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The final, frenetic hours that broke the Brexit deadlock

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Exhausted negotiators finally unlocked the deal that will define the future of the UK and EU’s £660bn trading relationship after a flurry of last-minute bargaining over fishing rights worth a tiny fraction of that amount.

The last miles of the marathon negotiations, which began in March under the shadow of the first wave of the Covid-19 pandemic in Europe, were largely devoted to hammering out painful compromises over EU fishing quotas in UK waters.

Against a chaotic backdrop of virus-induced travel bans that left trucks stranded in queues stretching for miles and Britain cut off from the continent, Britain’s prime minister Boris Johnson and European Commission president Ursula von der Leyen took hands-on control of the talks.

The final hours of the negotiations hinged on the fate of a fraction of the EU’s existing fishing quota rights, which are worth an estimated €650m per year.

“Spreadsheets on fish are even less interesting than they sound,” sighed one exhausted member of the team, as talks dragged beyond lunchtime on Christmas Eve. “We all want to get home but the champagne is on ice.”

On the brink

Less than a month ago the prospects for a deal looked far more gloomy. Michel Barnier, the EU’s chief negotiator, and his UK counterpart David Frost had just called a break after tense talks in London, telling their political masters on December 4 that negotiations were deadlocked. 

As Mr Barnier and his team trudged into St Pancras station the next morning to take the early Eurostar back to Brussels, the talks were entering a crisis period that took the negotiations to the edge of collapse.

The crucial sticking point at that stage of the talks was over an issue that had bedevilled the negotiations from the very beginning: how to satisfy the EU’s demands for a regulatory “level playing field” that would protect its companies from unfair competition. 

Mr Johnson insisted at the outset that his Taskforce Europe trade team — made up of around 100 officials — could not cede ground on a central principle: Britain would not accept EU law as the price for a free trade agreement.

British officials say that objective was secured as early as July after Mr Barnier agreed to restructure the EU’s demands in a way that removed any direct reference to the bloc’s regulations and any role for the European Court of Justice.

But negotiators remained stuck on the central issues of how to enforce any deal on fair competition, and on how to meet demands from EU leaders, such as French president Emmanuel Macron, that any “level playing field” must endure over time. 

Leaders try to break deadlock

On December 5 — a day after the two chief negotiators conceded the talks were stuck — Mr Johnson and Ms von der Leyen held what would be the first of numerous discussions that would define the course of the final phase of negotiations.

Ursula von der Leyen, European Commission president, welcomes Britain’s prime minister Boris Johnson as he arrives in Brussels for a dinner to discuss the progress of negotiations
Ursula von der Leyen, European Commission president, welcomes Britain’s prime minister Boris Johnson as he arrives in Brussels for a dinner to discuss the progress of negotiations © Aaron Chown/AP

The EU side had been pushing for a “mechanism” that would allow either side to sound the alarm if it felt that differences in regulations — for example in environmental law — had placed its companies at an unfair disadvantage. 

Under the proposal, the disadvantaged side would have the right to impose tariffs — unilateral “lightning tariffs” according to Downing Street insiders — if consultations failed.

Dinner in Brussels fails to deliver a breakthrough

One ally to Mr Johnson said the move would have destabilised UK-EU relations for years to come, forcing Britain to mirror Brussels rules or face punitive sanctions on the flimsiest of grounds.

The dispute was at the heart of Mr Johnson and Ms von der Leyen’s contacts in early December — a dialogue that led to the two leaders agreeing to meet in Brussels for dinner on December 9 in a bid to overcome the impasse. 

However, any hopes that a face-to-face encounter over turbot and coconut sorbet would help to melt the ice ensnaring the trade negotiations quickly dissolved. 

In the sterile surroundings of the European Commission’s Berlaymont headquarters, Ms von der Leyen and Mr Johnson failed to find a way through. Flanked by their negotiators, the dinner — preceded by an awkward photo call — stayed rigidly formal.

