Vulcan Consulting: Key Events This Week

By: Vulcan Consulting

 

The Weekly Vulcan View

BREXIT
 
London plans for ‘immediate’ break with EU post-Brexit
 
The divisions and internal party wrangling that has engulfed the British Conservative party over the past few months reached boiling point this week as staunch-Brexiters and remainers  vocally lobbied for their cause amid a heated war of words. The tipping point came as Prime Minister Theresa May met with her Cabinet sub-committee on Brexit this week to thrash out what kind of future trading relationship it wanted with the EU.

Despite increasing pressure from Brussels for some kind of clarity of what London wants, it emerged that Ms. May’s top Brexit team would not come to a final agreement on its preferred future trade and customs relationship with the EU this week. However, a source from one official revealed that a set of proposals were being drawn up that envisaged the UK diverging from a series of core EU rules and regulations ‘’immediately’’.

According to the official, the three areas where the government intended to diverge from were agricultural subsidies, financial services regulations and trade policy. Such a strategy would be hailed by Brexiters while sparking serious concern amongst the soft Brexit wing of the Conservative Party over fears that it wreak havoc on the British economy.

The reported set of proposals, that have to be signed off by the Cabinet in the coming weeks, can be seen as following a hard-Brexit policy and matches the recent speech given by the Prime Minister at the Tory party’s annual Black and White Ball. Addressing the audience, she struck a defiant tone and adamantly stated that leaving the EU meant ‘’taking control’’ which included ‘’leaving the single market and customs union’’. After weeks of providing lacklustre leadership, it appears that the Prime Minister has set her sights on pursuing a damaging and hard Brexit.

UK Government rules out remaining in customs union as analysis highlights potential economic fallout

As EU and British negotiators reconvened this week in Brussels to resume Brexit negotiations, London made it clear that it would not remain in the EU customs union once the proposed transition phase concluded on the 31st of December 2020. Seen as a victory for the hard Brexiters within the cabinet and wider Tory party, the EU chief negotiator stated that Britain would inevitably face strict barriers to trade in both goods and services if it proceeds down this path.

Downing Street rejected any possibility of staying within ‘’the customs union’’ or ‘’a customs union’’, instead favouring some sort of ‘’customs partnership’’ with the EU post-Brexit. Such an arrangement was quickly dismissed by Monsieur Barnier as unrealistic and the UK government’s decision to rule out joining the customs union was heavily criticized by the opposition Labour party, UK business groups and even several members of the Tory party such as Anna Soubry and Ken Clarke who launched a bid to keep the Britain in the customs union.

The decision by London came the same week as an economic analysis conducted by the British government was leaked. The report examines how three scenarios – a no deal Brexit, a free trade deal agreed with Brussels, and remaining in the EU single market – would impact on various regions across the UK.

The stark forecast suggests that a no-deal outcome would cost the UK’s public finances an enormous £80bn, with the Brexit heartlands such as the North-east and West Midlands of England worst affected. No region of the UK escapes unharmed and the economic growth of Scotland and Northern Ireland, both of which voted to remain in the EU, hit 9% and 12%. Even though it is UK government assessment, hard Brexiters such as Jacob-Rees Mogg dismissed the forecasts, asserting that they such reports are ‘’always wrong’’ and even accusing civil servants of ‘’fiddling’’ the figures.
 

EU contemplate enforcing sanctions on UK if transition terms breached
 
A draft treaty provision prepared by the European Commission’s Brexit task force is examining the prospect of granting EU states the ability to impose sanctions on London if it breaks any EU rules during the post-Article 50 transition period. In the five-page text, Brussels outlines that it will make the UK abide by union law until December 2020 but at the same time excluding London from any role in decision-making.

The Commission fears that the UK could breach internal EU rules during the transition phase and as a result has incorporated plans that would provide powers punish Britain. The draft agreement notes that the final withdrawal agreement ‘’should provide for a mechanism allowing the union to suspend certain benefits deriving for the UK from participation in the internal market’’. The strict guidelines will be formally incorporated into the final agreement, subject, of course, to agreement from the UK.
 

