U.K.’s May offers EU olive branch as she addresses stumbling blocks in Brexit talks

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Britain's departure from the European Union was never going to be easy. But after just six months of negotiations, the talks have already stalled, the British government is rife with infighting and confusion is growing over what the future relationship between the U.K. and the EU will look like.

On Friday, British Prime Minister Theresa May tried to reset the tone of the negotiations and ease some of the dissent among her cabinet ministers. She headed to the heart of Europe, Florence, to address some of the major stumbling blocks in the talks. She also offered something of an olive branch to the EU, insisting that Britain wanted to be the EU's "strongest friend and partner as the EU, and the U.K. thrive side by side."

While short on details, Ms. May did propose keeping Britain within the EU for a two-year transition period beyond the March, 2019, departure date, and forging a new trade relationship based on a unique model. Her remarks were met with lukewarm applause from the EU's top negotiator, Michel Barnier. He said her speech "expressed a constructive spirit" but added that he wanted to see more details.

Brexit talks resume next week and it's unclear whether Ms. May's intervention will be enough to overcome the many obstacles.

What are the big obstacles?

Well, money. The EU has insisted that Britain can't walk away without meeting its financial obligations, such as pension liabilities and funding commitments to various programs.

EU negotiators haven't set a figure but official estimates put it at around €100-billion (or $147-billion).

On Friday, Ms. May said Britain would continue paying its share of the EU budget during the two-year transition period. That would cost about €20-billion in total and it would coincide with the EU's six-year budget that ends in 2020, meaning the EU wouldn't be short of cash before its budget ends. Ms. May also said Britain would consider funding some EU programs in science, education and culture after the two-year transition. And she indicated that Britain would adhere to EU rules and regulations, including the free movement of people, during the transition, so long as Britain kept access to the EU single market. That's a start, but it likely won't be enough to settle all the money issues. And the EU has said it won't even talk about a trade deal, something Ms. May is keen on, until "sufficient progress" has been made on the financial question.

Anything else?

Another big issue is the rights of the three million EU nationals in Britain. Many of these people have been living in Britain for years without citizenship because of the EU's principle of free movement among member states. The EU wants Britain to protect the rights of these people under the jurisdiction of the European Court of Justice. Britain has agreed to protect their rights but it won't submit to the court's authority, arguing British courts will decide any disputes. That has created a stalemate. On Friday, Ms. May tried to offer a compromise, saying U.K. judges would take European Court rulings into account. She said that during the two-year transition, free movement would continue, but EU nationals arriving in Britain would have to register as part of a transition to a new immigration system. It's not clear yet whether that will be enough to satisfy the EU.

What about the border with Ireland?

That's another key stumbling block. Under the 1998 Good Friday Agreement, which ended the Troubles, the border between Ireland and Northern Ireland has vanished and thousands of people live in one country and work in the other without any restrictions. Any border controls going up because of Brexit would hurt both countries. Britain and the EU have committed to ensuring nothing changes, but the EU wants progress on this issue before moving on to any discussion about an EU-British trade deal.

What happens after the two-year transition?

Who knows? Brexit hardliners in Ms. May's cabinet want Britain to make a clean break with the EU and then negotiate a free-trade deal much like the Canada-EU agreement. Others want the country to follow the Norwegian model by staying out of the EU but keeping some access to the European single market, to ensure the free flow of goods and services. They worry that a Canada-like trade deal wouldn't give Britain anything close to the same access it has now. But Brexit backers say the Norway model would mean accepting EU regulations and laws, something they bitterly oppose. On Friday, Ms. May rejected both ideas and said Britain and the EU should find a "creative solution to a new economic relationship." She also raised the idea of a separate dispute-resolution system instead of the European Court of Justice or British courts. The EU has said it isn't interested in a new model and basically wants Britain to decide between the Canada or Norway approach.

What about Ms. May's leadership? Isn't she in trouble?

She sure is. When she triggered the EU exit mechanism, known as Article 50 of the Treaty of Lisbon, back in March, Ms. May led a majority government and she had strong support across the country. Then she made the disastrous decision to call a snap election in June, hoping to increase the Conservative Party's majority and strengthen her negotiating position with the EU. Instead the party lost ground, winning the most seats in the House of Commons but not enough to form a majority government. Ms. May had to cobble together a majority with the help of a small party based in Northern Ireland that won 10 seats. Many Tory MPs would like to get rid of her as leader but they don't want another election, so she has hung on. But her leadership has been badly weakened and she has been undermined by some cabinet ministers, including Foreign Secretary Boris Johnson, who wrote a 4,000-word article in a newspaper this week outlining his position on Brexit which clashed in parts with Ms. May's. "She is trapped by the weakness of the position she's in," said Tony Travers, a professor of government at the London School of Economics. Matthew Goodwin, a politics professor at the University of Kent, said: "There's no doubt that the so-called natural party of government is struggling to govern. The Conservative Party has been engulfed by infighting almost all of which has stemmed from the competing visions of Brexit within the cabinet."

What has been the reaction to her Florence speech?

So far the cabinet has rallied around Ms. May with even Mr. Johnson hailing the speech, but how long that harmony will last remains to be seen. Some hardline Brexit Tory backbenchers aren't happy that Britain now won't be leaving the EU until the end of 2020 at the earliest, but they won't likely want to bring down the government. Several business groups have also been wary of the two-year transition period, saying it's not enough time to adjust. As Sam Hill, RBC's senior U.K. economist, put it: "It feels like the speech represents a small step rather than a giant leap in the Brexit process."

What's next and what's the deadline?

Britain triggered the EU exit mechanism on March 29, 2017, and, according to the EU treaty, both sides have two years to negotiate Britain's departure and come up with a new trade deal. Mr. Barnier has said the talks can only go until October, 2018, because the EU member states need at least six months to ratify the agreements. That leaves one year to figure everything out. A two-year transition would buy some time, but the other EU member states would have to agree to any extension. On Friday, Mr. Barnier stuck to his timetable saying: "We need to reach an agreement by autumn 2018 on the conditions of the United Kingdom's orderly withdrawal from the European Union. The U.K. will become a 'third country' on 30 March, 2019." In a speech earlier in the week he offered some cautious optimism. Knowing Ms. May was heading to Florence, Mr. Barnier borrowed a quote from the Florentine philosopher Machiavelli who said: "Where the willingness is great, the difficulties cannot be great."