May set for the speech of her life

Theresa May has set the bar high for her Brexit speech in Italy on Friday. When the date was set for the event, Downing Street said the UK prime minister's aim was to overcome the deadlock in the negotiations with the EU. This week's events, however, have shown the leeway for a bold step forward is extremely limited. May is expected to announce a financial settlement offer, combined with a two-year transitional period for the UK starting in 2019, according to media reports out of Britain.

The dilemma is becoming obvious

The people joining May on the trip to Florence – Chancellor of the Exchequer Philip Hammond and Foreign Minister Boris Johnson – reveal the extent of the problems she is facing. The former advocates a soft Brexit, while the latter, a hard one. But after Johnson's solo show last weekend, when he published a fiery eulogy on the "glorious" prospects for a post-Brexit UK, the dissent in May's cabinet can barely be masked any longer.

Even if she can persuade her ministers to get in line before heading to Italy, she remains walled in by the opposing sides of her own party. The seemingly arbitrary choice of the Italian Renaissance city, with its magnificent backdrop, increases the risk May's speech will fall short of expectations.

What will May propose?

For one thing, May's speech will be about money, as the EU insists the UK commit to broader financial settlements, something British negotiator David Davis has so far strictly avoided. Signals from London have been contradictory, ranging from complete rejection to a moderate willingness to compromise. Brussels demands between 60 and 100 billion euros ($70 and $120 billion) in payments. This settlement includes everything from running payments in the EU budget until the end of 2020 to pension payments to EU officials, as well as long term programs for high risk loans to Ukraine. Even if May makes her rumored "open and generous" offer of a 20 billion euro contribution over a two-year transitional period, would Brussels be satisfied? It seems unlikely – the gap between supply and demand is much too wide.

The question is, what is London willing to pay for? If the UK remains in the common market and customs union during the transitional phase, it will have to make a financial contribution anyway, as Norway does. The remaining items in the final statement are nonetheless still open. The EU may be rescued from a looming budget deficit if UK paid at least until the end of the seven-year budget period ending in 2020. Everyone expects that this dispute will end with a compromise, but it will come at a cost.

Proposal for the future

So far, May has only come up with empty words about the future of the UK's relations with the EU. There is always talk of a "deep and special" relationship. EU Brexit negotiator Michel Barnier has complained after each round of talks, saying the negotiations could not be conducted on such a vague basis. The prime minister must approach the EU and signal where she is willing to compromise, for example, on the issue of the European Court of Justice. This dispute has blocked progress on establishing the rights of citizens post-Brexit.

Furthermore, there is a lack of concrete information indicating the UK's long-term aims. London has been asking for a special agreement with the EU for the transitional phase – a customized one. The EU, for its part, has suggested models like the customs agreement with Turkey or the treaty with Switzerland. Brussels has little desire to reinvent the wheel. Besides, a special deal for the UK would require years of negotiations of their own, argues Barnier. Time is running out and only a ready-made deal is realistic.

What happens next?

European governments have shown caution ahead of the speech in Italy. First, they want to see what May actually puts on the table. But the UK strategy of bypassing Brussels and only addressing EU leaders has probably already failed. May and her diplomatic team have tirelessly sought to make progress through direct talks that skirt the EU Commission – so far without success. On September 28, EU leaders will meet at a summit in Tallinn to discuss the current state of the negotiations.

The regular talks in Brussels, which have been postponed for a week because of May's speech, will resume on Monday. But significant progress is not expected next week, as EU member states will have to evaluate May's offer and either give it a thumbs up or thumbs down.

The UK desperately wants the EU to greenlight the next phase of negotiations, in which the future London-Brussels relationship is to be discussed. According to the member states, however, this requires "sufficient progress" in the current divorce talks. It is doubtful whether this can be achieved within the next three weeks, before government leaders make an official decision at the end of October. EU negotiator Barnier always compares Brexit with a divorce: it is "painful, unpleasant and expensive." The only other word he forgot is "tedious."