RPP Future for European institutions based in the UK

Overview

Yesterday (Thursday 15th December) the Prime Minister experienced a frosty reception in Brussels at the latest European Council Summit. To Theresa May's delight or annoyance, she was excluded from the end of Summit dinner where the 27 other leaders met to discuss their plans for the upcoming Brexit negotiations, amid tensions within the EU over the handling of the talks. At the last Summit dinner that the PM attended, she was made to wait until the very end to speak about Brexit, so perhaps she won't be too disappointed at not participating this time. There will be a report on the Summit in next week's newsletter, the last before Christmas, which we plan on publishing on Wednesday next week.

Highlights

  • Britain will be presented with a £50 billion “exit bill” by the European Union as soon as Theresa May triggers Article 50, the chief negotiator for the European Commission is warning. Michel Barnier has told colleagues that the UK must keep paying “tens of billions” annually into the EU budget until 2020. The bill would include the UK’s share of outstanding pensions liabilities, loan guarantees and spending on UK-based projects.
  • Brexit trade deal could take 10 years, says UK’s Ambassadors: Sir Ivan Rogers, who conducted David Cameron’s negotiation over the UK’s relationship with the EU, has warned ministers that the European consensus was that a deal might not be done until the early mid-2020s. He also warned that an agreement could be rejected ultimately by other EU members’ national parliaments.
  • David Davis, Secretary of State for Exiting the European Union, has said that the Government plan on Brexit will not be published until February: David Davis told the EU Select Committee that there was still a lot of policy and research work to be done before the government would be ready to publish a Brexit plan.
  • Philip Hammond, Chancellor of the Exchequor, says post-Brexit transitional deal will be needed: Philip Hammond appeared in front of the Treasury Committee and claimed that businesses, civil servants and “thoughtful politicians” all agreed on the issue that it would take longer than two years to complete Brexit negotiations and therefore there is a need for a transitional deal to help smooth the Brexit process. Chief negotiator Guy Verhofstadt has said that any transition deal would have a strict time limit.
  • Ken Clarke warns May over future if she backs ‘hard Brexit’: Former Chancellor, and most Europhile Conservative MP, has suggested that Theresa May might not “survive” as prime minister if she sides with “hard Brexit” MPs. Mr Clarke told BBC One’s Sunday Politics that only a “minority” in the Commons think that we should simply the leave the EU he said: “It would be pretty catastrophic if that’s all we were going to do – if we turn up and face 27 other nation states in the biggest free market in the world and tell them we’re just pulling out.”
  • Call for ‘unilateral’ Brexit guarantee for EU citizens: The UK has a “moral” duty to guarantee the status of EU nationals living in the country ahead of negotiations over its exit, the House of Lords EU committee has said. The report said failure to do this would have a severe impact on migrants rights. Chair of the Committee Helena Kennedy QC advises EU nationals in Britain to make a file of documents to prove that they have lived in the country before the EU referendum. Ministers say they expect this to happen but need equivalent guarantees for UK citizens on the Continent.
  • EU nationals ‘want guarantee they can stay in UK’: European nationals in the UK and British citizens living in the EU must have guarantee they can remain in place after Brexit, campaigners say. The Three Million group is demanding assurances people will not be used as “bargaining chips”.
  • Brexit talks to include plan for UK nationals to keep EU citizenship: European Parliament’s chief negotiator Guy Verhofstadt says associate citizenship would be ‘on the table’ for talks over Britain’s withdrawal from EU. The idea came from Luxembourg’s Liberal MEP Charles Goerens, who proposed giving British citizens the right to live and work on the continent after Brexit, in exchange for an annual membership fee.
  • House of Lords: Britain should strike deal with Ireland: The House of Lords’ EU committee recommended in a report released on Monday that the government should negotiate a bilateral agreement with Ireland ahead of the formal Brexit negotiations with the European Union. The in-depth report analysed the main problems facing the North and South of Ireland and gave recommendations on how to counter the potential risks of Brexit. See article below.
  • The Minister-President of Flanders, Geert Bourgeois, not only wants a free trade agreement, but also a "plus agreement" between the European Union and the UK after the Brexit: He said this after a round table discussion including the Flemish ports, universities, business associations UNIZO and Voka, industry federations Agoria, FEVIA, Fedustria and the Farmers Union. "Flanders has an interest in that there would be no protectionism. This is extremely important for our prosperity. We live from exports," said Geert Bourgeois. It should be noted that the Flemish government has no direct competence in the negotiation which is done on the federal level in Belgium.
  • Paolo Gentiloni, Italy's Foreign Minister to become Prime Minister following Referendum: Mr Gentiloni has been asked by the Italian President to over as PM following Matteo Renzi's resignation. This was after opposition parties failed to agree a coalition agreement. Gentiloni is viewed as a safe pair of hands to guide Italy through a brewing banking crisis ahead of early Parliamentary elections, which must be held by 2018 at the latest.
  • Gibraltar seeks special Brexit deal: Gibraltar wants a special deal with the European Union when Britain leaves the bloc, says Chief Minister Fabian Picardo. Mr Picardo said the territory will seek to preserve freedom of movement and access to the single market during negotiations but if such a deal came at the price of ceding sovereignty to Spain than they would opt for a “red, white and blue Brexit.”


