EU slams Britain's proposed withdrawal agreement changes in latest Brexit brinksmanship

The European Union told Britain on Thursday it should urgently scrap a plan to break their divorce treaty, but Prime Minister Boris Johnson's government refused and pressed ahead with a draft law that could sink four years of Brexit talks.

With chances growing of a messy end to Britain's departure from the EU, the European Commission said London would be committing "an extremely serious violation" of last year's Withdrawal Agreement if it went ahead with proposed legislation.

After emergency talks between Commission Vice-President Maros Sefcovic and Britain's Brexit supremo Michael Gove, the EU said Britain's proposal had "seriously damaged trust" that London must now take steps to re-establish.

Gove, one of Johnson's most senior ministers, said he refused the EU's request to scrap the draft legislation.

"I explained to Vice-President Sefcovic that we could not and would not do that," Gove said.

As those talks were underway, the bloc's chief negotiator Michel Barnier and his U.K. counterpart David Frost met for the eighth full round of negotiations on a trade deal.

'Significant differences remain'

EU diplomats and officials said the bloc could use the Withdrawal Agreement to take legal action against Britain, though there would be no resolution before the end-of-year deadline for Britain's full exit.

Barnier said the EU has shown flexibility on British demands on fisheries, the bloc's top court and other areas, but are disappointed overall and stepping up preparations for a no-deal Brexit on Dec. 31.

"Significant differences remain in areas of essential interest for the EU," said Bernier.

"Nobody should underestimate the practical, economic and social consequences of a 'no deal' scenario."

The British government says its planned law, put forward on Wednesday, merely clarifies ambiguities in the Withdrawal Agreement, but also says its main priority is the 1998 Northern Irish peace deal that ended decades of violence. It said the bill would be debated on Monday.

French Foreign Minister Jean-Yves Le Drian told his British counterpart Dominic Raab a violation of the Withdrawal Agreement with the EU would be "unacceptable," a spokesperson said.

Europe's leaders have been handed an ultimatum: accept the treaty breach or prepare for a messy divorce when Britain disentangles itself from the EU at the end of the year, one that could sow chaos through supply chains across Europe and spook global financial markets.

Britain signed the treaty and formally left the EU in January after more than three years of crises and wrangling over Brexit. But it is a member in everything but name until the end of the year when a transition agreement expires.

Without an agreement, nearly £800 billion ($1.3 trillion Cdn) in trade between the EU and Britain could be thrown into confusion at the beginning of 2021 as they also deal with the economic impact of the coronavirus pandemic.

The pound fell against the dollar and the euro and the Financial Times Stock Exchange 100 share index fell. European Central Bank chief Christine Lagarde said she was monitoring Brexit developments.

'What were they thinking?'

European diplomats said Britain was playing a game of Brexit "chicken," threatening to wreck the process and challenging Brussels to change course. Some fear Johnson may view a no-deal exit as a useful distraction from the pandemic.

One EU source said Britain would not succeed if it tried to use the planned breach of the Withdrawal Agreement as a threat to extract concessions from the bloc in trade talks.

"If they try to do that, it will fail," the EU source said.

Goldman Sachs said it expected "the perceived probability of a breakdown in negotiations to escalate over the coming weeks," but its base case remains a "thin" free trade agreement that steers both sides back from the brink.

U.S. House of Representatives Speaker Nancy Pelosi said any potential U.S.-UK trade deal would not pass the U.S. Congress if Britain undermined the 1998 agreement.

"This news comes to us… that the U.K. had decided to undermine the Good Friday Accords. What were they thinking?" she told reporters in Washington. "Whatever it is, I hope they're not thinking of a U.K.-U.S. bilateral trade agreement to make up for what they might lose."

Back home, former Conservative prime ministers Theresa May and John Major scolded Johnson for considering an explicit, intentional breach of international law.