The following day the prime minister told Britons that there was “a strong possibility” talks would fail. Ms von der Leyen gave a similar message to EU leaders at a summit in Brussels.

But amid the gloom and the sabre-rattling there were signs that both sides still urgently wanted a deal.

Crisis defused

Lord Frost and Oliver Lewis, Mr Johnson’s Europe adviser, spent days working on alternative proposals to allow the UK to maintain its freedom to set its own rules while giving the EU comfort it could retaliate if things went too far.

“That’s something that we were probably most pleased about — it was pretty unique in trade agreements,” said one British official. Their key partner in those talks was Stephanie Riso, a top adviser to Ms von der Leyen and a veteran of the negotiations on the EU-UK divorce treaty. “With Steph there was a real discussion,” the official said.

Meanwhile Mr Johnson prepared to brand the new mechanism “a freedom clause” to reassure anxious Tory MPs that Britain would have regulatory autonomy, even if that might come at a cost in terms of access to the EU market.

In a brief phone call at lunchtime on Sunday December 13, Ms von der Leyen and Mr Johnson defused the crisis over the level playing field, acknowledging progress, and agreeing to allow their negotiators to keep talking — setting the scene for the frenetic final weeks of talks in Brussels.

Mr Barnier told EU ambassadors the following day that Britain had now accepted the principle of the level playing field mechanism, provided that enough safeguards were built in to prevent the EU hitting UK products with tariffs on spurious grounds. 

Lord Frost, right, and Tim Barrow, the UK’s permanent representative to the EU, leave the British Consulate in Brussels last week
Lord Frost, right, and Tim Barrow, the UK’s permanent representative to the EU, leave the British Consulate in Brussels last week © Geert Vanden Wijngaert/Bloomberg

From the British perspective, the compromise included important changes: it would include an arbitration system, remove the threat of “automatic” sanctions, and contain other safeguards against abuse. But the EU side still felt it gave them the security it needed. 

Still stuck on fishing

Fisheries, however, remained a seemingly intractable issue until the end. British negotiators admit they underestimated the EU’s determination to hold its ground on fish — an issue that loomed over the talks until the final hour and which was of key importance to Mr Macron.

Even at the start of this week, Britain and the EU remained far apart over the fate of the bloc’s current fishing rights in UK waters.

The negotiations centred on a transition period that would guarantee the EU fleet access to UK waters for a limited time, and on how far EU fishing quotas would be reduced during that period. 

As recently as Tuesday, Mr Barnier branded British offers as unacceptable. 

Mr Johnson held numerous calls with Ms von der Leyen in the end game of the negotiations. “They weren’t straightforward calls — they spoke a lot and they were very frank in the end,” said one person on the call.

British officials insist that a deal remained “in the balance” until about midday on Wednesday. “Just when you got optimistic, they would always throw another thing on the table,” said one ally of Boris Johnson.

Issues other than fish also threatened to destabilise the endgame, notably EU demands resisted by the UK for cross-retaliation powers that would have allowed Brussels to hit other UK sectors — such as car exports — if a dispute on fisheries spiralled out of control.

The penultimate day of talks featured an eclectic mix of fish and cars. Britain made a last minute push on the trading conditions for parts for electric cars — a crucial issue for Japanese carmakers Nissan and Toyota with major operations based in the UK. With that resolved, and breakthroughs on fish secured, a deal came into view.

By Wednesday night, when Mr Johnson convened his cabinet to outline the deal, a rare mood of Christmas optimism was in the air after a year in which the prime minister has been battered by the Covid-19 crisis.

“The PM insisted that the deal had delivered what was in the manifesto — that we were taking back control,” said one participant on the call.

‘Leave Brexit behind’

EU officials said that negotiators were kept up through Wednesday night by the task of fine-tuning adjustments to fishing rights. A night-time pizza delivery to the European Commission’s Brussels headquarters signalled the long hours of work that still lay ahead.

The work stretched on into Thursday afternoon as exhausted officials ploughed through the highly technical task of recalibrating quota-shares. 

