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Grayling's Brexit Bulletin - 12 May 2017

12th May 2017


The BREXIT Bulletin: How do you solve a problem like Ireland?


Question – what have John F Kennedy, Nelson Mandela, François Mitterrand, and Michel Barnier have in common?
 
That’s right – they’ve all addressed the Irish Parliament.
 
Of all the names above, Barnier should stand out as being the only non-Head of State in the list. So why does he get to do something that is usually reserved for Presidents?
 
The Irish invitation is a non-too subtle wooing of the person they consider can protect them from Brexit.
 
Ireland is the only country bordering the UK and is therefore rather uniquely exposed to any economic instability which the UK will suffer post-Brexit.
 
In its Guidelines the European Council acknowledges that a hard border on the island of Ireland must be avoided, although there is currently no indication of how this can be prevented, given the UK’s insistence on leaving the Single Market and the Customs Union.
 
Ireland is a critical issue for the EU, not least because it could be the first victim of Brexit contamination – if the UK suffers, then Ireland suffers, and by extension so does the rest of the EU.

Ireland, so often the beneficiary of EU funding, now needs EU support once again, and thereby do the UK a backhanded favour.
 
It’s been said that the UK doesn’t have a good hand going into the negotiations, but Ireland is one of the few levers it can use to their advantage, and the EU is all too aware of this.
 
Like many issues around Brexit, the longer you look at the Irish problem, the more intractable it becomes. If Barnier does solve this particular dilemma, he will deserve to be put up there with the likes of Kennedy, Mandela, and Mitterand.

If you have any suggestions about the Brexit Bulletin or want to find out more about a specific aspect of Brexit, please do let us know. Please visit the Grayling Brussels website, follow us on Twitter @TheEULobby, and don't forget to check out our Brexit Papers and  Timeline.

 

This weeks contents:

Sectoral Insight -UK Highlights - EU Highlights - Member State Highlights - Highlights from the US - 

Sectoral Insight: Energy and Environment
 

Contributed by Vanessa Chesnot, Head of Energy and Environment, Grayling PA

UK-EU interconnection in the field of energy after Brexit
On 19 April, the British Secretary of State for Energy, Greg Clark, addressed the British Parliament’s enterprise, energy and industry committee. The minister called for the UK to stay in the EU Internal Energy Market after it leaves the EU and provided assurances that London wanted to obtain the best possible deal in the Brexit negotiations in the energy field.
 
Cooperation on energy and climate change is perceived as mutually beneficial for both the EU and the UK in addressing important challenges such as the security of supply and climate change, but also in creating an inter-connected and competitive Internal Energy Market.
 
Maintaining close cooperation in this policy area seems to be in the interest of both parties. However, there is much uncertainty around a wide range of energy-related policy areas.
 
The UK has played a critical role in setting up the Emissions Trading Scheme (ETS), but the country may be required to leave it. Non-EU members, such as Norway, can participate in the system, but the UK may want to consider other options to maintain a carbon pricing system if the functioning of the current EU ETS is not improved. It could for instance set up a domestic ETS or a carbon tax.  
 
While the UK will still be connected to its EU partners through gas and electricity networks, there are uncertainties regarding the country’s future terms of access to the Internal Energy Market. Brexit raises many questions on whether energy bills in the UK will go up or down, and this issue has been intensively debated. The relationship between the UK and the Republic of Ireland has been identified as a key issues for negotiations. Disruption in the Single Electricity Market (SEM) across the island of Ireland would be particularly costly and negatively impact consumers.
 
There are also important concerns over ‘Brexatom’, the UK’s decision to leave the European Atomic Energy Community (Euratom), the treaty regulating the EU’s nuclear industry. Arrangements need to be in place to ensure nuclear safety and security but avoid disruptions with respect to supply and R&D. MPs have urged the Government to delay the UK’s exit from Euratom or to provide for transitional arrangements.
 
The Grayling View
The EU guidelines for the Brexit negotiations mention that “preserving the integrity of the single market excludes participation based on a sector-by-sector approach”, implying that the Internal Energy Market does not fall outside the scope of the single market. This means that in the EU’s view no energy-specific arrangement can be reached outside the current framework under the jurisdiction of the ECJ.  
 
Pragmatically however, it is in the interest of both the UK and its EU-27 partners to cooperate in the field of energy and to hammer out a new kind of partnership that would ensure affordable, competitive and reliable energy supply as well as collaboration on R&D and joint action on climate change.

