Vulcan Consulting –
Brussels deals blow to UK’s post-Brexit trade vision
The European Commission has delivered a firm rebuff to London’s expectations for its future trade relationship with the EU, indicating that a Canada-style trade agreement is the only option available. The British Prime Minister had outlined her vision of an ‘’ambitious but practical’’ relationship with the EU in her Mansion House speech last week. In it, Ms. May acknowledged that the UK would enjoy less access to the EU market as it exited the customs union and single market, but added that London could continue to follow some EU regulations depending on the sector.
Immediately after her speech, European Council President Donald Tusk circulated draft guidelines for future trade talks. The text directs EU negotiators to pursue a minimalist trade agreement with limited arrangements for regulatory co-operation. Critically for London, it makes no mention whatsoever of the financial services sector.
The UK Chancellor Philip Hammond warned the EU that a deal that would restrict the City of London would hurt all sides but Brussels is adamant that the deal outlines is the result of the red lines set down by the UK. While the draft guidelines set out a minimal future trading relationship, they leave the door open for further progress by stating that the EU ‘’will be prepared to reconsider its offer’’.
Known as the ‘’evolution clause’’ by officials in Brussels, it is hoped that it will entice London to reconsider its entrenched position and drop some of its red lines. Its inclusion is significant given that the opposition Labour party has shifted its position on a customs union and Ms. May faces increasing pressure from some pro-EU rebels within her own party. Although they are a first draft, the EU guidelines are expected to be adopted at a summit later this month and while Brussels maintains that it wants a relationship ‘’as close as possible’’, it falls to the UK to decide whether such a future can be achieved.
Calls for Monetary Union reform from eight finance ministers
Finance ministers from eight Northern European countries released a joint statement this week outlining their unified commitment to greater reform of the European Monetary Union (EMU). Outlined in a two-page document, ministers from Denmark, Estonia, Finland, Ireland, Latvia, Lithuania, the Netherlands and Sweden, made calls for more inclusive discussions among the EU27, and not just by those in the eurozone, on the future architecture of the European Monetary Union (EMU).
The joint statement includes a number of proposals, above all that any discussions should be carries out on an collective basis as ‘’the future of the EMU is relevant to all’’, but that any new initiatives regarding the monetary union must be implemented in non-eurozone countries on a voluntary basis on equivalent terms. The statement continues by adding that in order to achieve a strong EMU, then national governments must comply with the common rules such as the Stability and Growth Pact, something that many member states have had trouble with.
With regard to future reform, the finance ministers believe priority should be given to the completion of the banking union and turning the European Stability Mechanism into a European Monetary Fund (EMF), rather than ‘’far-reaching transfers of competence to the European level’’. It goes on to add that discussions should continue around the Single Resolution Framework (SRF) and the European Deposit Insurance Scheme (EDIS), while any form of decision making should remain firmly in the hands of the member states.
As a working German coalition government looks to be finally agreed upon, the timing of this unified position is significant. With Paris and Berlin planning to discuss a Franco-German deal on the EMU in a few weeks’ time, this joint statement from the dubbed ‘’new Hanseatic League’’ looks set to entrench key differences among member states ahead of a euro summit in June.
Trump’s tariffs triggers fear of trade war
In a ceremony yesterday afternoon in the White House, US President Donald Trump formally implemented new tariffs on steel and aluminium products, provoking strong reactions from its trading allies such as the EU and China. In the days leading up to the adoption of the new protectionist measures, Brussels undertook intensive lobbying but will today decide whether or not to react in kind with a package of counter tariffs on US imports.
Canada and Mexico, two of the States’ closest trading partners and both part of the North American Free Trade Agreement (NAFTA), will receive some form of exemption while others like the EU will face the full brunt of the barriers. Although it was reluctant to do so, Brussels had plans in motion to implement new tariffs on US products such as whisky and motorcycles. Criticizing Washington’s move, European Council president Donald Tusk was adamant that the bloc favoured free trade as ‘’trade wars are bad and easy to lose’’.
Brussels has been in full lobbying mode ever since the reported plans were known, pressing key officials in Washington and meeting with trade representatives from other countries to discuss how best to react in a collective manner. Although the White House’s initial plans have been somewhat diluted after firm condemnation from trading partners and even opposition within Trump’s own Republican Party, the departure of the free-trade advocate Gary Cohn this week from the Washington paints a gloomy picture for the future of trade policy in the US Administration.
Populist surge as general election produces political stalemate
The Italian electorate dealt a blow to the country’s established parties in last weekend’s general election, with huge numbers of disgruntled voters favouring radical Eurosceptic parties. The current governing centre-left Democratic Party (PD) suffered a defeat, slipping to second in the polls with a score of just over 18%, while the relatively new Five Star Movement (5SM) topped the polls with 32% of the vote.
While Five Star came out on top, it was the centre right coalition of the Northern League, Forza Italia and Brothers of Italy, receiving the majority of seats with 37%. Despite the strong electoral gains of both Five Star and the right-wing coalition, both sides are shy of the numbers required to have an absolute majority and therefore form a government. This indecisive result has led to a hung parliament that will create weeks and possibly months of complex coalition talks between the opposing parties.
It falls now to Italy’s president, Sergio Mattarella, to mediate talks in the hope of forming a new government. With Five Star and the Northern League, who scored highest in the centre-right coalition, both vying for an attempt to form a government, it will require careful political manoeuvring by the president. Although they could both be key playmakers, the League and Five Star refuse to enter any kind of talks with one another, leaving numerous potential outcomes on the cards.
A likely outcome could be a left-wing alliance between the PDs and Five Star. Although former PD leader Matteo Renzi resigned after his party’s dismal performance, reports indicate that he will block such a formation from happening. If Five Star are unable to entice the PDs, it could fall to the right-wing coalition to shore up enough support for a possible coalition. While it could be months before any government is in place, the populist swing in Italy leaves one of the EU’s largest members in political limbo.
SPD Members back another grand coalition government
The political impasse that has stalled Berlin looks likely to come to a close after two-thirds of the centre-left Social Democrats (SPD) voted in favour of re-entering a coalition government with their previous partners the conservative CDU-CSU bloc. After months of negotiations between various potential coalition partners, Chancellor Angela Merkel looks set to begin her fourth term in office as leader of the country.
Last weekend’s approval by the SPD was greeted warmly throughout the EU, with French president Emmanuel Macron calling it ‘’good news for Europe’’. All eyes in Berlin will now turn to potential successors for the chancellor. Leading favourites include Annegret Kramp-Karrenbauer who was elected secretary general of the CDU last month, as well as Jens Spahn, the newly appointed health minister.
Dates ahead: Monday 12th March – Sunday 18th March
Mon 12th – Thurs 15th: European Parliament Plenary Session
Monday 12th: Eurogroup meeting
Tuesday 13th: ECOFIN meeting
Saturday 17th: St. Patrick’s Day
Tuesday 20th: EU General Affairs Council Meeting
Tues 20th & Wed 21st: US Federal Reserve Open Market Committee meeting
Wednesday 21st: ECB non-monetary policy committee meeting
Thursday 26th: Bank of England Monetary Policy Committee meeting
Thurs 26th & Fri 27th: European Council Summit
Compliments of Vulcan Consulting, a member of the EACC in New York.