Setting fishing rights in waters close to the UK coast, rich in lucrative species such as scallops, was a big part of the overnight effort, said people involved in the talks.

Diplomats from both sides blamed the other for the repeated delays to being able to announce an agreement — with allegations that the EU side had erred in its calculations, requiring numbers to be revised, and that the UK had sought late changes to the deal. 

But one official close to the talks said on Thursday that the challenge of calibrating the quotas was simply “goddamn hard”.

On Thursday afternoon both sides could finally confirm that a gruelling negotiation was over. 

Ms von der Leyen said that the deal left her feeling “quiet satisfaction and, frankly speaking, relief”.

“We can finally leave Brexit behind us,” she said. “Europe continues to advance.”

 





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Europe

Berlin under fire over attempt to interfere with Wirecard inquiry

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Germany’s finance ministry has come under fire over an attempt to secretly interfere with the questioning of a key witness during a parliamentary inquiry into Wirecard, a potential breach of parliamentary etiquette.

The collapse of the German payments company last summer sent shockwaves through Germany’s financial and political elite. A parliamentary inquiry has exposed multiple regulatory failures and led to the departure of the heads of three supervisory agencies.

Days ahead of Friday’s final parliamentary debate on the committee’s final report, the finance ministry disclosed that one of its senior officials tried to intervene in the inquiry’s work in the run-up to the questioning of Munich chief prosecutor Hildegard Bäumler-Hösl, a key witness.

The government revealed this in a written answer to a question raised by Fabio De Masi, an MP for the hard-left Die Linke party, which was seen by the Financial Times.

The ministerial official was not named, but can be identified by the description of his role, as Reinhard Wolpers, the head of the subdivision financial market stability. Wolpers is one of three finance ministry employees who are members of BaFin’s administrative council. The finance ministry declined to comment on his identity.

In the run-up to the questioning of Bäumler-Hösl in January, Wolpers approached BaFin’s then-vice president, Elisabeth Roegele, and asked her to provide questions for Bäumler-Hösl which he then would pass on to MPs.

The government has no constitutional role in the inquiry, which is being pursued by parliament and has powers akin to a court. Moreover, Roegele was also nominated as a witness and had not yet been questioned by MPs at that point. She was forced out of her job by the government alongside President Felix Hufeld in late January.

“Wolpers’ behaviour is a clear violation of rules,” De Masi told the Financial Times, adding that the government official showed a “lack of respect for the Bundestag”.

BaFin and Munich prosecutors are embroiled in a blame game over the controversial 2019 short selling ban which investors regarded as a vote of confidence in the disgraced company. BaFin imposed the ban after receiving information from Munich prosecutors about an allegedly imminent short selling attack against Wirecard.

Several BaFin employees told MPs that Munich prosecutors had stated that the information was highly credible. Bäumler-Hösl denied that and said she just passed it on to BaFin without commenting about its validity.

The short-selling ban is potentially toxic for German finance minister Olaf Scholz, who is the Social Democrats’ candidate for chancellor in September’s federal election.

The finance ministry scolded the watchdog publicly for the short selling ban, saying it was based on poor and insufficient analysis.

The ministry’s response to De Masi disclosed that Wolpers approached Roegele via email and text messages days ahead of Bäumler-Hösl’s testimony. The ministry said Wolpers “acted upon his own, personal initiative and did not co-ordinate with other employees of the finance ministry”. It added that the executive level “at no point” was informed about the behaviour but only became aware of the matter because of De Masi’s inquiry.

“The communication of [our] employee with Ms Roegele was eventually without a result, as Ms Roegele did not submit such suggestions for questions,” the ministry said, adding that “no information” was passed on to members of the inquiry committee from the ministry.

Lisa Paus, a Green MP, said that the “authority of the finance ministry” was misused for the political interest of the Social Democrats. “That’s an absolute no-go.”

Florian Toncar, an MP for the pro-business Free Democrats, said that it would be “very surprising” if Wolpers’ actions were “not approved or even requested by the ministry’s senior level”.

