Henry Newman is Director of Open Europe.

This week, it’s been hard to work out exactly what’s going on in the Brexit negotiations. Although the Government undeniably suffered a setback on Monday, both sides agree that it’s still possible to get to ‘sufficient progress’ by the December European Council meeting. It’s also clear that much progress has been made in the negotiations. Both sides have moved from their opening positions. And the negotiators have essentially settled on two of the three issues: money and citizen’s rights.

I still think it’s more likely than not that a compromise will be found before the Council meeting. This is the way that all negotiations work. There are setbacks and wobbles, and then there can be breakthroughs. But this is also particularly the way that the EU works. Brussels will also be acutely aware of the limits of Theresa May’s political position: she doesn’t have much room to manoeuvre. That’s why they are relaxing the supposedly hard deadline of “two weeks” which their Brexit lead, Michel Barnier set three and half weeks ago. On Monday, Jean-Claude Juncker even complimented Theresa May as a tough negotiator.

Wind the clock back a few weeks, and many were predicting that agreement in December was impossible, or at least highly unlikely. The talks were supposedly at a standstill ,with pointless discussions and curtailed meetings when the British team travelled to Brussels. It’s easy to get caught up in the daily roller-coaster of Brexit dramatics. Actually, although it feels like (and sometimes is) several steps forward followed by a few steps backwards, the net effect has been progress.

On money, the deal seems done. Whatever some will try to argue, it is reasonable that – if we are to have a transition – we pay for our stand-still transition as if we were a member. That was agreed at Florence and solves roughly half of the issue. The rest is the agreement to pay further debts ’when they fall due’. These payments, for pensions and future EU commitments, are those that the UK would have had to have paid were we to have remained members. By the end of 2020, our contributions to the EU will be substantially less than they are now. Our contributions will taper away (other than for projects the UK choses to opt in to). Overall, it’s suggested that the UK will pay €40-50 billion. Assuming that’s the correct total, that is substantially less than Mr Juncker’s on-the-record demand for at least €65billion.

On citizen’s rights, the Government has moved. The biggest climb-down has been to give UK courts the option (note: not obligation) to refer cases to Luxembourg. Sir Richard Aikens and others have raised important concerns about this and warned of ‘mission creep’, but Theresa May will point out that the ECJ will have no automatic, direct jurisdiction. Brussels will get a role for the European Court, but the UK is insisting that the role will be limited to cases involving EU nationals already in the UK (not British citizens), optional (at the discretion of UK judges), and time-limited (with a sunset clause).

Over the last few months, Ireland has emerged as a huge hurdle. That’s not to say that the Irish (and EU) weren’t clear from the start that major questions had to be addressed through the negotiations. It’s also true that the change from Enda Kenny to Leo Varadkar as Taoiseach has in part been one of tone. Yet RTE’s Tony Connelly outlined in mid-November his view of how and why Ireland “raised the stakes” in the Brexit negotiations. His account was called, somewhat cryptically, part of “intriguing first versions of history” by Simon Case, currently our deputy head of mission in Brussels, and shortly to be returning to Whitehall to work on Ireland and Brexit.

Monday’s lunch between Juncker and May failed to reach overall agreement for phase one of the talks, after the wording of a commitment for the UK to maintain regulatory alignment in certain areas across the border of Northern Ireland/Ireland was leaked. Only a few sentences of a broader document became public, and the phrases were therefore probably taken out of context. Their interpretation is – unsurprisingly – fiercely contested. For example: on Monday, the Irish Prime Minister insisted that regulatory alignment and no regulatory divergence were synonymous. Yet yesterday, David Davis told Parliament that they are different.

What’s the truth? I suspect that the UK chose the term regulatory alignment precisely because they believed it allowed the possibility of regulatory divergence within an equivalence regime. Nonetheless, the wording went further than the UK Government has previously in describing regulation post-Brexit. Remember: the UK Government has still not explained what form they want our overall future trading relationship with the EU to take after Brexit. To take things back to the Norway-Canada spectrum: do we want to be more like Canada with the ability to set more of our own rules and regulations, or more like Norway, taking the rules from Brussels without a say? That question hasn’t been settled.

There’s obviously a case for saying that in certain areas – such as agriculture – we are likely to want to keep very high standards and indeed probably go further than the EU by, perhaps, banning live animal exports. It’s also true that the Island of Ireland is already treated as a ‘unit’ in certain narrow respects, for example epidemiology. But that’s a far cry from saying that the UK as a whole should essentially maintain Single Market rules “in the absence of agreed solutions” – i.e. unless a further agreement can be reached in phase two of the talks. It’s also far from saying that Northern Ireland, or indeed any other part of the UK, could remain in the Single Market and Customs Union while other parts leave it.

What’s needed now is some clever wording, a fudge to get through the next phase. But the question of our future trade relations won’t go away, and needs to be settled sooner rather than later. Perhaps there are some upsides to the bumps of the last few days. The leaked wording looked as thoigh it risked either a constitutional mess over Northern Ireland or a problematic Brexit which limited the UK’s ability to regulate itself, or both, as well as a huge fight within the Conservative Party. And the EU’s behaviour suggests that – in contrast to their hawkish pretence – they are actually quite keen to do a deal, and are becoming more aware of the limits of what can be pushed through the fragile British political system. This will prove useful if/when we get to phase two of the talks.