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EU puts citizens' rights first as it sets Brexit talk conditions

By Jan Strupczewski

BRUSSELS (Reuters) - The European Union's chief Brexit negotiator spelled out on Wednesday the bloc's conditions for talks, saying securing the rights of some 4.5 million EU and British citizens living abroad was paramount.

But Michel Barnier, the European Commission's point man on London-Brussels talks, also warned of the risks if no deal was reached as Britain sought to leave.

Barnier said the likes of Polish students and Romanian nurses in Britain and British pensioners in Spain faced great uncertainty over rights to residency and access to the labor market, pensions, social security and education.

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"Guaranteeing their rights as European citizens, in the long term, will be our absolute priority from the very start of the negotiations," he said in a speech to the Committee of the Regions in Brussels.

British Prime Minister Theresa May has also said she wanted the issue to be dealt with as a priority, while insisting a solution should be reciprocal.

The British government has been unwilling to guarantee existing rights outside of a broader agreement.

Barnier said continuity, reciprocity and non-discrimination should be guiding principles, adding it would take several months to secure such a guarantee.

The EU negotiator, a former financial services commissioner used to dealing with London, said there were three conditions to reaching an exit deal within the two years envisaged by EU law after May formally launches Brexit on March 29.

The parties should be transparent and tell the truth about what leaving the bloc means, remove uncertainties concerning people, money and borders and negotiate issues in the right order, Barnier said.

He said a scenario of the deadline of March 2019 passing with no deal, as has been suggested in London as a possibility, was not one the EU was entertaining.

Some hardline eurosceptics in May's conservative government have said that no deal -- which would mean, for example, Britain falling back on World Trade Organization tariffs -- would be better than a bad deal or no clean break with the EU.

But Barnier said the absence of a deal could lead to long queues of trucks at British port city Dover, disruption of flights to and from Britain and a shortage of nuclear fuel for Britain's nuclear power plants.

He said a transitional arrangement might be necessary. It should be based on EU laws, subject to EU courts, and of limited duration. May has said that Britain's June 2016 vote for Brexit means Britain will be out of the EU, not half in and half out

NO BREXIT BILL, BUT MUST SETTLE ACCOUNTS

Barnier said the talks should also quickly remove any doubts about funding for programs financed by the EU budget.

He noted the 685 billion euros ($740 billion) of EU programs to help people and regions in difficulty and to fund infrastructure projects and research -- all of which had been agreed by the 28 EU members, including Britain.

"There is no price to pay to leave. But we must settle the accounts. We will not ask the British to pay a single euro for something they have not agreed to as a member," he said.

Separately, European Investment Bank President Werner Hoyer said Britain's bill for settling its financial position with the EIB could be very costly, but he called for a "civilized" divorce that could avoid such an outcome. [L5N1GZ4E0]

Barnier, meanwhile, said negotiations must quickly dispel any uncertainty regarding the EU's external borders after Britain leaves the bloc, in particular the Irish-British land border.

"We will be particularly attentive, in these negotiations, to the consequences of the UK's decision to leave the Customs Union, and to anything that may, in one way or another, weaken dialogue and peace," Barnier said.

Barnier said the EU shared May's ambition to reach a "bold and ambitious free trade agreement" to replace current ties, but noted its terms would be less favorable than those now and must take into account EU social and environmental standards.

Barnier repeated the EU mantra that a trade deal with Britain could not mean a menu choice of Britain's current privileges and obligations and that such a deal could only come after an agreement on the terms of the divorce.

"The sooner we reach a deal on an orderly withdrawal, the sooner we can prepare for the future relationship," he said, adding that leaving difficult divorce issues until the last moment was playing with failure.

(Reporting By Jan Strupczewski; editing by Philip Blenkinsop/Jeremy Gaunt)