The BREXIT Bulletin: One week on is the UK ready?
It was confirmed this week in a joint-statement from EU Chief Negotiator Michel Barnier and Brexit Secretary David Davis that formal Brexit negotiations will begin on 19 June.
Evidently, Theresa May’s tenure of Number 10 has not yet reached its denouement, having survived grillings by her Cabinet ‘colleagues’ and backbench MPs.
Too weak individually to break cover and topple May in the short-term, the Cabinet's big beasts are biding their time, gathering their strength in the shadows.
So who will represent the UK when it arrives at Rondpoint Schuman on Monday morning?
More importantly, what brief will that individual be given?
The election has widely been interpreted as a rejection by the public of a hard Brexit, leading many in Westminster and in the higher echelons of the Conservative Party to reconsider softer options including Single Market and/or Customs Union membership.
Whilst such a reconsideration would be widely welcomed by business, this additional uncertainty has been less well-received in Brussels.
The UK remaining in the Single Market would be welcomed in respect to its relatively lower economic costs. Politically, this would most likely be seen as a sufficient win for the EU-27, with the UK deprived of legislative influence and continuing to contribute to the EU budget. There is however, a risk. Having prepared its position on the assumption of a hard Brexit, if the UK is seen to carve out a bespoke deal, the EU-27’s much trumpeted unity could be undermined.
More significantly again, Brussels is ready and waiting for negotiations to begin. Indeed, amid the UK’s domestic turmoil, the EU submitted detailed position papers to London on citizens’ rights and the financial settlement.
Brussels’ primary concern is that, with the UK's final destination unclear and the cliff-edge of 29 March 2019 looming increasingly large, negotiations suffer no additional delays.
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This weeks contents:
Sectoral Insight -
UK Highlights -
EU Highlights -
Defence: Brexit frees the EU’s hand
If you wanted evidence that the EU is already looking beyond the Brexit quagmire, look no further than defence policy.
The UK has always been rather sensitive about such things as “EU armies”, but with the Brits out of the way, the EU can now explore possibilities for increased military cooperation and the pooling of defence expenditure amongst Member States.
And boy do they need it. With Donald Trump in the White House being, at best, non-committal about his attachment to NATO, a resurgent Russia on Europe’s doorstep with Putin likely to win another Presidential mandate next year, and the increased terror threat, the EU feels it needs to stand on its own two feet.
Last week in a speech in Prague European Commission President Jean-Claude Juncker drew attention to the fact that the EU defence budget is dwarfed by that of the US and China. “While the European Union spends around EUR 27,000 per solider on equipment and research, the US spends EUR 108,000,” he said.
This culminated in a European Commission reflection paper laying out various options for EU defence policy up to 2025. Ambitions are high, with the Commission also proposing a European Defence Fund which will aim to make the EU the biggest investor in collective defence research and technology in Europe, with €600 million to be spent on defence by 2020 and €1.5 billion each year thereafter.
The Grayling view
The EU used to be proud of its preference for soft power – but this no longer cuts the mustard in an age of terrorism, cyberattacks, hybrid warfare and disinformation campaigns. With Brexit, the EU loses one of its major military powers, but it also frees its hand when it comes to military cooperation – no longer can the EU be castigated as a military pygmy – or so they hope in the EU institutions.
Defence companies should be cautiously optimistic about this news, but on a political level it also changes the game in Europe. By April 2019 the UK will likely have left the EU, but the EU itself will also look markedly different from how it does today. If, by some miracle, the UK decides to reverse Brexit and rejoin the EU, it will need to put up with an EU which will likely have moved on decisively without it, and that includes the UK swallowing its opposition to a militarily stronger EU.
The highlights from the UK:
General Election 2017 round-up
The view from London
Westminster is adjusting to a new normality. The last week has been notable for a number of staffing changes in the Prime Minister’s Office and Whitehall. May’s closest advisers, Nick Timothy and Fiona Hill, were quickly defenestrated, tarnished by their role in the Conservatives’ election failing. They have been replaced with former Housing Minister, Gavin Barwell, a Europhile who lost his seat in the election. Although the key Departments of State have remained stable with Amber Rudd, Boris Johnson, Philip Hammond, Michael Fallon, and David Davis staying in their respective posts, there have been an array of changes in the lower Ministerial ranks.
