UK’s PM Theresa May asks for a two-year Brexit transition plan as negotiations round kicks off

From left to right: Mr Donald TUSK, President of the European Council; Ms Theresa MAY, UK Prime Minister.
Location: London – UNITED KINGDOM. Date: 06/04/2017. Copyright: European Union

UK’s Prime Minister Theresa May delivered a much-awaited speech last Friday in Florence, where she set out a plan on how to progress in Brexit negotiations. Ms. May proposed delaying a full Brexit for a two-year period to smooth the impact of the UK’s withdrawal from the EU, as well as to “end the deadlock” over such a complex divorce. However, despite representing an impactful breakthrough in the Brexit question, Theresa May’s speech did not receive the warm welcome UK’s PM was probably expecting, as it only received mixed reactions in and outside of the EU.

Background

Days before the meeting, the BBC unveiled the Prime Minister of the United Kingdom, Theresa May, was going to propose “a transitional deal” with the EU of up to two years in her upcoming speech in Florence, Italy. According to Laura Kuenssberg, the BBC’s political editor, Ms. May’s intention, after having become quiet on Brexit since her Conservative Party lost majority in a June election, was to try and put the Brexit negotiations back on track and to highlight the most important points of her road map. The BCC was also the first media to report the chance of May making “open and generous” monetary offer to the European Union.

Florence speech

So the day of the meeting came, and the world’s main media outlets all reported the same news: Theresa May has set out a plan to delay the Brexit for a two year transition period, until 2021, officially to try to reassure business and revive stalled negotiations with Brussels. The UK’s Prime Minister said that, in that time, her government would be prepared to “accept EU rules”, including allowing free access to live and work in Britain for EU citizens, submitting to European laws and continuing to contribute to the EU budget.

Financial obligations

PM May touched a crucial point indeed. She said that, in return for continued access to the EU single market, the UK would honor its monetary commitments of about 10 billion euros, making up to 20 bn euros that her country will then pay into the bloc’s treasury. “I am conscious that our departure causes another type of uncertainty for the remaining member states and their taxpayers over the EU budget”, PM May said. “I do not want our partners to fear that they will need to pay more or receive less over the remainder of the current budget plan as a result of our decision to leave”, she added. “The UK will honour commitments we have made during the period of our membership”.

Trade deal

In her 45-minutes speech in Florence’s Santa Maria Novella 14th-century church, Theresa May also gave space to the post Brexit trade deal with the EU. “We recognise that the single market is built on a balance of rights and obligations”, she said, adding that the task would then be to find “a new framework that allows for a close economic partnership but holds those rights and obligations in a new and different balance”. So she argued that neither the Norway-style deal within the EEA, the European Economic Area, nor a Canada-style free trade deal, which entered into force just days ago, “would be best for the UK or best for the European Union”.

“Let us not seek merely to adopt a model already enjoyed by other countries”, May said. “Instead let us be creative as well as practical in designing an ambitious economic partnership which respects the freedoms and principles of the EU, and the wishes of the British people”, she added. So despite refusing to pick between the two models, PM May said she remained “optimistic” about what the EU and Britain could achieve by finding a “creative solution” to a new economic relationship “that can support prosperity for all our peoples”.

EU citizens’ rights

Theresa May also touched the important point of the EU’s citizens’ rights and the freedom of movement. “We have also made significant progress on how we look after European nationals living in the UK and British nationals living in the 27 Member States of the EU”, Ms. May said. “I know this whole process has been a cause of great worry and anxiety for them and their loved ones”, she recognised.

She then moved to a concrete example, speaking directly to the heart of the country she was in last Friday. “I want to repeat to the 600,000 Italians in the UK – and indeed to all EU citizens who have made their lives in our country – that we want you to stay; we value you; and we thank you for your contribution to our national life – and it has been, and remains, one of my first goals in this negotiation to ensure that you can carry on living your lives as before”. “I am clear that the guarantee I am giving on your rights is real. And I doubt anyone with real experience of the UK would doubt the independence of our courts or of the rigour with which they will uphold people’s legal rights”, UK’S Prime Minister also added.

Reactions – EU

EU Brexit negotiator Michel Barnier praised the speech for its “constructive spirit”, and described Theresa May’s latest Brexit plans as “a step forward”. However, Mr. Barnier said the Prime Minister’s vision “must now be translated into a precise negotiating position” ahead of the fourth round of talks with Brexit Secretary David Davis that began yesterday. Mr. Barnier also noted that May did not offer “any clarity” on how to resolve the vexed question of the Irish border, as reported on Friday by the CNN.

The European Parliament’s Brexit negotiator Guy Verhofstadt, said the UK’s position was becoming “more realistic” but “a new registration mechanism for EU citizens going to live and/or work in the UK is out of the question”.

Reactions – UK

UK’s Foreign Secretary Boris Johnson called the speech “positive, optimistic and dynamic”, after he attended the full session in Florence when the Prime Minister was delivering her speech last week. He said: “We are going to have a transition period and after that, of course, we are going to be taking back control of our borders, of our laws, of our destiny”.

UK’s Chancellor Philip Hammond said it was an “excellent speech”, and a “decisive intervention” that had given “great clarity to business and to our EU partners about our ambitions for an interim period, and our plans for the long-term relationship with the European Union”. Mr. Hammond said he was confident they were “now going to be able to move the negotiations forward”.

Labour Leader Jeremy Corbyn said the speech suggested the PM had “listened to Labour” when it comes to having a transition period overall, but that Theresa May gave totally “no clarity” on the long terms relations with Brussels. “Fifteen months after the EU referendum the Government is still no clearer about what our long-term relationship with the EU will look like”, he said last week. “The only advance seems to be that the Prime Minister has listened to Labour and faced up to the reality that Britain needs a transition on the same basic terms to provide stability for businesses and workers”, he added.

Reactions – the market

Late on Friday, ratings agency Moody downgraded Britain’s credit rating saying the government’s plans to bring down its heavy debt load had been “knocked off course” and Brexit would weigh on the economy, as reported by Reuters. A few hours after Prime Minister Theresa May set out plans for new ties with the European Union, Moody’s cut the rating by a further notch to Aa2, according to Reuters “underscoring the economic risks” that leaving the bloc poses for Britain.

Theresa May’s Government immediately responded, saying Moody’s assessment of the Brexit hit to the economy was “outdated”. However, Alastair Wilson, Managing director of global sovereign risk at Moody‘s, didn’t see things that way. Having looked at Theresa May’s speech, I don’t think there is anything in there which would in any way make us change our assessment”, he told the BBC. “Over the next few years, we have a lot less confidence that the UK’s government is going to be able to fulfil its plans to bring the debt load back down […] , or to be able to achieve some form of agreement with the EU which retains a substantial share of the rights that membership of the EU grants,” he said.

Theresa May is now expected to sit with Donald Tusk, President of the European Council, today, as well as to meet with the 27 EU leaders at dinner in Estonia on Thursday, right after Michel Barnier and David Davis, the UK’s Chief Brexit negotiator, will have concluded the fourth round of Brexit negotiators in Brussels.