 
 The highlights from the UK

Grayling's UK Local Elections Round-up

The View from Grayling in London  

The Conservatives on track to deliver May a larger majority
The story from the door-step and the final results confirmed what Conservative Campaign HQ (CCHQ) and Labour HQ had been hearing from internal polling and constituency party groups for months: the Conservatives are on track for a large parliamentary majority in June.
 
The results dominated unusually few news cycles, as the Conservatives were conscious of the dangers of the electorate thinking the General Election is a foregone conclusion and with Labour seeking to move on from their poor showing. Nonetheless, the local elections have increased confidence in CCHQ whilst Labour staffers appear increasingly glum. Perhaps most encouraging for CCHQ is the wholesale colonisation of UKIP votes by the Conservatives coupled with the modest gains made by the EU-supporting Liberal Democrats. This suggests the Conservatives can go on to take leave-voting Labour heartlands in the North and Midlands, in addition to Labour voters in the south-east and south-west, without suffering a large Liberal Democrat revival in London and other remain-voting urban areas. In private, party officials from all sides are talking of a 100 seat Conservative majority.
 
The View from Grayling in Bristol  
 
The West of England’s new Metro Mayor 
The West of England region as a whole has high quality jobs in many areas including aerospace, civil engineering architecture, professional services, and global finance. These are outward facing sectors which have traditionally benefited from highly-skilled talent, not all of it home grown. It’s therefore perhaps ironic that the wider region as a whole voted (marginally) to shun the EU. For the incoming Conservative West of England Mayor, Tim Bowles, who upset Labour’s apple-cart in the region, devolution is an opportunity to reboot. Bowles’ mandate is to build the profile of the region and foster investment and interest from overseas, in many cases beyond the confines of the EU. How successfully Bowles can be in championing economic investment in the region, with the political necessity of remaining on board with the Conservative’s wider ‘Brexit means Brexit’ vision remains to be seen. The new Metro Mayors nationwide certainty add another layer of interests and preferences that Prime Minister May will need to accommodate.
 
The View from Grayling in Edinburgh 
 
Local Elections add further complexity to the political Landscape 
In Scotland, elections were held across all 32 local authorities for the first time since 2012. The clear winners were the Conservatives, led in Scotland by the popular Ruth Davidson, who gained 164 seats, giving them the second largest number of councillors in the country. The SNP, whilst still the largest party by a clear margin, saw their seat total drop slightly, under-performing against expectations.
 
For the Labour Party, their woes in Scotland continued, as they lost over a third of their seats across the country. Meanwhile, the Liberal Democrats and the Greens mostly held steady, maintaining their modest share of seats. However, minority parties could yet play a significant part in deciding who controls each authority, with the country divided between left/right, nationalists/unionists, and leave/remain. Scotland’s political landscape is now more complicated than ever.
 
The View from Grayling in Cardiff  

Labour battered but holding on in Wales
Wales bucked the wider UK trend in the Local Elections with Labour remaining the largest party. Despite losing nearly a fifth of their councillors, they managed to hold on to control in battlegrounds including Cardiff and Swansea. Surprisingly the Conservatives underperformed expectations, given the widespread feeling that they are heading towards big Welsh gains in the General Election. Instead they made only modest gains in areas in which they were already well established and ended up with outright control of just one local authority.
 
It was a similar story for the Welsh nationalist party Plaid Cymru for whom, seemingly whatever the circumstances, a breakthrough across Wales remains elusive. In probably the best indicator for the General Election, the Liberal Democrats pro-EU message isn’t gaining traction in Brexit-voting Wales, with the party again losing ground. For their part UKIP returned no councillors across Wales.
 

Brexit’s toll on the Civil Service
The trade union for top civil servants in the UK, the First Division Association (FDA), has issued a strong warning of the strain the Brexit negotiations will have on its already stretched workforce. The FDA’s General Secretary, speaking at the Union’s annual conference, argued that the Government needs a "strong civil service that can support the negotiations" but that currently "a  quarter of staff are working the equivalent of a six-day week and one in ten is working the equivalent of a seven-day week."

Concerns surrounding the capacity of the Civil Service to cope with the additional burden of Brexit are longstanding, with a National Audit Office report having warned that the institution is already struggling to respond to modernisation pressures. Proof of the impact of Brexit’s strain can be found in the error-strewn Brexit White Paper that the Government published in February.
 
