Vulcan Insight | Analysis of the latest EU Developments 4 – 11 Oct 2019

Key Events This Week

A path to progress?
With one week to go before the crucial European Council summit on 17th October, there is still no clear agreement between the UK and EU on a way forward.

On Thursday, UK Prime Minister Boris Johnson and Irish Taoiseach Leo Varadkar met in Cheshire for what many saw as a last-ditch attempt to break the impasse in the Brexit talks. While officials on both sides had played down the chances of any breakthrough, the joint statement released by the leaders following the meeting hints at a more positive encounter. The two leaders stated they can “see a pathway to a possible deal”, with discussions focusing on the challenges around customs and the issue of consent. Later in Dublin Tánaiste Simon Coveney said it had been a “positive day” expressing his belief that a deal is possible by the end of October.

This followed a week in which EU Chief Brexit negotiator Michel Barnier told the European Parliament that at this stage the EU is “not really in a position where we are able to find an agreement”, outlining the problems with the prospect of customs checks in Ireland, the lack of legal certainty, and the potential that the Northern Ireland Assembly could veto any new agreement. He said that finding an agreement will be difficult, but is still possible.

The EU does not insist that Northern Ireland remains in its customs union, but it will not accept checks on the Irish border, favoring customs checks in the Irish Sea. Some commentators are suggesting an agreement could be based around Theresa May’s customs partnership proposal if applied to Northern Ireland only, whereby the UK would agree to enforce EU customs rules and tariffs on goods moving from Britain to Northern Ireland. If the EU tariff was higher than the UK tariff, Northern Irish businesses would get a rebate.

UK Brexit Secretary Stephen Barclay met Michel Barnier in Brussels today. The European Commission has called the meeting “constructive” but so far Dublin, London, and Brussels are remaining tight-lipped over any details on the negotiations, which could be a good signal that something viable and of substance is being discussed. If there is a deal, Johnson’s challenge, as was Theresa May’s before him, will be to secure a majority for the deal in Westminster, which so far has been elusive.

 

Irish Government Announces No Deal Budget
Minister for Finance Paschal Donohoe this week delivered the fourth Budget of the Fine Gael – led minority government. However, this Budget was anything but business as usual. In light of the uncertainty brought about by the ongoing Brexit deadlock, the Irish Government proceeded to frame Budget 2020 on the basis of a No Deal outcome. Describing Brexit as “the most immediate pressing and immediate risk to our economy”, Donohoe delivered a total net Budget package of €2.9 billion.

Supports in the region of €1.2 billion, excluding EU funding, were ringfenced to respond to the challenges posed by Brexit. However, the government promised to intervene further should the economy require it. The Minister for Finance also reiterated Ireland’s steadfast commitment to maintaining a corporate tax rate of 12.5%.

Measures aimed at protecting vulnerable sectors of the economy to Brexit such as agriculture, enterprise and tourism were of particular focus in the government’s expenditure plans with €650 million being made available to those industries. In order to deal with job losses as a result of a crash out by the UK, almost €400 million is being made available to the Department of Social Protection.

Government forecasts suggest the country’s Budget surplus will swing to a deficit of 0.6 per cent of GDP in 2020 in the event of No Deal. This will likely be the final Budget of the current minority government with a general election likely before next summer.

 

European Commissioner hearings continue in Brussels
The three future Executive Vice Presidents of the European Commission – Margrethe Vestager, Valdis Dombrovskis and Frans Timmermans – glided through their hearings in front of the European Parliament.

Dutch Commissioner Timmermans is set to become the European Commissioner in charge of the ‘Green New Deal’. He told the European Parliament about his plans to raise EU targets to cut emissions to at least 55% by 2030. While many member states support this increased ambition, Central and Eastern European countries are more skeptical about the potential costs. Ursula von der Leyen has promised a ‘Just Transition Fund’ to help those regions and workers most negatively affected by moving to greener energy. Timmermans spoke of the need for clean transport options, including emissions-free cars. He also noted the possibility of introducing a carbon border tax.

Danish Commissioner Margrethe Vestager, who will become Vice President for making Europe “Fit for the Digital Age” emphasised the importance of bettering the EU’s digital transformation. She was questioned on artificial intelligence and ethics, and data protection standards. Vestager spoke about introducing reforms to the tax environment to ensure digital giants pay their share. Von der Leyen has tasked the Dane with finding consensus internationally on the taxation issue by the end of 2020, or she will have to bring forward proposals for a fair European tax.

Latvian Commissioner Dombrovskis will become the Executive Vice President for “An Economy that Works for People’. The former Latvian Prime Minister laid out his plans to promote EU economic interests internationally, his ideas for ‘green finance’, the creation of a public-private fund to help SMEs go public on capital markets, and his intention to propose legislation on crypto assets. He also pledged to introduce a minimum wage at EU level.

The French nomination for Commissioner, Sylvie Goulard, has been rejected after a second hearing in front of the Parliament. MEPs said that the French politician didn’t sufficiently clarify her legal and ethical troubles, and failed to address concerns that her internal market portfolio is too broad. The decision is a blow to both President Macron and Von der Leyen. Her failure to receive ratification brings the total number of rejected Commissioners-designate to three.

Key Dates :
    • 13 October: Polish general election
    • 14-15 October: Agriculture and Fisheries Council
    • 14 October: Foreign Affairs Council
    • 15 October: General Affairs Council 
    • 17-18 October: European Council summit

Compliments of Vulcan Consulting, a member of the EACCNY