Theresa May has been warned that seeking a transitional Brexit deal with the EU would be “fiendishly difficult”, after she hinted the UK could seek an interim arrangement to smooth the process for businesses.
The prime minister told business leaders that she understood concerns about a “cliff edge” for companies when Britain’s two-year negotiating period for leaving the bloc comes to an end.
“Obviously, as we look at the negotiation we want to get the arrangement that is going to work best for the UK and the arrangement that is going to work best for business in the UK. And I’m conscious that there will be issues that will need to be looked at,” she told delegates at the CBI event on Monday. “People don’t want a cliff edge, they want to know with some certainty how things are going to go forward.”
The pound rose against the dollar after May’s speech, as the markets interpreted it as an indication that she aimed to put a transitional deal in place to minimise the possibility of a shock to the UK economy.
But European politicians and experts warned any transitional deal would have to involved May accepting free movement of people, which would cause her political difficulty going into the 2020 general election.
The EU’s four freedoms of movement – goods, services, capital and people – must remain intact, Manfred Weber, an ally of the German chancellor, Angela Merkel, told the Guardian when asked about the outlines of a transitional deal.
“The four fundamental freedoms are not negotiable for us,” said Weber, who is leader of the largest centre-right bloc in the European parliament.
“We will not move a millimetre from this position. This is the reason why the British prime minister has now changed her stance and is backtracking. She will have to explain to the British people why she cannot keep her promises. There can only be a good agreement between the EU and the UK if Europe’s basic rules are accepted.”
While both sides are eager to avoid a “Brexit cliff edge”, some EU politicians are anxious that the UK could get stuck in a transition arrangement.
“I have the feeling that some people in the UK would like to transition forever,” said Sylvie Goulard, a French liberal MEP. She said the UK would have to spell out what it wanted from a future relationship with the EU in order to secure a transitional deal.
“You cannot give the benefits of the single market without knowing what your partner, the UK, wants to have at the end. The UK has to clarify what it wants.”
Charles Grant, director at the thinktank Centre for European Reform, said seeking a transition deal could delay key aims of May’s Brexit negotiations such as immigration controls and freedom from European court of justice rulings.
“May now understands the need for a transitional deal to cover the period between when the UK leaves the EU and when a new free trade agreement comes into effect, several years later,” he said.
“But reaching agreement on a transitional deal will be fiendishly difficult: the EU will insist that the UK accept free movement and European court of justice rulings during the transition, but that may be politically unacceptable for May. Some Brussels officials therefore think the talks may break down without agreement on a transitional deal.”
One senior Tory MP also told the Guardian that a transitional arrangement could prove politically very difficult to sell if it meant continuation of free movement into 2020 going into the next election.
The view about the difficulty of an interim deal was echoed in Germany, where officials have warned that agreeing on a transitional agreement may be as complicated and laborious as agreeing on a final Brexit deal.
The metaphor used to describe a possible interim deal in the German foreign office is that of a hammock, with one senior official quipping: “If it’s too comfortable, the Brits will fall asleep in it.”
While some diplomats in Berlin see an interim deal along the Norway model as an acceptable basis for negotiation, a Norway arrangement minus free movement and the European court of justice would be seen as handing the British government a bargain.
Businesses are clamouring for a transitional deal because the two-year Brexity negotiation will be focused on the task of leaving the union, and not on any future trading arrangement.
At the end of the period the UK will automatically exit the EU, when some fear the country could face a situation under which it would suddenly have to start dealing on unfavourable World Trade Organisation terms.
The hope is that ministers will either extend the period before Britain officially exits, which would need the agreement of all the other 27 member states, or that a temporary deal will be agreed. That could see preferential trading terms and some form of free movement retained while negotiations continue.
No 10 later clarified that the government would not be seeking to extend the two-year article 50 process, but this still left open the possibility of an interim deal after the UK leaves in March 2019.
May dropped her heaviest hint that she would like a transition deal on the day her secretary of state for Brexit, David Davis, made an unannounced visit to Brussels to meet his opposite number at the European commission, Michel Barnier.
The pair, who first met as Europe ministers more than 20 years ago, spoke for 30 minutes in English on Monday without going into any detail on Brexit. Barnier had a “courtesy coffee” with Davis, at the UK’s request, to re-establish contact, a European commission spokesperson said.
“They confirmed that there can be no negotiations before notification [and] agreed to work towards an orderly withdrawal of the UK,” the spokesperson added.
It comes as 90 Labour MPs warned that leaving the single market in a “hard Brexit” would be a disaster for working people, make the weekly shop more expensive and hit jobs, growth and business.
Their letter, sent to the Guardian, was a response to the calls from 60 Conservative MPs – including seven former Cabinet ministers – who said the prime minister must pull the UK out of both the single market and customs union.