UK and Germany trade no-deal threats before Brexit dinner

British Prime Minister Boris Johnson traded Brexit red lines with Germany’s Angela Merkel ahead of a vital dinner in Brussels that could make or break a trade deal between the U.K. and the European Union.

After eight months of negotiations broke up without agreement, Johnson will seek to inject political momentum into the process at a meeting with Commission President Ursula von der Leyen and top officials from both sides on Wednesday evening.

Johnson’s team hopes the face-to-face conversation over food and drinks will provide an atmosphere in which the two leaders can break the impasse. But talks are still deadlocked over the same issues—fishing rights, the governance of a deal, and fair competition rules for businesses.

The scale of the gap that still needs to be bridged on the so-called level playing field for businesses was laid bare on Wednesday. Merkel warned the dispute over what happens if British rules diverge from the EU could wreck a deal.

“We must not only have a level playing field for today, but also for tomorrow and the day after tomorrow,” Merkel said. “If there are conditions from the British side which we will not be able to accept, then we are prepared to go away without an agreement.”

Three hours later, Johnson hit back.

“Our friends in the EU are currently insisting that if they pass a new law in the future with which we in this country do not comply or don’t follow suit, then they want the automatic right to punish us and to retaliate,” the prime minister told Parliament in London. “They’re saying we should be the only country in the world not to have sovereign control over its fishing waters. I don’t believe that those are terms any prime minister of this country should accept.”

Dinner Talks

However, Johnson’s words signal where a compromise might be found. EU officials have floated the prospect of independent arbitration for the rules on fair competition, meaning retaliation might not be “automatic.” Equally, the EU is ready to underscore the U.K.’s sovereign control of its waters and doesn’t see that European boats’ continued access would violate that.

Leaving for Brussels, Johnson said on Twitter “a good deal is still there to be done” and his team believe the dinner offers the best chance to make headway. The two chief negotiators—Michel Barnier for the EU and Britain’s David Frost—will also be at the meal and could return to the negotiating table in the coming days if there’s the possibility of agreement.

Johnson and von der Leyen get on well and in the past the prime minister has found one-to-one talks to be the best way to break through difficulties, as when he struck a compromise with Ireland’s Leo Varadkar on the separation phase of Brexit.

Pessimism

Even so, this time pessimism remains. On the EU side, member states are preparing for no deal, an outcome that would disrupt trade from Jan. 1, while British officials are urging company bosses to get ready for changes to border processes even if a trade agreement is struck.

There’s no indication that the “miracle” needed to get a Brexit deal over the line is on its way, an EU diplomat told reporters in Brussels. Even if Wednesday’s dinner goes well, the most that can happen is that negotiating teams are sent back to work, he said, adding that it will be too soon for EU leaders—who meet for a summit on Thursday—to give any approval.

According to Micheal Martin, Ireland’s prime minister, the chances of agreement are no better than 50-50. Wednesday’s dinner talks between Johnson and von der Leyen is now a rescue mission. “We’re on the precipice of no deal,” he said.

The pound rose against a weak dollar but option traders are now more pessimistic about sterling than at any time since the Brexit referendum in 2016.