Theresa May solves a problem in Europe but creates one in her party

THERESA MAY will face a lukewarm reception next week at the Conservative conference in Manchester, the first big party gathering since the disastrous election in June. It will be the second difficult pitch in a fortnight for the prime minister, who on September 22nd travelled to the balmier climes of Florence to deliver a speech aimed at European Union leaders.

The objectives of the Florence address were twofold: to break the deadlock in the Brexit talks, and to heal divisions in her party. At first blush, she seemed to have failed with the first objective, as EU leaders lined up to call for greater clarity and insist they could not negotiate through the medium of speeches. But with many of her cabinet present in Florence, Mrs May appeared to have succeeded with the second. Yet a week on, a more accurate reading is the other way around. She has moved the Brussels talks forward, but the splits in her government are as glaring as ever.

The Florence speech was better than many in Brussels feared, in three ways. The first and most important was its conciliatory tone. Not only did she offer compromises over the Brexit divorce. She also dropped threats to use security as a bargaining chip and promised not to seek an unfair advantage through deregulation post-Brexit. And, at least until the after-speech questions, she ditched her mantra that no deal was better than a bad deal.

The second was her explicit recognition of the need for a transition period after March 2019, when Brexit is due to happen. Partly to please Eurosceptics in her party, she insisted this must be time-limited, but she did not specify how long it would last beyond the vague phrase “around two years”. She also made clear that during this period current arrangements would apply, including free movement of people, acceptance of the European Court of Justice and payments into the EU budget.

That set the stage for her third concession, which was over money. An agreement to prolong the status quo for two years would not only avoid a cliff-edge Brexit and give business more certainty, but also imply an extra €20bn ($24bn) in net contributions. And Mrs May went further by promising to “honour commitments we have made during the period of our membership”. That appears to point to another large payment towards the exit bill demanded by Brussels.

The response from the rest of Europe was still cautious. Michel Barnier, the EU’s Brexit negotiator, called the speech “constructive” but asked for more specifics on the outstanding issues in the divorce. After meeting Mrs May in London on September 26th, Donald Tusk, the European Council’s president, welcomed the speech’s “more realistic tone” and suggested that Britain had dropped its policy of having its cake and eating it. But he warned that there had not been sufficient progress over the divorce for EU leaders to agree in mid-October to open talks on future trade.

Mr Barnier and David Davis, the Brexit secretary, resumed their negotiations in Brussels this week. Mr Barnier wanted more certainty over the rights of EU citizens in Britain. Mr Davis insisted that a settlement of the exit bill must depend on the outcome of trade talks. Nobody has a solution to the third divorce issue, averting a hard border in Ireland. In Florence Mrs May insisted there should be no physical infrastructure, but did not say how it could be avoided if, as she also proposed, the United Kingdom leaves the EU’s customs union and single market.

Indeed, the fuzziest part of her speech was over Britain’s future trade relations with the EU. She was clear only about the two models that she rejected. First was Norway, which has the benefits of single-market membership but at the cost of observing EU rules with no say in them. And second was Canada’s free-trade deal, which avoids the rules but does not cover most services. Insisting “we can do so much better than this,” Mrs May proposed a bespoke deal somewhere between the two. It is not obvious that this will be on offer. Even if it is, it will take years to finalise and ratify. Mr Barnier insists that initial Brexit talks must finish in 12 months.

Mrs May’s biggest problem is not with Brussels but with her own party, which will be in a chastened mood in Manchester. Despite the show of cabinet unity in Florence, Boris Johnson, her foreign secretary, has let it be known that he personally shot down the Norwegian model, as well as insisting on a limit of two years for transition. He also contradicted Mrs May by suggesting that new EU rules would not apply and free movement would stop in March 2019. Mr Johnson and Liam Fox, the international-trade secretary, chose this week to launch a new think-tank advocating a hard Brexit. Yet other ministers, including Philip Hammond, the chancellor, still want a softer version that might at least keep the customs union option open. That the Labour Party, which met in Brighton this week, is equally torn over these issues is only small consolation.

Developments in the rest of Europe may not help Mrs May much. This week’s speech on the EU’s future by the French president, Emmanuel Macron, held out hopes of Britain once again taking part in the club. But it was also a reminder that Brexit is not the EU’s most pressing problem. The German election adds another distraction, as it may take Angela Merkel months to forge a new coalition government. Nor will a rapidly improving European economy encourage more generosity to a Britain whose credit rating has just been downgraded. It may lessen fears that the EU is about to break up; but it will also make European leaders less worried about the economic damage from a Brexit they see as a self-inflicted wound.

The odds are that EU leaders will decide in October that not enough has been done to begin future trade talks. That will mean a delay until November or even December, though officials say they can begin informal discussions anyway. The clock is ticking. Diplomats in Brussels put the chances of there being no deal before Britain leaves in March 2019 at around 50%. British business is talking of putting contingency plans into effect early next year. The next few months will be crucial.