The European Union reinforced its hard-line approach to the looming Brexit negotiations, threatening to inflame mounting tensions with the U.K. over money and sovereignty even before talks begin.

While denying the bloc intends to punish Britain for its decision to leave, EU negotiator Michel Barnier on Wednesday fleshed out the financial obligations he wants Prime Minister Theresa May’s government to pay before it gets to discuss trade and said for the first time that the U.K. has no claim on the region’s assets.

The pound declined as investors worried that the recent tone of cross-channel communications and the EU’s latest stance already risk undermining the chances of a divorce deal before the two sides fully engage. This week’s war of words between London and Brussels had already strained relations.

“Some have created the illusion that Brexit would have no material impact on our lives or that negotiations would be concluded quickly and painlessly — that’s not the case,” Barnier told reporters in Brussels, as he played up the complexity of the negotiations and dampened the chances of a swift and easy deal.

Not only did the EU tie the future trade deal the U.K. wants to what Barnier called “settling the accounts,” it also published a long list of citizens’ rights it wants the U.K. to guarantee and demanded its courts still have a role in post-Brexit Britain.

May’s Approach

Minutes before Barnier spoke, Brexit Secretary David Davis described as “gossip and spin” reports that Barnier’s boss, European Commission President Jean-Claude Juncker, was shocked at a dinner in London last week by May’s approach to Brexit.

Still, Davis too took a strong line in rejecting the notion of paying as much as 100 billion euros ($109 billion) to leave the EU, a figure estimated by the Financial Times. He warned it’s not for the EU to dictate how the negotiations are conducted and revived a threat to leave the talks without a deal if provoked.

While “nobody is looking for that outcome” since the goal is to reach an agreement with the EU, “we have to maintain the alternative option” of walking away, Davis said. “We’re not entering these negotiations as supplicants.”

Sterling fell against the U.S. dollar on the increasing indications that relations have already turned rocky. The pound was down 0.1% at 1.2921 to the dollar at 2:45 p.m. in London, having been down as much as 0.4% earlier.

EU officials in Brussels ruled out the U.K. having any claim on EU assets which could offset the size of the bill it is under pressure to pay as part of the breakup. All assets listed in the EU’s annual accounts belong to the EU, which has a stand-alone legal personality, meaning that the U.K. can’t ask to be reimbursed for its original contributions, the officials said, asking not to be named in line with policy.

Already Ticking

While some members of the U.K. government understand the complexity of the negotiations, the collapse of talks can’t be ruled out, Barnier said, as he warned the clock was already ticking toward midnight Brussels time on March 30, 2019, when Britain will leave, with or without a deal.

“The U.K. must put a great deal of energy and effort into these three issues over the next weeks and months and that will increase the chances of reaching a deal,” Barnier said.

The negotiating mandate included a list of principles for calculating the U.K.’s financial obligations to the bloc. These include contributions to the EU budget until the end of 2020, assisting with EU programs for countries such as Turkey and the full cost of relocating EU agencies from London.

The complete list of obligations then need to be discussed with and approved by the EU’s remaining 27 governments, an EU official told reporters after Barnier’s press conference.

Financial Commitments

Even then, the EU won’t be in a position to give a precise figure, because the EU continues to take up financial commitments and make payments, and it will continue to do so for the remaining duration of U.K.’s stay in the bloc. Barnier rejected that idea that this was forcing a “blank check” on Britain.

“This all has to be totted up,” Barnier said. “We have to be rigorous in our approach to clearing these accounts because otherwise the situation might be explosive.”

The EU also said the withdrawal agreement should protect the rights of EU nationals who move to the U.K. before it leaves the bloc and their families for a lifetime and give them the chance of securing residency after five years of living there. Potentially raising eyebrows in Britain is the laundry list of welfare benefits they should be allowed to draw on, too.

Barnier also rejected May’s demand that the EU’s courts end jurisdiction in the U.K., with continuing oversight of the rights of European citizens who live in Britain before Brexit day. May wants the U.K.’s Supreme Court to have the final say.

Top Court

According to the EU text, the bloc’s top court should be part of “an institutional structure.” The EU Court of Justice’s reign over the U.K. should stretch even further and be the place where cases can be brought “after the withdrawal date for facts that have occurred before” then.

Finding agreement on the U.K.’s financial obligations, the rights of European citizens in Britain and the thorny topic of its border with Ireland must come before any discussion of a the sides’ future relationship, Barnier said.

The EU’s sequence of talks and the need for the U.K. to settle its bill aren’t new, but the question remains whether the U.K. government understands them, said Carsten Nickel, deputy director of research at Teneo Intelligence.

“The baseline scenario remains a deal, but risks are substantial mostly because of the societal polarization and the influence of populism in the U.K.,” he said. Leaving talks on a trade agreement until later in the negotiations “is not going to go down well in London.”

EU governments are scheduled to meet to sign off on Barnier’s mandate at a meeting in Brussels on May 22. Negotiations will then start with the U.K. soon after its June 8 election with a Spanish Foreign Ministry document obtained by Bloomberg News saying the EU wants to hold talks on a monthly basis.

“We’ll listen very carefully to what the British — when they’re ready — put on the table,” Barnier said. “And we’ll try to find common ground.”

Topics Europe London