Failure not our option, EU says as Brexit plan set

By Alastair Macdonald

BRUSSELS (Reuters) - Failure to strike a deal that ushers Britain out of the European Union in an orderly way is not an option Brussels wants to consider, its chief negotiator said on Monday as the EU gave a final green light for him to launch talks next month.

Britain's Brexit Secretary David Davis said at the weekend that Prime Minister Theresa May's government was ready to walk out without a deal. "That's not my option," Michel Barnier told reporters after ministers from the other 27 member states handed him a formal mandate to negotiate with London.

"I don't want to imagine ... a breakdown of negotiations," the former French minister added. "I would advise everyone to explain what the consequences would be of 'no deal'."

May, who in March launched a process that will take Britain out of the Union, deal or no deal, in March 2019, has said she would rather leave legal and financial issues in limbo than agree a "bad deal".

Campaigning for an election May has called for June 8, Davis told a Sunday newspaper: "We need to be able to walk away."

Barnier and other EU figures say the ensuing legal chaos would hurt Britain more than the rest of the bloc, though it would disrupt business and create uncertainty for expatriate EU citizens on both sides of the new EU-UK frontier.

EU ministers meeting in Brussels put a final legal gloss on governments' instructions to Barnier. He expects to sit down for the first time with British negotiators in the week starting June 19 and will then brief EU leaders later that week at a regular summit exactly a year after the June 23 Brexit vote.

DIVORCE FIRST, THEN TRADE

The negotiating directives prevent Barnier from opening any talks on the free trade deal which May wants until EU leaders decide "significant progress" has been made on a deal to settle key issues in the divorce -- notably citizens' rights, British budget payments to the EU and the EU-UK land border on Ireland.

Only success in a first phase, which Barnier hopes can be wrapped up by late this year, could establish mutual trust to open the second phase of talks on trade, he repeated on Monday.

May and her Conservative government have said they will meet British obligations but challenge the idea that that might mean paying tens of billions of euros to the EU to cover London's share of existing financial commitments. They want talks on a future trading relationship to begin immediately.

Some governments, notably from the ex-communist east which counts heavily on EU subsidies, have pressed hard to ensure Barnier and his team seek maximum divorce payments from London.

Only with unanimous approval from the 27 leaders can Barnier move on to open trade talks:

"It's clear that in this matter, on the finance issue, if we get stuck then we will not get onto 'phase two', what comes afterwards between the European Union and Great Britain," said Luxembourg Foreign Minister Jean Asselborn.

Germany's European Affairs Minister Michael Roth underlined the need to get started to contain the damage from what he called a "lose-lose situation" for Britain and the EU.

"We have two years. The clock is ticking," Roth told reporters. "We have to get down to work."

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EU Brexit negotiating directives http://www.consilium.europa.eu/en/meetings/gac/2017/05/Directives-for-the-negotiation-xt21016-ad01re02_en17_pdf/

EU statement on formal Brexit mandate http://www.consilium.europa.eu/en/press/press-releases/2017/05/22-brexit-negotiating-directives/?utm_source=dsms-auto&utm_medium=email&utm_campaign=Council+(Art+50)+authorises+the+start+of+Brexit+talks+and+adopts+negotiating+directives

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(Editing by Richard Lough)