EU leaders amp up the Brexit drama

By Therese Raphael / BLOOMBERG

If you were anywhere near Europe last week, you probably were reminded of “The Sound of Music”.

The theatre in Salzburg, Austria, where both the real and fictional von Trapp family sang, was one of the settings for a much-hyped meeting of European Union (EU) heads of state that did a lot to turn up the heat on negotiators haggling about the UK’s departure next year, but little to shed light on where the talks are going. The summit was not short of theatrics.

There were drumbeats, perhaps symbolising a ticking Brexit clock, as EU heads of state filed in last Wednesday.

And then there was a photo: 28 bowed heads gathered in the theatre around an enormous table, like a ring of power. But Salzburg was never going to live up to the hype.

First, because it’s an informal summit, no binding conclusion could come out of the proceedings. Second, because the discussion of Brexit was mixed on the agenda with migration (arguably a bigger EU concern), time for dealing with the topic was short.

But most importantly, Salzburg was limited by that ticking clock: It is both too late and too early to do anything decisive.

It’s too late for a major change of course, since both the EU and the UK have laid down their red lines. European Commission negotiator Michel Barnier has been given guidelines that set his negotiating objectives and restrict his flexibility. They are notably to avoid any deal that violates the integrity of the single market for goods, services, capital and labour, and to make sure that the border between EU-member Ireland and the UK’s Northern Ireland stays open.

UK Prime Minister Theresa May has red lines of her own: Leaving the EU’s single market and customs union and ending the jurisdiction of the European Court of Justice in the UK. She also wants to avoid a hard border in Ireland, but can’t let that imperative result in any kind of border dividing Northern Ireland from the rest of the UK. Many in her own party and the Opposition have already rejected the proposals, now just called her “Chequers Plan” for the post-Brexit trading relationship, which she set out in July; she’s very near her bottom line.

There will need to be some kind of compromise, but it’s too early for one that has any chance of being adopted.

May’s Conservative Party is gathering for its annual conference at the end of September and there has been strong opposition to her proposals from hardline Brexiters who think she isn’t going far enough to deliver a clean break from the EU. Every week brings new calls for her to step down or rumours of a putsch. If she is going to make a quarter-turn toward the EU, it won’t come until after the conference.

So, what was the upshot of Salzburg from a Brexit standpoint? One outcome was that both May and the EU increased the pressure on all the combatants instead of trying to release it.

Instead of agreeing to a November summit meant to resolve the remaining disagreements, the EU made it clear that if there is no visible pathway to a deal in October, there will be no meeting in November. That leaves only a couple of weeks after the party conference to show significant progress on both the future trading relationship and the Irish border question.

European Council President Donald Tusk acknowledged that it’s a “tough game”, and indeed there’s a lot of gamesmanship at this late stage.

Salzburg did provide a clue to how a compromise might come about. May has promised a new proposal to prevent the return of a physical border in Ireland. One possibility is that she’ll agree to some kind of low-visibility regulatory and customs checks for goods travelling from the UK to Ireland as long as they’re at Irish seaports, factories or other places away from the border. If the EU accepts, the two sides will be able to finalise the core withdrawal agreement, leaving only the question of the political declaration on the future trade relationship to be resolved.

Soon, then, it’s the EU’s move. And while on paper it holds most of the negotiating cards, its uncompromising position on Ireland (it insists that an open-border guarantee be written into the divorce deal) creates the risk that no deal will be reached at all.

That could force the EU to put up a border in Ireland, anyway. And, border aside, a no-deal outcome would be economically devastating for Ireland itself. It would also mean giving up the hefty divorce settlement payment that the EU is betting on.

That may also help explain why May is sticking so adamantly to her Chequers proposals for the future trade relationship, though the EU rejected them in Salzburg and both hardline Brexiters and Remainers hate them, too. (Too close to the EU, says one side; too far, says the other.)

May seems to feel she’s in a position to call some bluffs, and she may be. But what makes the Brexit negotiations so unpredictable is that her opponents at home and on the other side of the negotiating table seem to think the same in reverse.

No deal, said Austrian Chancellor Sebastian Kurz, would be “difficult for Europe, but it would be terrible for the UK”. True, but the UK, with its divisions and complex parliamentary arithmetic, may not be able to apply the brakes in time even if there is little support for no deal. Europe, on the other hand, is in full control of its actions. It has promised not to abandon Ireland; we’ll soon see.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.