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Analysis
Brexit talks enter phase two

Brexit talks enter phase two

'This is not the end, it is not even the beginning of the end'

by John Nugée in London

Wed 7 Feb 2018

In December the European Union decided to permit talks on Britain's exit from the bloc to move on from terms of separation to details of the future of the UK-EU relationship. Parts of the British media called this a significant achievement. Reports included the inevitable quote from Winston Churchill – 'This is not the end, it is not even the beginning of the end, but it is perhaps the end of the beginning' – without which nothing concerning Brexit seems to be complete.

It is true that it is clearly better for the UK to have reached this point, and for discussions to be turning to the future, than the alternative. But, as the second phase of negotiations start, a reality check is in order.

First, the main reason talks have reached this point is because the UK has retreated from almost all its earlier positions. Since the June 2016 referendum, those seeking a clean break have conceded: a large payment to the EU on exit; a compromise on Ireland, where some sort of cross-border co-operation looks inevitable; continuing rights for EU citizens in the UK; negotiations on some sort of continuing access for some industries to EU markets; and a transition period during which EU rules will still apply to the UK. Not one of these was in Leavers' plans.

It is not difficult to conclude negotiations if you agree to all of the other side's demands. It is only surprising it took the UK government so long to realise that. Given the relative strengths of the two sides and the EU's known positions and principles, this was always the probable outcome. It would have saved months of negotiating time if the UK government had accepted this in, for instance, April 2017 rather than December.

Second, and despite the agreement in principle on the three 'phase one' issues – Ireland, the exit payment, and the rights of EU citizens in the UK – each requires more work before a legal agreement is drafted. All three have complexities that are far from simple to solve. On none of them is this more true than the question of Ireland, where the impossible triangle of 'no border between Northern Ireland and the Republic of Ireland, no border between Northern Ireland and the rest of the UK, but a border between the UK and the EU, which necessarily includes Ireland' remains unresolved.

Nevertheless, the second phase of negotiations on the future UK-EU relationship is beginning. The EU – again moving with considerable speed and unity among the 27 member states – has set out guidelines for the next round of talks, which include three key chapters. The first addresses settlement of the details of the agreements reached on the phase one issues and their translation into a legal form. The second deals with agreement on the arrangements for the transition period, which will last for 21 months from the end of March 2019 to the end of December 2020, and during which the UK will continue to have membership of the single market, will continue to abide by the four freedoms, but will not have membership of any EU institutions. The third concerns the agreement on the framework for the future relationship.

To fit with the timetable for the UK's scheduled departure in March 2019, the first two parts of this agenda will probably have to be concluded by October 2018 to allow time for the various ratifications in the EU. That is ambitious, and the UK may come to regret the time wasted on the first phase of talks.

Even if parts one and two can be resolved in the next nine months, the third heading will remain. On this, even the most optimistic of analysts do not expect the two sides to achieve more than agreement in principle on the politics of the future relationship: it will take many more disruptive years to settle the technical and economic details.

John Nugée, a former Chief Manager of Reserves at the Bank of England, is a Director of OMFIF. This is the first article in a two-part series on Brexit. The second article will be published on 8 February.

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