On Brexit, the election that was meant to provide Theresa May with a mandate to leave the Single Market, Customs Union, and reduce immigration has done anything but. Within just a week, a new message is coming out of Government: the economy will be prioritised over reducing immigration. Despite this change in rhetoric, Government Ministers have continued to hold to these red lines on the Single Market and Customs Union.
A more detailed briefing from our Grayling office in London can be found here.
The view from Scotland
The result of the General Election in Scotland was significant. Indeed, without the tremendous success of the Scottish Conservatives, Jeremy Corbyn would be in Downing Street. Ruth Davidson, leader of the Scottish Conservatives, will seek to leverage this power in a number of ways.
She will push for a softer Brexit, and as a Remainer (as were many Scottish Tories) will seek to circumvent any similar claim put forward by Nicola Sturgeon. Davidson will ensure that the Scottish Conservatives are now seen as the party in Scotland that ‘stands up for Scotland’. Additionally, she will seek to ensure that the DUP’s social conservatism does not spill over the Irish Sea to tarnish the Conservative’s record on these issues. In Westminster the new 13 strong Scottish Conservative group will become more distinct as an entity, pushing a clear agenda of its own, answerable as much to Davidson as David Mundell (Secretary of State for Scotland) and the Prime Minister.
Nicola Sturgeon is bruised as First Minister, but not fatally wounded like Theresa May. The same can’t be said of another independence referendum (IndyRef2), which is now indefinitely delayed. The Conservatives can point towards the fact that 62% voted for Unionist parties at the General Election, with the First Minister’s push on IndyRef2 seen as a miscalculation. In many ways her call for IndyRef2 during the Brexit negotiations was a result of pressure from hardliners within her party (most notably Alex Salmond) many of whom lost their seats as a result. Similar to the Tories, the SNP will not favour another General Election as many of its MPs who survived are now sitting in marginal seats.
A more detailed briefing from our Grayling office in Edinburgh can be found on their blog here.
The view from Wales
The story in Wales turned out to be much simpler than the national narrative. After early polling projected the Conservatives would get their first majority in close to 150 years, the Corbyn surge saw the Labour party gain ground and pocket almost 49% of the Welsh vote. This enabled them to win three seats from the Conservatives.
For their part the Conservatives did manage to increase their vote share by over 6%, although this is no sop when set against the national context of losing their Westminster majority.
The Liberal Democrats again went backwards losing their sole Welsh MP, and the nationalist Plaid Cymru again failed to make a substantial impact.
The result has emboldened the Labour-run Welsh Government under First Minister Carwyn Jones, to press the UK Government over Brexit – calling for a softer, more consensual approach which fully respects the current boundaries of devolution. Their bet is that, as of now, the Prime Minister has no choice but to respect their wishes.
The Grayling view
Whether the General Election result and its outcome signal a change in the UK’s approach to Brexit remains to be seen. For those hopeful for the softest Brexit possible, the appointments of Damian Green, Gavin Barwell, and Baroness Anelay to their respective departments is being seized upon as indicative of a change in direction. Even the appointment of eurosceptic Steve Baker to the Department for Exiting the European Union is being welcomed for ensuring that one of the most vocal and effective hard Brexit campaigners is silenced under rules of Ministerial collective responsibility.
However, both the Labour and Conservative parties ran nationally on tickets that that did not include membership of the Single Market. Even with the possibility that the devolved regions may now be given a fairer hearing, a major change in the negotiating priorities may still be wishful thinking.
Democratic ‘Unionists’, Brexit and politics in the province
The General Election was successful for the Democratic Unionist Party (DUP) irrespective of their unexpected and new found role as ‘king-makers’. They increased their vote share by 10% and gained two additional seats at the expense of long term rivals the Ulster Unionist Party (UUP). Unsurprisingly, the DUP are also reported to be thrilled that their ‘friends and allies’ the Conservatives have been forced to enlist their support in order to form a working majority in the House of Commons.
