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Grayling Brussels' Brexit Bulletin - 3 November 2016

3rd November 2016

*As the Brexit Bulletin goes to press, we have just learnt that the UK High Court has ruled that the Government must get Parliamentary approval before triggering Article 50.

This could delay the start of negotiations, and theoretically could mean they will never begin - after all, a majority of MPs backed the Remain camp during the referendum campaign. 

Will English MPs in particular have the courage to go against the referendum result and the views of their constituents and prevent Theresa May from launching the process?

This seems unlikely at the time of writing, as Brexit has seemed inevitable since June, but there could still be time to reverse the process. Many MPs will be torn between their convictions and the need to represent the will of their electorate.

The Government is expected to appeal the Court decision, which itself could further delay the triggering of Article 50 which had been originally earmarked for March 2017.

Brexit - never a straightforward process at the best of times - just got even more complicated. 

The Grayling view: Nissan decision reveals change in govenrment policy

The details of what Theresa May guaranteed to Nissan are lacking, but they were clearly sufficiently persuasive to make the company stay in the UK for the foreseeable future.

No doubt other companies from a range of sectors will now get in line to obtain similar guarantees from the Government.

Whilst the Nissan development has been criticised for opening up a Pandora's Box of compensation for individual companies, what we have learnt is that the Government seems intent on obtaining tariff free access to the Single Market, as well as continued membership of the Customs Union - and is bullish enough to be confident of success.

Anything less, and Nissan surely would not have been so quick to make such a commitment to the UK when the post-Brexit settlement remains highly uncertain.

It is also important to note the change in the Government's policy direction.

Instead of the immigration rhetoric and prioritising restricting free movement over business interests, the Government has - practically overnight - become more industry-friendly. Later this month Theresa May will meet the head of the CBI - incredibly - for the first time during her premiership. 

The change in focus has been, and should be, welcomed by the majority of the business, even if many will be suspicious of the new deal with Nissan, not least the EU's competititon watchdogs in Brussels.

Meanwhile, other sectors, including the City of London, look on enviously, but will not hesitate to seek similar reassurances. The lobbying floodgates have just opened. 

Don't forget to check out our #Brexitpapers including the 'Great Repeal Bill' Guy Verhofstadt, the European Parliament's lead negotiator on Brexit, Sir Julian King - the UK's last Commissioner. Shadow Brexit Minister Sir Keir StarmerArticle 50, the UK's "Minister for Brexit" David Davis, Chief Brexit Negotiator for the Commission, Michel Barnier, his deputy Sabine Weyand, and what Brexit means for Brits working in the EU institutions.

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 and follow us on Twitter @TheEULobby.


 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 ( in our Brussels team for more information or Jonathan Curtis ( in London, and check out our brochure.

The highlights from the UK

UK economy holding firm in Q3
The UK recorded 0.5% growth in Q3, according to the Office for National Statistics on Thursday, whilst the unemployment rate remained steady at 4.9%. The Chancellor of the Exchequer Philip Hammond claims that the latest figures show that "the fundamentals of the UK economy are strong” but added that the economy would take time to "adjust" to a new relationship with the EU. It is worth recalling that the UK has still not triggered Article 50, and there is still little knowledge about what exactly it will aim to achieve through the negotiations, including whether it wants to remain in the Single Market and the Customs Union. These are still very early days.

FinTech lobbies Government for more innovation, more immigration!
The Fintech industry is lobbying the upper echelons of government to do away with the immigration rhetoric and focus instead on innovation. 30% of the industry's members who work for startups were born outside the UK, and the fear is that any restrictions on hiring foreign workers will threaten businesses in the UK. FinTech companies also want the loss of funding from the European Investment Fund to be made up by the British Business Bank. If this fails to materialise, expect this sector to move out of the UK and to the EU (Berlin has been mooted as a popular destination).

New report highlights the complexity of the UK’s divorce from the EU.
A report from The UK in a Changing Europe, an independent group of academics led by Prof Anand Menon of King’s College London, has warned that Theresa May’s triggering of Article 50  will beckon the start of a lengthy, testing and highly complex period for the UK.
Menon said that “Brexit has the potential to test the UK’s constitutional settlement, legal framework, political process and bureaucratic capacities to their limits – and possibly beyond”. On negotiations, the report highlights the lack of clarity over whether the Article 50 process concerning the terms of the UK’s divorce, allows for parallel negotiations on Britain’s future status.
In terms of domestic complications, regaining sovereignty over areas such as agriculture and the environment could trigger an organizational headache that has the potential to alter the balance of power between Westminster and the UK’s devolved parliaments
Many of the concerns raised by the report are not new and were met by ‘leave’ campaigners with the argument that Europhiles were ‘talking Britain down’. However, the hard analysis presented by the report suggests that the next few years will provide plenty of opportunities for Britain to show itself to be as capable and independent as the Leave campaign was so intent the country could be.
Downgrade threat piles pressure on the Executive
Moody’s Investors Service, a bond credit rating business, announced on 2 November that it will lower Britain’s credit rating if UK companies lose "core access" to the EU Single Market.
According to Kathrin Muehlbronner, senior vice-president at Moody’s, the downgrade would be justified because a loss of access to the Single Market would "materially damage" the UK’s medium-term growth prospects.
On a similar note, Alastair Darling, the former UK Finance Minister, urged Theresa May to spell out the type of the Brexit deal she wants. On the subject of the negotiations as an exercise in damage limitation which echoed Moody’s press release, Darling said that "we’ve got to salvage as much as we can so we don’t disrupt trade and damage the UK’s long-term growth prospects."
Talk of falling credit ratings and further pressure from high profile political figures increases the heat on the UK Government to come to a conclusion over the trade stance that it will take into negotiations.

