RPP May’s Vision of Brexit

Overview

The Conservative Party Conference started yesterday with a Brexit Big Bang. The Prime Minister announced that she will trigger Article 50 by March 2017, introduce to Parliament a Great Repeal Bill to remove the European Communities Act from the statute book and that the UK will control immigration. All of this resulted in ecstatic praise from Brexit supporting commentators and furious disapproval from those opposed to Brexit or a "hard Brexit". For the full text of Theresa May's speech click here. Last week at Labour Party Conference, whilst Brexit wasn't debated, it was mentioned by Jeremy Corbyn in his speech that the Labour Party would respect the "votes and the decision of the British people" but will "resist a Brexit at the expense of workers’ rights and social justice we have set out our red lines on employment, environmental and social protection and on access to the European market". He also announced that there wouldn't be an upper limit on migration from the EU, rather a future Labour Government if elected would reinstate the "migration impact fund".

Highlights

  • From a French perspective, Philip Cordery MP, who represents the fourth constituency for French residents overseas, including Belgium, the Netherlands and Luxembourg and is in charge of European affairs in the French Socialist Party of French president Francois Hollande, said that "nearly all of the EU's member states could follow Britain and vote to pull out of the union", but that David Cameron was irresponsible to hold the referendum and that no other leaders would do so. Meanwhile, former French President Nicholas Sarkozy, who wishes to be the Republicans candidate in next year's French Presidential election, announced that if he was re-elected would negotiate a new European treaty with Germany, that would address many of the concerns that people hold about the EU, and would use that to try to keep the UK within the EU, saying that “I would tell the British, you’ve gone out, but we have a new treaty on the table so you have an opportunity to vote again.”
  • There continues to be differing opinions within Germany over the UK's future relationship with the UK. Mathias Döpfner, Chief Executive of media company Axel Springer, said that he believed that the "UK will thrive outside the European Union as the bloc turns inward", and that "Brexit will see the UK embrace a truly free market, while the EU becomes a ‘transfer union". Meanwhile, Markus Kerber, head of the BDI, Germany's largest business group, dismissed claims that German companies would not tolerate trade tariffs after Britain leaves, saying that "Germany’s relations with the rest of the bloc were more important", and that the level of “political ill-will against Britain on the continent was much, much bigger than economic rationality”.
  • The European migrant issue continues to be an important factor in the wider context of Brexit discussions and pre-negotiations. In Hungary a referendum on the mandatory EU migrant quote saw nearly 98% of those who took part supporting the government's call to reject the EU plan. However only 43% of the electorate voted, short of the 50% required to make the vote legally binding.


Written by RPP Head of London Office, Andrew Brown

ECB President Draghi questioned by EP ECON Committee on “Brexit”

European Central Bank President Mario Draghi has just presented the ECB’s perspective on economic and monetary developments, in particular the aftermath of the 23 June Brexit referendum, to the Economic and Monetary Affairs Committee of the European Parliament. The ECB President, reports to the European Parliament on monetary issues within the framework of a quarterly monetary dialogue. The European Central Bank (ECB) is the central institution of the Economic and Monetary Union and has been responsible for conducting monetary policy for the euro area since 1 January 1999. The ECB and the national central banks of all EU Member States constitute the European System of Central Banks.

Leading MEPS of the ECON Committee had specifically demanded to discuss the “Brexit file” during this third monetary dialogue meeting this year.