Having been elevated to centre stage at Westminster at a crucial moment in the Brexit process, the question is will the DUP have any influence on the UK’s negotiating position? On Brexit the DUP’s manifesto mostly focuses on the Brexit issue that is literally closest to home, namely the future of the border between Northern Ireland and the Republic of Ireland. Whilst advocating for Brexit during the referendum, the DUP have since called for an “ease of trade and access with the Irish Republic” and “arrangements to facilitate ease of movement of people, goods and services”. To hardened Brexiteers this will smack of a softer Brexit.
There has been much speculation that the DUP will demand socially conservative legislation as its pound of flesh. However, the DUP have stated that they will focus on corporation tax cuts and increased devolution in health and education.
The Grayling View
Whether the DUP’s influence will mean a softer Brexit may well be a moot point amid mutterings in Westminster that the Government is already considering a softer approach. The DUP’s Brexit influence could be more acute on timing.
The political scene at Stormont can best be described as a tempest. Negotiations on a new power sharing agreement between the DUP and Sinn Fein have been ongoing since elections in April that were precipitated by the DUP Leader Arlene Foster’s embroilment in a public spending scandal. The lack of a deal at Stormont makes a deal in Westminster between the DUP and the Conservatives weaker, in respect to the UK Government’s traditional role as ‘honest broker’ at Stormont.
The DUP are hardly the partner to offer ‘strong and stable’ government or to provide certainty during the Brexit negotiations. Should any DUP/Conservative Pact prove short-lived, the lack of stability could impact on the Brexit timetable, which could be compounded by the heightened salience of the ‘border issue’ during Phase 1 of the negotiations.
The highlights from Brussels:
Brussels makes euro-clearing a Brexit battleground
On 13 June the European Commission published a proposal that could force London’s prized euro-clearing trade out of the City. Under the draft, clearing houses, the size of which pose “economic risks” to the EU, may be required to locate to the EU. Brussels is in effect attempting to ensure that euro-clearing continues to be conducted under EU rules.
Euro-clearing houses are a vital cog in the machinery of finance, acting as an intermediary between two sides of a trade conducted in euros. London is currently the global centre of euro-clearing. €1tn (£880bn) worth of transactions are carried out every day, supporting 80,000 financial services jobs.
While the plans stop short of mandatory relocation, they would give the EU greater oversight and the power to compel “systemically important” firms to move to the continent. According to EU Financial Services Commissioner Valdis Dombrovskis, this would bring protection of the Eurozone’s financial stability ‘in-house’.
For their part, a majority in the City have said the proposals would damage the EU unnecessarily while increasing risk, because clearing could become more fragmented. The draft law has to be agreed by EU Finance Ministers and the European Parliament, a process that will begin against the backdrop of Brexit.
The Grayling View
The European Commission is demonstrating that it has the power to inflict real economic pain on the UK as a consequence of its decision to leave the EU. The proposal itself has created fear and uncertainty in London and constitutes real political leverage for the EU.
It can be argued that the Commission smells blood despite claims by the weakened British Government that it could retain and smoothly continue handling 75% of the euro-clearing market. The EU institutions will most likely insist that ‘sovereignty’ over its currency should be a pre-requisite. It certainly shouldn’t remain in what could become a ‘tax haven’. This at least should be understandable to sovereignty-conscious Brexiteers.
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Dates for your diary
18 June 2017 - French Legislative Elections Second Round
19 June 2017 - Start of Formal Negotiations
22-23 June - European Council Summit
End of June 2017 - Queen's Speech - Great Repeal Bill + 15 other Brexit Related Bills
1 July 2017 - Estonian Presidency of the Council
24 September 2017 - German Federal elections
1 January 2018 - Bulgarian Presidency of the Council
1 July 2018 - Austrian Presidency of the Council
End of October 2018 - Negotiations expected to end
Autumn 2018 - Spring 2019 - Possible Scottish independence referendum
1 January 2019 - Romanian Presidency of the Council
March 2019 - UK expected to leave EU
Grayling Brexit Unit
Our Grayling Brexit Unit brings together the very best consultants from across the Grayling network and includes those who have direct experience of working alongside the leading political figures charged with negotiating Brexit in London and Brussels.
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