesn’t rule out things moving forward at the summit on Wednesday.

European Commission negotiators didn’t give full details of the talks when they spoke to ambassadors on Sunday night, leading some diplomats to believe a deal is within reach. The 27 remaining governments will know more when Michel Barnier, the EU’s chief Brexit negotiator, briefs them on Tuesday.

The diplomat characterized the current impasse as more of a pause than a breakdown.

But one thing is sure, the diplomat said. Whatever the final shape of the backstop in the Brexit treaty, it needs to do one thing: Stop a hard border ever emerging on the island of Ireland. So yes, it needs to be permanent.

Tories for a Second Referendum (5:05 p.m.)

Sarah Wollaston became the fourth Tory to raise the idea of a second referendum, joining Anna Soubry, Dominic Grieve, and Heidi Allen. This is quite a public shift from the anti-Brexit Tories, who have previously only talked about ensuring a soft departure from the bloc. They’ve argued today that May proposal is a long way from what voters were promised in the referendum.

“This is not what Leave voters voted for,’’ Soubry said. “They were promised a deal on trade. They were told it would be the easiest deal in the history of trade deals.’’

Other anti-Brexit Tories didn’t go that far, but Treasury Select Committee chair Nicky Morgan warned May that Parliament wouldn’t allow a no-deal Brexit.

May Insists Blueprint Alive and Well (4:43 p.m.)

May said her Chequers blueprint for Brexit isn’t dead, and that talks with the EU continue on the basis of her white paper.

May Says Irish Border Alternatives Lacking (4:37 p.m.)

Former Northern Ireland Secretary Owen Paterson asked May about alternative solutions to the Irish border, and got a sharp reply, that the proposals either meant simply moving the border, or would “involve equipment which could come under attack.’’

This reference to the likelihood of any border technology being vandalized or attacked by Irish Republicans tends to outrage Unionists in Northern Ireland, who say that it means giving in to violence.

Macron to Discuss Brexit With May (4:33 p.m.)

French President Emmanuel Macron sounded a positive note on Brexit, saying he wanted “technical talks” to continue right up to this week’s EU summit and that he believes “collective intelligence” will prevail in the end. France does “not wish” for a no-deal Brexit, he told reporters in Paris.

Macron, who rarely accepts off-topic questions at press conferences, didn’t hesitate to answer a Brexit query when he met the press after talks with Korea’s President Moon Jae-in. Macron said he’ll talk Monday with Theresa May and Tuesday with Michel Barnier, adding that France was still preparing to face any scenario.

Grieve Demands Second Referendum (4:25 p.m.)

Dominic Grieve, a leader among the Tory Remainers, adopts the language of the Brexiteers by referring to May’s Brexit proposal as “a form of vassalage.”

“We are heading towards a conclusion where we are going to be in an at least two year relationship with the EU, which is a condition of vassalage,” Grieve said. “And then we are going to be bound by a common rule book afterwards.”

Grieve concludes with a warning: “I will not be able to support the government in this unless this matter is put to the British people again.” Reminder: Grieve, the former attorney-general, led a successful rebellion on May in the past, forcing her to take her eventual Brexit deal back to Parliament for a meaningful vote.

DUP’s Foster Reiterates Red Line (4:17 p.m.)

Speaking in Dublin, DUP leader Arlene Foster made clear she’s not for turning on Brexit. While she said she wants a “sensible” Brexit that works for all sides, she made clear her red line still centers on the U.K. leaving the bloc as one. She also said May is a “unionist” and urged her to stick by her instincts in resisting any efforts to create internal barriers in the U.K.

Soubry: Talks Are a ‘Total Mess’ (4:12 p.m.)

Another Tory Remainer, Anna Soubry, lamented that the talks have led to “complete chaos and a total mess,” adding that “if government can’t get a grip on this, if Parliament can’t get a grip on this, then it’s time to face up to the fact that Brexit cannot be delivered” and give the people another vote.

But the prime minister was having none of that. She said it’s a matter of faith to deliver on the referendum result, and objected to calls for a so-called people’s vote to resolve the issue. “The people were given a vote, the people’s vote was in 2016, and the people voted to leave,” she said.

May Rules Out Delaying Brexit (4:10 p.m.)

Asked by Labour’s Yvette Cooper whether May should consider delaying Britain’s departure from the EU to allow more time to secure a good deal, the prime minister was firm: “I do not believe that we should be extending Article 50,” she said.

Remainer Rudd Speaks Up (4:08 p.m.)

Former Home Secretary Amber Rudd reminded May that she needs to work for a deal that keeps not just the 52 percent of the country that voted Leave happy, but also has something for the 48 percent who opted for Remain.

It’s a timely reminder that May faces a challenge to satisfy the opposite ends of her parliamentary party, both of which could withhold support for the premier’s eventual Brexit deal.

Brexiteers Pile on Pressure (4:02 p.m.)

The questions from May’s own side have been unhelpful to the prime minister so far, showing the pressure she’s under and why she’s so determined to get a time limit on the backstop. First, former Tory leader Iain Duncan Smith asked how long she expected it to last, and who would decide to end it. Then leading Brexiteer Boris Johnson demanded that May confirm any backstop deal, in which the U.K. is still in the EU customs regime, will end in December 2021. “If that isn’t the deadline, could she say what it is?” he asked. May swerved both.

Brexiteer Tory Bill Cash was the next Tory euroskeptic who lashed out at May. He warned her that if the U.K. continues to be “dictated to” by the EU, “this country will be brought to a humiliating conclusion.”

Backstop Fundamental to Deal (4 p.m.)

