LONDON (BLOOMBERG, REUTERS) - Britain and the European Union are set to resume Brexit negotiations on Monday (Sept 25) after British Prime Minister Theresa May broke a stalemate in the hope that the real arguments on the divorce can now begin.
In a major speech on Friday that drew guarded praise from Brussels, Mrs May signalled for the first time that she will be ready to discuss the amount of money the United Kingdom will owe to the EU when it departs the bloc in 2019.
Her "prize" is the opportunity to push talks on the future trading relationship between Britain and the EU, and her offer is a two-year transition phase. The upcoming negotiations will test Mrs May's ability to keep the EU and her own euro-sceptic Conservatives on side.
"Theresa May's offer on the divorce bill was probably more generous than anticipated, by hinting at an inclusion of historic liabilities as well as current budget commitment," said Mr Mats Persson, head of international trade at consultancy firm EY and a former adviser to the previous British prime minister David Cameron.
"We're now in the landing zone of 'significant progress'," he said.
Mrs May gave her most detailed road map yet for the divorce in a speech in Florence. She said Britain will pay to smooth its departure from the bloc until the end of the current EU budget in December 2020. That buys her some time.
French President Emmanuel Macron said Mrs May had made "advances", and the EU's chief negotiator Michel Barnier praised her "constructive spirit".
She also won the endorsement of British Foreign Secretary Boris Johnson, days after he warned her against going soft on the EU.
He tweeted: "PM speech was positive, optimistic & dynamic."
A British government official said Mrs May was open to discussing financial commitments beyond the scope of the EU budget, and that Britain would honour its dues more broadly.
Mrs May also proposed to accept the EU's rules for two years after Brexit takes effect in March 2019, in return for a transitional period which mirrors the status quo of tariff-free, regulation-light commerce and freedom of movement.
When the two-year transition period is up, Britain and the EU could move towards a new "deep and special partnership", she said.
Britain's access to the EU single market and vice versa would remain unchanged during the transition. The cost of such an implementation phase could run to about €20 billion (S$32 billion), but the Brexit bill could stretch to five times that in gross terms.
Some ardent "Leave" campaigners are already unhappy about her plan for a two-year transition.
"The British people are patient, but more than two years for a transition period would test that patience," said Tory lawmaker Andrew Bridgen. "We don't want to do that in the next general election in 2022."
Meantime, credit rating agency Moody's downgraded Britain's credit rating to Aa2 on Friday, hours after Mrs May's speech. It said the government's plans to bring down its heavy debt load had been knocked off course and Brexit would weigh on the economy.