Written by RPP Head of London Office, Andrew Brown

2 Results of the Brexit remain uncertain – but a new home will be needed for European institutions

London is by far the world’s financial capital for currency and bond trading. Big investment banks employ more than 50,000 people in the City to advise global investors and other financial centres in Europe, as well as the rest of the world. Europe could well benefit if clients reduce the amount of business they allocate to London because of high levels of political and legal uncertainty. Despite the recent decision of the UK to leave the European Union, it will certainly take some years until the impact of Brexit, e.g. the relocation of companies and employees, can be determined fully. Regardless of the final negotiated deal between the UK and the EU on their future relations, the city of Frankfurt, as the biggest financial hub of continental Europe, could benefit from Brexit. All major global and investment banks have a very strong presence in Frankfurt. In addition to the European Central Bank (ECB) and the German Central Bank (Deutsche Bundesbank), the national financial regulator (Federal Financial Supervisory Authority: “BaFin”) is located in Frankfurt. Frankfurt is also already home to some of Europe’s key financial regulatory institutions: the European Systemic Risk Board (ESRB) and the European Insurance and Occupational Pensions Authority (EIOPA).

Even in Brussels, various stakeholders have been raising the issue of clustering Europe’s supervisory structure in Frankfurt, which could make sense from an economic as well as from a political viewpoint. Moving the headquarters of the European Banking Authority (EBA), with about 150 employees, from London to Frankfurt might make sense, following the argument for establishing some kind of a “EU – Supervisory ECFIN cluster”. In any case, the bulk of potential job relocations is not likely to take place in the public sector but rather in the private sector, mainly in the financial industry, and here Frankfurt is also competing with European and non-European cities.

There are other major European institutions which will most likely move away from London, such as the European Bank for Reconstructions and Development (EBRD) with about 1400 staff and the European Medicines Agency with roughly 900 employees. It is said, that the EBRD could possibly relocate to join one of its stakeholders in Luxembourg – the European Investment Bank (EIB). Both banks have similar tasks as well as employees with similar training profiles. However, given the current political divergences regarding the regular balancing of political and economic interests between the Member States of the EU, the headquarters of these institutions could also be moved to southern or eastern Europe.

As a representative of the Frankfurt city council has put it: “The harder the Brexit will get, the more immigrants and employees will leave the UK and a considerable number of these people will come to Frankfurt. As this city can offer a range of structural advantages, such as low rents and residential property prices, a good infrastructure and a highly dynamic economy. We can be sure that Frankfurt will end up with a nice piece of the Brexit pie”, we were told.

