Two Years of Uncertainty Europe Prepares for Tough Brexit Negotiations

The official divorce proceedings between Britain and the European Union are expected to begin on Wednesday, when Prime Minister Theresa May triggers Article 50. So far, the UK and the EU haven't even agreed on the first issues they intend to negotiate. By SPIEGEL Staff

A copy of the British Article 50 bill is held up in front of parliament.
REUTERS

A copy of the British Article 50 bill is held up in front of parliament.


Michael Barnier is Europe's divorce lawyer, the man charged with negotiating Britain's departure from the EU. It's a divorce unlike any seen before -- it will be expensive, protracted and closely watched by the entire world. Everyone wants to talk to him these days -- national leaders, politicians, members of parliament -- and when they get the opportunity, the Frenchman pulls out a presentation. It is, if you will, the secret strategy for the divorce proceedings.

On a day in early March, Barnier is visiting a session of the Affairs of the European Union Committee in German parliament. Having previously served as an EU commissioner and also as French foreign minister, Brussels' chief Brexit negotiator knows how to handle complicated talks.

He quickly goes through the most important data, explaining how tightly interwoven the economies of the EU and Britain are and what future relations with the United Kingdom might look like. The charts indicate that the divorce contract will be finished by September 2018 at the latest. Only then, a further slide shows, can the future relationship with Britain be addressed. Barnier calls it the "Architecture of the Negotiations."

A Preview of Europe's Strategy

What Barnier is presenting behind closed doors is the first glimpse of the negotiating strategy he intends to adhere to in the coming months. To prevent anything from leaking to the public, he immediately gathers up his documents after completing the presentation. The Europeans, after all, want to talk about the divorce and about money before they discuss future relations. The British, though, would like to do things completely differently.

On Wednesday, Britain's ambassador to the EU in Brussels will deliver a letter from Prime Minister Theresa May to European Council President Donald Tusk which will officially inform the EU that she is triggering Article 50 of the Lisbon Treaty. That will mark the kickoff of the Brexit negotiation process, fully nine months after the referendum.

In contrast to normal divorce negotiations, the final date for the end of this marriage has already been set: On March 29, 2019, Britain will no longer be a member of the EU. The clock starts ticking on Wednesday and time is of the essence because a huge number of issues must be clarified.

Who, for example, will pay the future pensions of the 1,800 British civil servants currently working for the EU? What will become of the more than 20,000 legally binding regulations that Britain and the rest of the EU currently adhere to? How much will other EU countries have to pay in the future when the bloc no longer receives the close to 10 billion euros it now gets from Britain? What will happen to the more than 50,000 workers that EU-based countries have transferred to Britain? There is an almost infinite list of such questions.

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Also at issue are the rights of the around 21.5 million tourists from other EU countries who vacation each year in the United Kingdom. And the 400,000 British retirees who currently live on the Continent are now wondering who will pay for their health insurance.

Over a dozen working groups in the European Parliament have been researching in recent months how the mesh of relations between Britain and the EU can be unraveled -- and which issues need to be given priority. The result has been a vast tangle of hundreds of pages about financial services, environmental regulations and worker rights. SPIEGEL had the opportunity to review the documents.

The man in charge of ensuring that the numbers add up is a German. It's 8:30 a.m. and Günther Oettinger is sipping a green tea in a café located near the European Commission building. Since the start of the year, the former governor of Baden-Württemberg has served as the EU's budget commissioner. It's the most difficult job of his career. When the question arises over how much the British owe the EU, he's the one who has to supply the figure.

The Bill for Brexit

A possible price tag for Brexit has already been made public: 60 billion euros. A British journalist calculated that figure based on data from the European Commission. But when listening to Oettinger, it becomes clear that this figure may ultimately be even higher. "It will likely ultimately be a figure in the upper double-digit billions," he says. Oettinger is expected to present his calculations to European Commission President Jean-Claude Juncker on Monday.

As with any divorce, the debts that the EU and Britain have accrued together through the years will be offset by the assets the partners have gained. Broadly speaking, British debt comes from three sources. First, it includes obligations to the EU budget that will only come due in the future. Second is Britain's share of the medium-term budget planning that applies until 2020. The final category is Britain's share of pension payments for EU civil servants, including around 2,000 Brits who are already retired.

