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The Globe and Mail

For Theresa May, the real challenge will be preserving the U.K.

British Prime Minister Theresa May makes a speech on April 6, 2017 in Nottingham, England.

Matthew Lewis/Getty Images

Anyone who believes the EU is a plodding bureaucracy that couldn't run a bath needs to think again. The European Union's opening gambit in the Brexit negotiations is a master class in how to run your opponent ragged while keeping your cards close to your chest.

Expectations that EU leaders would be herding 27 grumpy cats into a negotiating chamber has proved to be wrong. Instead, Britain was given a list of red lines and a dull procedure for the leaver to follow: first, agreement on the terms of exit; then (hopefully, if there is time) a trade deal. But within that long list of objectives and necessities, there were a few sharp objects. Each is specifically designed not to harm Britain but to cause anger and distress within that segment of the British population for whom Brexit means nothing less than Empire renewal.

The European Commission has been listening to Britain for almost half a century and it understands Britain's weaknesses: sneering grandiosity, postcolonial nostalgia, an addiction to transactional behaviour and contempt for non-Anglo-Saxon political culture. Guy Verhofstadt, the EU Parliament's lead negotiator, revealed this week that he had seen it all before, branding Brexit "a cat fight in the Conservative Party that got out of hand." Scores of British EU civil servants still walk the Brussels corridors; it's not hard for the commission to find the Brexit buttons and to press them.

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First came the bill for leaving the EU, as much as €60-billion ($85-billion) in pension liabilities and commitments to support various EU projects. The money hurdle was well trailed in advance by Brussels, but it still provoked fury among Europhobic Tories who believe that the EU invented waste and extravagance.

Money is the easy bit – it's always negotiable. Theresa May, the British Prime Minister, is desperate to get on to the nitty-gritty of market access, tariffs, customs clearance – the stuff that will really cost big money for decades to come. However, the commission insists that future trade can only be discussed when exit is agreed, when bills are paid and when you have sorted out the rights of EU citizens residing in Britain.

We will talk trade, Brussels says, but not until we have agreed long-term arrangements for Northern Ireland that avoid a hard border with the Republic and that safeguard the Good Friday peace agreement. Northern Ireland voted to remain in the EU. The Irish government is furious about Brexit and fears renewed conflict in Northern Ireland between hard-line Unionists and resurgent Republicans who are already demanding a poll on Irish unity.

And the EU delivered another swift jab. When you have left, the commission says, any trade deal between Britain and EU will not apply to Gibraltar without the agreement of the Kingdom of Spain. The lump of rock that overshadows the British naval port at the tip of Spain looms very large in the minds of the Brexit Empire Loyalists. Lord Howard, a cabinet minister in Margaret Thatcher's government, recalled the Falklands War and suggested that Ms. May should mimic the late Tory leader and send a naval task force to rescue the Gibraltarians from Hispanic aggression.

Pressing the empire buttons is not just fun and games; Brussels is reminding London that it has much to lose. The notion that Britain could replace trade lost in Europe by reinvigorating trade with the Commonwealth, the rebranded colonies, is pure fantasy. Commonwealth countries accounted for less than 10 per cent of British exports of goods and services in 2015 while 44 per cent went to the EU. Moreover, commerce in the sterling zone of the old empire was more about protection than competitive trade as we know it today. It was about importing sugar and cotton and dumping manufactured goods on colonial possessions. It was about keeping out the United States, keeping out Germany and propping up the pound.

Modern trade is different; it is about competitive advantage. Every Canadian knows that the first customer is the guy next door. When the neighbour is one of the world's biggest economies, customers further afield are merely icing on the cake.

A glimmer of light is finally entering 10 Downing Street. There is less threatening talk of a hard Brexit and reverting to World Trade Organization tariffs. Ms. May seems to be angling for an interim trade deal and there are whispers she might even compromise on "free movement of people," a big red line for the millions of Brexit supporters who voted to end immigration.

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Could Brussels have understood something that the English nationalists have missed? Brexit is really about politics, not trade. If Brussels is pointing at Gibraltar, Northern Ireland and the rights of EU citizens, it is because they know that Britain's real vulnerability is not the economy but political cohesion. Half of Britain voted to remain, Scottish nationalists are in rebellion, demanding a say in the Brexit deal and another referendum on independence. Sinn Fein is calling for a poll on Irish unity.

For Prime Minister May, the real challenge will not be the rebuilding of empire trade: it is more likely to be the preservation of the United Kingdom.

Carl Mortished is a Canadian financial journalist based in London.

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