Jens Zimmermann, SPD representative on the inquiry, said he was unable to comment on internal procedures at the ministry “as I don’t have any insights [into them]”, adding that his only contact was with the ministry’s official representatives in the committee. “I did not receive any suggestions for potential questions to Ms Bäumler-Hösl,” Zimmermann said.

Wolpers and Roegele did not respond to FT requests for comment. Munich prosecutors declined to comment.



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UK exporters get more than £12bn in government financial aid

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UK exporters have been given more than £12bn in state financial support to keep Britain trading with the rest of the world through Brexit and the pandemic.

UK Export Finance, the government’s export credit agency, provided British businesses with the highest level of financial support in 30 years in the 12 months to the end of March, according to its annual report published on Wednesday. This is almost treble the amount from the previous financial year, to help exports to 77 countries.

The agency aims to support viable UK exports with loan guarantees, insurance and direct lending to help them win, fulfil and get paid for international business where there are gaps in private sector provision. 

UKEF provided more than £7bn in support to companies disrupted by the pandemic, such as Rolls-Royce, Ford, easyJet and British Airways, with a mixture of trade guarantees and insurance to encourage private sector lending to exporters.

It also helped exporters facing Brexit risks, for example providing a £480m guarantee on a £600m commercial loan in March 2021 after a carmaker committed operations to the UK. 

UK exporters, especially smaller businesses, have complained about extensive red tape and costs arising from trading with the EU after Brexit.

Many have also warned that the trade deals struck by the government have yielded little benefit so far, instead causing them to rejig operations and move production and distribution overseas.

“We are opening up the world’s fastest-growing markets through the trade deals we are negotiating so that the UK can recover as quickly as possible from the pandemic,” said minister for exports Graham Stuart.

Support through finance and guarantees was given to 549 companies, more than double the number helped over the previous two years.

The agency also underwrote its largest ever civil infrastructure project, with £1.7bn in guarantees to build two monorail lines in Cairo and provide the trains, the first such exports in more than 12 years.

The export agency is now planning to increase its coverage of businesses focused on zero carbon initiatives. 

Stuart will say on Wednesday that UKEF will create a renewables, energy and carbon management team to underwrite activity across sectors such as wind power, solar, green hydrogen, grid resilience and decommissioning. UKEF has also committed to ending support for new fossil fuel projects overseas. 

Last year, UKEF launched a new scheme to encourage trade after Brexit and for small businesses to take advantage of new trade agreements.

Under this, exporters could apply for larger loans from the UK’s five high street banks backed by an 80 per cent guarantee that can be used both to cover costs linked to exports and also to scale up business operations.

Marcus Dolman, co-chairman of the British Exporters’ Association, said that such new products were “already proving their value to UK exporters and to supporting UK jobs”.



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What unites and divides Germany’s potential coalition partners

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Guten Morgen and welcome to Europe Express.

Germany’s election season is kicking into gear and both Angela Merkel’s centre-right CDU/CSU and the up-and-coming Greens have published their election manifestos. With polls indicating the two parties could end up bedfellows in the first post-Merkel government, we compare their Europe-related policies.

The Uefa Euro 2020 football championship is in full swing and gripping fans across the continent. But we explore a darker reality that has spilled out in stadiums and pitches: culture wars.

In Luxembourg, EU affairs ministers meet today to prepare for a summit, hear the latest on EU-Swiss relations and discuss the rule of law in Hungary and Poland.

This article is an on-site version of our Europe Express newsletter. Sign up here to get the newsletter sent straight to your inbox every weekday morning

Berlin calling

Germany’s ruling Christian Democratic Union and its Bavarian sister party, the Christian Social Union, have laid out their joint election manifesto after the Greens published theirs in past weeks. It is well worth looking at what unites and divides the potential government allies in the post-Merkel era.