In the end, however, the size of the bill for leaving the EU cannot be determined with scientific precision. "It will be like at a bazaar," says one long-time diplomat. It's conceivable, for example, that the British rebate is applied one last time, the one Margaret Thatcher once pushed through with her famous "I want my money back" quote. The British could also subtract their share of EU real estate -- embassies located in places like Washington and Beijing, plus around 920,000 square meters of office space held by the European Commission alone in Brussels and Luxembourg. The value of these assets and whether that can be easily determined all remain open questions at the moment.

The separation of obligations from assets is threatening to become the first major hurdle for Brexit negotiations. Many in Britain do not share the belief that they should have to continue to pay into a club that they are leaving -- that their money should continue supporting Romanian farmers and Polish highways.

This week, for example, a euroskeptic member of the European Parliament with the appropriate name Bill Cash, admonished Germans to recall that Britain forgave German debt following World War II. Barnier, though, had a response ready: "It is like going to the pub with 27 friends," he has said. "You order a round of beer, but then you cannot leave while the party continues; you still need to pay for the round you ordered."

Prime Minister May has rejected the 60 billion figure that has been circulating. And according to German parliament report, her concern isn't based solely on the size of the bill. The Brits, the report notes, "have no interest in obligating themselves to paying compensation without knowing the conditions that will be applied to their access to the internal market."

British Prime Minister Theresa May
REUTERS

British Prime Minister Theresa May

In addition to the financial questions, the EU also wants to address the effect Britain's withdrawal from the EU will have on freedom of movement. "We need to quickly achieve certainty in everyday life -- especially for EU citizens living in Britain," says Manfred Weber, head of the center-right European People's Party in the European Parliament.

Currently, every citizen of the EU has the right to live and work anywhere in the union, one of the bloc's fundamental liberties. But that may change and the 3.2 million EU citizens living in Britain are gripped with fear, as are the 1.2 million British citizens living in other European countries. They are concerned about what will happen with their pensions and whether they will have access to social benefits like unemployment payments.

Even among corporations and banks, the possible restrictions on the labor market are currently of utmost concern -- even more so than continued access to the European internal market. "We employ 150 nationalities and, as such, are strong supporters of the freedom of movement," Deutsche Bank CEO John Cryan recently said at a reception in Brussels.

Big companies and financial services providers in London have begun making provisions, with some already transferring staff to Continental Europe. The head of the European branch of U.S. investment bank Goldman Sachs just announced it would transfer hundreds of employees in order to prepare itself for any possible Brexit outcome.

Negotiators in Brussels would like to see guarantees put in place that British and EU citizens will continue to enjoy the same rights that they do today. But that's not unproblematic when you delve into the details. For one thing, it's clear that the British government cannot afford to show too much generosity on this front. Resentment toward the large number of Poles, Bulgarians and people from other EU countries living in Britain was one of the driving forces behind the Brexit vote.

As such, finding a compromise that both sides can live with could prove difficult and Brussels has indicated it will push back if Britain seeks to treat EU citizens too harshly. Speaking before the European Parliament on Wednesday, chief EU Brexit negotiator Barnier issued a threat, essentially suggesting that if a Romanian nurse will require a visa to work in London, then John Cryan, who is from the UK, will also need one to work in Frankfurt.

An Emphasis on Rights Before Access

The Europeans only want to discuss the free-trade agreement that Britain views as the core of its future relationship with the EU once solid progress has been made in negotiations over money and the rights of EU citizens.

Theresa May is pushing for a deal that will continue to guarantee Britain the greatest possible access to Europe's single market. The promise made by Brexit supporters had been that Britain could continue to enjoy all the economic benefits of EU membership without any of the disadvantages that come with it. In the meantime, it has become clear that the EU would never agree to such an arrangement. The question now is how messy the divorce will be.

The EU is preparing for difficult talks. "The emphasis on the importance of the four basic freedoms as the clear negotiating position on the side of the EU neither allows for membership in the European Economic Zone nor the customs union," experts in the German parliament wrote in their study of the economic consequences of Brexit. This would mean a hard Brexit -- that Britain would not be granted trade relations with Europe that were any more favorable than any other non-EU country.

