Vulcan Consulting –
Key News in Europe this week
London rejects EU draft Brexit withdrawal agreement
The British government has unsurprisingly rebuffed the first draft of Brussels’ Brexit withdrawal agreement, stating that it could never sign up to a text that would threaten the constitutional integrity of the UK. The 120-page document produced by Brussels was the EU’s first attempt at drafting legal language that would encompass the December political agreement reached with the UK.
The most provocative articles of the text deal with the complex issue of Northern Ireland. London had committed in December’s Brexit deal that there would be no re-emergence of a hard border and Brussels has grown increasingly frustrated with the UK due to a lack of practical proposals to bring this about. As a result, the draft text makes clear that in order to maintain ‘’full regulatory alignment’’ on the island of Ireland, Northern Ireland would remain in the customs union and continue to effectively be bound by the EU’s regulatory and legal order.
The draft agreement also suggests that the UK would continue to be under the legal authority by the European Court of Justice and any disputes that arise will be adjudicated by the Luxembourg-based court. The 31st of December 2020 will be the final day of the transition period and during this period the UK would lose all decision making rights.
Hard-line Brexiters and members of the Northern Ireland DUP lashed out the agreement, with one British government source alleging that the EU ‘’is in serious danger of ripping up the [phase 1] joint report’’. Such a response was not surprising to officials within the European Commission however, as they knew the controversial elements would produce a strong backlash. It was their hope all along that the paper would in fact lead to London making some of their own concrete proposals.
May faces opposition and rebel pressure over customs union position
Downing Street has been warned that ‘’crunch time is coming’’ after the opposition Labour party set out its official party position for keeping the UK in a customs union with the EU. Up until now, Labour has had an ambiguous stance on Brexit with the party leader Jeremy Corbyn traditionally having held anti-EU views. Clarity was provided this week however, when Mr. Corbyn confirmed in a speech that he backed the UK being part of a permanent customs union with the EU.
Although Labour’s u-turn may provoke backlash from some of its supporters from regions that firmly backed Brexit, it brings about further pressure on the Prime Minister who has made clear that her government will exit the EU customs union and its single market. Ms. May already faces trouble from within her own party with Tory rebels tabling amendments to the government’s trade legislation that would keep the UK in a customs union with the EU.
The proposed amendments have received strong vocal support from Labour and its leader. With the ruling Conservative party propped up by 10 DUP members, the amendment to the bill has a real chance of being passed if enough pro-EU Tories and opposition party members join forces. Fearing that the government could lose the vote, it is likely that ministers will delay the Commons vote on the customs union for up to two months.
Brussels raises plans for digital tax of up to 5% gross revenue
The divisive issue of an EU wide digital tax has been raised once again by the European Commission as several reports indicate that Brussels wants to introduce a new common tax rate that would hit the revenues of technology companies based on where their users are located rather than where their headquarters are set up. This latest draft Commission document would set the common rate of tax at somewhere between 1 and 5 percent.
The 12-page proposal outlines that the digital tax rate would be applied to any technology company that has worldwide revenues of above €750m and also EU digital raised revenues of over €10m a year. Such measures would hit the largest US-tech firms such as Google and Amazon which have long been accused by both Brussels and specific EU members of paying far too little by re-routing their profits raised across the bloc to low-tax countries such as Ireland.
Although the proposal will undergo some changes between now and its expected publication date in late March, the early sounds of the plan will provoke disputes between member states. As this latest document resembles a French initiative that proposed equalisation tax, Paris and other larger member states such as Germany and Italy will give their backing to it, setting up a showdown with their smaller and more liberal member states.
Brussels cracks down on Social Media terror content
The European Commission will continue to ramp up the pressure on social media firms by introducing legislation that will force the companies to take down terror content within a tight timeframe. Brussels published guidelines yesterday which will require companies such as Facebook and Twitter to remove terrorist-related material from their platform within one hour of being alerted to it.
With various European cities targeted by terrorist attacks in recent years, the EU has sought to ensure that dangerous propaganda is removed from the internet without delay. Speaking at the launch of the guidelines, the vice president of the Commission, Andrus Ansip, made it clear that there is an urgent need to act quickly on online terrorist material which acts as a ‘’serious threat to our citizens’ security, safety and fundamental rights’’.
Aware of the growing criticism directed towards them, social media companies have been undertaking large scale recruitment of staff to monitor their platforms. Even with the increased numbers, the companies will struggle to meet with the proposed one-hour deadline. Brussels will now review the guidelines over the coming months and if they feel that the social media companies are still failing to act then the strict legislation could come into force by May of this year.
Tightly contested election looms as electorate heads to the polls
Financial markets are keenly watching Italy this weekend as the public cast their votes in one of the most unpredictable general elections in years, that could have widespread ramifications across the EU. Sunday’s vote will be the latest test of Europe’s populist insurgency and with no single party set to secure a majority. Various mainstream and newly-established parties are vying to top the polls in a bid to be principal contenders in any coalition negotiations.
Current indicators show the populist Five Star Movement (M5S) leading the polls on 28% and the current centre-left incumbents the Democratic Party (PD) trailing slightly behind at just under 23%. Although polling at lower levels, it is Silvio Berlusconi’s Forza Italia (FI) party that looks to be the main playmakers in any government formation, as it leads the centre-right coalition of the Northern League (LN) and Brothers of Italy (FdI) which is predicted to cumulatively win the most seats.
With Italy at the forefront of the migration crisis facing Europe, the issue of immigration and the lack of support from the rest of the EU dominates the agenda.
Italy has some of the highest anti-EU sentiment across the bloc and their support for the single currency is the lowest in the eurozone. While the country’s parties have toned down their rhetoric and dropped their pledge to abandon the currency, Italy is still widely seen as a risk to the euro. Its growth levels remain the weakest across the single currency zone and many parties have promised unrealistic proposals, pledging to renegotiate various EU fiscal rules. With just days to go and almost a third of the electorate still yet undecided, eyes across the EU will be watching closely.
Dates ahead: Monday 5th March – Sunday 11th March
Mon 5th & Tues 6th: Basel Committee on Banking Supervision
Thursday 8th: ECB Monetary Policy Meeting
Friday 9th: Opening ceremony of the Winter Paralympics 2018, PyeongChang South Korea
Mon 12th – Thurs 15th: European Parliament Plenary Session
Monday 12th: Eurogroup meeting
Tuesday 13th: ECOFIN meeting
Saturday 17th: St. Patrick’s Day
Compliments of Vulcan Consulting – a member of the EACC in New York