Brexit Update 12th January 2018

By January 26, 2018 Brexit Updates

Top 3 developments  

  • Davis concerned by pessimistic EU Brexit guidance
  • Hammond seeks clarity of EU position on future relationship
  • Impact study released by the Mayor of London

UK Update

Davis and Commission battle over no deal planning

Chief negotiator, David Davis, has sought a retraction of European Commission Brexit guidelines which stated that the UK would become a ‘third country’ in 2019 and did not reference a possible trade deal. Writing to the Prime Minister, Davis outlined that a ‘worst case scenario’ warning was being issued, without provisions made for the likelihood of a deal being made, including a period of implied continuance during any transition period. A Commission spokesman responded with surprise that Davis was concerned by the European Commission guidelines, citing that the Prime Minister had raised the prospect of ‘no deal’ in both her Lancaster House and Florence speeches. Many companies have already begun planning for the UK’s exit, applying for licences and offices in both territories – mitigating the risk of no-deal, whilst remaining hopeful that a deal is agreed. Talks over the transition period are due to begin later this month, with further negotiations about the future relationship, including any future trade deal, to be discussed following the EU Council summit in March.

Farage backs Second Referendum

Nigel Farage shocked pundits yesterday when he backed calls for a second referendum on EU membership. Citing the positions of Blair, Clegg and Adonis, who he stated will ‘go on whingeing and whining and moaning all the way through this process’, Farage called for a second referendum to “kill [the issue] off for a generation”. Whilst both the Government and HM official opposition have ruled it out, the Liberal Democrats sought to rise to the challenge, questioning the chances of a future Leave campaign’s success. Effectively doubling down, Farage placed forward his belief that the percentage voting to leave would be much bigger. However, he later appeared to backtrack slightly on his comments, describing a second referendum as the ‘last thing’ he wanted. Despite Farage’s calls, a second referendum is highly unlikely given the tough negotiations being undertaken with the EU now, as well as the political sensitivity of the issue.

UK turns tables on EU as Chancellor states “It takes two to tango”

A new strategy appeared to materialise this week as the UK looked to try and turn the tables on the EU in the second half of negotiations. David Davis previously sought to outline that the EU could not cherry pick what sectors of the UK economy it wanted access to, whilst Philip Hammond told a conference in Germany it “takes two to tango”, explaining that the EU has given ‘little, if any signal’ on its priorities for the next phase of negotiations on future co-operation. Hammond added that the EU should ‘be clear about what they want’. The European Commission is currently drawing up a framework for the second half of negotiations due to commence in March, and has been reluctant to give ground on a bespoke trade deal for the UK which would include financial services. Michel Barnier, who has ruled out a bespoke deal, stated ‘There is not a single trade agreement that is open to financial service. It does not exist’.

Germany has however signalled possible future access could materialise, dependent on the UK dropping its red-lines on substantial future payments to the EU and the continued jurisdiction of the ECJ – something more akin to the Norway option than the no-payments Canada option. The likelihood of a ‘bespoke’ agreement being reached however, depends not only on the forthcoming negotiations, but on the EU’s current agreements with third states. The EU has ruled out any agreement that gives the UK a significant advantage over EU member states, including in areas of tax and regulation, and is likely to stop short of an agreement that would threaten the institutional strength of its current trade agreements with third states. The UK’s strategy to seek the true limits of how far the EU would go on services as quickly as possible, and other areas in the second round, is therefore critical to the UK negotiating position. A failure to do so will risk the negotiations failing, and the deadline passing, pushing trade negotiations into the transition period – something many in the EU are said to be preparing for.

Mayor of London’s Impact Study Released

An impact study commissioned by the Mayor of London was released this week, warning of a ‘lost decade’ in the event of a no-deal Brexit. The study reported that a worst-case scenario could lead to the loss of 87,000 jobs in the capital, compared to the 130,000 jobs lost after the 2008 financial crises. However, BBC analyst Chris Morris expressed hope if such a scenario were to arise pointing to the City’s ‘long history of adjusting to and thriving in new economic circumstances’. Questions still abound of the future of London’s financial sector, with negotiations set to focus a great deal of time on the inclusion of services in any future trade agreement.

Holyrood expected to introduce EU Continuity Bill  

In the latest development in the ongoing row between the UK Government and the devolved administrations, the Scottish Government has stated that an EU Continuity Bill is expected to be introduced next month. The legislation is intended to address what the devolved administrations perceive to be a power grab by the Westminster Government. The current drafting of the EU Withdrawal Bill is such that EU responsibilities in devolved areas will initially be transferred to Westminster. The Scottish Government’s announcement follows news that the Government’s amendments to the Withdrawal Bill which they said would address the concerns have been delayed. Scottish Conservative Leader Ruth Davidson has expressed her frustration with the delay and has stated that she will speak to the Prime Minister on the issue.

European Update

Juncker states that Brexit will happen as Oetthinger sets out EU financial hole

Speaking at a conference in Brussels, the President of the European Commission, Jean-Claude Juncker, explained that he believes Brexit will happen and that ‘those who say that it’s not going to happen and that people in the UK have realised their error’ should not be believed.

Meanwhile, speaking at the same event, EU budget Commissioner Gunther Oetthinger set out details of the impact of Brexit on the EU’s budget. Oetthinger explained that the EU will be left with a funding hole of €12-13bn following the UK’s departure and proposed that this will have to be addressed through 50% spending cuts and 50% new revenue. One potential source of new revenue highlighted by the financial chief was an EU-wide tax on plastic products. Oetthinger’s comments come as the bloc prepares itself for tricky negotiations between Member States which are net contributors and those which are net recipients ahead of the EU’s next budget period of 2020-2026. These have been made more difficult by the UK’s expected departure. The UK is currently the third largest net contributor to the EU behind France and Germany.

Tusk warns of Brexit-style referendum in Poland

European Council President Donald Tusk yesterday warned that Poland’s ruling Law and Justice (PiS) party could run for the door in Brussels if it were to become a net-contributor to the EU’s budget. The warning follows last month’s decision to trigger Article 7 of the EU treaty, placing Poland under review for what the EU called “systemic threats” to the Polish judiciary from its ruling government. Despite the warning, Poland currently has no plan to hold any such referendum, but is likely to continue to have a frosty relationship with EU institutions whilst under review.

Hungary talks transition extensions

Ambassadors for the 27 remaining EU member met this week to talk transition, with Hungary leading the charge for an extension clause to be put in any agreement with the UK. In what is expected to be a 21-month transition period, ending on the 31th December 2020 in line with the end of the current EU budget round, an extension would prove to be a costly, yet possibly effective, way of mitigating any cliff-edge caused by differences in trade negotiations. The move however was strongly opposed by France and Germany, stating that no ‘explicit’ reference to an extension should be included. The prospect of an extension would prove an incredible challenge given that it would fall into a budgetary period that is yet to be agreed, and of which the UK still retains a veto. Transition talks, due to end in March 2018, and trade talks due to begin thereafter will be the thing to watch therefore in determining whether a future extension appears to be a possibility.

Timeline

  • 16th January – Report stage of EU Withdrawal Bill
  • 18th January – Franco-British Summit
  • 29th January – EU27 ministers meet to sign off start date of second phase of negotiations
  • 23rd February – Informal meeting of EU27 Heads of State/Government
  • 22nd – 23rd March – European Council Summit

 

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