In total, some 20,833 laws and regulations that were in effect in the EU and Britain at the beginning of 2017 must now be reviewed and possibly replaced. That applies to 2,175 laws pertaining to environmental, health and consumer protections along with 670 additional legal acts on workers' rights and standards for the social welfare system. In theory, at least, dozens of legislative texts must be reviewed and worked through each day if a deal is to be concluded within the envisioned timeframe. It could, in other words, ultimately take much longer than two years before a deal can be reached.

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That scenario is all the more likely considering that the future trade agreement with the EU will likely be a mixed deal, as experts in the European division of the German parliament argue. That means it must be approved by the parliaments of all 27 EU member states -- an undertaking that will consume considerable time, as the recent tug-of-war over the CETA free-trade agreement with Canada demonstrated.

'Dirty Brexit'?

The question is what happens in the interim between the time Britain leaves the EU and the time when a new deal on the future relationship can be agreed upon. "What happens if Britain, after over 40 years in the EU, from one day to the next, becomes a third country?" asks one high-ranking European Commission official.

The question is one that goes deeper than just legal hairsplitting. British exports of foodstuffs and livestock would, from one day to the next, be subject to inspection, a development for which the EU member states do not currently have the capacity to handle at their borders or their ports. Chief EU negotiator Barnier has warned of the specter of long traffic jams of trucks at the British port of Dover.

In light of all these hurdles, the term "dirty Brexit" has long since been making the rounds in Brussels and London. This would be a divorce without a joint agreement in the event the Brits and Europeans don't come to some sort of a deal before the day Britain departs the EU in March 2019. British Foreign Secretary Boris Johnson has already said it would be "perfectly OK" if there is no deal in the end. But the truth is that the damage to both sides would be immense. Whereas the economic consequences of Brexit would first likely become visible in the medium-term in the event of a deal, a disorderly withdrawal from the EU could trigger an economic shock.

The Post-Brexit World?

Without a Brexit agreement or interim deal, there will be great uncertainty, Howard Davies, the chairman of the government-owned Royal Bank of Scotland, has warned. The recent failed merger of the Frankfurt and London stock exchanges offered a preview of the potential economic consequences. German politicians weren't prepared to accept that the holding company of the merged exchanges would be located in London, and thus outside the EU, and the British were unwilling to budge from that plan.

The heads of Britain's airlines also recently experienced the new, gruffer tone coming from Brussels. As the Guardian reported this week, EU officials have informed the airlines that their companies will only be able to continue operating intra-EU flights -- between Milan and Paris, for example -- if they move operations to a significant base inside the EU.

Is this what the post-Brexit world is going to look like? Bitter competition in the place of integration and cooperation? As with any third country, if there is no trade agreement in place, then Britain would conduct its business with the EU on the basis of World Trade Organization rules. From one day to the next, customs duties would be levied ranging from 4 percent for car components to much higher for agricultural products.

In their report, lawyers inside the German parliament came up with a sardonic name for this scenario: "The Botswana Model." One could also just say that, in the end, everybody would lose.

By Markus Becker, Martin Hesse, Peter Müller and Christoph Pauly

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Bethnal 03/25/2017
1. UK trade deficit
No mention here of the UK trade deficit with the EU. We sell Germany half as much as they sell us, so tariffs would be to our benefit. Tariffs would reduce our trade deficit with some EU countries and help our economy. It is only countries with trade surpluses that suffer from protectionism. Obviously some UK companies will suffer but there's always winners and losers whatever.
skraft16 03/28/2017
2. How can the EU expect Britain to agree to a monetary price for Brexit before Britain knows what it is getting?
Does Der Spiegel agree to a price for office supplies, printer's ink, computers and magazine paper before it knows how much of those items it is getting, at what quality and with what delivery terms? If it does, congratulations on staying in business for all these years through sheer luck. Deliverables first, then price last--just like in any other negotiation. Otherwise Britain is going to tell the EU that the money taps run out in Spring, 2019, and after that paying for the EU is the remaining 27 nations' business.
russiaexitcrimea 03/31/2017
3. Brexit
This will be a messy divorce.The exiting crowd had a very aggressive public relations campaign.what about the nearly fifty percent who wanted to stay?
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