EU Says It’s Already Europe 1, Britain 0 as Brexit Reality Dawns

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Jean-Claude Juncker, president of the European Commission, right, talks with Theresa May, U.K. prime minister, outside number 10 Downing Street in London, on April 26.

European Union leaders headed into their first Brexit summit are convinced that when it comes to the pending talks with the U.K. they’re already winning.

Governments approached Saturday’s meeting in Brussels by repeatedly toughening their negotiating position and reinforcing the united front they adopted since Britain voted to quit the bloc last June. Prime Minister Theresa May’s administration, meanwhile, has shown a willingness to give ground on key matters involving finance, trade and immigration.

The British concessions mean EU officials in the 27 countries are increasingly hopeful that May will realize that the terms of Brexit will be set by them more than her. The need for the U.K. to be pragmatic in unraveling 44 years of membership was highlighted this week by German Chancellor Angela Merkel’s warning that the U.K. government shouldn’t be under any illusion that Europe will be soft on it.

“The British have been on a steep learning curve when it comes to what the red lines are and what they can reasonably expect to achieve,” said Christian Odendahl, chief economist at the Centre for European Reform. “The EU has been remarkably consistent over the last couple of months when it comes to its position.”

Deterring Others

The goal of the meeting is to rubber-stamp guidelines for the talks, which are now set to begin after the U.K.’s June 8 election. The drafting of the strategy over the past month has gone remarkably smoothly, said EU diplomats in Brussels and national capitals. The result is a common position based around ensuring Britain pays a price for leaving and isn’t better off outside the bloc so that others won’t try to follow.

Among the aims listed in the document are that the British pay a financial settlement before they get to discuss a future trade deal and that any transition from Brexit comes with continued financial, regulatory and legal ties to the bloc.

It all contrasts with what they perceive as muddled thinking and unrealistic ambitions on the British side with questions still unanswered on who in government to engage with. There’s not even a telephone number in the U.K. to call when a problem arises, one EU diplomat said on Friday.

The extent to which Europe believes it has the upper hand was highlighted by Merkel’s wake-up call to Britain on Thursday. That followed feedback she’d received from talks a day earlier between May and EU chief Brexit negotiator Michel Barnier and European Commission President Jean-Claude Juncker, a second diplomat said.

“We want to be partners, but we also want to defend our interests,” Merkel said in an interview with German broadcaster NDR on Thursday. “I think everybody understands that, because the Britons want to defend their interests, too — and they tell us that every day.”

Them and Us

May called an election ostensibly to strengthen her political mandate before negotiations begin in earnest. On the campaign trail, May used Merkel’s intervention to warn voters that EU members are lining “up to oppose us.’’ One EU official said on Friday that she’s right.

The British premier has already run into the EU’s phalanx. She was rebuffed when she suggested in October that she had given enough insight into her plan for the EU to open informal talks, while an early proposal to settle the issue of citizens’ rights was rejected.

Since she triggered two years of talks in March, May has seemed to dilute her stance on several occasions. She appeared to accept that the U.K. would still need some EU oversight and free movement of labor through any post-Brexit transition and that any trade deal won’t be signed until after it’s left the bloc.

May also refused to rule out continuing to make payments into the EU budget and she talks less about no deal being better than a bad deal, or of turning her country into a tax-haven if she fails to get her way.

What’s more, Brexit Secretary David Davis this week gave the clearest signal yet that the British government does not expect to get everything it wants. “We will have difficult issues to confront,’’ he said. “Compromise will be necessary on both sides.”

Avoiding Cliffs

EU officials suggested the softer tone from Britain reflected the realization that a collapse of talks without an agreement — the so-called cliff edge scenario — would hurt the U.K. more than the EU.

Several EU diplomats warned this week that such an event along with the imposition of World Trade Organization tariffs still can’t be excluded. Morgan Stanley economists reckon there is a 50 percent chance of the U.K. ending up with disruptive trade barriers after Brexit.

That said, European governments may help give May political cover by allowing Brexit talks to look at trade before the two sides agree to the bill for leaving the EU, two people familiar with the plan said this week. And to Iain Duncan Smith, a former leader of May’s Conservative Party who campaigned for Brexit, Europe’s approach is nothing more than posturing anyway.

“People go: ‘Oh look they are showing resolve and their strength.’ Well, what would you expect?’’ he told Bloomberg. “They are about to head in to a negotiation. You know, I have been in business. You always start in your firm position.’’