RPP Merkel’s Euro-Trip II

Overview

With many of the key players back from their summer vacations, Brexit is high on the list of many European politicians' priorities, as we have seen with Angela Merkel meeting so many of Europe's leaders this week (see below). Tensions within the UK Government continue over Brexit, Nicholas Sarkozy enters the French Presidential race with significant consequences for Brexit, and further mixed economic data comes out in the UK.

Highlights

  • Tensions between members of the UK Government, over which direction the UK should travel in with the Brexit negotiations, continue with Chancellor of the Exchequer, Philip Hammond reported as favouring the UK remaining in the single market in order to protect the City of London, as well as arguing that the Treasury should lead Brexit negotiations on the impact on the financial services sector. Tensions over the UK Government's plan to further cut Corporation Tax have also developed with the Swedish Prime Minister, Stefan Loefven, saying "lower corporate taxes considerably... will of course make discussions more difficult." This picture is complicated further by the European Commission's decision to fine Apple €13 Billion plus interest in unpaid taxes to the Irish Government, a move that is to be appealed by both Ireland and Apple. The UK Government has commented that Apple would be welcome to move its headquarters to the UK.
  • Nicolas Sarkozy announcing his entrance into the race to challenge for the French Presidential election next year has drawn attention to the question of immigration and the potential changes that could result to the Le Touquet Treaty between the UK and France over the process of managing the migrant camps in Calais. Whilst his statement has been quickly rejected by UK Home Secretary Amber Rudd, this does highlight one of the potential flash points for the Brexit negotiations. Meanwhile in the UK, figures for net migration estimates show it remains near record levels, at 327,000 for the year to March 2016, with people from Poland overtaking India as the most common non-UK country of birth for people living in the UK.
  • Consumer credit, rose £1.181bn last month, the weakest increase since August 2015, taking the annual growth down to 10.1pc from 10.3pc. That marked the first annual decline in consumer credit growth since December 2014. Mortgage approvals for house purchases fell to 60,912 last month from 64,152 in June, the lowest since January 2015. Figures from the Department for International Trade showed investment into the UK boomed last year with a record 2,213 British projects, including infrastructure developments, manufacturing plants and life sciences projects being backed by foreign firms.


Written by RPP Head of London Office, Andrew Brown

Angela Merkel’s approach towards Brexit

German Chancellor Angela Merkel (CDU) is currently travelling the European Union, as well as hosting meetings in Germany, to meet with 15 Head of States and find a common position on Brexit and the future of the EU. Her efforts take place ahead of an informal EU-Summit in Bratislava, Slovakia in mid-September. With the UK leaving the European Union, Germany’s position in the European Union and therefore Merkel’s central role has strengthened. It is ever more important to understand Merkel’s position on, and her approach towards, Brexit.

Using this dominant position, the German Chancellor has been trying to shape EU politics towards the UK in the last two months during various high-level meetings. Her approach builds on three basic principles.

First, Angela Merkel wants the EU to maintain close ties with the UK. Given the strong economic ties between Germany and the UK (see article “A German perspective – ‘It’s the economy, stupid’”) this seems straight forward. However, at the same time Merkel has to be careful not to set a precedent for other Member States, which consider leaving the EU. Hence, she rejects any form of cherry picking by London. Already in her first government statement following the referendum Merkel emphasized that there is no special treatment. If the UK wants to remain in the single market, the free movement of people is a crucial condition.

Second, Merkel is keen on finding a common position of European Member States. After a meeting with Theresa May in July, they announced that Brexit negotiations will start in 2017. This allows the EU to find a common denominator and set the agenda for the coming months. Referencing the meeting in Bratislava, Merkel said recently “We have to think about what our priorities are, how we want to continue our work and where we want to make an effort in particular.” However, negotiations must be concluded by 2019 the year of the next European Elections. Defining a common position allows the EU – and Germany as its central actor – to act out of a position of strength, rather than fragmentation. Merkel also wants to dissipate any impression that Berlin tries to impose its will on the rest of the EU.

Third, Merkel is convinced that Brexit does not imply the need for a stronger union between the rest of the Member States. This position is in contrast to representatives of the European Institution such as Jean-Claude Junker or Martin Schulz, who demanded a swift Brexit and a new push towards integration. In Germany the coalition partner SPD has criticized Merkel’s EU policies as too focused on austerity and the German Foreign Minister Walter Steinmeier proposed his own plan for “stronger” Europe. Merkel has been able to overrule the internal criticism based on her strong position within the ruling Christian Democratic Union (CDU). In Europe she is successfully building coalitions to overcome the resistance by European Institutions.

Overall, Merkel’s approach resembles her style of politics in Germany and Europe, which has been described a pragmatic and defined by caution and watchful waiting. In German politics, Merkel has been criticised by the opposition for delaying or even avoiding decision-making and hence loosing political momentums. At the same time, her political supporters admire her way of rational and fact-based decision making, which they say is rooted in her training as a physicist.

Merkel’s approach towards Brexit explains why the latest meetings also focused on the refugee crisis, security issues or youth employment, rather than Brexit directly.

Written by RPP Manager of Corporate Office Brussels, Daniel Fischer

A German perspective – “It’s the economy, stupid!”

The Spectator magazine, well in advance of the Brexit referendum, had suggested in a tongue in cheek manner: “Let us leave the EU and join Germany!” to form “an alliance with Germany, the economic powerhouse, the fourth strongest economy in the world… and with the UK the fifth, that would make a union between Germany and the UK a full-on superpower.”

