RPP “Brexit means Brexit”

Overview

Brexit continues to dominate the Prime Minister's agenda both internationally and domestically, with a challenging week of diplomacy with global leaders combined with trying to keep her Brexit ministers in line. Now that the UK and European Parliaments are back up to full speed following their summer breaks, the PM is coming under pressure from both Europe and the right of the Conservative Party to trigger Article 50 sooner rather than later. At the same time the UK Government is trying to define what it's Brexit negotiating strategy means, and what Brexit might look like. At least we now have slightly more clarity with David Davis clarifying the Prime Minister's position that "Brexit means Brexit" with "Simply, it means the UK leaving the European Union".

Highlights

  • The Prime Minister attended the G20 Summit in China at the start of the week, please see article below. Following her return to the UK, she met with President of the European Council, Donald Tusk in no 10 Downing Street on Thursday, where he is reported to have said to the Prime Minister that "the ball is now in your court". Meanwhile Belgian ex-Prime Minister Guy Verhofstadt MEP, will be the European Parliament's negotiator in Brexit talks with the UK. He has a reputation as an arch-federalist, which has made many British political commentators question his appointment. However In July Mr Verhofstadt scorned the Council's reaction to Brexit, saying "it was not good enough to just implement existing European policies" as well as "What are you waiting for? When will the Council recognise that this type of EU – you cannot defend it any more. Europe needs to be reformed... European citizens are not against Europe, they're against this Europe." It will be interesting to see how Mr Verhofstadt will influence the Brexit negotiations, although it probably likely that the European Parliament and Commission will take a back seat to the European Council and the Member States.
  • Different perspectives within the Government over aspects of the UK's future relationship with the EU have risen to the surface this week. They have included whether the UK should remain in the single market, and at what cost, as well as whether an Australian points based system should be implemented for immigration, or whether a work permit system may be more favourable. The Prime Minister, who wants to keep her negotiating cards close to her chest, has been quick to put ministers who have spoken out of turn firmly back in their place.
  • Many of the former leaders of the LEAVE campaign have set up a new organisation known as Change Britain. To be chaired by Labour MP, Gisela Stuart, but also supported by Boris Johnson, Lord Lawson, Michael Gove and others, this organisation aims to campaign to make a success of Britain’s departure from the EU. They aim to build a broad coalition that brings together people from inside and outside politics, regardless of how they voted in the referendum, to get the job done. We expect the Prime Minister will be thrilled to have another organisation adding competing views and opinions to the Brexit negotiations and discussions.
  • Finally, as of this afternoon, 12th September, the former Prime Minister, David Cameron has announced his decision to stand down as an MP, which will result in a by-election in his constituency of Witney.


Written by RPP Head of London Office, Andrew Brown

Brexit and the “Juncker Plan”

Will Brexit have an impact on the famous European Fund for Strategic Investments (EFSI), the Juncker Plan?

Yes, it certainly will. As a major contributor to the Juncker Plan and also as one its main beneficiaries, a post-Brexit United Kingdom will have to learn to live without this dimension of EU investment. Not only is the UK one of the biggest contributors to the Juncker Plan with €6 billion invested in the program, it is also the biggest recipient, as the European Investment Bank (EIB) states. According to findings of the rating agency Standard and Poor, the UK might benefit almost as twice as much from the investment plan as the other big Member States in the EU.

The UK’s access to the €21 billion fund Juncker-Plan will have to be renegotiated within the framework of the Brexit process.

The European Fund for Strategic Investment is a strategic partnership between the European Commission and the European Investment Bank (EIB), deployed by both the EIB and the European Investment Fund (EIF). It was adopted in 2015 when the new Juncker Commission took office. This investment plan is shaped to generate €315 billion in total investment in projects linked to infrastructure, environment, SMEs and innovation across Europe by 2018. It is meant to help overcome the current investment gap in the EU by mobilising private financing for strategic investments by leveraging the “kick-off” fund of €21 billion. The United Kingdom has put forward several infrastructure projects within the framework of the Juncker plan funding, including offshore wind farms, smart meter rollout for domestic utilities, a new hospital in Birmingham as well as seed funding for the Life Sciences Sector. The last two are sizeable investments in the health and life science sectors, with a combined investment of over €200 million from the EFSI, which is leveraging close to €2 billion.

According to EIB sources, the UK projects have already been approved and will be maintained. In that context, the EIB as well as the EIF were also both rather quick in confirming that the Brexit vote would not create changes to the current project operations. While the UK may hold onto those investments which it already had been promised, Brexit poses a real threat to the EIB’s many long-term investments in the country.

The question of how to continue with the EFSI from a British perspective is first and foremost connected with the future activities of the EIB in the UK and with the degree of the future of the UK within the EIB. The UK accounts currently, together with Germany, France and Italy with approximately €40 billion (16%) and last but not least, only EU Member States can be shareholders! But until Article 50 gets triggered and during the 2-year exit negotiations following that, the UK remains a full member of the European Union with “full rights and obligations”.

It is worthwhile to bear in mind that EFSI is not allocating funds along the lines of geographical quotas, it relies entirely on projects put forward for financing by public and private entities and therefore by building up cooperation with intermediaries in the EU Member States. That could mean as a consequence that projects already under way in the UK, the impact could well be minimal, but the enthusiasm of carrying out any kind of new investment for projects will certainly be affected, knowing that the UK is negotiating its way out: the EIB and the EIF will be very careful, given the uncertainties of the nature of the future UK-EU relationship. It is also important to note that as the largest financial centre within the EU, and subsequently the largest capital market, the City of London plays a crucial role in leveraging EFSI funding.

