11 February 2016

European Council President Donald Tusk has warned that negotiations over the UK-EU deal are “very fragile”. EU leaders are due to meet at a summit next week to try to finalise the talks and The Financial Times and Politico have this morning published a leak of the latest draft deal, which has been circulated to EU governments.

This is still not the final deal, and is likely to change again, but some of the latest amendments could be important and most of them will not be welcomed by UK negotiators.

Access to welfare

Firstly, on the issue of access to welfare, the latest draft states that the proposed ‘emergency brake’ on benefits, which limits migrants’ in-work welfare payments for four years, should apply in particular to countries such as the UK, which failed to make use of transitional arrangements to delay eastern Europeans’ right to work for seven years after their countries joined the EU. The time periods for which the brake would apply are still open to negotiation.

The upshot of this is broadly positive from a UK perspective, since it was the only country, along with Sweden and Ireland, which did not make use of the transitional controls on labour market access in 2004, when the bulk of the new member states joined the EU. Therefore, it is even clearer that this ‘emergency brake’ should apply in the UK’s current circumstances.

From Eastern member states’ perspective this could also make it harder for other member states to pull the ‘emergency brake’, since they already ‘benefited’ from a seven-year transitional period. Austria and Denmark have already hinted that they might be inclined to use the brake.

Economic governance and Euro/non-Euro issues

The language on non-discrimination between Euro and non-Euro countries is unchanged and exactly how the ‘red flag’ mechanism those non-Euro states can use to raise objections will work still remains to be seen – as it was in the previous draft.

However, unlike the previous draft, this version also makes it clear that those countries yet to join the Single Currency, except those with a formal opt-out such as the UK, are expected to make progress towards the conditions necessary for adopting the Euro. This is with an eye to countries such as Poland, which the likes of Germany fear may use the UK precedent to indefinitely suspend their plans to join the Single Currency. Therefore, whether the Poles or any other non-Euro states, such as Sweden, object to this new passage will be interesting. It should be noted that the UK’s demand for clear language that the EU is a ‘multi-currency’ union didn’t even get into the first draft, probably due to Franco-German objections. Therefore, if this passage stays, it would be a further blow to hopes that the deal could pave the way for an EU less focused around the Single Currency.

Another crucial aspect is the language on banking regulation. The previous draft suggested the UK and others outside the EU’s banking union could be subject to different regulatory rules than banking union states. French Finance Minister Michel Sapin had said the previous proposals in the draft agreement “could suggest there would be a difference of treatment” between London and other EU financial centres. “That is not possible. The treatment must be as identical as possible,” he added. This has been amended and the language is now very vague on this point, which suggests the deal could provide for differences within common EU rules, but not two sets of rules.

Sovereignty and ‘ever closer union’

The other change in language worth noting is on the section on ‘ever closer union’. This draft maintains that the words ‘ever closer union’ “are not an equivalent to the objective of political integration”, but adds “even though such an objective enjoys wide support in the Union.” This is probably not that important in isolation but does illustrate the political symbolism that many other states still attach to these words and underlines that other states regard this deal merely as yet further British exceptionalism rather than a basis for EU-wide reform. The sections on national parliaments and competitiveness remain broadly the same.

Unwillingness of EU to consider broader reform has made this a UK-specific deal

As noted out the outset, this is not the final deal and it reads very much as the first salvo from other member states, to which UK officials will likely respond. However, it does highlight a broader point. This has been hard work for British negotiators and, despite many EU leaders warning the UK against asking for special treatment, the deal they seem prepared to offer seems to make it very clear that this is an exceptional deal for the UK and an unwillingness to engage in broader reform.

Donald Tusk’s interview with The Financial Times probably says it all. He says he fears that the UK’s renegotiation could turn into a “very attractive model for some politicians in Europe to achieve some internal, very egotistic goals”. He added, “It is not only my intuition. I know, in fact, that some politicians in Europe are ready to use this political model to underline that they are really independent towards Brussels and the EU. It is the most popular political melody in some capitals.”

One can’t help but wonder whether these negotiators have begun to lose sight of the bigger picture. As the Dutch player noted in our recent EU wargames during a very tough Brexit session, which followed a very hostile negotiation over the UK reform demands: “[it might] be a good idea to reflect on the discussions on [reform] given the experience of the discussions of [Brexit]…would there be a higher level of interest in coming to a solution on the [UK’s reform demands]?”

Perhaps the real life negotiators would do well to consider this now.