Britain and the European Union are close to reaching a financial settlement over Brexit but negotiations are continuing to finalize an agreement that can win backing from EU member states, according to people involved in talks.
The financial settlement, which EU officials initially put at around EUR60 billion ($71 billion) in past British spending pledges to the bloc, has been an obstacle to advancing the negotiations. The EU has said that without sufficient progress on the divorce bill, citizens’ rights and avoiding a hard border in Ireland, they won’t start working on a future trade deal with Britain.
British Prime Minister Theresa May had already indicated Britain, which will leave the bloc in March 2019, will stand by upward of EUR20 billion in EU payments in 2019 and 2020. In recent days, U.K. officials have said the British government is prepared to stand by additional EU spending providing the EU makes clear it is ready to move negotiations onto the trade talks.
The British pound rose on reports that the two sides were close to a financial settlement agreement, rising by around 1% against the euro on Tuesday evening and Wednesday morning, to EUR1.131.
Against the dollar, sterling rose by 0.7% over the same period, to $1.341, reaching its highest level since September.
“While this stage of the negotiations has little economic significance for sterling, the news of a breakthrough in talks has profound political significance for a currency that is pricing in a lot of bad news,” said Viraj Patel, foreign exchange analyst at ING.
British officials have been working behind the scenes to resolve the financial settlement directly with the EU negotiating team led by Michel Barnier. However any agreement on the bill would need the backing of all other 27 member states.
Mrs. May will travel to Brussels on Monday for talks with European Commission President Jean-Claude Juncker and Mr. Barnier. EU officials have said publicly that Monday is a firm deadline for the British to offer concessions that can unlock progress in the talks at the EU leaders summit in mid-December.
Those concessions come at a difficult time for Mrs. May whose political position has appeared perilous since her Conservative party lost its majority in Parliament in June snap elections she chose to call.
Officials on both sides said there was more negotiating to be done on the bill to ensure member states would back it. European officials have repeatedly called for greater clarity from Britain on precisely what commitments they will fulfill but both sides have said there will be no numbers agreed to at this stage.
“We’re working toward an agreement but we’re a long way away from the December council and there is more talking to be done,” said a British official.
An EU official said work is continuing on all three priority issues this week. The two sides “will take stock next Monday.” However a second official said an agreement could come any day now.
The EU has demanded Britain stand by its share of a range of past promises, including its contribution to the current budget framework, which ends in 2020, future pension liabilities and EU budget spending that has been promised but won’t be paid out until after 2020. There are also EU aid pledges to Ukraine, Turkey and others that Britain has signed up to in recent years and contingent liabilities, such as the U.K. share of outstanding EU-backed loans.
The gross liabilities total as much as EUR100 billion. Some European and British officials have said a final net number could fall to less than half of that when factoring in EU payments to U.K. projects and other British contributions like the EUR3.5 billion net cash allocation Britain has given in capital to the European Investment Bank.
Any payments are likely to be settled over years, British and European officials have said.
Despite progress on the financial settlement, there is no guarantee EU leaders would agree to advance the Brexit talks at their Dec 14-15 meeting.
The EU has backed Irish demands that Britain set out more clearly how the U.K. would ensure a hard border isn’t restored between Northern Ireland and the Republic of Ireland.
Source: Dow Jones