GERMANY
 
Coalition deal struck between CDU and SPD

The prolonged period of political uncertainty that has grinded the German political system to a halt appears to have reached a breakthrough this week after a coalition deal was struck between the centre-left Social Democrats (SDP) and Chancellor Angela Merkel’s Christian Democratic Union (CDU). Following weeks of tense negotiations between both sides, the remaining hurdles were overcome after marathon talks over the past few days.

Media reports from Germany suggest that the issue of ministerial appointments was the final obstacle with both sides vying for the most lucrative departments. In what is widely regarded as a coup by the SPD and a sign of just how far Ms. Merkel was willing to go in order to seal a deal, the centre-left party took home the finance and foreign affairs ministries. This position will allow the SPD to play a central role in shaping the country’s EU policy and would allow for greater Franco-German cooperation for increased EU integration.

SPD leader Martin Schulz will be the new foreign affairs minister while current Hamburg mayor Olaf Scholz will assume the position of German finance minister. In return for these key posts and a number of other departments, the CDU will be awarded defense, economy, health, education and agriculture. Some within the CDU were upset with the agreement and felt that their leader Ms. Merkel made far too many concessions to their counterparts.

The coalition text will now be put to vote by over 460,000 SPD rank-and-file members in the next month and the outcome is sure to be tight with vocal opposition coming from the party’s youth wing. Brussels will welcome the agreement as the first five pages of the mammoth 177-page agreement focuses on European policy. On the other hand, the issue of Brexit was dealt with by a mere 32 words.

EUROPEAN UNION
 
Commission launches Western Balkan enlargement strategy

The EU Commission laid out a tough roadmap for the six West Balkan states to follow in order to join the bloc in the next wave of expansion. The candidate counties – Serbia, Albania, Montengro, Bosnia, Macedonia and Kosovo – were called upon by the Commission to tackle several major problems that Brussels feels continue to dog their economies and prevent them from becoming the latest members of the EU.

The strategy laid out six initiatives as part of the strategy that would support the transformation of the Western Balkans. These included initiatives to strengthen the rule of law, enhance socio-economic development and crucially for the Commission reconcile current bitter disputes that still exist between the candidate countries. In a sign of just how important the Balkan corridor has become to the wider EU in recent years, the strategy heavily focuses on plans to reinforce engagement on security and migration.

Although Serbia and Montengro are the only countries that have formally opened accession talks with the EU and with little appetite for enlargement within the EU for the time being, it is highly doubtful that any of the Western Balkan states will make the 2025 target date. Notwithstanding this, it seems that both Serbia and Montenegro reacted positively to the strategy while the remaining four were less than impressed with the Kosovo president, Hashim Thaçi, suggesting that the plan had ‘’failed to present a perspective of inclusive and equal membership for all countries in the region’’.

EUROPEAN PARLIAMENT
 
Parliament rejects pan-EU transnational MEP list

Members of the European Parliament voted on Wednesday to reject a proposal to make the seats being vacated by the departing British MEPs into a set of pan-EU constituencies. The idea was first raised by the French president Emmanuel Macron who believes that it could revolutionize EU democracy. While it received support from several member states, the plan was short-lived as 368 voted against it, compared to the 274 in favour.

Brexit will thus see the number of MEPs fall from the current figure of 751 to 705. Of the 73 seats that belonged to the UK, 46 will be cut completely and the remaining cohort will be allocated to a number of member states such as France, Spain, and Ireland. Wednesday also saw the European Parliament vote in favour of adopting Spitzenkandidat, the process by which the Commission presidency goes to the political party group with the most MEPs.

The Spitzenkandidat process, a common German word for the ‘’lead candidate’’, had been criticized by a number of countries including France and the Visegrad group as they felt it would force them to accept a winner that had been driven by party insiders. Despite the resistance shown, MEPs gave it the green light with 457 votes for to 200 against. The adopted resolution means now that the assembly would reject any future candidate for the Commission presidency that had not been appointed through Spitzenkandidat.

Dates ahead: Monday 12th February – Sunday 18th February
 
Mon 12th – Thurs 16th February: European Parliament Green Week

And Beyond

Monday 19th February: Eurogroup meeting

Tuesday 20th February: ECOFIN meeting

Wednesday 21st February: ECB non-monetary policy committee meeting

 

Courtesy of Vulcan Consulting, a member of EACCNY.