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Brexit talks head for reckoning on state aid after two sides trade blows

The time for a political intervention in the EU and UK’s future relationship talks is fast approaching.

After publicly knocking lumps out of each other on Friday, the two sides will spend this week separately trying to work out where to go from here. In effect, the EU and UK have handed each other ultimatums saying they need to shift position or the talks will rapidly reach stalemate. 

The next negotiation round is scheduled for the week of June 1 and is the last planned before Boris Johnson holds stocktaking talks with EU institutional leaders. 

“The round that we have just had is disappointing, very disappointing,” EU chief negotiator Michel Barnier said on Friday, after a week of video talks between his team and UK officials. “I hope the next round in June and the one after in July will be more positive.” 

Mr Barnier and his British counterpart David Frost each accused the other of hypocrisy. For Mr Barnier, Britain is in some ways still trying to secure the kind of extensive single market access favoured by former prime minister Theresa May while dodging the obligations that come with it. For Frost, the EU has failed to realise that Britain has moved on, and Brussels is making wildly excessive demands in exchange for the trade deal-based relationship that the UK wants.

Mr Barnier actually went further, telling reporters that the UK was harking back to the 1970s — an age when trade deals were largely focused on tariffs. Britain, he said, needed to embrace the present-day reality that modern agreements need extensive safeguards for environmental and social protection. 

David Frost, Britain’s chief Brexit negotiator © REUTERS

But what the two negotiations teams have managed to do over three rounds of talks is define the toughest nut that ultimately their political masters are going to need to crack. This is the EU’s demand that any trade deal come with a robust, enforceable, level playing field of regulations to ensure that businesses are not unfairly undercut. 

Both sides argue that their positions on this are misunderstood, a sign perhaps that there is more room for manoeuvre than meets the eye.

The EU’s negotiating mandate says Britain should continue applying the bloc’s state-aid restrictions and should have to keep pace with its levels of environmental and labour protections. EU officials insist their priority is simply to ensure “common high standards”. 

Brussels has accused Britain of refusing to provide any meaningful policy guarantees, but the UK argues that it could accept a level playing field that respected the country’s sovereignty. 

“What we can’t accept is that EU laws or EU standards can be binding on the UK,” said a senior UK negotiating official.

Britain will publish its negotiating proposals this week — ending weeks of complaints from EU capitals over not being allowed to see them. The UK will also soon reveal its plans for implementing last year’s deal to prevent a hard border in Ireland. Those measures will be scrutinised closely by Brussels. 

The EU has made clear that other parts of the future-relationship talks will not be allowed to advance unless its core concerns including the level playing field are addressed. We are approaching a reckoning.

Chart du jour: a dollar drought

Bar chart of Dollar-denominated loan and bond repayments owed in 2020 ($bn) showing The search for dollars

The broadest-ever effort to pump dollars into the global economy has bypassed some major emerging markets. While the US Federal Reserve’s temporary dollar swap lines cover 14 central banks, nations including Turkey, South Africa, Nigeria and Indonesia are all shut out of the system, despite having heavy dollar-based financing needs. (chart via FT)

Your coronavirus reads

  • Gavyn Davies explains why the US unemployment surge has been worse than Europe’s. Part of the reason is that US emergency aid supports those made unemployed instead of preventing lay-offs.

  • The Economist argues the EU has lost its way, with the pandemic becoming not just an economic crisis, but a political and constitutional one too.

  • The coronavirus outbreak risks triggering a global surge in food prices, with particularly dire consequences for developing countries, write Carmen Reinhart and Rob Subbaraman. Governments around the world need to co-operate to prevent serious interruptions to supply chains. (Project Syndicate)

Planet Europe

Budget progress
European commission president Ursula von der Leyen held talks with at least 20 heads of government around Europe over the weekend as she sought to identify a potential compromise figure for the recovery fund that lies at the heart of plans for the EU’s post-corona reconstruction, writes Sam Fleming.

Ursula von der Leyen, European Commission president © REUTERS

A commission official familiar with the talks told the FT that following the discussions with EU governments, as well as with the European Parliament and her commissioners, the president is now in a position to identify a “landing zone” for the size of what the commission is calling the recovery instrument.

While earlier leaks suggested the commission would borrow about €320bn to fund this recovery instrument, the official said the proposed figure would be “considerably larger” than this.

What’s more, the recovery instrument will contain a bigger proportion of grants than loans. This was driven by a recognition that the recently approved emergency package worth €540bn, including credit lines from the European Stability Mechanism, was entirely composed of loans, so it seems fair now to tilt the other way.

All this will, however, still need to win the agreement of 27 member states and make its way through the parliament. Once the commission has tabled its proposals, the spotlight will move to Charles Michel, council president, who has to broker a compromise between the member states.

The commission official said:

“We can now much better describe the landing zone after the many telephone calls to the capitals and discussions with Commissioners and Parliament. The size of the recovery instrument presented by the Commission will be considerably larger than the recently circulated figure of €320bn.

Because the recovery package already adopted worth €540bn including the EIB, ESM and Commission’s SURE program consisted entirely of loans, the recovery instrument of the MFF will contain a larger share of grants.”

You can read more about the battle to settle on a recovery instrument in our Big Read.

Auto jam
France’s car manufacturing heartland is at a standstill, after the Grand Est region was hit by the pandemic with particular ferocity. Since the start of France’s government-imposed lockdown on March 17, economic activity in the region has “brutally slowed” by 31.5 per cent, according to national statistics agency Insee. (FT)

Lockdown clampdown
German authorities cracked down on large anti-lockdown protests across the country at the weekend, as police and intelligence officials warned that the rallies could be infiltrated by far-right extremists. (FT)

Emergency extension
As Spain’s government seeks to extend the state of emergency for another month, El Mundo looks at the impact on civil rights of the measures already in place for two months. (El Mundo)

Abortive trip
Le Monde takes a dive into the strange story of the Croatian businessman intercepted by French police last month, after he arrived by private jet aiming to spend confinement in a villa in Cannes “in charming company”. (Le Monde)

Ukrainian quest
Workers from Ukraine are facing far more difficult journeys into Poland as they seek work in the EU. Nevertheless, many still say the rewards are sufficient to justify the cost and complexity of crossing the border and spending time in quarantine. (Deutsche Welle)

Coming up this week
On Monday, EU single market commissioner Thierry Breton and Facebook CEO Mark Zuckerberg will take part in a live debate as regulators draft fresh guidelines to force online platforms to share more data with researchers to fight disinformation in the age of Covid-19. On Tuesday, economics and finance ministers will hold a video call to discuss the coronavirus response, as well as the commission’s proposal for reforms of anti-money laundering policy.

[email protected]; @jimbrunsden
[email protected]; @Sam1Fleming

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