Brexit: Why hopes are rising that EU and UK could find compromise

Boris Johnson will hammer out a new plan with senior ministers this week aimed at unblocking talks on Britain's future relationship with the EU, with hopes rising that a month of "intensified" negotiations starting on June 29 will yield a breakthrough.

Diplomats confirm that there has been a shift in mood following the British prime minister's virtual summit last week with EU chiefs. Both sides speak of a "new phase" of less formalistic negotiations and a greater readiness to do business.

Mr Johnson's Brexit strategy cabinet committee will discuss areas for possible compromise this week, including the idea that Britain would reserve the right to diverge from EU standards on the understanding that it would be hit by tariffs if it did so. EU governments will also adopt a statement this week on the next stage of talks.

The EU side has also signalled its willingness to move on key sticking points in order to strike a deal, while warning that it would not sacrifice its principles. European Commission president Ursula von der Leyen pledged last week that the EU was "ready to be creative to find common ground where there even seems to be none".

The ones who most need an agreement are the British. They cannot take a second shock after the epidemic.

Amélie de Montchalin, France's Europe minister

Brussels will strive for a deal by the end of October, which is seen as the effective deadline for an agreement given the need to ratify it in time for the end of Britain's post-Brexit transition period on December 31. With the end of the transition, the UK will exit the EU's single market and customs union, something EU chief negotiator Michel Barnier has referred to as "economic Brexit". Both sides want to have a tariff-free, quota-free trade deal ready for when the transition period ends.

Mr Johnson, who has ruled out an extension to the transition, has said he would like a deal earlier, by the end of July - an idea which is seen as fanciful on the EU side given the extent of the ground to be covered. Britain and Brussels have already agreed negotiating rounds for August and September.

UK officials acknowledge that "all the difficult issues remain difficult". Sticking points include the EU's demand to retain access to UK fishing waters, disagreements over how to build a regulatory level playing field to protect companies from unfair competition, and the desire in Brussels to wrap all parts of the future relationship into a single legal act.

With time short, tentative compromises on the future-relationship are now being mooted by both sides.

Diplomats said that Mr Barnier, the EU's chief negotiator, warned Europe ministers on Tuesday that the negotiations would fail if both sides stuck to "maximalist" positions on fish, saying that he was "ready to explore" a middle ground.

The EU began the future-relationship negotiations demanding assurances of continued access to UK sovereign waters, and insisting that the bloc retain existing fishing rights for around 75 species that straddle the maritime border. Britain argued that all such questions should be left up to annual negotiation, befitting the UK's new status as an "independent coastal state".

EU diplomats said that Brussels knows that it will have to compromise on the size of the EU fishing quotas, but underlined that the bloc was determined to provide long-term certainty for its fleet.

"We ask predictability and we ask for guarantees for our fishermen and fisherwomen who have been sailing in those waters for decades," Ms von der Leyen said last week.

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Fresh thinking has also emerged from the UK on how to break the deadlock over the "level playing field" - a disagreement centred on the EU's insistence that Britain stick closely to European labour market, environmental and state-aid rules.

Under the mooted compromise, Britain would accept the conditions but would maintain the right to deviate from EU rules; in those circumstances the EU could punish Britain with tariffs on its exports.

The idea was floated in the Spectator magazine, which Mr Johnson used to edit, and is not a formal proposal from either London or Brussels, but Number 10 is hoping it might be picked up by the EU.

EU diplomats have said that the plan risks being unworkable and leading to a "relationship based on constant disputes". But senior officials in Brussels have in the past suggested that the power to rapidly hit the UK with tariffs could be part of a compromise.

"If we don't have dynamic alignment [of rules] across the board we will need mechanisms to allow us to introduce tariffs," an EU official told the FT in January. "There can be no tariff-free access if you are undercutting."

Brussels expects the most difficult part of the level playing field discussions to revolve around EU demands that Britain copy and paste the bloc's restrictions on subsidies for companies. Mr Barnier has already hinted that he is ready to consider alternative approaches as long as they still protect EU businesses from unfair competition. "The UK until now has given us no idea of a future regulation of state aid," he said last week.

Mr Barnier and his team know that any deal must satisfy both national governments and the European Parliament, which also has a binding say over the agreement.

Amélie de Montchalin, France's Europe minister, warned on Friday that the EU would not be pressured into a bad deal. "The ones who most need an agreement are the British," she said. "They cannot take a second shock after the epidemic."