A row over Brussels’ €750bn Covid recovery package has become a sticking point as UK trade talks go to the wire, after Boris Johnson warned that EU-level spending should not be exempt from state-aid restrictions in a post-Brexit agreement.
Mr Johnson’s concerns over EU state-aid policy have increased the late-stage brinkmanship over a trade deal, adding to fears that a longstanding row over fishing access could yet derail an agreement, and a renewed sense of gloom in London.
On Thursday evening, the UK prime minister and Ursula von der Leyen, European Commission president, held a stocktaking call on the talks. Both sides “welcomed substantial progress on many issues”, according to a statement issued by Ms von der Leyen.
But the commission president acknowledged that “big differences remain to be bridged, in particular on fisheries”. She added: “Bridging them will be very challenging. Negotiations will continue tomorrow.”
The UK’s assessment of the call was bleaker. A government spokesperson said that Mr Johnson had told Ms von der Leyen that “the negotiations were now in a serious situation”.
Some “fundamental areas remained difficult” on the issue of fair competition between EU and UK companies, the UK spokesperson said. On fisheries, Mr Johnson had made clear that the EU position was “simply not reasonable and if there was to be an agreement it needed to shift significantly”.
Mr Johnson told Ms von der Leyen that he would not accept a Brussels demand for EU fishing boats to be given guaranteed access to UK waters for eight years, according to officials.
The UK has offered a transition that would ensure that EU boats could continue to fish in the country’s waters for three years, with pre-agreed quota rights, after Britain leaves the EU’s Common Fisheries Policy on January 1. Britain’s stance has been that, after that period, access should depend on successful annual negotiations.
But EU leaders, including France’s Emmanuel Macron, who on Thursday tested positive for Covid-19, have said this would not provide enough medium-term certainty for their national fleets.
Mr Johnson also warned Ms von der Leyen that EU-level spending, including the Covid recovery fund agreed by the bloc’s 27 leaders earlier this year, could not be exempt from enforceable principles on state aid that would be set out in the trade deal.
Brussels has argued that such spending should not be bound by the common principles, because EU-managed programmes, such as regional aid funds, are exempt from the bloc’s state-aid rules. Britain has maintained that this line of argument is irrelevant in the context of an international agreement.
The EU’s recovery fund will involve an unprecedented amount of borrowing by the European Commission to support economies struck by the pandemic.
“If the EU decided to put money into developing electric cars, for example, using this fund, it would totally distort the level playing field and we would have no right to retaliate,” said one British official close to the talks.
An EU official said the state-aid dispute was in the process of being solved.
Money markets remain convinced there will be a deal in time for the end of the year, when Britain will leave the EU single market and customs union. The pound rallied as investors rushed to bet on a Brexit trade deal, putting the currency on course for its best week since March.
Markets responded positively to comments earlier on Thursday by Michel Barnier, EU chief negotiator, that “good progress” was being made, although he said there remained some “last stumbling blocks”.
Meanwhile, Jacob Rees-Mogg, leader of the House of Commons, put MPs on standby for an emergency sitting next week to approve a deal. The European parliament wants a deal agreed by Sunday to allow it to ratify it before the end of the year.
Some British officials warn of the risk of “an accidental no deal” if Mr Johnson and the EU, especially Mr Macron, misunderstand each other’s room for manoeuvre.
Mr Johnson has told colleagues that he is “not bluffing” about taking Britain out of its transition period on January 1 without a deal, unless the EU softens its demands on fisheries and state aid.
Officials in Downing Street say that Mr Johnson is relaxed about the talks failing, joking that British people will be “eating fish for breakfast, lunch and dinner” when the UK takes back control of its fishing grounds.
The prime minister is also said to have added to his repertoire of Australian songs — a reference to what he calls an “Australian-style” no-deal exit — humming “Tie Me Kangaroo Down Sport” in his office.
Mr Johnson’s allies say that EU leaders would be mistaken if they thought he would be back in Brussels next year seeking a deal, if Brexit ends in acrimony on January 1. “He won’t be going near the place,” said one official.
On fisheries, negotiators are exploring the idea of a multi-stage transition period, with a review after several years, as a possible solution for bridging the difference between the EU and UK positions, according to two people close to the talks.
But the length of this transition is just one of several key sticking points in the negotiations, with a number of EU coastal nations such as the Netherlands, France, Denmark and Belgium deeply concerned about their future rights.