Brexit Update – 6th April 2017

By April 6, 2017Brexit Updates

Top 3 developments

Brussels Takes Back Control!

The European Council has published draft Brexit guidelines which set out a series of tough negotiating stances in preparation for EU-UK talks.

Rocky Relations

The Council’s Brexit guidelines have stoked the fire of an already smouldering issue surrounding the long-standing sovereignty debate of Gibraltar.

Theresa and Donald Lock Tusks

EU Council President Donald Tusk has met with Theresa May this afternoon to discuss future Brexit arrangements.

UK Update

Theresa and Donald Lock Tusks

The Prime Minister has met with European Council President for the first time since triggering Article 50 last month. May and Tusk did not discuss specifics of the negotiations, which cannot take place until 22nd May, when EU governments are set to approve the final negotiating directives. Speaking at the launch of the Conservative party’s local election campaign today, May said, “we will be talking about the start of negotiations, how we are going to take these negotiations forward”. In addition to how to deliver on the negotiations within the allotted 2-year timeframe, the two are also likely to discuss the ongoing Gibraltar dispute. However, Number 10 have played down the significance of the meeting, saying it is “not a major event”.

May’s ‘No Deal’ rhetoric is “unsubstantiated”

In an affront to Theresa May’s ‘no deal is better than a bad deal’ rhetoric, MPs on the Brexit Committee have warned that such claims are “unsubstantiated”. The committee has called for a thorough assessment of the economic and legal implications of a no deal scenario, and for the Government to outline what steps are being taken to mitigate the damaging effects of such an outcome. The report comes after David Davis told the committee last month that no economic assessment of a no deal scenario has been conducted since before the referendum. The committee’s report says, “the government has talked about walking away from a bad deal, but has not yet explained what terms would be demonstrably worse for the UK than ‘no deal'”. MPs also say it is “essential” that Parliament gets a vote on whether to proceed with the UK’s withdrawal if there is no deal. The report caused a split in the committee with five of its Conservative members, including John Whittingdale and Dominic Raab, voting against its publication on the basis that it was “too gloomy”. They were outnumbered, however, by 11 Labour, Tory, Liberal Democrat, SNP and SDLP committee members, who all backed Remain in last year’s referendum.

May’s Unexpected Movement

Theresa May has conceded that freedom of movement within the European Union could continue to apply to the UK during a transition withdrawal phase. Speaking during her trip to the Middle East, the Prime Minister said there would need to be an “implementation period” to minimise the impact on businesses, during which free movement is likely to continue. May’s change in languages brings her stance more in line with Donald Tusk’s draft negotiating guidelines, which stipulate that if the UK wishes to remain in the single market whilst a free trade deal is negotiated beyond the spring 2019 Brexit deadline, then free movement will have to remain. This is the latest in a string of recent concessions which signal that May recognises that the UK will have to continue to play by some of the EU’s rules if an agreement is to be reached.

Hammond says ‘Namaste’ to India Trade Deal

Phillip Hammond has said that the Government’s promise to reduce immigration post-Brexit will not negatively impact the chances of the UK negotiating a free trade agreement with India. The Chancellor said, “we are open to Indians”. He made the comments during a trip to Delhi to promote British business. Hammond said the Government’s promise to reduced net migration to “tens of thousands” would primarily affect countries with less-skilled labour, rather than India. The Chancellor’s visit is an attempt to begin working towards free trade talks with India – which initially stalled a decade ago. However, the Indian Finance Minister, Arun Jaitley, said during a visit to the UK in February that any trade deal between the two countries would take a “long time” and that talks would not begin until the Brexit process is complete. Hammond is one of five Ministers touring the world this week on the diplomatic charm offensive; this week has seen Boris Johnson in Luxembourg, David Davis in Spain and Portugal, Liam Fox in the Philippines, Malaysia and Indonesia, and the Prime Minister in Saudi Arabia; all seeking, no doubt, to lay the foundations for future trade arrangements.

European Update

MEPs agree on Brexit Red Lines

The European Parliament has backed a tough opening negotiating position towards the UK by 516 votes to 133. The resolution supports Michel Barnier’s phased approach to negotiations, and emphasised that UK citizens in the EU and EU citizens in Britain should receive “reciprocal” treatment under any future arrangements. In a rebuttal to the rhetoric of May’s Article 50 letter, the resolution also stressed that the UK’s counter-terrorism and security capabilities should not be used as bargaining chip in the negotiations. Other red lines include; transitional arrangements must be time limited to 3 years, EU environmental and anti-tax evasion standards will have to apply to any future agreement, and the UK must pay any costs which “arise directly from its withdrawal”. MEPs want the UK to honour any financial commitments, meaning the UK will have to continue paying into the EU’s current multi-annual financial framework which runs until 2020. Interestingly, language used in the resolution implies that Article 50 can be repealed – contrary to the UK Government’s insistence that it is irrevocable. Realistically the irrevocability of Article 50 is a matter of legal interpretation (which would ultimately be decided by the European courts), but it is nonetheless a clear indication of the Parliament’s view. Although the European Parliament will not have an active role in the negotiations (because the talks will be conducted by the Commission on behalf of the EU’s remaining 27 member states), its views still matter because it will be scrutinising and validating the final deal negotiated by the Commission.