The highlights from Brussels

The short-term and longer-term impact of Brexit on the EU budget:

When MEPs vote on a proposed EU budget of €161.8 billion on 2 November, questions will arise on how Brexit will impact the EU budget. Until the UK actually leaves the EU, what the UK pays and receives from the EU budget will remain unchanged. Nevertheless, Brexit might already have an impact on the budget because of the recent fall in the value of Sterling. At current exchange rates, the U.K.’s £10.3 billion annual contribution is worth just €11.5 billion, short of the agreed €14 billion. While MEPs seem to be worried about how the EU will close the gap, officials from both the Council and Commission seem confident that what is left over from the 2016 budget will be enough to cover the shortfall.
Concerning the longer-term impact of Brexit, the rebates for Austria, Denmark, Germany, The Netherlands, and Sweden could also disappear when the UK leaves the EU.
The UK will also probably have to pay in liabilities - possibly as much as €20 billion -  if it wants to remain part of several long-term schemes, such as Horizon 2020. Nonetheless, it will be difficult for the British negotiating team to persuade the electorate of the benefits of contributing to the EU whilst being out of the club. In any case, the EU budget issues promises to be a top priority of the Brexit negotiations.

What's happening in Asia

Nissan agrees to further investing in the UK - but under what conditions?
Nissan - the second largest car maker in the UK - will build two new car models at its Sunderland plant in England from 2019. The decision comes after the company was given reassurances by Theresa May that it would not suffer financially as a result of Brexit. UK Business Secretary, Greg Clark said that it has assured Nissan that the Government would be negotiating for tariff-free access to European markets, together with commitments to continue funding skills and training, and a promise to work to bring SMEs in the sector’s supply chain back to the UK.It is not clear whether specific promises were made on tariffs, infrastructure, and work visas. Nissan was also assured that the UK Government would develop a "national industrial strategy" - whilst there are no details at the current time, clearly the company was happy about such an initiative.

But words of caution followed from Haruki Hayashi, President of the Japanese Chamber of Commerce and Industry, who said that Japanese business as a whole needs more than general reassurance. Indeed, he added that the lack of certainty over issues such as the free movement of skilled workers could lead Japanese companies to “postpone further investment decisions or seriously consider relocating their European headquarters to elsewhere in Europe.” According to Mr Hayashi, some Japanese firms have already received offers to relocate to other European countries.
In parallel, when questioned on the Secretary’s letter to Nissan, and whether it was illegal state aid, EU Economy and Finance Commissioner Moscovici answered that the UK is still a member of the EU and must therefore respect the EU’s rules on state subsidies. 

What's happening in North America

Trump or Clinton: what does it mean for Brexit?
With the US Presidential elections less than a week away, the FT reflects on how Trump or Clinton could impact the Brexit negotiations. While Obama’s administration was vocal that Brexit is bad news for Europe, the UK, and the US, the two Presidential candidates’ positions are equivocal. The FT reports that a Clinton administration will most probably not take sides. Even if Brexiteers hope that the US could come to Britain’s rescue if relations with the EU become too tense, this scenario is unlikely with Clinton as President. On the other hand, even though Donald Trump praised the UK’s move to “take its country back”, it is unlikely that Theresa May would ever call upon him for diplomatic support. Could a Trump victory even provoke a U-turn in the Brexit process itself, with the UK calling into question the merits of Brexit in a multipolar world where the US is no longer a reliable ally?  

Morgan Stanley's CEO: “There’s nothing good about Brexit”
James Gorman, CEO of Morgan Stanley, told Bloombergthat Brexit will force global firms to examine all their business lines and rethink where operations need to be. Earlier this month, Gorman suggested that New York would gain the most finance jobs following Brexit. Paris could also become a strategic location for the banking sector if it becomes the new home for the European Banking Authority, currently based in London.

News from our European Network

EBA up for grabs
In October, France and Ireland confirmed that they will apply to host the European Banking Authority (EBA), the EU agency responsible for managing banking supervision and regulation. Other countries such as Sweden, Italy and Spain and Bulgaria have also publicly expressed their interest to become new hosts to the EBA.
In parallel, Gérard Rameix, who sits on the board of the European Securities and Markets Authority, which brings together regulatory chiefs from across the EU, said its British representatives have had a different set of priorities since the UK voted to leave the EU. He added that British members have a potential “conflict of interest” because of their wish to preserve the primacy of the City of London after Brexit. He added that “specific agreements” with London over information sharing would be required after Brexit.
Negotiations for the relocation of EBA’s headquarters will take place directly between EU countries and will be further developed during European Council meetings.  Stakeholders from the financial sector will play a key role in the negotiations, and no updates are expected before the launch of Brexit negotiations at political level.


Dates for your diary 

End March 2017 - UK expected to trigger Article 50
April/May 2017 - French Presidential elections
September 2017 - German Federal elections

Grayling Team

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