EU raises prospect of no deal in December as Brexit talks drag

(Bloomberg) -- European Union chief negotiator Michel Barnier raised the prospect of Brexit talks failing to reach a breakthrough by year-end, saying the UK has two weeks to come up with a better offer on the financial settlement.

Barnier called for "real and sincere progress" on the three divorce issues, which include the separation bill, the rights of EU citizens and the Irish border, which erupted back onto the agenda this week.

"I have to present a sincere and real picture on those three subjects to the European Council and the European Parliament. If that is not the case, then we will continue, and that will put back the opening of discussions on the future," Barnier told a news conference in Brussels on Friday with his British opposite number David Davis.

Little progress had been expected in this sixth round of talks, as the focus has been on whether a breakthrough will be possible by December. Earlier on Friday, Poland’s European Affairs minister, who met Davis in Warsaw this week, raised the prospect that talks wouldn’t move on to trade until March. 

That would narrow the available time to hash out a trade deal almost impossibly and make the transition deal that UK companies are crying out for of limited use. Britain is due to leave the EU in March 2019, with or without a deal.

The pound rose as much as 0.3% against the euro, as investors were relieved talks didn’t end bitterly.

Irish Dilemma

The issue of the Irish border, which had taken a back seat in recent months as the UK argued it would be easier to sort out further down the line, came back on the agenda after a memo emerged late on Thursday that made clear the EU has adopted almost wholesale Ireland’s position.

Davis said they have had "frank" discussions on the border -- which bisects the island of Ireland and will become the UK’s only land frontier with the EU. The EU paper called for Northern Ireland to maintain the rules of the customs union and single market after Brexit to avoid a hard border between Northern Ireland and the Republic.

The EU’s demands on Ireland in the memo are all but impossible for Britain, unless the whole UK stays in the customs union, which Prime Minister Theresa May has ruled out. Allowing Northern Ireland to stay in the customs union could mean putting a border between it and mainland Britain.

That’s unthinkable for the UK and more so at a time when the Conservative government is propped up by the pro-UK Democratic Unionist Party from Northern Ireland. The DUP would quit before accepting a border.

Davis made clear on Friday that the UK would reject any such solution. But he struck a sunnier tone than Barnier, saying "significant progress" had been made on all three divorce issues. He continues to reject the demand that the bill is sorted before talks can move on to trade.

The UK has about two weeks to improve its offer on the bill so that trade talks can get the green light at a summit in December. With the EU asking for about €60 billion euros and the UK so far offering about a third of that, the UK side will need to make concessions. 

That will be hard to sell at home as voters were promised more money would be made available from Brexit -- rather than being left on the hook for bills -- and several high-profile figures in May’s Conservative Party are unwilling to offer the EU a settlement.