Pay up, make nice if you want "soft Brexit", EU to tell May

EU govts will be happy to let Britain keep trade open

Theresa May should agree to pay Britain's bills to the European Union and drop threats to walk out without a legal deal if she wants talks on the "softer Brexit" some of her allies are calling for, EU negotiators say.

If the chastened prime minister and Brexit Secretary David Davis take a gentler tone when talks finally launch in Brussels next week, they could win valuable concessions, some think.

A week after May lost her majority in an election she had called in the hope of strengthening her hand in the talks, some fellow Conservatives want her to focus more on limiting the damage to business and less on cutting immigration and other ties to the EU when Britain leaves the bloc in March 2019.

Other EU governments will be happy to let Britain keep trade open as it would limit the hit to their own economies, officials told Reuters, though they are not ready to ease conditions that May would struggle to sell to her party's Brexit hardliners.

But speculating now on different kinds of trade pact - on "soft Brexit" or "hard" - is to put cart before horse, they say. EU leaders gave chief negotiator Michel Barnier no authority to so much as talk about trade until he clinches outline deals on Brussels' priority issues, including on what London owes them.

Barnier this week acknowledged "sensitivity" in London at EU suggestions that Britain might owe it some 60 billion euros in 2019 and said sorting out the issue soon would help a trade deal: "I would like to very quickly play down this question, and find concrete, pragmatic and just solutions," he said on Monday.

"We need trust to build the future relationship."

EU leaders, who will meet May at a summit next Thursday, have been irritated by her repeated threats to walk out with "no deal" — even if most see that as a campaigning bluff given the chaos it would cause. They are also irked by her refusal to say Britain will definitely pay what Brussels calls a "hefty bill" — some ministers have even said the EU may owe London money.

HAGGLING OVER BILL

If Davis, who launches the formal negotiations with Barnier on Monday, can show British willing on the EU's priority "Phase One" issues, then trade talks could get under way by the turn of the year — a step-by-step timetable Barnier says must be followed to limit the risk of a disruptive "no deal" scenario.

An EU official close to the matter said the "softer Brexit" talk could be "productive" and help progress in the first months, where the British attitude to discussing the financial settlement "will be the first serious test of the negotiations".

There are also differences over the other priority issue for Brussels — securing the rights of 3 million EU citizens living in Britain — but diplomats see those as less problematic.

And as leaders welcomed the new tone in London and talk of a "softer Brexit" that may be less disruptive than May's clean break with the single market and customs union, officials from at least some governments saw compromise on the British bill.

"If they refuse to pay, there will be no agreement," a senior official handling Brexit for one EU member state government told Reuters. "However, discussin the amount of money, here there will be flexibility," he added.

A senior Brussels official said the amount, which compares to London's annual net EU payment of around 10 billion euros, would still be "peanuts" in terms of the overall economy and also that the final bill would be determined less by technical and legal arguments than by hard-headed political horse-trading.

TRADE TRADE-OFFS

Significant progress in talks on the budget and citizens' rights issue, as well as on issues around the new EU-UK land border in Ireland, would allow EU leaders to give Barnier a mandate by December to discuss a future, close relationship and, potentially, years of transition after 2019 to smooth its way.

Barnier speaks of a willingness to look at various options but EU officials also stress that greater access to EU markets will mean accepting greater costs, closer to EU membership, and question whether Britain can find a political consensus on that.

The other 27, including lead powers Germany and France, want to dissuade others from emulating Britain and so insist that any Brexit deal must be less advantageous than full membership.

"All the options are balanced and come with obligations," an EU official working on Brexit said, noting that May had seemed to be looking for a sweeping free trade deal like that agreed last year with Canada but that some of those calling for "soft" Brexit cited arrangements such as those with Norway and Turkey.

Norway is in the single market, in return for accepting free immigration from the EU, EU courts and budget payments. Turkey has special arrangements with the customs union but must follow Brussels in trade policies with other global players.

For Brussels, a concern with starting talks on such models would be that Brexit supporters might end up blocking them, raising the risk of time running out to get any deal: "Would you ... 10 months later find that there was no real majority for that?" the official said. "It all becomes very uncertain."