Brexit: First Round won by the EU? - Natixis

UK gave in quickly to the demand of the EU in the first round of formal Brexit talks which started on 19^th June in Brussels, suggests Sylwia Hubar, Analyst at Natixis.

Key Quotes

“Formal Brexit talks started on Monday June 19 in Brussels where the UK and the EU agreed on the dates for five rounds of negotiations stretching into October. The first phase of negotiations will cover three issues: 1/ rights of the EU and British citizens, 2/ financial settlement and 3/ Northern Ireland border. This agenda is at odds with Theresa May’s earlier demand to simultaneously discuss the terms of UK’s future relationship with the EU alongside those of UK’s withdrawal. The Prime minister attended the EU27 meeting where she presented her plan for securing the EU citizens living in the UK. Those who have been living in the UK for five years at the time of a yet to be specifies cut-off date would be granted similar rights as full British citizens, a “fair” offer according to the British government yet “not sufficient” for some EU officials.”

“What did we learn from the first meeting on Monday?

• The UK and the EU agreed on the negotiations schedule throughout October 2017. The initial stages of negotiations will see three working groups focusing on citizens’ rights, financial settlement and “other separation issues”, along with “a dialogue” on Ireland / Northern Ireland border issue launched between the two sides.
• Until recently, the UK has underlined its determination to negotiate the terms of UK’s future relationship alongside those of UK’s withdrawal. The fact that previous agenda set up phased talks suggested the UK gave in quickly to the demand of the EU. 
• Since the disaster of the General Election, Theresa May’s position as Prime Minister is weakened, which implies she cannot afford to lose the chance to negotiate UK’s post-Brexit relations with the EU by jeopardizing negotiations from early on. May made it clear in her letter to Tusk she wanted the Brexit process to be “as smooth and successful as possible”.”

“What do we know so far about each side strategy?

• The EU already sent two formal positions papers to the UK prior to the face-to-face meeting. The first EU document introduces a clear account on how the UK should handle the rights of the EU expats. The other outlines the bloc’s financial demands, without revealing any estimation of the final bill.
• Theresa May announced her plan for securing the EU citizens living in the UK during the EU27 meeting. The proposal points to a less combative approach from the British, knowing that the PM has repeatedly refused to guarantee EU citizens rights in the past.
• Although there was a positive anticipation of a “softer” Brexit following the outcome of the election, there is no sign the British government has changed its position. The Queen’s Speech, which took place on Wednesday, set out the government’s plan for the two next years and It included new legislation related to trade, customs and immigration following the UK departure.”

“What we should expect next

• The agreement on citizens’ rights should be relatively straightforward. Yet, risk of conflict regarding the role of the European Court of Justice cannot be ruled out.
• The exit bill and its calculation are expected to be a source of disagreement. The EU has not released a detailed bill yet, but the figure of EU 60 billion has been mentioned in a study conducted by the Center of European Reform (February 2017). If this is the case, the financial settlement represents only 2.5% of UK’s 2016 GDP and although reassuring should be taken with caution. The adverse impact of Brexit on the economy is likely to become more apparent throughout the negotiation period, curbing the UK’s flexibility. 
• We expect the Ireland / Northern Ireland border issue to be the most challenging subject of negotiations. Both sides wish to prevent a hard border between the Republic and Northern Ireland but it appears somewhat infeasible when the UK is determined to leave both the Single Market and Custom Union. To quote the words of Michel Barnier, EU top negotiator, they will need “imaginative and concrete solutions” to resolve this matter.”