The initial reaction to Theresa May’s request to leave the EU has echoes of Charles de Gaulle’s famously dismissive “non!” when Britain tried to join.

There will be no special deal for the City of London, no parallel talks on trade (at least until divorce terms are agreed) and no privileged access to EU markets if Britain tries to become an offshore tax haven.

Twice as long as May’s letter on Wednesday, the European council’s draft negotiating guidelines contain some of the same perceived threats that muddied the waters when she invoked article 50.

Where the British worried their neighbours by seeming to link security cooperation to the successful conclusion of trade talks, the EU has introduced the future of Gibraltar into the mix – apparently at the behest of the Spanish government.

But not everything is getting more heated. Just as May’s letter was intended to improve the atmosphere, there are chinks of light in the emerging EU position. Britain will not have to wait to leave before it can talk about trade, it just needs to show progress on agreeing the divorce settlement.

Since both sides agree that some financial payment is required, there is less danger of things falling apart before talks start. What remains is a clutch of meatier challenges likely to consume negotiators for the next few months.

Business uncertainty

Leading firms in the City of London have begun to lay the groundwork for an exodus of thousands of jobs from the capital. Photograph: Chris Radburn/PA

At the heart of the tension remains Britain’s desire to replicate the benefits of single market membership without accepting the core principle of free movement of people. Though the EU embraces for the first time May’s desire for “an ambitious free trade agreement”, it is adamant this must be accompanied by some harmonisation of social and tax rules to make sure Britain does not become the offshore pillager feared by De Gaulle and others.

There is a more practical short-term challenge for British business, which is that it is not likely to know where it will end up along this spectrum: somewhere close to full membership but with lots of regulation or a low-cost pirate with no preferential market access at all?

Not only will the all-important trade talks have to wait until the divorce settlement has been broadly agreed, but even then things will only be at a framework level. As the devil is always in the detail, both sides envisage transitional arrangements that will provide temporary continuity for business after March 2019 while the detail is thrashed out.

But talks about transition will be third on the agenda, meaning British business may need to wait for talks about talks, talks about divorce and talks about talking about trade before they even find out how long their spell in purgatory will be. Many may decide to jump before waiting to find out.

Domestic timing

The British ambassador to the EU, Tim Barrow, left, hands the Brexit letter to Donald Tusk, the European council president, in Brussels. Photograph: Xinhua/Barcroft Images

It is a political imperative for the prime minister to be able to face the electorate in 2020 saying the UK has left the EU and she has delivered on her self-imposed commitment to make sure Brexit did indeed mean Brexit.

But the EU’s approach to the talks makes it increasingly clear that it will not be in her gift to claim she has met that objective, unless the UK walks out with no deal.

The EU looks as if it intends for the UK to be half in and half out by 2020. The compressed timetable, the EU’s chosen sequencing, the complexity of the negotiations, and EU insistence that the EU body of law will apply in any transition makes a clean break in April 2019 harder to achieve.

May still hopes to have an agreement on the divorce, and the future trading relationship, agreed within two years, which is the agreed timetable for the two sides to reach a deal before one or other could, if they wished, pull the plug on the talks.

Before then, she will need to win a vote in the Commons on a half complete deal probably in autumn 2018 and hope subsequently that all EU institutions and the member states back the deal.

The status of EU law in the UK will be critical to May’s claim the UK has left. The draft guidelines do not insist in a transition that the European court of justice (ECJ) be the only arbiter of disputes between the UK as a non-member and the EU. But they state that “should a time-limited prolongation of union acquis [the relevant body of EU law] be considered, this would require existing union regulatory, budgetary, supervisory and enforcement instruments and structures to apply”. This would mean EU law, and budget contributions would continue to hold sway in the UK.

The draft says any pending ECJ cases, and any cases arising from a dispute during the UK’s membership of the EU, would still be justiciable by the ECJ. May can present this as merely as a phase implementing the departure, but it is likely to look a lot messier than that.

Imperial entanglements

Theresa May has been urged to take action to protect the citizens of Gibraltar. Photograph: Ben Birchall/PA

Disentangling the remnants of the British empire including Gibraltar, Cyprus, Ireland and some of the overseas territories have emerged as the surprise stumbling blocks to an agreement in the draft guidelines.

The Irish government will feel the diplomatic shoe leather worn out trying to alert fellow EU members to the special status of the Irish border with Northern Ireland appears to have paid off. The draft guidelines say: “Flexible and imaginative solutions will be required, including with the aim of avoiding a hard border, while respecting the integrity of the Union legal order.”

There is also a reference to the UK sovereign base in Cyprus, including the “compatibility of the bilateral agreement between Cyprus and the UK with EU law”. Any deal will have to address the citizenship rights of those working in the base, though that looks surmountable. The guidelines are silent on the overseas territories but that may yet change.

The surprise is Gibraltar, where Spain has lobbied in effect to get a veto on the deal. “No agreement between the EU and the UK may apply to the territory of Gibraltar without the agreement between Spain and UK.” The wording puts pressure on Gibraltar to barter its sovereignty in exchange for access to the single market. Britain should not have been blindsided by the issue. It had been the subject of an EU Lords committee report and bilateral discussions, but officials were surprised by the starkness of the wording.

Divorce haggling

Haggling over money is likely to be a zero-sum game. Photograph: Yui Mok/PA

Progress on all of the above is also contingent on progress on the key exit demands set out by the EU.

The first two of these – a reciprocal deal on citizens’ rights and a “imaginative” solution to the Irish border question – are complex enough, but at least both sides agree on the desired end result. Haggling over money is likely to prove much more of a zero-sum game.

A worrying development from the British perspective is the EU is demanding it should cover “all legal and budgetary commitments as well as liabilities, including contingent liabilities”. Many of the spending commitments are far in the future and currently unfunded but, under this vision of Britain’s debt, the bill could get very high very quickly.