Europe is starting to fear a 'no deal' Brexit – Michel Barnier best not push Britain too far

Leave's triumph has since forced Mr Juncker and his fellow Eurocrats to envisage Britain's departure more seriously, as they now have to hammer out the terms of their divorce, and future relationship by March 2019. A deal seemed eminently feasible at the start, with Michel Barnier declaring after his first round of negotiations with David Davis: 

"For both the EU and the UK, a fair deal is possible and far better than no deal...That is why we will work all the time with the UK, and never against the UK."

The resulting sticking points, over issues like the so-called Brexit bill and the role of the European Court of Justice, cooled Monsieur Barnier's enthusiasm. After Britain made painfully clear over its third round of talks why it would not pay €100 billion as a settlement, the Frenchman concluded in his summary to journalists that Britain may fail to leave "in an orderly manner" by departing without a deal. "From our side, we believe that an agreement is the best outcome, as it is in our best common interest," he made clear.

Yet agreement will only come if Britain is satisfied with the terms on offer. Brussels might think it can count down the clock until the British give into their demands, but they have been quietly working on how they would make the most - if required - of leaving the bloc without a deal.

Such an outcome, which would see Britain deal with Europe – as it would with the rest of the world – on World Trade Organisation terms, is being taken with increasing seriousness in the business community. Vacuum mogul Sir James Dyson told the Today programme this morning that it was the likely result,  and would "frankly...hurt the Europeans more than the British". 

Lord King, the former Bank of England governor, shared his similarly pessimistic view about how talks were going on Newsnight, suggesting that the British should make clear to Brussels it is ready to walk away so that they know "that you have a fallback position that you're capable of delivering".

Concern about the prospect of a "no deal" Brexit is being felt across the continent. The Finnish Chambers of Commerce has teamed up with their British counterparts to call on both sides to avoid a negotiating result that creates "new obstacles or increased costs" to trade. Matthias Wissmann, head of the German Automotive Association, told Sky News that contingency plans were being formed to deal with the "worst case scenario" of talks collapsing and Britain leaving without an agreement. The "higher price would be paid by the British" in a "cliff-edge Brexit", he thought, but it would still be "very critical for all sides".

A study from the Cologne Institute for Economic Research shows why Herr Wissmann might be so worried about talks ending in failure, as it suggested that German manufacturers would be "hit hard" because of how much they import in goods from Britain. Given the cost of driving the British out of the bloc without a deal, perhaps Nigel Farage is onto something when he suggests German car-makers might be pushing Angela Merkel's government privately to "get a sensible trade deal" in place with Britain post-Brexit.

Estimates vary as to who would come off worse from a "no deal" Brexit, with Sir James' optimism for the British in such a scenario contrasting with Herr Wissmann's gloom. Crucially, both sides are taking the prospect of Britain leaving in such circumstances far more seriously than when talks began.

The same cannot be said for David Cameron's renegotiation. His team did not think it worth wasting Whitehall's time by having them think about how Britain could make its way out of the EU as they were so sure that it wouldn't be what the people would demand. How wrong they were.

Brussels is still coming to terms with Britain's departure. Mr Juncker held out the hope in May that the British could one day "re-enter" the EU boat, and developed that idea yesterday by suggesting they would "regret" leaving. Yet the idea Britain would want to rejoin the bloc, in light of his uber-federalist vision he went on to flesh out, suggests he and his colleagues can't resist the odd flight of fancy.

The Commission president softened his tone markedly towards Britain when taking questions today about his speech. "My working hypotheses is there will be a deal. I don’t want to imagine a situation where UK would leave the EU without a deal," he said. "I don’t envision a hard Brexit."

That may be so, but it's worth remembering that the former Luxembourg president did not want to "envisage" Britain leaving the bloc last year, but the British people forced him to by voting to depart. Now he wistfully hopes that the British will come to an agreement with Monsieur Barnier and his team, even though the ongoing deadlock has prompted Europe's business community to consider more seriously the prospect of Britain walking away.

The British want a deal with Brussels, but ministers have made clear they will not accept punishing terms. If President Juncker wants to save himself from another Brexit-related shock, he needs to tell his negotiators to show some flexibility. Europe's businesspeople are taking the process seriously, so it's time for their leaders to follow suit.