Brexit Talks End Early As European Union, UK Still Have ‘Significant Differences’

Talks between the European Union and the U.K. over how they will conduct their future political and business relationships broke up one day early on Thursday as warnings proliferated of significant differences on both sides.

The two groups held “restricted talks” over the past few days in Brussels. They represented the first face-to-face discussions in three months.

The negotiations involved Michel Barnier, the European Commission's head of task force for relations with the U.K. and David George Hamilton Frost, the U.K. Prime Minister's Europe adviser and chief negotiator of task force Europe. They were accompanied by a restricted number of experts on each side.

“The negotiations have been comprehensive and useful,” Frost said. “But they have also underlined the significant differences that still remain between us on a number of important issues.”

Frost added: “We remain committed to working hard to find an early understanding on the principles underlying an agreement out of the intensified talks process during July.”

The British government declared that negotiations will resume in London next week as scheduled.

Similarly, Barnier said “serious divergences” remain between the two sides.

“The EU engaged constructively in this week’s restricted round negotiations, in line with our mandate,” Barnier tweeted. “We now need equivalent engagement from the U.K.”

Barnier stated that the EU sought to “inject new dynamics” into the Brexit talks.

“Our goal was to get negotiations successfully and quickly on a trajectory to reach an agreement,” he said. “However, after four days of discussions, serious divergences remain.”

Barnier said the EU position remains that there can be no economic partnership with the U.K. without “robust guarantees for a level playing field – including on state aid – to ensure open and fair competition among our businesses; a balanced, sustainable and long-term solution for our European fishermen and women; and an overarching institutional framework and effective dispute settlement mechanisms.”

On the London side, U.K. Prime Minister Boris Johnson has demanded, among other things, that the European Court of Justice will have no role in U.K. affairs; that the U.K. will not be obligated to be bound by EU laws.

Britain has thus far refused to extend a year-end deadline for negotiations, placing great pressure on both sides to hammer out an agreement.

The U.K. is slated to depart the European trading bloc by year-end. In the event, the two sides cannot hash out a trade deal by that time, they will be forced to default to trading rules established by the World Trade Organization, which would involve a series of tariffs and quotas.

For now, Barnier said the EU expects its “positions to be better understood and respected in order to reach an agreement.”

But worries are growing on both sides of the English Channel over what will happen if the U.K.-EU fail to reach a trade deal in time.

“We think there is a 50-50 chance of a no trade-deal Brexit,” said Sarah Hewin, chief Europe economist at Standard Chartered. “There are big hurdles still.”

Commerzbank of Germany said it thinks any deal the two sides achieve will be “weak with very limited reach.”

James Smith, an economist at ING, envisions little difference between a free trade agreement and no trade deal.

“In either scenario the U.K. is leaving the EU single market and that is where the bulk of the new costs for businesses will come from,” Smith said.

Societe Generale FX strategist Kit Juckes, warned: “If the global economy does badly and we do a bad trade deal we will do worse than most.”

On Wednesday, German Chancellor Angela Merkel warned that failed talks between the EU and Britain were a very real possibility.

"I will keep pushing for a good solution, but the EU and Germany too must and should prepare for the case that an agreement is not reached," Merkel said. "We are living in very serious times and need to react accordingly.”