(Bloomberg) -- The transition deal was always meant to be an easy part of the Brexit negotiations: Politicians and businesses on both sides want it and the sooner the better for companies. But as talks on the transitional period get under way, it's looking increasingly at risk.
Domestic pressure on Prime Minister Theresa May has pushed her into a fight with the European side over the conditions attached to the grace period that will run from Brexit day in March 2019 to the end of 2020.
The European Union is also playing hardball, tightening some of its conditions. The starkest example is a threat to unilaterally suspend the U.K. from the benefits of the single market if it breaks the rules during the transition. The threat of a suspension defies the whole point of the transition, which is to give businesses secure and continued access to the single market for about two years after the divorce.
The EU also raised the possibility of increasing its financial demands on the U.K. beyond what was agreed in December. While small, the news won't go down well at home. The U.K. is objecting to seven aspects of the EU's stance on transition, including the provision that it must accept all new rules that the EU might make even though Britain -- stripped of its voting rights -- will have had no say in making them.
Read more: Citigroup's Post-Brexit Trading Hub to Be Operational in 2018
As it gets more complicated, officials on both sides are raising the prospect that the goal of pinning down a transition deal by the end of March isn't doable. Many businesses have said that's an absolute deadline and they will start enacting contingency plans if there's no agreement by then. Chancellor of the Exchequer Philip Hammond called transition a wasting asset -- the later you get it, the less valuable it is. As the clock ticks down, there's a chance it will be wasted on delivery.
To contact the reporters on this story: Emma Ross-Thomas in London at erossthomas@bloomberg.net, Nikos Chrysoloras in Brussels at nchrysoloras@bloomberg.net.
To contact the editors responsible for this story: Heather Harris at hharris5@bloomberg.net, Jones Hayden, Richard Bravo
©2018 Bloomberg L.P.
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