What progress in the exit talks?

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Hello, and welcome to our second series of Brexit Unspun, the podcast that debunks the political spin around Brexit. I'm Siona Jenkins.

First of all, I'd like to thank all our listeners who wrote in with questions or personal stories relating to Brexit and its impact on their businesses and their personal lives. We're planning to include as many of those as we can in upcoming episodes.

But we thought we'd begin by catching up on the exit negotiations, what progress has been made, and what should Britain's strategy be to get the best deal. Here with me to discuss this is Alex Barker, our Brussels bureau chief, James Blitz, our Whitehall editor, and our special guest today, Heather Grabbe, director of the Open Society European Policy Institute in Brussels.

Alex, Michel Barnier says the talks haven't made enough progress to proceed to the next phase of negotiations, which has dealt a blow to UK hopes of beginning discussions on transition arrangements and its future relationship with the EU. And the European Parliament, which must approve any deal, passed a resolution that criticised the UK'S lack of concrete proposals in the talks. So what are the stumbling blocks? And what has been agreed so far?

The summit, it was the end of October of the 27 EU leaders, where they'll make the first assessment of how far we've come in this process. And you've had these three main areas of the separation discussions-- money, citizen rights, and Northern Ireland, and then a host of more technical areas on goods and so forth.

On the money, we saw some developments, the UK basically promising to keep whole the EU's budget. In years '19 and '20, it's around EU 20 billion. But it's well short of the kind of commitments that the EU want Britain to honor, which is far closer to EU 20 to 60 billion net.

Then you have citizen rights, where you've had a much more detailed negotiation going on for quite some time. And the big political stumbling blocks, which were over how any deal is overseen, the role of the ECJ, how EU law is interpreted, you've seen some significant movement there. And they're slowly moving towards a place where they could wrap up a deal in coming months. But there's still a lot of work to do.

And Northern Ireland is a much more high level political discussion. And it looks like there, again, they've made a bit more progress. And you could probably see that reaching a conclusion if you've got all the other elements coming together for sufficient progress.

The big problem is the money. The UK, ultimately, wants to keep back some of that leverage for the trade negotiation. The EU want them to commit as early as possible so they don't have the money hanging over them at a later stage in this process. And that's the fundamental problem they've got to resolve in coming months.

So James, the UK government has been openly quarrelling about strategy. Are Theresa May's objectives clear? And particularly after the Conservative Conference, does she have the authority to see things through?

Well, after the prime minister's speech in Florence, things are certainly a good deal clearer than they were. The most important change that has happened is that the British government is committed now to a transition of about two years, which is quite remarkable, in fact. Because only a few months ago, this was something that was still very heavily disputed between cabinet ministers with some really wanting an earlier transition after March 2019 of the most limited time. But now, two years is broadly accepted.

And it's also close to a standstill transition. It's trying to keep things as similar as possible to the way they currently are. All that will be happening is that the British won't be sending commissioners to Brussels and won't be taking part in the European Parliament elections. That very roughly where the British are. And that's very good news for business.

There are things which are still disagreements. There's a disagreement in cabinet over whether it should be two years or more. There's disagreement over the extent to which the ECJ should have a role to play. Boris Johnson has made all kinds of objections about it. But that is certainly where there's been a big shift. And as I say, it's good news for companies.

Where there is complete disagreement in the cabinet, and where the cabinet is as split as any cabinet has been in British politics in the last 30 or 40 years, is over what the end state relationship should be between Britain and the European Union. On the one side, you have ministers like Philip Hammond, the chancellor, who say that in the long run, Britain needs to be aligned as closely as possible. On the other hand, you have Boris Johnson, the foreign secretary, who's really leading the charge for more of a heroic clean break, in which Britain puts a very heavy focus on free trade agreements with other countries around the world. That is a very, very serious split. It's a split which may, in the end, undermine the Tories completely.

My guess on Mrs. May at the moment is that she will stay. But her performance, as you say, at the Conservative Party Conference, was obviously well below what was expected. And it was an important speech. And so things there are still pretty fluid.

But I suppose from business's perspective, the most important thing is you can begin to see some kind of movement towards the transition being implemented in some way.