In brief, the CDU/CSU wants to return to how things were before the coronavirus pandemic, especially on fiscal rules and the sacrosanct schwarze Null (a balanced budget). They seem lukewarm on disruptive digital and green policies and made a libertarian push for a retreat of the state from many areas of society under the motto: “throwing money at problems isn’t always the best way to solve them”.

Meanwhile, the Greens have put forward a transformational plan. Their ambition is to turn Germany into a carbon-neutral economy in the next 20 years. Here are three areas to watch closely:

Debt and spending 

  • The CDU/CSU have insisted that once the pandemic is over, so should be any relaxation of fiscal rules. They support the EU’s unprecedented, mutual-debt-fuelled €800bn recovery plan, but say it should be a one-off. They oppose consistent debt mutualisation across the bloc. (Here is Armin Laschet’s take in an interview with the FT)

  • The Greens are less dogmatic about what other EU nations should do in terms of borrowing. They even suggest a relaxation of Germany’s debt brake to allow public investment in schools and infrastructure, to be financed with more debt. 

Climate goals

  • The CDU/CSU have embraced the goal of CO2 neutrality by 2045 and a 65 per cent cut in carbon emissions by 2030. But there are caveats for some industries and climate activists have pointed to inconsistencies and omissions in the conservative parties’ manifesto — notably their vague commitments on a “stable, fair and transparent” price for carbon.

  • The Greens are seeking to raise the carbon price to up to €60 per tonne in 2023, along with subsidies and incentives to cushion the social impact of a greener economy. 

Europe and foreign policy

  • The CDU/CSU were more dovish on China and Russia and they failed to mention the controversial Nord Stream 2 gas pipeline. The Greens were more hawkish and maintained their opposition to the pipeline for environmental and geopolitical reasons (they worry about circumventing Ukraine, depriving it of transit revenues, and increasing energy dependence on Russia).

  • Both the CDU/CSU and the Greens favour majority voting in EU foreign policy, replacing the current model of unanimity. The Greens would also abolish the need for unanimous EU decision-making on taxation.

The September 26 election result will determine how much of these manifestos get translated into actual policy — and how much one or both political groups will have to compromise.

Chart du jour: Europe’s Covid bill

Bar chart of Government debt as GDP (%) showing National debt in Eurozone countries spiked in 2020

Public debt in the eurozone rose 14.1 per cent in 2020 compared with the previous year, the biggest leap in two decades, driven by the pandemic. Greece and Spain have recorded the biggest single increase in debt loads, while Ireland only recorded a marginal increase.

Beautiful game, uglier realities

International football’s biennial jamborees usually offer a few weeks of summer escapism for avid fans and newbies alike, writes Mehreen Khan in Brussels.

But this year’s European championships have become an extension of the psychodramas and culture wars that dominate political life on the continent.

The list of controversies runs long (and we are only 11 days in). Last month, France’s far-right kicked off a movement to boycott Les Bleus over a rap song. In England, the national team has defied criticism in the tabloid press by continuing to take the knee in support of Black Lives Matter, despite jeering from some of their own fans. 

Further east, Ukraine’s football association was ordered by governing body Uefa to partly modify its kit design. Russia had complained that the jersey included a map of Crimea, which Moscow annexed in 2014.

Greece has also complained to Uefa about neighbouring North Macedonia using the acronym “MKD”. The Greeks (who didn’t qualify for the tournament) say the abbreviation violates the terms of the 2018 agreement under which Macedonia changed its name to North Macedonia.

The latest conflagration came this weekend, when German captain and goalkeeper Manuel Neuer became the subject of an investigation by Uefa for wearing a rainbow armband in support of LGBT+ rights. News of the probe prompted senior EU officials to express support for the player.

The inquiry has since been dropped by the governing body, which concluded that the armband did not constitute a breach of its rules prohibiting the display of “political symbols”. 

Neuer’s Germany faces off tomorrow against Hungary, where LGBT+ rights have come under political assault from Viktor Orban’s ultranationalist government. Munich’s Allianz arena is preparing to welcome the visitors by lighting up the stadium in rainbow colours.