Looking back at the effects of the Brexit vote on the economic and financial markets, Draghi has drawn the conclusion that after the initial short-term reaction of the markets, such as equity price falls, the reaction has largely reversed. He emphasized that both, the Bank of England and the ECB were well prepared for the result and that the European economy has been very resilient when answering a question of German EPP MEP Balz who was referring to a recently published ECB report regarding the latest growth prospects. The ECB President also stated that the consequences of the Brexit process will depend mainly on “timing, developments and the outcome of the negotiations for the future relationship between the EU and the UK. He emphasised in particular the aspect of timing and said that, while referring to the result of the Brexit talks between the EU and the UK, a long period of uncertainty could be an issue and could hamper growth as a long-term effect. In that context, President Draghi pointed out that it is of upmost importance that “the integrity of the Single Market is respected. All participants should be subject to the same rules.” This remark sparked a question by French Liberal MEP Sylvie Goulard who made reference to price stability as being a key objective of the ECB mandate and asked Draghi if the aspect of law enforcement is also part of his concept of integrity (of the Single Market). Marco Draghi replied by mentioning the four freedoms (people, goods, service and capital) and that these freedoms go together with one another and have therefore to be enforced when needed.

Irish GUE MEP Matt Carthy criticised the ECB for having a rather “See and Watch Approach” regarding the Brexit.

The ECB will certainly have an important role to play in the guiding the different components of the EU during the Brexit negotiations. The question is however, will other events such as those affecting the German banking system currently, or the potential fallout from the upcoming Italian Constitutional Referendum, take over?

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

Italian Constitutional Referendum – The potential impact of Brexit

Following the British citizens’ decision to leave the EU, Italy prepares for the constitutional referendum to be held on 4th December. The outcome of this polling will not just have direct effects on the institutional panorama of the country. It could also, in the case of a “no” result, trigger a Government crisis which will weaken the Partito Democratico (Democratic Party, PD) and strengthen Eurosceptic parties such as the 5 Star Movement (5SM) and the Northern League. A “no” vote would also be in favour of small political parties inside the Majority like New Centre-Right (Nuovo Centrodestra, NCD).

In case of a positive outcome of the referendum, the Constitutional reform approved on April 16 by the Italian Parliament will be implemented. It means that -after 68 years- the so called “perfect bicameralism”, which sees the two Chambers of the Parliament having equal powers will be removed. This characteristic of the Italian system is generally regarded to be more an obstacle to governability rather than an institutional mechanism for balance of power. In the new system the ordinary legislative process remains with the Chamber of Deputies; the Senate will maintain its legislative role only in specific cases such as Constitutional laws. In addition, the new Constitution reduces the member of the Senate (from 320 to 100) and changes its composition. It will be formed by 95 mayors and regional councilors indirectly elected by Regional assemblies and 5 Senators appointed by the President of the Republic.

Another characteristic of the reform is the reshaping of the competences attributed to the Regions in favour of the Federal State. Moreover, a “supremacy clause” is introduced, giving to the Federal State the power to legislate in areas attributed to the Regions in order to preserve the economic and juridical unity of the Republic or in case of “national interest” (art. 117 Cost.). These modifications, if interpreted in an extensive way, could be a useful instrument to put an end to the inequality of health services between the North and the South of the Peninsula.

The reform has triggered a frank & robust national debate, with Renzi’s Government on the defensive thanks to the difficult political environment caused by the rise of the opposition and the failure of the Democratic Party to perform well in the local elections held in June 2016. These elections have seen the 5SM prevail in major cities such as Turin and Rome. During the summer Renzi advocated strongly for a ‘yes’ vote, even announcing his resignation in case of failure. However, during the last weeks – with the risk of failure seeming ever more likely - he has done an about-face. The 5SM, which is the party to gain from a negative result of the referendum, is aligned with the “no” front. Even the former premier Massimo D’Alema (PD) has joined the opponents of the reform. He started his own campaign against the referendum. On the “yes” front, MP Federico Gelli, responsible for health of the Democratic Party, has inaugurated the ‘“Yes for a Healthy Italy’” campaign. The campaign stresses how strengthening the Federal competences will result in a more homogeneous and efficient national health-care system.

