After spending the week in Bxl, I can report that the mood among senior EU officials regarding Monday's start of UK trade talks is extremely gloomy. Expectations have adjusted that EU might end up trading with UK like US or China, on WTO terms. A thread on how I see things 1/
I agree with most in Bxl that odds of no deal are rising & space for a deal is shrinking - & rapidly. This is largely driven by @10DowningStreet super-hardline on divergence, & the need to square this with EU's expectations on the level playing field 2/
The EUs now-final mandate has 3 major asks of UK on LPF: 1) dynamic alignment on state aid; 2) a commitment to not go below env, social, labour & fiscal standards that will be in place at the end of the transition; & 3) an aim to maintain regulatory coherence with EU in future 3/
Senior EU officials tell me that the last bit (3) is where member states turned the screws the most. The EU's original mandate only spoke of the UK not rowing back on env, social, labour & fiscal standards from where they sit when Govt formally exits transition at end of year 4/
The revised text also throws in a forward looking element. Not the full bell & whistles of dynamic alignment - which means EU legislates & UK adopts & transposes, like Norway - but something softer. "A system for two adults", in the words of one official involved in the talks 5/
However, the bigger conclusion for me is not where the EU mandate landed - a slight toughening from the @EU_Commission original proposal - but where it *could* have landed. & what this tells us about the EU's internal political dynamic in phase 2 6/
The French wanted dynamic alignment on all of it. They lost the argument, but suspect they knew they would. What they've won, however, is arguably far more important. The recognition that they'll be the toughest, most important critic to bring on board in this round of talks 7/
Frankly, in light of tough UK messaging, especially ambiguity @10DowningStreet has fostered around implementation of the Irish protocol, I'm surprised Paris didn't win *more* support from EU capitals over mandate 8/
Indeed, senior EU officials tell me they purposely chose to leave some wiggle room for @MichelBarnier to manoeuvre & do a deal. But EU still doesn't feel they actually know what Govt's bottom line *really* is. There are, remarkably, *no* back channels with @DavidGHFrost 9/
So no ground has been prepared in private; all officials in Bxl can go off are public statements. @michaelgove statement in Commons today which will draw attention to mandate Govt won in December’s election as basis for UK's stance - not last year's deal - is a case in point 10/
HOWEVER, the *biggest* problem - greater than the slightly tougher EU mandate, @EmmanuelMacron position or poor information flows between key UK & EU officials - is time, which in some ways will undermine the EU's leverage & increases risks of serious miscalculation. Why? 11/
Because senior EU officials concede that it will be *impossible* to agree internally among the 27 which UK sectors/products should be hit with retaliatory EU tariffs if UK doesn't comply with EU's LPF demands. There's simply no time to have a line-by-line tariff negotiation 12/
"It would take six years, not six months" one central figure tells me. It would undermine EU unity. There's been no discussion on this & likely won't be. All senior officials I spoke to agreed with this point: you can't end up with some LPF & some tariffs. It's very binary 13/
SO EITHER there's agreement on EU's broad terms, where there's room to fudge in some areas (eg regulatory coherence isn't dynamic alignment) but not in others (eg state aid) and the UK will be granted zero/zero access OR there won't be a deal. The messy middle doesn't exist 14/
Has @10DowningStreet calculated that threat of EU tariffs isn't credible? Perhaps Govt also thinks the econ impact of Corona virus will make EU27 more reluctant about no deal? Italy looks likely to tip into recession. Does this EU27 tariff constraint reinforce Govt's hard line?
Of course, EU officials push back against this view, arguing that the qualitative step change in *nature* of UK-EU relationship will happen at end of this year when Govt exits transition; the question of tariffs/quotas is simply one of degree. The major damage is already done 16/
But surely the fact the difference between a zero/zero deal & WTO terms is only one of *degree* will only increase risk of no deal - either by accident (Govt/EU miscalculate) or design (Govt can't pay EU's LPF price; or EU decides it can't risk integrity of its market) 17/
It's clear UK has done itself some serious reputational damage in key EU capitals given its approach. The EU side thinks Govt has yet to fully realise it won't have capacity to set standards. If it chooses not to align with EU, that's ideological. But UK will have to align... 18/
... with someone, eg US, who will be much tougher. "Unless the UK wants to be like North Korea, but even they align to China!" says one senior EU official. "Our offer is genuine, based on shared values." But people I spoke with aren't holding their breath the UK will take it ENDS