In substantial terms, after Brexit, Germany will lose in the long run a partner on European level. Both countries have had a lot in common with regard to their political agendas, e.g.  free trade for services and goods and the “Single Market”. Keeping Britain in the EU, the German Chancellor told the German parliament, was therefore “not just in Britain’s but also in Germany’s interest, and that of Europe as a whole”.

The Anglo-German relationship is very different from the Franco-German partnership which had first and foremost a historical and geographical raison d’etre when it was created after the Second World War. Bearing in mind that the referendum with its result now more than two months ago, “things” seem to be “normal” again from an economic point of view, although British voters have given their country the toughest political challenge for decades. From a German point of view, many analysts have come to the view that the result has created huge insecurity. Some economists have warned that the stock market will continue to fall and that business investment will not be high on the agenda for a long period. A lot is also at stake for other European countries. More than 50% of the UK imports come from EU countries and more than 40% of “Made in the UK” goods and services have EU countries as their destination.

BMW produces the famous “Mini” car in Great Britain, so if the UK left the Single Market, “Mini” production would certainly continue in the UK, but BMW’s Pan-European supply chain would face severe challenges. The British are among the best customers for Audi, VW, BMW and Mercedes-Benz and new tariff barriers after the Brexit, if they’re introduced, would seriously harm the business of German car makers.

Against that backdrop, taking a look at the political landscape is interesting: From the German point of view, the USA, France and Great Britain are the three most important countries for exporting German goods. In two of these countries, populists with a rather protectionist agenda are on the rise and the third has just decided to leave the European Union.

The fourth destination for German exports is currently the Netherlands, although with a Liberal-led government, there are strong nationalist forces in the Parliament. Number five in the ranking is China where we witness stop-start reforms with uncertain results, followed by Austria in 6th and Italy in 7th place. Austria might well get a nationalist right-wing President and the Renzi government could well fall over a referendum regarding the Italian constitution with the potential rising of the populist Five-Star movement as a consequence, not to mention the challenges facing the Italian economy. And last but not least, Poland, where a populist right wing government is in power. So while Donald Trump and Marine Le Pen are still longshots to lead their countries, popular nationalism could pull mainstream leaders to the right in other European countries.

More than half of German exports go to these countries mentioned above. But given these circumstances: no wonder investors are rather “timid” for the time being.

 

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

The Importance of European Scientific Funding and Collaboration

Just over a month ago, one of my colleagues, James Kennedy, wrote a piece for our Brexit newsletter outlining the significant concerns that many in the scientific community were experiencing with regard to Horizon 2020 funding following the EU referendum result. This issue has been covered in the British media as well.

In this opinion piece, I’m going to add some of my thoughts as to why it is crucial that scientific funding in the UK is protected following Brexit, and as importantly, if not more so, collaboration between the UK’s scientific institutions and those in Europe are maintained.

My first role after my Healthcare Management MSc, was to join a research team at the Faculty of Medicine at Imperial College. My work was an extension of a smaller piece of research I carried out for my thesis, and involved working on a project for the Global Fund for Aids, Tuberculosis and Malaria. In that team I worked with colleagues from Slovenia, Finland and Nigeria, showing the multi-national nature of our scientific institutions.  The trend for the globalisation of science, is something that will continue apace irrespective of Brexit, and is something that the UK’s settlement with the EU must take account of. 

More recently, I have done some healthcare communications work on rare diseases, including rare cancers. Such conditions, especially very rare diseases, have so few people who suffer from them, that the only way that research can be carried out, and new treatments found and tested, is to study patients from across continents if not across the world. Whilst the number of people suffering from each individual rare disease is obviously small, added together the numbers affected by all rare diseases is very significant and huge challenge for medicine and our clinical researchers.

So what does Brexit mean for scientific and healthcare research?

Brexit could mean less funding for science in the UK. If the British Government does not guarantee to match existing and future research funding streams. Research funding could be reduced if the pharmaceutical industry, and other research intensive sectors, move their research facilities out of the UK.

Brexit could mean less collaboration between UK institutions and those in Europe. This is not a black and white issue however. The Horizon 2020 scheme is open to non-EU members, as long as they contribute financially. In fact, the European Research Area, put in place by the 2007 Treaty of Lisbon, states as its aim to “achieve a unified research area open to the world”. But if we are to have access to Horizon 2020, and its successors, there will be rules that the UK will have to follow beyond financial contributions, such as the freedom of movement for scientific researchers.

Freedom of movement, or freedom of labour, are clearly going to be important discussion topics in the future Brexit negotiations. During the referendum campaign, whilst those advocating the UK leaving the EU emphasised that they didn’t wish to stop migration to the UK, rather control it, and that people with important skills such as clinicians, or scientists would still be welcome in the UK under a new immigration system. That doesn’t mean however that the best clinicians and scientists would still want to move to the UK following Brexit. Only time will tell.

Access to international research infrastructure is also important, whether that is tissue banks for medical research, observatories, radiation sources, data banks, or even the CERN Large Hadron Collider (appreciate that only half of the collider is under the EU, the other half under Switzerland). Barriers for scientists to access these resources across Europe and beyond would be a terrible outcome post Brexit if it were to occur.

It’s also important to recognise that the reason the UK does proportionally better from the Horizon 2020 funding scheme, is that it has such a large number of high quality universities and research institutions, with highly trained scientists, supported by important research infrastructure, not to mention the English language – the language of Science – which allows British scientists to collaborate globally with ease and often be leaders in their respective fields.

All sides will lose if Brexit results in less scientific funding and less scientific collaboration, but these negative outcomes are not written in stone. All the above scenarios are choices that the UK Government, the EU and European Governments will have to decide and negotiate on. It is crucial that the scientific community across Europe argues for the right decisions to be made.

Written by RPP Head of London Office, Andrew Brown