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Britain reached a historic deal on its EU exit terms on Friday, enshrining special rights for 4m citizens and paying €40bn-€60bn in a hard-fought Brexit divorce settlement that clears the way for trade talks next year.

Theresa May and Jean-Claude Juncker, the European Commission president, met early on Friday to sign off a 15-page “progress report” that will allow EU negotiators to recommend opening a second phase of talks on post-Brexit relations.

Shortly after the breakfast started, Mr Juncker’s chief of staff Martin Selmayr tweeted pictures of white smoke rising from a chimney stack, indicating the deal was done.

The final breakthrough on Northern Ireland’s border came after a week of high drama in Brussels and Westminster, with agreed compromises scuttled on Monday by the Democratic Unionist party, Mrs May’s parliamentary allies.

Arlene Foster, DUP leader, told Sky News she had secured “substantial changes” to the text of the deal. “There is no red line down the Irish Sea and clear confirmation that the entirety of the UK is leaving the EU, leaving the single market and leaving the customs union”.

The stand-off forced Mrs May to delay her planned trip to Brussels on Thursday afternoon. Gavin Barwell, her chief of staff, tweeted in the early hours of Friday: “Home for three hours sleep then back to work”.

The prime minister’s decision to seal the agreement on Friday marked the finale of a three-week diplomatic effort to finalise the most contentious divorce terms. EU leaders will formally decide at a summit next week whether it represents “sufficient progress” to start the second phase of negotiations.

Mrs May is to meet Donald Tusk, the European Council president, later in the morning. In a move intended to show an immediate EU response to Britain’s offer, Mr Tusk intends to release draft negotiating guidelines this morning that set EU priorities for the next phase, including in trade and a post-Brexit transition negotiations.

Even British officials admit the overall terms are closer to opening demands made by the EU, including the size of the financial settlement, the breadth of protected citizen rights and commitments made regarding the Northern Ireland border.

However, the UK won significant compromises, most notably in rejecting EU demands that Britain submit in some areas to the direct jurisdiction of European courts after Brexit.

For most of the nine-month negotiation to untangle past relations, money issues proved the most divisive issue. But after a decisive move by Mrs May late last month, it became the first strand of talks “closed off” by negotiators, with little sign of a revolt from Brexiters in Westminster.

According to senior officials involved in talks, the final deal commits the UK to honouring outstanding EU liabilities when they fall due over coming decades, with the UK share calculated as if it “remained a member state”. This includes budget commitments signed off up to two years after Brexit.

While the net estimates for this settlement vary between €40bn and €60bn, the UK pledge in effect means no EU member state will lose out as the EU’s long-term budget is discharged. Mrs May started negotiations saying Britain had no legal obligation to pay any exit bill.

Although the draft paper contains no figures, during talks the UK estimated a net payment of €40bn-€45bn while the EU put it at around €55bn. When contingent liabilities, such as loans to Ukraine, are added the bill rises to an estimated €55.5bn-€65.5bn.

A second pillar of the deal largely enshrines existing EU residence and social security rights of 3m EU citizens in the UK, and around 1m UK nationals living on the continent.

The settlement allows an EU national to claim permanent residence in the UK, retain most family reunion rights enjoyed today and, if eligible, to claim UK benefits even if they or their children move overseas. Some EU family rights in Britain are restricted, however, to match those of UK citizens who want to marry foreign nationals.

Britain secured a significant concession during talks by forcing the EU to drop its demand that the divorce settlement fall under the direct jurisdiction of the European Court of Justice.

However, in a compromise that has alarmed some Brexiters, Britain did pledge to indefinitely pay “due regard” to relevant European court rulings on the citizen rights enshrined in the treaty.

For 10 years after Brexit, British courts can also refer questions over the EU law to Luxembourg for rulings. After that cut-off date, courts would still respect the accumulated case law in this area.

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