Picture: ISTOCK
Picture: ISTOCK

London/Brussels — The UK and the European Union struck a deal to unlock divorce negotiations, opening the way for talks on what businesses are keenest to nail down — the nature of the post-Brexit future.

The pound initially rose on the news, but its gains all but evaporated in a fleeting few seconds.

On display was the classic market adage of “buy the rumour, sell the fact”. But also obvious was a recognition among traders that the negotiations have reached a crucial second phase: if just the first phase of unlocking the divorce bill was this challenging, the path ahead could be even more frustrating and time-consuming.

"Both sides had to listen to each other, adjust their position and show a willingness to compromise," European Commission president Jean-Claude Juncker said in Brussels after a statement was released announcing the agreement.

"This was a difficult negotiation for the EU as well as for the UK."

Prime Minister Theresa May travelled to Brussels on Friday morning with an offer: a financial settlement, an agreement on Europeans living in the UK, and a solution for keeping open the border that divides the island of Ireland after the split.

The last issue turned out to be the thorniest, requiring delicate four-way talks as the Northern Irish party that holds the balance of power in London wielded a powerful veto until the last minute.

Breaking the gridlock took months of work and there was a series of missed deadlines.

The stage is set for EU leaders next week to act on the commission’s recommendation that "sufficient progress" has been made to let talks move to the next stage.

By accepting most of the EU’s demands, the UK has now won the prize it has been seeking since March — the right to start discussing relations between the two when Britain parts ways with the bloc after 40 years.

Tory divisions

But it doesn’t all end in March 2019, when the UK is slated to depart.

A trade deal may take years to formulate and allowing companies and even people to adapt to the new reality will take time.

That is why the two-year transition that May seeks is key — businesses want to know how long they have to plan for the future, whether that means relocation or continued investments.

May’s Conservative administration is fiercely divided over Brexit — her cabinet has yet to decide what kind of trading arrangements it wants from Europe.

The second phase will be even more delicate and important than the first — German Chancellor Angela Merkel has said it will be far more complex than the divorce proceedings of the past eight months.

Britons will also be watching to see whether talks live up to what was promised: they were told Brexit would mean free-trade deals with Europe and the rest of the world, controls on European immigration and the repatriation of regulation.

Better than Canada

May has said she wants a deep and special partnership and a better deal than the free-trade agreement that Canada secured from the EU.

But ministers will have to decide what they are willing to sacrifice in order to get what they want, and the answer will vary from one faction to another within government and within the Tory party.

The EU has already started mapping out what it intends to put on the table — a deal along the lines of the one it offered Canada. That deal was the best in its class but still far short of what the UK currently enjoys as a full member of the single market and customs union.

Divisions may also emerge between EU members in the second phase of negotiations as each country’s interests differ.

May has got the deal that she needed — and the agreement that businesses were clamouring for.

Amid off-and-on threats to oust her, failure to move talks along could have cost May her job, and brought more instability. It remains to be seen how pro-Brexit Conservatives respond to her concessions.

Irish problem

So far the response to the divorce bill has been muted, but legislators have objected to the role given to the European Court of Justice in the UK after Brexit.

Foreign Secretary Boris Johnson — a leading Brexit campaigner — voiced concern to May earlier this week when it looked like she was aiming to preserve EU rules after the divorce.

Also, no one should expect the Irish problem — whose roots go back centuries — to go away.

The wording of the Irish text leaves room for the border issue to continue rearing its head in the second phase of talks.

The Republic of Ireland wants no border on the island, the UK wants to leave the single market that makes the almost invisible border possible, and the Democratic Unionist Party that props up May in London is adamant that any efforts to prevent a border on the island don’t create the need for a boundary between Northern Ireland and mainland Britain.

Bloomberg

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