EU law will apply in Britain after Brexit as an essential part of any transition deal, Malta’s prime minister has said.

Joseph Muscat, whose country has just taken over the EU’s rotating presidency, also said it was “quite obvious” the City of London could be in line for a transition deal.



But he made clear the writ of the EU court was an essential part of any deal to smooth the path to Brexit. “It is not a transition period where British institutions take over, but it is a transition period where the European court of justice is still in charge of dishing out judgments and points of view.”



Speaking to journalists in Valletta, Muscat said it was impossible to know how long a transition period might be, but added that it was not in anyone’s interest “to try to play the game that we have very long negotiations and in the meantime have the cake and eat it”.



Theresa May wants a transition deal to help smooth Britain’s EU exit when the two-year negotiating period for leaving the bloc comes to an end in 2019. EU sources have talked of transition periods lasting from two to five years.

While the EU’s chief negotiator, Michel Barnier, has spoken in private about avoiding an overly comfortable transition, Muscat’s comments mark the first time an EU leader has specified in public that the ECJ must be part of a transitional deal.



His remarks also show a subtle shift in the EU’s position. While EU diplomats have previously rejected Britain’s preferred option of negotiating Brexit sector by sector, Muscat suggested a transition deal could take this approach.

“What areas should be considered for transitional arrangements? I think financial services would be quite obvious but it also depends on the demands that will be put by the British government,” he said.



The Maltese prime minister also highlighted the daunting Brexit timetable facing British negotiators when he said the final exit deal must come before October 2018, so it could then be ratified by the European parliament in “a couple of months maximum”.

Assuming the British government triggers the EU exit process at the end of March, this could mean Brexit talks are wrapped up in less than two years – a demanding timetable for a government that has not published a Brexit plan more than six months after the referendum.

Malta’s government shares the view of many European governments that the UK must leave the EU before the next round of European elections, scheduled for spring 2019.

Muscat, a former MEP, warned that if the European parliament was not fully involved in the British negotiations from day one, “an unholy alliance” of MEPs from different political parties could sink the Brexit deal.

“However good and fair a deal is negotiated … there might be an unholy alliance of unlikely bedfellows in the European parliament that for different reasons would scupper the deal and that would be a crisis,” he said. “We would be really playing with fire if the European parliament is not part of the wider workings of the deal.”



The European parliament’s 751 MEPs must give their consent to Britain’s EU exit deal, under European law.

Muscat, who studied at Bristol University and models his centre-left party on New Labour, is enjoying a moment in the political spotlight. Malta, the EU’s smallest member state, with a population of 429,000 people, took over the six-month rotating presidency of the EU on 1 January. The island nation, a British colony until 1964, is also chairing Commonwealth meetings.

Despite deep ties to the UK – from red phone boxes on the cobbled streets of Valletta to British electric sockets – Malta has proved to be one of the stoutest defenders of the EU consensus on Brexit.

Muscat said no government would be in their right senses to offer Britain a Brexit deal that was better than the EU. “It would be quite stupid to settle for EU membership ourselves if it is then inferior to the Brexit arrangements. That is something that is keeping us together.”

Earlier on Thursday the Maltese finance minister, Edward Scicluna, rejected the Bank of England governor Mark Carney’s assertion that continental Europe would suffer more than the UK from Brexit. While the EU was going to be hit in the medium to long term by the fragmentation of the market for financial services, the UK would suffer greater damage, he said. “I agree both that the UK and the EU will suffer. But the point is who is going to blink first. It’s going to be the UK.”

He hoped the divorce would be amicable, but “circumstances are not going in that direction”.

Even seasoned Brussels diplomats have been surprised how far Brexit has united the EU’s 27 other countries, although they acknowledge the true test will come after the triggering of article 50.

Speaking at a press conference in Luxembourg, the German chancellor, Angela Merkel, said the EU must stick together. “It is important that we do not allow ourselves to be divided, the 27 must act together in the negotiations.”