Brexit deal given fresh impetus by leaders’ diplomatic push

The topsy turvy trade talks between the U.K. and the European Union took another somersault on Sunday when Boris Johnson and Ursula von der Leyen gave negotiators another shot at closing a deal. The pound jumped.

After the British prime minister and the European Commission president agreed in a phone conversation on Sunday to go the “extra mile,” officials involved in the process said an agreement could finally be struck this week, with just days to spare before the U.K. leaves the EU single market and customs union.

Forty-eight hours of intense diplomacy injected fresh momentum into a process that had seemed to be reaching the end of the road. The two leaders had set Sunday as the deadline to decide whether to call off their discussions.

One person close to the negotiations said a disastrous dinner between Johnson and the commission chief on Wednesday had forced negotiators to confront the possibility of failure and persuaded them to revisit ideas that had previously been dismissed. From there, the outlines of a potential deal started to come into focus.

A new U.K. proposal floated with the EU over the weekend on the biggest outstanding disagreement—how to create a level competitive playing field for businesses on either side of the Channel—might just break the deadlock, according to three people with knowledge of the discussions. If that works, the U.K. could win concessions on the other main sticking point: EU fishing rights in British waters.

‘There’s Hope’

“Where there’s life, there’s hope,” Johnson said following Sunday’s call, though he swerved a question over whether there had been progress in recent days. Officials on both sides cautioned, though, that there is still a long way to go, and warned that similar moments of optimism in the past had failed to yield an accord.

The pound was quoted as much as 1.2% higher at $1.3378 as of 5:26 a.m. in Sydney trading.

The negotiations have already smashed through several deadlines as both sides waited for the other to blink, meaning even this week can’t necessarily be seen as definitive. But time is now almost up: the U.K.’s Brexit transition period expires on Dec. 31 with or without an agreement and parliaments on both sides need time to ratify any deal before then.

Officials, some of whom worked 100 hours over the past week, will resume talks in Brussels on Monday morning, while away from the negotiating table diplomacy is also stepping up a gear.

Negotiating Tactic?

Von der Leyen was scheduled to discuss the state of play with French President Emmanuel Macron, the most hard-line of EU leaders, on Sunday in Paris. The EU’s chief negotiator, Michel Barnier, will brief ambassadors of the bloc’s 27 countries in Brussels on Monday. Over the weekend, top officials, including Barnier, the U.K.’s chief negotiator, David Frost, and von der Leyen’s aide Stephanie Riso held private discussions to try to break the impasse.

With a deal hanging in the balance, officials cautioned against reading too much into public statements in the next few days because some of the pessimism was being used as a negotiating tactic. Irish Foreign Minister Simon Coveney said that Johnson, in particular, is under pressure to show he’s taking talks down to wire.

“Managing domestic political considerations, divisions within his own party, sending strong signals to the EU that the U.K. isn’t going to offer too much flexibility at the last minute to get a deal” are all part of process, Coveney told RTE. “All of those things you would expect in public, but the real issue here is the conversations between the two negotiating teams.”

Level Playing Field

The potential compromise revolves around the steps the EU could take if, in the future, the U.K. didn’t toughen its environmental and labor rules to keep then in line with those of the bloc. The EU insists this is a necessary condition of access to its single market to prevent the U.K. giving its companies an advantage over their European competitors.

The EU has softened its earlier position where it demanded the right to take unilateral and automatic action to impose trade penalties if the U.K. didn’t follow EU standards. It now accepts that an adjustment would come only after arbitration and dispute resolution, according to two officials.

In a sign that a solution may be on the horizon, the U.K. has hinted it is ready to accept this kind of penalty as long as it retains the sovereign right to legislate as it sees fit. Discussions would then focus on the scope of any retaliation.

A breakthrough on that could mean negotiations in the final days focus on quota numbers for EU fishermen in British waters. If talks ultimately get narrowed down to that, a deal should be achievable, an official said.