If London negotiates the status of an EU associate country over the next two years, the UK will still lose out on investment. As French Liberal MEP Dominique Riquet has said: “finance of this type is not available to associate countries like Switzerland and Norway.”

So Juncker plan funding for further projects across the English Channel could rapidly dry up, which leaves the question, will the UK Government replicate such an investment programme, and if so, how quickly can it be implemented post-Brexit?

Written by RPP Senior Director of Policy & Advocacy, Thomas Krings

Brexit Week Ahead: King’s Grilling, State of the Union debate, Bratislava Summit

Tonight, Monday 12th September, from 19:00 to 22:00, the designated British Commissioner for the Security Union Julian King is questioned for the first time by the member of the European Parliament’s Civil Liberties Committee in Strasbourg. The European Parliament will vote on Mr King’s appointment on Tuesday 13th September. Although it is not likely to happen in the case of Julian King, the European Parliament has refused the nomination of some candidates in the past.

On Wednesday 14th September 2016, the President of the European Commission, Jean-Claude Juncker, will deliver his State of the Union address during next week’s plenary week at the European Parliament in Strasbourg. President Juncker will take stock of achievements of the past year and present the priorities for the year ahead. The President will also set out how the Commission will address the most pressing challenges the European Union is facing. We have heard, that all Commission representations in all 27 EU Member States have been asked to provide some input during the drafting stage of President Juncker’s speech.

The speech will be followed by a plenary debate. The Group leaders will be the first to respond after Jean-Claude Junker’s speech. Since September 2010, the State of the Union address (following its US example) traditionally kick-starts the dialogue between Parliament and Council, as foreseen in the Lisbon Treaty, to prepare the Commission Work Program for 2017.

Following the plenary, the remaining 27 EU leaders will meet on Friday 15th and Saturday 16th September at an “informal summit” in Bratislava (informal, because the UK are not invited). Even though Donald Tusk claims that Brexit is not going to be the main topic of the summit, it is defining the meeting in two ways. First, it is expected that a roadmap for the coming months will be set up to discuss EU reforms after Brexit. Naturally this will also involve questions on how and when to approach Brexit negotiations. Second, with the UK leaving the EU, the Southern Members States may regain momentum in their struggle against austerity measures. Neighbouring states of the Mediterranean have already held a summit last week in Athens. The main goal was to prepare a coherent standpoint against austerity. One can expect their voice to be more forceful at the upcoming summit.

RPP will provide an update about Mr. King's first hearing, the speech of the Commission President, the parliamentary debate and the EU Summit in Bratislava in the next issue.

Written by RPP Senior Director of Policy & Advocacy, Thomas Krings, and RPP Manager Corporate Office, Daniel Fischer

G20, Japan Statement, Trade Deals and Brexit 

Last week, 4th and 5th September, the city of Hangzhou in China, hosted the 2016 G20 summit. The G20 is the international forum for the 20 largest economies, including the European Union, and since 2009 has replaced the G8/G7 as the main economic council of wealthy nations. Many important issues were certainly discussed between world leaders, including a potential ceasefire in Syria and how to combat ISIS. However, from a UK and EU perspective, the issue of Brexit was certainly of interest.

For the new British Prime Minister, Theresa May, the summit didn't get off to as good a start as she may have liked, with the Japanese Ministry of Foreign Affairs publishing a 15 page report on their concerns relating to the upcoming Brexit negotiations. The main point raised in the report was for the UK to maintain access to the single market and for the negotiating process to be transparent. Japan's intervention, potentially the strongest of an independent country since the referendum result, is very important as over 10,000 Japanese companies are located in the UK, employing 140,000 people. In 2015 nearly 50% of Japan's direct investment into the EU cam to the UK. A particular point was made relating to the pharmaceutical industry, with the Japanese statement requesting that the European Medicines Agency (EMA) remains in the UK as well as a certification system for medicines between the UK and EU remaining.

On a more positive note for the PM, there were encouraging discussions with several countries including Australia, India, Mexico, South Korea and Singapore, all indicating they would welcome talks on breaking down barriers to trade, with the Australian trade minister due to visit the UK this week to begin discussions on a UK-Australia Free Trade Agreement. Mrs May in fact stated her intention to make the UK the global leader in free trade.

Whilst these discussions between the UK and countries outside the EU may not have gone down well with European Commission President, Jean-Claude Juncker, there is probably little he can do to prevent such negotiations. What may be a bigger barrier, is the UK's lack of trade negotiators. With the EU responsible for negotiating trade agreements on the UK's behalf since 1973, the necessary skills are in short supply in the British civil service. The UK may have to be bailed out by the Commonwealth, with Australia, New Zealand and Canada all offering to lend their negotiators to the UK.

Over the next two to three years, not only will the UK have to negotiate its departure from the EU, but also attempt to negotiate free trade agreements with important global trading partners. This will certainly not be an easy task for the Prime Minister and her Government, which perhaps explains one of the reasons why David Cameron stepped down so shortly after the referendum result, and has in fact today announced he will be shortly be standing down as an MP.

Written by RPP Senior Consultant, Andrew Brown