Brussels diplomats believe unsolved issues including Tory infighting, the ongoing Irish border dispute and the nature of the post-Brexit trade relationship between the UK and the EU will mean that the transition period may have to be extended significantly.
Two senior officials told Reuters that British negotiators are debating whether to ask other European governments to extend the 21-month traction period currently on offer, although others believe the UK Government still aims to have a free trade deal ready to be implemented by January 2021.
Theresa May has insisted the 21-month transition period is enough time to formally leave the EU and while Brussels has vowed to be “flexible”, France and other EU governments have opposed the idea of Britain effectively keeping one foot in the EU and one foot out for an indefinite period.
One EU official told Reuters: “Nobody believes in transition until the end of 2020.
“But we don’t want to propose an extension straight away – that is a leverage we have over London in the talks.”
Brussels also realise Mrs May cannot publicly request a transition extension without risking the wrath of Brexiteers who want the UK to leave as soon as possible.
The official added: “To ask for an extension now would be to upset the Brexiteers who want out swiftly and at any cost.”
The first round of Phase Two talks began earlier this week after Michel Barnier travelled to London for a working lunch with his British counterpart David Davis.
Speaking to reporters after the lunch, Mr Barnier told Britain “the time has come to make a choice” as he issued a major warning about “unavoidable” trade barriers if the UK quits the customs union.
He said: “Mrs May has asked to benefit from the single market and the customs union for a short period. The European Council has indicated its readiness to consider this request.
“The conditions are clear, very clear. Everyone has to play by the same rules.
“We need clarity on the UK proposals for the future partnership. The only thing I can say, without customs union, and outside the single market, barriers to trade and good and services are unavoidable.
“Time has come to make choice.”
Mr Davis claimed the Government has made its Brexit aims “perfectly clear”.