Germany and UK drop key Brexit demands, easing path to deal

[BRUSSELS] The British and German governments have abandoned key Brexit demands, potentially easing the path for the UK to strike a deal with the European Union, people familiar with the matter said. The pound rose.

Germany is ready to accept a less detailed agreement on the UK's future economic and trade ties with the EU in a bid to get a Brexit deal done, according to people speaking on condition of anonymity because the discussions are private. The UK side is also willing to settle for a vaguer statement of intent on the future relationship, postponing some decisions until after Brexit day, according to an official who declined to be named.

The shift means that widespread opposition to UK Prime Minister Theresa May's proposal for the future relationship - known as the Chequers plan - isn't necessarily an obstacle to getting a divorce deal. That's because Brexit is being done in two parts: first the separation agreement to make sure the exit is orderly, and then the future trade accord, which won't be negotiated until after the UK leaves.

Initially, both sides wanted a detailed outline of what the future relationship would look like as part of the first stage. Negotiators in the UK and EU were once planning a document of up to 100 pages; now it could be just a 10th of that, officials say.

The pound rose on the news, trading 0.9 per cent higher at $1.2970 at 2.18 pm in London.

The EU rejects much of May's blueprint for future ties, in particular its idea of remaining only partly in the single market and establishing a unique model for customs that would enable it to strike its own global trade deals. The German view is that difficult decisions, if they can't be reached now, can wait until the UK is in its post-Brexit transition phase, during which it will continue to abide by EU rules so that the status quo is maintained until the new regime is clear.

The question of how much detail to agree before Brexit has divided EU governments for a year, with Germany and France pushing for a detailed plan and the UK's closest allies, such as the Netherlands, wanting to leave options open. A fudged deal will still need to show a clear direction of travel and the EU remains insistent that the U.K. won't be able to pick and choose bits of the bloc's single market, officials in Brussels said. However, chief EU negotiator Michel Barnier has said that the UK can change its mind about what kind of relationship it wants even after it has left.

A less-detailed agreement on the future will enable officials to focus their energy on the so-called backstop for the Irish border - an insurance policy that's triggered if the future UK-EU agreement doesn't prevent the need for customs checks between Northern Ireland and the Republic of Ireland. On that issue, there are also signs of progress.

EU officials are looking for ways to make the bloc's proposal for the so-called backstop more palatable, a person familiar with the situation said earlier this week. And Brexit Secretary Dominic Raab hinted on Tuesday that the UK might be willing to offer a concession to the EU's position.

A fudged political declaration on the future relationship may also make it easier for Mrs May to approve the backstop, according to Mujtaba Rahman, managing director at Eurasia Group, in a note on Wednesday.

"EU negotiators are now calculating that the British prime minister will be able to sign off on the EU's backstop in the Withdrawal Agreement because she will be able to argue -pointing explicitly to the political declaration - that it will never need to be implemented," Mr Rahman wrote.

The UK also initially wanted a detailed agreement before leaving in March to persuade pro-Brexit lawmakers to approve the deal and to see what they were getting in return for a financial settlement of an estimated US$50 billion. But many members of the British Parliament also dislike Mrs May's future vision because it would keep Britain too closely bound to EU rules and a fudged political declaration, pointing to an "ambitious free-trade agreement," may suit them too.

"We don't want these negotiations to fail," German Chancellor Angela Merkel said on Tuesday. "But we can't rule it out completely."

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