LONDON — The first few months of talks between the UK and European Union on Brexit terms pose "big risks," according to analysts at Bank of America Merrill Lynch, with a high chance of failure.
The EU's demand for a €60 billion (£51.6 billion) payment could be enough to scupper negotiations at the outset, while the two-year time limit on the Article 50 talks is too short to get a detailed agreement.
"Agreeing an exit payment will be politically difficult for both sides. Some observers see a greater than 30% likelihood that talks fail at this first stage," the BAML analysts said in a note to clients.
"An 'off the peg' transitional solution (e.g. stay in the customs union) could be a viable stop gap, perhaps with some minor modifications. But that would likely mean the UK crossing negotiation red lines such as continued freedom of movement perhaps for years with no guarantee of a 'good deal' at the end," the analysts said.
The Brexit talks risk a "complete breakdown" of relations between the UK and Europe, one of Britain's most senior former European Commission officials warned last month.
David Wright, the former deputy director general for financial policy, told Business Insider: "It's not a bit neutral, or a bit negative, but for the EU and the UK it's potentially extremely disruptive. There's a risk of a complete breakdown, certainly it's looking more probable."
Whatever the outcome, it is unlikely to be as good for the UK's economy as staying in the EU, according to the US investment bank.
"Our base case remains that the UK exits the EU single market and customs union, and eventually a UK/EU 'free trade deal' is agreed. That would be economically costly, so we forecast weak UK growth in the coming years."
British Prime Minister Theresa May is set to trigger Article 50 of the Lisbon Treaty and enter talks with EU leaders over the terms of Britain's departure this month.
May has confirmed that she intends to end Britain's membership of the European Single Market, remove Britain from the customs union, and end the country's affiliation with the European Court of Justice.
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