Member News

The weekly Vulcan View for the 23rd to the 27th of July featuring analysis of the latest EU developments

VULCAN VIEW – KEY EVENTS THIS WEEK:

BREXIT
 
May to seize control of Brexit negotiations as clock ticks down
British Prime Minister Theresa May has announced that she will personally take charge of the UK’s Brexit negotiations, in a move that has been described as a “sidelining” of the new Brexit secretary Dominic Raab. The department for Exiting the EU will now be primarily focused on domestic preparations for the impending exit. Approximately 50 Brexit staff will be moved into the Cabinet Office, allowing negotiations to be directed solely by the prime minister. Evidently Ms. May hopes this change will put an end to the conflicting messages and internal conflict that have dominated her Government’s approach to the Brexit process.
 
This development means that is likely that Ms. May’s chief Europe advisor, Olly Robins, will play a more significant role during the final phase of negotiations with Brussels. Mr Raab meanwhile has stated that he had agreed to the new structure upon taking his position, and gave his support, saying: “There will be one team and one chain of command.” Tuesday of this week saw both Mr. Robins and the new Brexit minister provide testimony to the House of Commons on the progress of Brexit, where Mr Raab declared that he believes the UK could “thrive” in the event of a “no deal” exit.
 
The new Brexit Secretary has made it clear that he will be pushing for a tough line in negotiations, and that preparations for no deal are being made. However, a new white paper released on Tuesday suggests that EU laws could continue to be applied in the UK during an “implementation period” from March 31st 2019 until December 2020.
 
 
US EU RELATIONS  
 
Brief breakthrough reached at US-EU summit
Despite the lack of hope for any progress in the lead up to this week’s EU US summit, US President Donald Trump and President of the European Commission Jean Claude-Junker struck an unexpected deal that has for now averted the anticipated all-out trade war. Mr Juncker described the success of the meeting as “a very big day for free and fair trade” after Washington and Brussels agreed to work towards removing all tariffs on all industrial goods, apart from cars. As usual President Trump lauded the outcome, highlighting that the EU has agreed to increase the importation of US soybeans as well as liquefied natural gas.
 
Significant progress was made also over the issue of additional tariffs, including on automobiles, while further negotiation over the deal will continue.  The US also promised that the existing tariffs on European steel and aluminium would be re-examined. It is believed that the exemption for cars was put in place as President Trump is considering introducing a 25% tariff on nearly $200 billion of car imports which would hit the German automobile industry particularly hard
 
However, European Officials have warned that a similar tariff will be placed on $20 billions of US exports including hi-tech and agricultural machinery if this tariff goes ahead. While this summit does present a breakthrough after weeks of frustration and stalemate, it is quite short on detail. It is therefore quite possible that given President Trump’s track record reversals regarding trade deals, the deal may never be realised.
 
Brussels attempts to soften secondary US sanctions against Tehran
President Trump fired a warning shot at Brussels this week, declaring that European companies will face secondary US sanctions if they continue to violate the recent restrictions that Washington has placed on doing business with Iran. This move follows the US government’s move to pull out of the Iran nuclear deal despite the best efforts of various European leaders.  The  EU has vowed to protect any of their businesses who have invested in Iran.
 
The main tool which the EU will use for protection of companies doing in business with Iran is the “blocking statue” which was drawn up in the 1990 and forbids European companies from complying with the US measures, allowing them to recover damages arising from the sanctions. However, there is serious doubt as to whether this tool is effective as it has never been tested before. Any punishment imposed by the EU is not likely to stand against potential retribution in the US for ignoring the ban. This threat also stretches to the individual executives potentially resulting in exclusion from public procurement and reputational damage. Companies such as Peugeot parent PSA and French Oil company Total have already stated that they will halt their operation in Iran unless a wavier is secured.
 
In short, the process of imposing this blocking mechanism would be a compliance nightmare and could add enormous legal expenses to firms. It is likely that these EU countermeasures will remain nothing more than a symbolic tool, proving to be insufficient to persuade companies to follow the EU approach to doing business with Iran.
 
 
SPAIN
 
Spain’s Partido Popular (PP) new leader Pablo Casado set to move party further right. 
Following an unusually divisive internal election process, Spain’s right-wing opposition party the PP has a new, more radical, leader. The election of Pablo Casado comes after former Prime Minister Mariano Rajoy resigned as leader of the party in June. Rajoy had already been ousted from his minority government in a no-confidence vote, a result of findings of corruption in the party.
 
The election of Casado is a move away from the more pragmatic, establishment politics of Rajoy, as well as of Casado’s opponent, Soraya Sáenz de Santamaría.  Casado has positioned his leadership as a return to the traditional values of the party. He claims his policies will allow the party to reconnect with “the Spaniards who display the national flag on their balconies,” a clear attempt to win back voters who have moved to the new, strongly nationalistic, Ciudadanos (Citizens) party.
 
Casado may look to ban pro-independence Catalan and Basque parties, and has proposed judicial reforms to penalise future independence challenges. He also criticised the ruling of a German court which found that the former Catalan regional President, Carles Puigdemont, should not face a charge of rebellion, calling it a “humiliation to national sovereignty,” and suggesting the EU Schengen free movement be abolished.
 
Casado has offered no proposals to confront the corruption that so recently brought down his party, and a new face and swing to the right may not be enough to redeem the reputation of the conservative PP before the 2020 general elections.

 
Dates ahead: Monday 30th – Sunday 5th August

Wednesday 1st August: ECB non-monetary policy committee meeting
Wednesday 1st August: US Federal Reserve Open Market Committee meeting
Thursday 2nd August: Bank of England Monetary Policy Committee meeting