Heather, now, you've worked at the heart of EU institutions for some time. James has mentioned this disagreement over the end state. Now, how is this viewed from Europe?

It causes a big problem because the British government is seen more and more as all tactics and no strategy. And that's very problematic for the other countries and for the EU institutions because they don't really know quite what they're negotiating yet. So there's the lack of concrete proposals.

But also, there's the fact that the politics in other countries are not static either. A lot of things are going to change between now and March 2019. Merkel's got to form a coalition. Macron has got some difficult reforms to get through. There'll be a big negotiation about the next EU budget.

So there's limited bandwidth for dealing with Brexit. And they just want to get on with it. And there's a sense of irritation that's perhaps taken over from the initial sense of shock and sympathy. Now, there's irritation about, well, why can't the UK decide what it wants? At least then, that would give us a basis for negotiating.

And in particular, there's real concern about how the UK is going to manage this politically. Because if this carries on, the sense that they're not going to meet the deadline in March 2019, that's actually going to be a real problem for the EU as well, even if there is a willingness to reach an agreement by then on the UK side.

So I'd like to ask then the three of you, given this kind of challenge, what do you think is the best outcome that Britain can hope for from where it is at the moment with this disarray? Perhaps you'd like to start, Heather.

It's really a question of the orderly transition and the orderly exit. Because a disorderly exit could get very messy indeed, particularly because of the very complex negotiations and complex issues, but also because other countries' politics will get involved. And so the best outcome would be one where at least the main three pillars that Alex was talking about are settled, and that there's been some progress on the future trading arrangements, which, as we've seen from the US objections, for example, to the UK-EU agreement on agricultural tariffs, those kinds of issues will be coming up. So at least if there's some kind of sense of an outline deal, then the transition period gives more time to work out the rest.

The most dangerous thing is for a continued tactical approach, which leads to a collapse of the talks before March 2019 and leaves a great deal of bad blood. Because that will affect the future relationship on trade and a host of other issues.

Can I turn to you for the same question, Alex?

I think Heather is right in that probably the primary objective is looking at that orderly withdrawal and buying time, if there's no agreement on a future relationship, but there is at least the basis on which you can, in an orderly way, leave the Union and have some years to discuss that.

The worst case scenario, as seen from Brussels, is that you would have a debilitating set of events in British politics that would leave the government in a place where it can't move forward or backwards, it's not really in a place to be able to do a deal properly, and you end up on this kind of conveyor belt with a more chaotic exit out of the Union.

And the best case scenario, I think, probably is reaching a withdrawal agreement and a transition agreement relatively soon, maybe by the end of the year at best, and then using the rest of 2018 to agree a framework for future relations that is coherent enough and offering a realistic vision enough to look like a steady state that businesses can really plan against and settles nerves a bit overall.

I think if Theresa May is able to resolve what James is describing as one of the biggest cabinet splits in post-war times with the political capital she has at the moment, then I think that may well be possible, but it's asking a lot. And there's a good chance that politicians, being politicians, will take every opportunity they have over the next year or so of these negotiations to defer some difficult questions into that transition period, I suspect.

James, what do you think is the best outcome for Britain, given its current position?

Well, broadly speaking, I think we're going to converge more or less on the same points. I mean, the best thing that can happen to begin with is something akin to a standstill transition is agreed in good time, certainly no later than the spring of next year. Because the longer it takes to agree a transition, the less value it has for businesses. And there's quite a lot of businesses in the UK that say, if we don't have this in place by the spring of next year, we really are going to shift people out quite significantly, because they just won't have enough time to adjust to whatever happens. So that's the first thing. And things look like they're moving in that direction.

Once that is agreed, if that is agreed, then, clearly, there has to be some kind of heads of agreement on a free trade agreement between the UK and the EU. My guess is that by March 2019, that is still going to be very loose, and there's not going to be much detail. Quite a number of diplomats I've spoken to recently have said, actually, don't expect too much to be agreed by then.

Then you enter two years in which there has to be an FTA agreed between the two, covering dozens and dozens of sectors, a tremendously ambitious thing to do. And the best hope for the UK is that something really is agreed by around March 2021. That's an ideal scenario. I don't think it's completely unrealistic.

