European Union officials will start Brexit negotiations Monday based on the assumption that the U.K. still wants to leave the bloc completely as outlined by Prime Minister Theresa May before her election setback.
But softer Brexit options have been worked out and are ready to be negotiated if London changes its mind later this year, according to a senior EU official.
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Mrs. May's loss of a parliamentary majority earlier this month has raised questions about whether she will be able to push through the tough Brexit stance she laid out before the election.
Many politicians fear that a complete departure from the EU's single market--the bloc's zone of common product and services regulation--will create significant disruption for the British economy.
Speaking on his way into a meeting of EU finance ministers in Luxembourg Friday, U.K. Chancellor Philip Hammond highlighted the importance of a negotiating outcome that protects growth.
"We are just about to start the negotiation. We set out very clearly our desired outcome... But it is a negotiation. And as we go into that negotiation, my clear view is...we should prioritize protecting jobs, protecting economic growth and protecting prosperity," he said.
According to the EU official, several alternatives to the radical departure from the single market have been worked out and are ready to be negotiated, but first the U.K. government should clarify what it wants. "We are prepared for everything. We have all scenarios ready," the official said.
Under the so-called Norway scenario, which is the preferred option in Brussels, the U.K. would continue to be a member of the EU's single market, but would have to make annual contributions to the EU budget and accept the jurisdiction of a supranational court and EU rules and standards it can no longer influence. These requirements would make it difficult for some in Mrs. May's party to swallow and would limit London's ability to control immigration from the EU.
The Turkey model, a customs union agreement with the EU, would give the U.K. some access to the bloc's market but would have the drawback that the U.K. won't be able to negotiate its own preferential trade deals, a main tenet of Mrs. May's Brexit strategy.
Under the Swiss model, sectoral agreements would be struck for the U.K.'s participation in the single market, but the U.K. would again need to pay annual contributions to the EU budget, also a step that could prove difficult politically for the May government. Another wrinkle in the Swiss model is that the EU so far has said it would reject any sectoral deals for fear this might incentivize other countries to depart and then cherry-pick their way back into the single market.
The expectation in Brussels is that it will take at least until September at the Conservative Party's conference to iron out what the end-goal for the U.K. is.
Meanwhile, the EU official said, talks are likely to focus on divorce matters: the rights of EU citizens in the U.K. after Brexit and on how much the U.K. still owes the bloc by the time it will leave.
Some British government ministers had previously opposed the EU's approach which called for settling key elements of the divorce agreement before moving on to negotiations over the future relationship. But with British goals for the future uncertain, this sequence may now suit London.
EU countries are unlikely to accept starting negotiations about the future relationship with the U.K. "before they know what Brexit means for them until the last cent," the official said. Only after that, in December at the earliest, but more likely next year, can negotiations commence on what Britain's future relationship with the bloc will look like.
In recent days, French President Emmanuel Macron and Germany's finance minister, Wolfgang Schäuble, have suggested that the door to the EU remains open were the U.K. to U-turn completely and withdraw its Brexit request.
But that would require unanimity from all 27 EU countries, a decision which could curtail some of U.K.'s current membership benefits, the official said. "I don't assume a U-turn, I don't read the result of the election as a reversal of Brexit," the official said.
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(END) Dow Jones Newswires
June 16, 2017 09:08 ET (13:08 GMT)