LONDON (BLOOMBERG) - The scale of Prime Minister Theresa May's Brexit defeat has convinced the European Union to demand that she radically rethink Britain's red lines as the bloc signalled its willingness to delay the country's withdrawal by many months.
The EU had been preparing to make limited concessions over the much-loathed Irish border backstop to help Mrs May convince Parliament to back her deal.
But the 230-vote loss on Tuesday night (Jan 15) changed that: European governments now believe a more fundamental shift is needed and the move has to come from the British side, three diplomats said.
It adds to growing evidence that Brexit is unlikely to happen on the long-scheduled date of March 29, with European governments willing to delay Britain's departure well into the second half of the year, according to diplomats who spoke on condition of anonymity because of the sensitivity of the discussions.
But they told Mrs May she needs to enter into credible cross-party discussions to ensure there's a unified British position on Brexit, then present the EU with a roadmap for the way forward.
And that's what Mrs May is now doing. After narrowly surviving a confidence vote on Wednesday, she invited the leaders of rival parties in for talks on how to move ahead with Brexit.
EU diplomats say the next step could be to reopen the political declaration - the part of the agreement dealing with future relations - to make it clearer that ties will remain close after the split.
That could include signing up permanently to a customs union with the EU, which has been one of Mrs May's red lines but is the policy of the opposition Labour Party.
It would remove the need for many elements of the backstop, which is designed to avoid a hard border on the island of Ireland, but would anger pro-Brexit lawmakers who believe it would betray the result of the 2016 referendum.
While many EU officials expect Mrs May to ask for an extension to the exit day, European governments still disagree over whether it should be allowed - and how long it should last.
Some believe their vision for getting the deal passed can still be achieved over the next 10 weeks; others think an extension is needed that could stretch Britain's membership well into the second half of 2019. One official said September could be the new deadline.
Mrs May told Parliament on Wednesday that the plan was still to leave on March 29, but left the door open to an extension. British Chancellor of the Exchequer Philip Hammond floated to businesses the prospect of a delay to the end-March departure date.
Mrs May is now not expected in Brussels this week because she has work to do at home, according to EU diplomats, although she will contact EU leaders on Thursday, according to a person familiar with the situation.
An extraordinary summit of leaders to help Mrs May sell the deal is likely before the next regular meeting at the end of March.