The Grayling View
The staffing pressures faced by the UK Civil Service are well known, in particular in respect to a shortage of experienced trade negotiators. However, what is perhaps more worrying is the potential for Brexit to divert resources from the Government’s domestic priorities at a time when the Civil Service’s reputation for efficiency is already being questioned. This risks impairing the domestic policy response to Brexit, the success of which will partly determine whether the UK has a soft landing post-Brexit. 
 
For business, it reinforces the need to offer the UK Government clear thinking and well-evidenced argumentation. It also means that the speed of Government response can be expected to be slower than usual. As they say, patience is a virtue. 

 


 
The highlights from Brussels

4-week cycles to discuss Brexit 
The European Commission wants Brexit talks to be conducted in rigorous four-week cycles with progress to be published at the end of each cycle. These cycles would in turn be structured around 4 weekly steps
 
1. Internal preparation and consultations;
2. Exchange of views between the two sides;
3. Negotiation; and
4. Reporting back to principles as well as publishing information emerging from the talks.
 
The plan illustrates the EU-27’s commitment to transparency and scrutiny of what promises to be a long and arduous process.
 
On location, the Commission is clear that the negotiations will take place in Brussels, although EU diplomats expect the UK to ask for some sessions to be held in London.  It should also be noted that the Commission would prefer that the UK covers the costs linked to the negotiations, including technical and travel costs.
 
The Grayling view
It is important to note that the 4-weeks cycles plan is the European Commission’s ideal format. It has not yet been discussed with the British who are currently pre-occupied with the impending General Election. Given the recent heightening of tensions between the EU and their British counterparts, it is not certain the UK will accept the EU’s preferred format, particularly when it comes to covering the negotiations' costs.
 
Whatever format is pursued, the negotiations will require flexibility, especially given the short window of opportunity. The four-week cycles can be expected to be punctuated with formal monthly EU ministerial meetings and, if required, by extraordinary European Council Summits. The Member States' EU ambassadors who already meet on a weekly basis in Brussels will now meet a second time each week to specifically discuss Brexit developments.
 


 

The highlights from EU Member States 

Austria ponders the EU’s budgetary future post-Brexit 
Austrian business leaders, including the President of the Austrian Federal Economic Chamber Christoph Leitl, are convinced that Brexit will ultimately strengthen Austria's attractiveness as a business location. Vienna is also seeking to capitalise on Brexit, having submitted bids to be the new host of both the European Banking Authority (EBA) and the European Medicines Agency (EMA).
 
Federal Chancellor Christian Kern, a Social Democrat, has stated that Brexit provides an opportunity for the EU-27 to collaborate more closely on taxation policies. Kern suggests prioritising a harmonised corporation tax regime and the pursuit of broader coordination of national economic policies. The Chancellor and his Foreign Minister Sebastian Kurz, from the junior, christian democratic partner in Austria’s ruling coalition, have echoed each other in clearly stating that Austria will not tolerate being asked to contribute more to the EU Budget following the UK’s exit.
 
The Grayling View
Vienna is well placed to welcome the relocating EU agencies. It is already one of the four seats of the United Nations and plays host to 40 other international organisations including the OSCE and OPEC. Consequently, the city has a thriving cosmopolitan, diplomatic and expat community, which allied to the city’s strong business infrastructure and high standard of living, has seen it consistently ranked No. 1 in Mercer’s quality of living index. Vienna may have a chance to host one of the agencies,  but hosting both is a tad ambitious. 
 
Unity between the coalition partners is rare these days where early elections and potential changes of leadership are constantly on the political agenda, but the strong consensus regarding EU payments is far from surprising. Austria has been a net contributor to the EU budget since it joined the EU in 1995. The Government is wary of further swelling a Eurosceptic tide, which is predominantly fuelled by concerns over immigration and recently almost swept a far-right candidate to the country’s largely ceremonial Presidency.  
 
Whilst legitimately worried about domestic Euroscepticism, if other net-contributors were to adopt a similar position, Austria should also be mindful that its neighbours and economic partners in Central and Eastern Europe would necessarily face significant reductions in EU-funding.

Imma Baumgartner, Head of International Public Affairs, Grayling Austria (www.grayling.at)



Merkel’s CDU poll well in Schleswig-Holstein
German Chancellor Angela Merkel’s Christian Democratic Union (CDU) secured a strong win on 7 May in the northern region of Schleswig-Holstein. The CDU’s strong showing is widely seen as an indication that the Chancellor will secure a fourth term in the elections on 24 September.