Stuck between a Rock and a Hard Brexit

The European Council’s Brexit guidelines say that any decision affecting Gibraltar must be run past Spain first – effectively handing the Spanish a veto on Gibraltar’s post-Brexit future. This has started a row between the UK, Gibraltar and Spain over the territory’s future sovereignty. Tensions were heightened by the interjections of former Tory party leader Michael Howard, who said the Prime Minister would be willing to go to war with Gibraltar over the territory’s sovereignty. Howard drew a direct comparison between the Gibraltar issue and the Falklands War between the UK and Argentina in the 1980s, saying, “I’m absolutely clear that our current woman prime minister will show the same resolve in relation to Gibraltar as her predecessor did”. The spat revives a long-standing dispute between the UK and Spain over the territorial status of ‘The Rock’. The Council’s guidelines could signal an apparent end to the Union’s impartiality on the sovereignty dispute. The Union remained impartial when, in 2002, Gibraltarians rejected the idea of joint British-Spanish sovereignty over the territory. Since then, the British Government has refused to discuss sovereignty without the consent of Gibraltarians – something the Prime Minister has reiterated this week. May has since laughed off Howard’s suggestion, saying she wanted “jaw jaw” not “war war” – borrowing Winston Churchill’s famed phrase. She has also told Chief Minister of the territory, Fabian Picardo, “we will never enter into arrangements under which the people of Gibraltar would pass under the sovereignty of another state against their freely and democratically expressed wishes”. Nonetheless, the EU has since reiterated that it will not back down on its support for Spain’s demand, which it is thought the Spanish lobbied heavily for. The dispute comes as a blow to Theresa May’s expectation that Spain would be an ally during the negotiations, and has given rise to criticism that May did not address Gibraltar in her Article 50 letter.

May gets a Reality Check

The European Council’s guidelines, published by Donald Tusk this week, explicitly state that the UK must continue to accept the Union’s existing laws, court rulings, and budget contributions if it seeks a transition period to exit the single market. The guidelines also reiterate the EU’s commitment to the ‘phase by phase’ timetable outlined by Michel Barnier last month, which requires the UK to make “sufficient progress” in the divorce talks before future relations are discussed. The nine-page document prioritises the terms of withdrawal over any future deal, coming as a rebuttal to May’s insistence on discussing a new relationship alongside divorce talks. The guidelines are also clear that there will be no “cherry picking” because “a non-member of the union that does not live up to the same obligations as a member, cannot have the same rights and enjoy the same benefits as a member”. Moreover, the document calls on the UK to “respect the obligations undertaken before the date of withdrawal” – meaning the UK must honour its financial commitments. The guidelines will be discussed at the EU’s Brexit summit on 29th April. Once adopted, the European Commission will publicise a more detailed working document outlining the EU’s priorities and proposing a negotiating mandate for talks.

German President attacks “irresponsible” Brexit campaigners

Germany’s President, Frank-Walter Steinmeier, has criticised British politicians who led the Pro-Leave Brexit campaigns. In a speech to the European Parliament, Steinmeier said British politicians would be unable to deliver on their promise to “take back control”. He said, “it is wrong to say, in my conviction, that in this world a single European country standing alone and without the EU can make its voice heard or assert its economic interests. Quite to the contrary”. Steinmeier told MEPs that it was “irresponsible” for Leave campaigners to present over-simplified solutions to very complex problems.

Juncker and Merkel ally warns on euro-clearing

The leader of the largest political group in the European Parliament has warned that a significant portion of the UK’s banking industry will have to relocate to Europe after Brexit. Manfred Weber, leader of the centre-right European People’s Party, and close ally of German Chancellor Merkel and European Commission President Juncker, said euro-denominated clearing could no longer be undertaken in the City post-Brexit. Weber said during a press conference on Tuesday, “when the UK is leaving the European Union it is not thinkable that at the end the whole euro business is managed in London. This is an external place this is not an EU place any more. The euro business should be managed on EU soil”. Weber’s comments come six months after head of the London Stock Exchange Xavier Rolet warned that at least 100,000 positions could be lost if the City’s clearing houses were unable to process euro-denominated transactions. Currently, around three-quarters of Euro trades are executed in London, meaning that if Weber’s warning materialises, the financial implications for the UK’s business sector could potentially be considerable.

Timeline

  • 23rd April – First Round of French Presidential Elections.
  • 29th April – EU Brexit Summit.
  • 17th May – likely date of Queen’s Speech.
  • 22nd May – European Governments set to approve final negotiating directives.