Separately, Uefa on Sunday said it was investigating “potential discriminatory incidents” during Hungary’s two opening matches in Budapest, where TV images captured homophobic banners among the 55,000-strong crowd. Monkey chants were also reportedly directed at French players on Saturday. 

Brussels risks getting ensnared in the politicisation of the world’s most popular game. EU diplomats have told Europe Express that the incoming Slovenian presidency, led by rightwing prime minister Janez Jansa, wants leaders to sign off on summit conclusions this week on the governance of sport. 

Under the banner of the European Way of Life, Jansa is pushing for leaders to agree language “reaffirming the uniqueness of the organisation of sport in Europe”. The request has baffled diplomats, particularly as the EU has little legal authority over sport.

Slovenian diplomats said the push was needed to prevent schisms such as the scuppered European Super League that rocked world football earlier this year. Jansa also has a long-running grudge against his compatriot and president of Uefa Aleksander Ceferin, often taking to Twitter to send pointed jibes at football’s governing chief.

Between all the spats and controversies, viewers could be forgiven for forgetting that some football is also going on.

In the dock

Poland and Hungary will be in the spotlight during ministerial meetings in Luxembourg today as member state ministers discuss Article 7 procedures against the two countries, writes Sam Fleming in Brussels.

These procedures allow the European Commission, European parliament or member states to take action against countries for serious breaches of the rule of law under threat of punishments such as the suspension of EU voting rights.

The commission triggered the process against Poland in 2017, while the parliament launched it against Hungary the following year.

In Poland, incursions into judicial independence have continued, as have apparent threats to the primacy of EU law. In Hungary, there are mounting concerns about the judiciary, anti-corruption frameworks, media pluralism and human rights. Last week, Hungary passed an anti-LGBT+ law that sparked criticism from rights groups. The commission said it would look into whether the legislation breached EU laws.

Nevertheless, the two countries can shield each other from punishments under the Article 7 regime by wielding their vetoes. The question ahead is whether the commission can obtain better results by deploying powers agreed last year to withhold EU funds over breaches of vital principles.

Commission vice-president Vera Jourova is due to address the ministers in the General Affairs Council, setting out the state of play in both countries.

“The last hearing on Poland took place in December 2018 and on Hungary in December 2019, and many things happened since then,” she told Europe Express. “Unfortunately most of them continued to raise our concerns.”

What to watch today

  1. EU affairs ministers meet in Luxembourg

  2. Germany’s chancellor Angela Merkel receives European Commission president Ursula von der Leyen in Berlin

Notable, Quotable

  • United front: French politicians from left to right have persuaded a Green candidate to withdraw from the second round of regional elections on Sunday. The move is aimed at ensuring that Marine Le Pen’s far-right Rassemblement National does not take control of the southern Provence-Alpes-Côte d’Azur region.

  • Belarus sanctions: EU foreign ministers approved sanctions against a further 86 individuals and organisations in Belarus and set their sights on industries including finance, potash and petroleum products to put pressure on President Alexander Lukashenko’s regime.

  • Government collapse: In a first for Sweden, the country’s prime minister Stefan Lofven has lost a no-confidence vote in his government. The vote, engineered by rightwing opposition party Sweden Democrats, means Lofven has a week to call an election or build a new ruling coalition.

  • German tech offensive: Germany’s Federal Cartel Office added Apple to the Big Tech companies in its crosshairs, launching a probe into whether the iPhone maker has established market dominance through its “digital ecosystem”.

  • St Schuman: “Founding father” of the EU Robert Schuman may soon become a saint. The former French prime minister was given the title of “venerable” in a decree by Pope Francis over the weekend, which is one of the steps that could lead to sainthood.

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Today’s Europe Express team: sam.fleming@ft.com, mehreen.khan@ft.com, david.hindley@ft.com, valentina.pop@ft.com. Follow us on Twitter: @Sam1Fleming, @MehreenKhn, @valentinapop.





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