Despite the dovish tone, May’s comments on the Irish border backstop go the heart of the dispute between the U.K. and European Union. She said the plan can’t be indefinite because the EU shouldn’t be able to hold Britain to something if talks on a future free-trade deal break down.

But that’s exactly why the EU wanted the backstop from the outset -- as an insurance policy in case nothing better comes along to keep the border invisible.

It shows why officials said last night’s difficulties were about the “fundamentals” of the deal, rather than mere technicalities.

May Doesn’t Want Backstop to Be Used (3:55 p.m.)

May repeats this important line: she doesn’t want the backstop to ever come into effect. The prime minister appears to be trying to take the sting out of the backstop, as she knows she has a battle to sell it at home.

May Sees Negotiated Deal as Best Outcome (3:46 p.m.)

May’s tone was less strident than it has been on previous occasions. She said she continues to see a negotiated deal as the best outcome, and she emphasized how close the two sides are. She said the Irish border fallback clause -- a guarantee than she said neither side wants to ever be invoked -- must not be allowed to derail the whole process.

And notably, she didn’t lay into the EU or say that no deal was better than a bad deal.

May Says Backstop Must Be Temporary (3:45 p.m.)

May said there’s been progress in talks on the Irish backstop, and that the EU has agreed to work on her plan for a customs arrangement covering the whole U.K. That’s crucial to avoid a customs border in the Irish Sea, splitting mainland Britain from Northern Ireland.

But then she made the key point: the EU says there isn’t time to work this plan out, according to May. The bloc wants its original idea for the backstop still to apply -- but this would effectively annex Northern Ireland, keeping the province inside the EU’s customs union.

May repeated that she’ll never accept that EU plan, which she said compromises the constitutional “integrity” of the U.K. The other hitch is that she wants any backstop for the Irish border to be temporary. Brussels disagrees.

May Stands Firm on Irish Backstop (3:40 p.m.)

May reiterates the so-called Irish backstop must be temporary, and said the government won’t accept any solution that threatens the integrity of the U.K.

“People are rightly concerned that what is supposed to be temporary can become a permanent limbo,” May said. Still, she sounded positive when she said: “I do not believe the U.K. and EU are far apart.”

May Says Talks ‘Entering Final Stages’ (3:35 p.m.)

“We are entering the final stages of these negotiations,” May told lawmakers. “This is the time for cool, calm heads to prevail, and it is the time for a clear-eyed focus on the few remaining but critical issues that are still to be resolved.” Some politicians laughed and jeered.

Merkel: ‘Time Is Running Out’ (2:12 p.m.)

German Chancellor Angela Merkel said “time is running out” on a Brexit agreement, with issues such as the U.K.’s border with Ireland still to be resolved.

“We were very hopeful that we could manage do to get it done, but in the meantime it’s looking more difficult, especially on the question of Ireland and Northern Ireland,” Merkel said in a speech in Berlin. “We want, of course, an orderly U.K. exit from the EU, but not at any price,” and not at the cost of disrupting the single market, she said.

Germany must prepare for all scenarios in the Brexit talks, including no deal, Merkel said. “We have 90 percent of the exit accord finished, but only with 100 percent can we have an agreement. So there’s more work to be done.”

Teneo: Talks Must Get Worse to Get Better (1:02 p.m.)

“What has been playing out is a choreography designed for domestic consumption in the U.K.,” Teneo Intelligence said in an emailed note Monday. “More British grandstanding is required over the coming weeks for Prime Minister Theresa May to receive backing in Westminster.”

A Brexit deal by mid-November looks unlikely, Teneo said, meaning leaders could use the December EU summit to call for a special or final summit in mid-January to sign off on an agreement.

Teneo said the “inevitable deal” would be:

  • Acceptance of the European Commission’s backstop solution for Northern Ireland
  • Continued customs union membership for the entire U.K., preventing it from signing global trade deals but enabling May to claim she has prevented a customs border in the Irish Sea
  • Language in the declaration on the future relationship that papers over continued customs union membership, by hinting at further talks about alternative solutions

The pound has now risen 0.1 percent to 1.3162 per dollar, with investors concluding a deal is within reach. The currency fell as much as 0.5 percent in earlier trading.

Varadkar’s Note of Optimism (12:44 p.m.)

Irish Prime Minister Leo Varadkar tried to stay optimistic, telling reporters in Dublin he still doesn’t believe a no-deal Brexit is the likely outcome at this point. Talks could go on until December, he said, but there needed to be a deal by the end of the year. And while Ireland was open to compromise, he reiterated that the EU needs a legally operable, binding backstop to ensure no hard border reappears on the island of Ireland.

May’s Timetable (12:32 p.m.)

The latest parliamentary calendar indicates May will speak at around 3:30 p.m. in London.

Analyst: Growing Risk of Hard Brexit (12:25 p.m.)

The breakdown of talks on Sunday increases the risk of a hard Brexit, according to Rosa Balfour, senior fellow at the German Marshall Fund. “There are so many contradictory red lines on the British front that it is hard to see what shape a compromise would take,” Balfour said in an email. “This said, one should not underestimate the EU’s resourcefulness in finding solutions. It has a long history of finding compromises and fudging deals.”

EU Said to Hold Firm on Its Irish Backstop (11:55 a.m.)

The EU is open to the U.K.’s proposed backstop -- known as the temporary customs arrangement -- but wants its own original backstop in the text, too, as an ultimate fallback guarantee, a person familiar with the situation said.

But that’s unacceptable to the U.K. as the EU’s text contemplates the possibility that a customs and regulatory border would be erected between Northern Ireland and mainland Britain.