What ultimately is going to get in the way of it all, I think, is the totally confused and chaotic state of British politics. We're entering a period now where it's not easy to see our way forward over the next few weeks, let alone months. Huge splits in the cabinet, as I say. Mrs. May's future uncertain. Boris Johnson grandstanding over the free trade agreement.

There's still a sense in Britain that some of the painful choices that are going to have to be made, even on a best case scenario, especially including paying money into the EU budget, have not been properly explained to the public. And the risk is that that might create confusion and stalemate, which leads us towards the no-deal outcome and the disorderly Brexit. And there is simply nobody that thinks that is a remotely tolerable prospect for the British public.

Quite an outlook. Do you have anything to add to that, Heather?

I think it's very important, this question of explaining the whole thing to the public and having more accountability and transparency in the whole debate. Because the newspaper headlines, a lot of them are not what the actual negotiations are about at all.

Now, Michel Barnier upped the ante by saying, at the very beginning of the process, we're going to publish all of our positions, we're going to make transparent all of our meetings. He has always lived up to that. But that means that the British government really is going to have to reply on this. And things like the government not publishing studies which look at the implications and costs from inside government on which there's now a petition, for example, this really matters. Because if people feel that there's a very messy outcome and they don't really know what it involves, then everything starts to look like a bad deal. And it becomes very difficult for any government to explain to the public why this is in their interest and how the costs are going to be mitigated, how the whole thing is going to be managed. It starts to look incredibly messy. And that will be hugely damaging to the whole political elite. The Remainers and the Leavers will all get tarred with the same brush if the public has a feeling that their interests have not been properly represented.

I would agree with that. I mean, I certainly think that the failure of the government to publish its impact assessments the government has done internally-- it has admitted it's done 57 internal impact assessments on what a range of outcomes would mean for 57 sections of the UK economy. And those, obviously, are used as a kind of bible to guide the negotiating team.

I can understand why the British government doesn't reveal it. Because it is showing its hand. You do have to have a sense of what the impact of various outcomes will be to know how to negotiate.

The fact is, however, I have been told by several people who have seen the stuff that if it did come out, the entire public mood on Brexit would probably be challenged. People would really wonder whether this was a good idea. Because, at the end of the day, it's not a cost-free exercise. And the presentation by Boris Johnson, Liam Fox, and others is that it's all sunlit uplands. And that is something that isn't really challenged by any documentation we've had, at least since the treasury documents that came out during the referendum.

The fact that there are hard choices to be made, but also tradeoffs, and that those trade-offs are not being made transparent and explained to the public. So the use of, for example, the Henry VIII powers to push through legislation, giving ministers an extraordinary degree of control over the whole thing without parliamentary scrutiny, that's really a problem. And that can hang over the whole process for the next generation. That's something that really hasn't been discussed in the public debate yet in the UK that the lack of scrutiny of it could really hang over the next generation of voters, who are saying, what was that all about? Why weren't we involved?

That's actually what we're going to be discussing in our next podcast. Alex, do you have anything to add to this?

Well, I mean, one thing I've been wondering about that Heather and James were alluding to to some extent is, if the UK got to a point of achieving sufficient progress quite soon, even October, if you saw miracles on the financial negotiation, the EU would turn around to the UK and say, OK, what would you like in this future relationship? And some of those tradeoffs that Heather was mentioning will have to be confronted in a more specific, direct way. If you're writing a paper describing the hybrid Norway-Canada mix that the UK is looking for, these tradeoffs will be much more plain to people and plain to the cabinet. And you'll see a quite a difficult discussion around that that is going to take some time. And I think in terms of that trade negotiation, we really are in the foothills of that. But the politics of it may hit Westminster rather sooner than people think.

Well, thank you very much. And thank you also to Heather and James. And thank you for listening.

In next week's episode, we're going to take a look at the Brexit bill currently going through Parliament and its impact on our democracy. And we'll also attempt to answer the question put to us by many listeners-- is the process of leaving the EU reversible? We hope you'll join us then. And we'd be delighted in the meantime if you wanted to review or subscribe to our podcast on iTunes, Stitcher, or your favourite podcast app.

You can also email us at Brexitunspun-- that's all one word-- @ft.com if you have a question or would like to suggest a topic for future episodes.

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