British Prime Minister Theresa May and European Commission President Jean-Claude Juncker said Dec. 4 that no deal had been reached in the first phase of Brexit talks. The two said they would reconvene for further talks before the European Council summit on Dec. 15. (The Washington Post)

A couple of hours ago, the Financial Times top headline announced that “Britain and Ireland agree Brexit to border deal.” Now there’s a rather different headline: “Brexit deal falls through over Irish border dispute.” The British pound, which had jumped earlier, has now fallen from its earlier highs. Here’s what has just happened to Britain’s Brexit negotiations — and what is likely to happen next.

The European Union was important to Ireland’s peace deal

Britain’s decision to leave the European Union has major consequences for both the Republic of Ireland and Northern Ireland (the part of the island of Ireland still under British rule). Decades of violence were ended when Britain and Ireland negotiated a peace deal in which Britain agreed that Northern Ireland could join the republic if and when Northern Irish people wanted to; the Republic of Ireland agreed to abandon its constitutional claim to the North.

One of the key enabling conditions for this deal was that Britain and the Republic of Ireland were members of the European Union. This had already allowed them to get rid of customs posts at the border between Northern Ireland and the Republic of Ireland. It was also much easier to reach an agreement and maintain it when both countries were part of a broader political union.

This poses problems for Brexit

Now, however, Britain is leaving the European Union thanks to the Brexit referendum. This poses some very tricky questions for both Britain and Ireland. First, they will no longer have a shared political context, calling the stability of the peace deal into question. Second, they now have to confront new questions. If Britain is no longer a member of the E.U., it is no longer automatically part of the E.U.’s customs arrangements and Ireland and Britain might have to reintroduce customs controls along the border. The Irish and Northern Irish economies are closely intertwined; goods cross over all the time. These ties would be weakened or severed if border controls were reintroduced.

This is why the border between Northern Ireland and Ireland is one of the three key issues that Britain and the E.U. have to resolve in the “Phase One” negotiations over British exit terms before they begin to negotiate any relationship in the future. Under E.U. rules, the Republic of Ireland, like every other E.U. member state, has veto power over any Phase One agreement, and European Council President Donald Tusk has made it clear that other member states are not going to bully Ireland into accepting an agreement that goes against Ireland’s interests.

Ireland and Britain are in tricky situations

Both Ireland and Britain have to pull off tricky balancing acts. On the one hand, Ireland urgently wants a deal in which there are no new border controls between the republic and the North. Irish politicians fear that reimposing border controls would anger Irish republicans and weaken the peace deal further (it is already in some trouble). They also want an invisible border for economic reasons. However, they also fear what might happen if there were no deal at all between Britain and the E.U. A “hard Brexit” in which Britain leaves the E.U. without agreement on trade and economic exchange would gravely damage the Irish economy, since Britain is Ireland’s biggest trading partner.

Ireland’s ideal would be that Britain stay in the E.U.’s Customs Union as well as its Single Market (which ensures that regulation does not become a barrier to intra-E.U. trade). Failing that, Ireland would prefer that Britain grant a special status to Northern Ireland so it could keep to E.U. rules.

Britain, in contrast, does not want to commit to staying in the Single Market and Customs Union. Some within the governing Conservative Party think that this would be a bad idea and that Britain could do better negotiating on its own behalf in world markets. Others are more open to some kind of compromise with E.U. rules but do not want to make concessions now, since they hope to link British concessions to E.U. concessions on issues that concern Britain, such as immigration.

Furthermore, the British government depends on the support of hard-line Northern Ireland unionists in the Democratic Unionist Party. While these unionists recognize a pragmatic case for continued economic links (some of their voters are farmers who depend on markets in the Republic of Ireland), they are intensely suspicious of any proposals that Northern Ireland have special status, since they fear that this might separate Northern Ireland further from the rest of Britain, making a United Ireland more likely. The Conservative government fears that if they make concessions, the unionists will pull the plug on their government by helping the Labour Party win a motion of no confidence in the British Parliament, perhaps allowing Labour to win the next election.

This explains the failed ‘deal’

Earlier this morning, the British and Irish governments thought they had a deal. Both agreed to a form of wording under which there would be ‘regulatory alignment’ between Northern Ireland and the Republic of Ireland. This was intended to make continued trade easier — if both sides shared similar and compatible regulations, then (depending on further negotiations) customs inspections might not be necessary. However, Northern Ireland and the Republic of Ireland would continue to have parallel systems rather than shared rules that might make unionists think that the two parts of Ireland were tiptoeing toward common government.

However, the DUP has made it clear that it is still extremely suspicious and not willing to accept this deal. Its leader has said that Northern Ireland must leave the E.U. “on the same terms as the rest of the U.K.” without any “regulatory divergence” that would separate Northern Ireland from the rest of Britain.

The result is that the proposed deal has collapsed. While both Britain and Ireland are suggesting that they will keep talking and that a new deal will emerge soon, it is likely only to happen if one or another party blinks. It may be that the unionists are less intransigent than they now appear and are willing to be bought off with slightly changed wording and other concessions. However, if they did fold, they would probably face a hard time with their voters.

The Republic of Ireland might decide that a poor border deal is better than the risk of a hard Brexit, but again it faces sharp political pressures. It, too, has a minority government, which nearly fell last week thanks to an unrelated scandal, and its leaders are not likely to want to make concessions that can be used against them in an election.

Finally, the British government could agree (as the opposition has already suggested) to a longer-term relationship for Britain as a whole with the Single Market. However, doing so would probably lead to civil war within a Conservative Party in which different factions are already preparing for the next leadership battle. While no one wants a breakdown of negotiations, it is difficult to see which side will be prepared to make concessions.