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A dispute over Brussels’ € 750 billion Covid recovery package has become a sticking point as UK trade talks hit the wire, after Boris Johnson warned that spending at the level of the The EU should not be exempt from state aid restrictions in a post-Brexit deal.
Johnson’s concerns about the EU’s state aid policy have heightened risky late-stage policy on a trade deal, adding to fears that a long-running dispute over access to fisheries could derail a deal and a renewed sense of pessimism in London.
On Thursday night, the Prime Minister of the United Kingdom and Ursula von der Leyen, President of the European Commission, made a call to take stock of the talks. Both parties “welcomed the substantial progress on many issues,” according to a statement issued by Ms Von der Leyen.
But the president acknowledged that “great differences remain to be bridged, particularly in fishing.” He added: “Connecting them will be a great challenge. The negotiations will continue tomorrow ”.
The UK’s assessment of the call was bleaker. A government spokesman said Johnson had told Ms Von der Leyen that “the negotiations were now in a serious situation.”
Some “key areas remain difficult” on the issue of fair competition between EU and UK companies, the UK spokesman said. On fisheries, Johnson had made it clear that the EU’s position “was simply not reasonable and, if there was an agreement, it had to change significantly”.
Johnson told Ms Von der Leyen that he would not accept a demand from Brussels that EU fishing vessels have guaranteed access to UK waters for eight years, according to officials.
The UK has offered a transition that would ensure that EU vessels could continue to fish in the country’s waters for three years, with pre-agreed quota rights, after the UK leaves the EU Common Fisheries Policy on 1 January. The British position has been that, after that period, access should depend on the success of the annual negotiations.
But EU leaders, including Frenchman Emmanuel Macron, who also tested positive for Covid-19 on Thursday, have said this would not provide enough medium-term certainty for their national fleets.
Johnson also warned Ms Von der Leyen that spending at the EU level, including the Covid recovery fund agreed to by the 27 leaders of the bloc earlier this year, could not be exempted from applicable state aid principles. that would be set out in the trade agreement.
Brussels has argued that such spending should not be subject to common principles, because EU-managed programs, such as regional aid funds, are exempt from the bloc’s state aid rules. Britain has argued that this line of argument is irrelevant in the context of an international agreement.
The EU recovery fund will involve an unprecedented amount of loans from the commission to support economies affected by the pandemic.
“If the EU decided to invest money in the development of electric cars, for example, using this fund, it would totally distort the level playing field and we would have no right to retaliate,” said a British official close to the talks.
An EU official said the dispute over state aid was being resolved.
Money markets remain convinced that there will be a deal in time by the end of the year, when Britain leaves the single market and the EU customs union. The pound rallied as investors were quick to bet on a deal, putting the coin on course for its best week since March.
Markets had responded positively on Thursday morning to comments by Michel Barnier, the EU’s chief negotiator, about “good progress”, although he said there were some “last hurdles” remaining.
Meanwhile, Jacob Rees-Mogg, head of the House of Commons, put MPs on hold for an emergency session next week to pass a deal. The European Parliament wants an agreement agreed this Sunday that allows it to ratify it before the end of the year.
Some British officials warn of the risk of “an accidental no-deal” if Johnson and the EU, especially Macron, misinterpret each other’s room for maneuver.
Johnson has told colleagues that he is “not bragging” about pulling Britain out on January 1 without a deal, unless the EU softens its demands on fisheries and state aid.
Downing Street officials say Johnson is relaxed over the failure of the talks, joking that the British will “eat fish for breakfast, lunch and dinner” when the UK regains 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 a no-deal “Australian-style” departure, humming “Tie Me Kangaroo Down, Sport” in his office.
Johnson’s allies say EU leaders would be wrong if they thought he would return to Brussels next year in search of a deal, if Brexit ends in acrimony on January 1. “He will not go near the place,” said an official.