The result represents a blow for the CDU’s junior coalition partner the Social Democrats (SPD), which has failed to capitalize on a brief poll surge following the February anointing of the charismatic former European Parliament President Martin Schulz as its contender for the Chancellery.  

However, the most important electoral barometer for Schulz is yet to come. On 14 May there will be a regional election in Germany’s most populous, and historically SPD state, North Rhine-Westphalia (NRW). 13 million people are eligible in this industrial heartland, and the SPD will need to win by a wide margin if Schulz is to stand any real chance of pipping Merkel to the Chancellorship.

Grayling view
Both Schulz and Merkel remain steadfast in their views on Brexit, namely that sectoral arrangements are off the table, that the negotiations must follow the EU’s preferred sequencing, and that the UK must meet its committed financial obligations. 
 
Merkel remains the odds-on favourite, and were she to continue as Chancellor her track record of firmness and pragmatism in negotiations will be a welcome stablising influence on Brexit. Were Schulz to pull a proverbial "Macron", the intransigence of the EU’s negotiating position will likely solidify further, with two ardent Europhiles in the cab of the Franco-German Locomotive. 

 



Highlights from the US:

Contibuted by Dutko Grayling's D.C. Office 

“America First” and its effects on Brexit
With the first 100 days of the new Administration behind us, Candidate Trump’s promise to reform U.S. trade policy based on his “America First” theme is coming into focus with important implications for both the UK and the EU.  President Trump is implementing his view right out of the gate that bilateral trade deficits matter, and “cheating” in trade agreements needs to be eliminated.

After pulling the U.S. out of the Trans-Pacific Partnership (TPP), Trump indicated that bilateral agreements are instead likely to be pursued selectively with TPP signatories. Subsequently, the President signed an Executive Order directing a review of all U.S. free trade agreements, including its participation in the North American Free Trade Agreement (NAFTA) and its membership of the World Trade Organization, calling for their possible renegotiation to eliminate perceived “violations and abuses.”  

Most importantly for the UK and the EU, candidate Trump appeared supportive of Brexit and mentioned that he was likely to abandon TTIP negotiations entirely.  However, recent meetings between the EU’s Trade Commissioner and the U.S. Commerce Secretary were somewhat more positive on resurrecting TTIP.  What that specifically means for the EU and the UK is unclear.  

Murkiness also surrounds how President Trump can follow through on his comment prior to his inauguration, that the UK would be “first in line” for a bilateral trade agreement, given that until the UK has left the EU (March 2019), it technically cannot negotiate directly with the U.S.

The Dutko Grayling View 
We expect more action on bilateral trade deficits, sectoral-specific enforcement, and other measures as the Trump Administration’s America First campaign progresses, presenting both trade policy opportunities and vulnerabilities for the UK and the EU in the days ahead.  It would seem the door is open for the EU (and eventually the UK) to pursue their own trade deals with interested countries in the vacuum that has been created by the Trump Administration’s trade strategy reorientation and its failure to get the U.S. to the negotiating table quickly in pursuit of its trade policy objectives.

 



Dates for your diary

7 May 2017 - French Presidential elections
8 June 2017 - UK General Election
19 June 2017 - Queen's Speech - Great Repeal Bill + 15 other Brexit Related Bills
11 June - 18 June 2017 - French Legislative Elections
1 July 2017 - Estonian Presidency of the Council
24 September 2017 - German Federal elections
End of October 2018 - Negotiations expected to end
Autumn 2018 - Spring 2019 - Likely Scottish independence referendum
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.

The Grayling Brexit Unit is here to support, guide and inform the success of your business and identify how the political dynamics will change as a result of Brexit in both London and Brussels. We are your Brexit experts.

No task is too big, too complex, or too ambitious - please contact Robert Francis Tel +32 2739 47 34 (robert.francis@grayling.com) in our Brussels team or Jonathan Curtis (Jonathan.Curtis@grayling.com) in London for more information, and check out our brochure.


 


 #Brexit Papers 


Brexit Organigram
The 'Great Repeal Bill'
Brits working in the EU institutions
Article 50

Sir Julian King - The Last UK Commissioner
David Davis – UK Brexit Secretary.
Sir Keir Starmer – Shadow Brexit Secretary.
Sir Tim Barrow – UK Permanent Representative.
Michel Barnier – EU Chief Negotiator.
Sabine Weyand – Barnier’s Deputy.
Guy Verhofstadt – EP Brexit Lead

Updated Timeline

Robert Francis

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