More than 40,000 EU residents of employment age and over 50,000 Germans were living in London in 2015. How these expats will react, will be a good seismograph for UK policy makers, measuring the intensity of the Brexit on the one hand, and the after-effects on the other …

*Next week we will take a look at the potential impact of Brexit on the City of London's position as a financial centre from another perspective*


Written by RPP Senior Director Advocacy and Policy, Thomas Krings

House of Lords “Brexit: UK-Irish Relations” Report

This week the House of Lords European Union Committee has released their report on UK-Irish relations, now Britain has decided to leave the European Union. The impact that Brexit will have on Ireland strongly outweigh the impact for Member States on the Continent. The report urges that the UK Government and the EU recognise Ireland’s unique situation and allow a draft bilateral agreement between the UK and Ireland to be made prior to negotiations in Brussels. The House of Lord’s report offers an in-depth analysis of the potential problems facing Ireland and outlines what policies should be included in a bilateral agreement that can safeguard Ireland from the consequences of Brexit.

Arguably no other part of the UK is as dependent on EU membership as Northern Ireland. The common membership between the North and Republic of Ireland has created an interdependent economic, political and social relationship between the two, and if Brexit causes this relationship to break down the consequences could be severe.

The huge amount of cross-border cooperation has built an all-island economy for both countries, something the Committee are concerned the UK Government do not understand. The biggest damage will come if any kind of tariffs or trading barriers come between the two nations, particularly to the agri-food and manufacturing sectors. The report states that the free movement of goods and people across the border are essential to the peace and prosperity of Ireland, it is something which should come into debate more when discussing membership of the customs union. It should however be noted that due to the complex history of Anglo-Irish relations, and specifically the United Kingdom’s Ireland Act 1949, Irish citizens are not treated as “aliens” and have the same rights as commonwealth countries.

Linked to the customs union is the issue of the land border, any kind of tariffs equate to customs controls at the border, the visibility of this could have severe political consequences particularly in the context of Nationalists in the North. The common EU membership was an essential part of the peace process in Northern Ireland, psychologically common membership was vital for nationalists as it enabled a sharing of identity with citizens in the Republic, if Brexit removes this and there is the feeling of any type of border between the two regions, the fragile peace in Northern Ireland could be in jeopardy. Joint to this, the House of Lords stress the importance of maintaining reciprocal rights for UK and Irish citizens, the 1998 Good Friday Agreement gave the people of Northern Ireland the right to declare themselves as citizens of Ireland, Britain, or both. Now that Britain has left the EU the people of Northern Ireland will also receive EU citizenship. The UK Government must convince the EU to allow uncontrolled movement of UK citizens into the EU, via the Irish border or this crucial element of the Good Friday Agreement could be overturned. The House of Lords urge the UK government to devolve power to the Northern Ireland Executive and give them the authority to make their own decisions concerning freedom of movement in their jurisdiction, they believe this is necessary to maintain freedom of movement across Ireland.

These are just a few of the many issues addressed in the report, the reasoned suggestions the peers offer should be seriously considered by the Government. The report compliments the Irish Government for the steps they are taking to protect the North and Republic of Ireland and ensuring that the EU are aware of the unique situation in the island of Ireland. The peers seem confident that the EU will be open to a pre-negotiation bilateral agreement due to their continued financial and political investment into the Northern Ireland peace process. However, the report is clear that it is the UK Government that are responsible for finding solutions to the addressed issues. Neither the North (by a slim margin) nor the Republic wanted the UK to leave the European Union yet Brexit prevents more risks to the people of Ireland, than it does for any other Member State, including the UK nations on the other side of the Irish Sea. We must remember however that the largest party in Northern Ireland, the Democratic Unionist Party (DUP), which has a power sharing arrangement with Sinn Fein in the Northern Irish Assembly, is firmly Eurosceptic and strongly supports Brexit. As the DUP once replaced the Ulster Unionist Party (UUP) as the main unionist party in Ulster, it’s not inconceivable that Brexit could see a realignment in support for unionist parties and the UUP regain some seats.


Written by RPP Policy Researcher, Lucy Kerr