Considering the current weakness of the government, a “no” result could determine the resignation of Renzi and new national elections with the Eurosceptic 5SM as a plausible winner. This will surely constitute a dark scenario not only for Italy but for the Eurozone in general. However, it is not warranted that in this eventuality the 5SM will push for an “Itexit” (Italian Exit from the EU) referendum. As a matter of fact, Luigi di Maio, one of the heads of the 5SM, seems to have moderated its position towards this option. The Brexit result, even if hailed by Eurosceptics, has shocked the majority of Italians. This could cause the 5 Star Movement to moderate its position in order to broaden its electoral appeal. Even if Brexit has strengthened the Eurosceptic position in Italy, the country will not necessarily rush towards a similar result. Italy is not the UK, and the electors know that. The Peninsula is more traditionally and economically anchored to the European Union, and the fear of economic meltdown could prevent “Itexit”.

Written by RPP Director Italy, Bendetta Sica

Going It Alone: the UK and Brexit.

One of the agencies that has not been covered in detail in the Brexit Newsletter has been the World Trade Organisation (WTO). This is the organisation which deals with the global rules of trade between nations, with its main function being to ensure that trade flows ‘smoothly, predictably and as freely as possible’. One of the first steps for a UK free of Membership of the EU to take would be for it to apply for a full Membership of the WHO. An independent WTO membership would be one of the first truly visible signs of a Brexit Britain sending out the message that it is open for business and ‘going it alone’. Perhaps more significantly, discussions between the UK and the WTO may give an indication as to whether the UK will pursue a so-called ‘hard Brexit’ or not.

The WTO is also important in the current debate about what should be the UK Government’s next steps before it decides to trigger Article 50 of the Lisbon Treaty. This is why Liam Fox MP, the Secretary of State for International Trade, spoke on the WTO in Manchester on the 29th September in a speech designed to set out some of the ideas which the UK Government is currently working on in relation to this organisation and to speak of his ‘vision’ for free trade in the coming years. Dr Fox has also met with the WTO Director General, Roberto Azevedo, this week with regards to establishing a distinct UK dialogue on trade with WTO Members.

The WTO is run by its Member Governments, which includes the EU as a single entity since the 1st January, 1995, when the WTO was established. The 28 EU Member States still also have single Membership in their own right also. However, in most WTO meetings, the European Commission – the EU’s Executive Arm - speaks for all EU Member States. The organisation meets at least once every two years, has a budget of around 196 million Swiss Francs and has responsibilities that include administering WTO trade agreements, being a forum for trade negotiations, handling trade disputes, monitoring national trade policies, technical assistance and training for developing countries. There is also a development side to the WTO’s remit in that its agreements contain special provision for developing countries and it also has regular dialogue with non-Governmental organisations.

A key part of Liam Fox MP’s speech was that free trade had transformed the world for the better and that Brexit had opened up opportunities for the UK to forge a new role for itself in the world – a so-called “post-geography trading world”, as the Secretary of State put it. “I believe that the UK is in a prime position to become a world leader in free trade’, he said, concluding that ‘we are leaving the EU, we are not leaving Europe and we are ready to take our place in an open, liberal and competitive globalised trading environment”.

However, beyond the speech, the UK Government has also been putting out information into the public domain about how the EU has a large surplus in the trading of goods with the UK, suggesting that full Membership of WTO should not include a situation where the UK would end up in a new trade tariff environment with the EU would damage the other Member States as much as the post-Brexit UK. The UK also exported £134 billion worth of goods to the EU and imported £223 billion worth. This release of selective information could be seen as a simplistic approach by some though as the EU will negotiate as a bloc, with some Member States less concerned about UK bound trade than others.

In regards to the triggering of Article 50, expected to happen in early 2017, there is a link here to further dialogue with the WTO as informal talks could be expected to happen shortly after that trigger, between the UK and the organisation, not least on the issue of when a formal full WTO Membership application could take place. During this time the UK might also seek to discuss, on an informal basis, possible trade deals with other countries, including the USA, China and India. As such, the WTO looks set to become a much more significant topic of conversation in Brexit discussions in the weeks and months ahead, and will have an important role to play, along with the UK and the EU, to ensure that current populist opinions on protectionism are resisted, and that free trade is championed, and flourishes.

Written by RPP Director of Policy & Advocacy UK, Mark Walker