Member News

The weekly Vulcan View for the 30th of April to the 4th of May featuring analysis of the latest EU developments

KEY EVENTS THIS WEEK:

BREXIT

Home Secretary resignation tips Brexit balance in UK Cabinet 

The British cabinet experienced another senior ministerial causality late last Sunday night when the Home Secretary Amber Rudd was forced to stand down from her position amid the Windrush immigration scandal. The vacancy in the Home office was quickly filled however, as Prime Minister Theresa May appointed Culture secretary Sajid Javid to the post the following morning. While his appointment will have implications for the UK’s domestic immigration platform, it will have wider effects on Britain’s path to Brexit.
 
As a committed remainer, Ms. Rudd brought vocal support to the cabinet table for remaining close to the EU post-Brexit and her position was crucial as it evenly split the Prime Minister’s ministerial committee on Brexit 5-5. Her departure will be a blow to pro-Europeans as even though her replacement was pro-Remain in the Brexit vote, Mr. Javid is long known as a Eurosceptic and fellow Brexiters gleefully welcomed his appointment.
 
The edge that pro-Brexiters now have in the British cabinet was evident this week when the Prime Minister’s proposed customs partnership hybrid model was rejected by her ministers 6-5. This ‘’partnership’’ would have seen the UK act as an external frontier for the EU, applying EU tariff rates for goods that would pass through UK but destined ultimately for the EU, while setting its own rates for goods that stayed in the UK, thus allowing London to strike its own trade deals.
 
Pro-Brexiters had criticised the proposal and crucially for the Prime Minister so too had Brussels, with one EU official describing it as ‘’magical thinking’’. This rejection has left the Prime Minister and her aides scrambling to find a solution to unite her warring ministers in order to identify an agreed customs position before next month’s European Council Summit.
 
UK Government loses key vote in House of Lords on withdrawal agreement 
Peers in the House of Lords inflicted another defeat on Ms. May and her government’s Brexit plan this week as it voted to ensure parliament can reject a withdrawal agreement without triggering a no-deal exit from the EU. The passing of the vote grants parliament the right to force the Prime Minister back to the negotiating table with Brussels if it rejects her initial withdrawal agreement, thereby preventing the UK leaving the union without an agreed exit deal.
 
With 335 votes in favour to 244 against, the amendment to the EU withdrawal bill is intended to give parliament a ‘’genuinely meaningful’’ vote at the end of negotiations. Downing Street was swift in its criticism of it, arguing it will put London at a disadvantage in talks with Brussels. The UK International trade secretary, Liam Fox, believed peers in the House of Lords were disrespecting the will of the people and labelled it as a ‘’mechanism for overturning the referendum’’.
 
The amendment will now be considered by MPs in parliament when the EU Withdrawal Bill returns to the House of Commons. If passed at this stage, then the government can only conclude an agreement if it has been approved in draft form by both the upper and lower houses of parliament. It is intended that this would take place before the agreement is debated in the European Parliament in October of this year. 
 
 
EUROPEAN UNION
 
Commission unveils seven-year EU budget plan
The proposed EU budget was officially put forward last Wednesday by the European Commission and amounting to roughly €1.279 trillion, this enormous financial blueprint outlines how Brussels intends to allocate its funding from 2021 to 2027. Known as the Multiannual Financial Framework (MFF), this latest budget surpasses its predecessors and sets spending plans at 1.114 percent of the union’s gross national income (GNI), pushing far beyond the traditional budget cap of 1 percent GNI.
 
With this latest budget having to overcome the €13 billion annual hole left by the UK’s departure, the Commission hopes to fill this gap through a combination of spending cuts to major programs and an increase in member state payments. Farming and regional funding will be the two major losers as the EU’s Common Agricultural Policy, which makes up to 40 percent of the current budget, faces a 5 percent cut while there will be a 7 percent decrease in regional funds, which account for one-third of current EU spending.
 
The EU’s research programme will enjoy a major boost in funding receiving a 40 percent increase.  Acknowledging the migration issues that the EU has experienced in recent years, the EU’s coastal and border guard will rise from 1,200 officials to vastly bigger 10,000. Responding to demands for a eurozone spending fund from French President Emmanuel Macron, a new €30bn ‘’European Investment Stabilisation Function’’ will be introduced to help maintain investment levels during a downturn.
 
As always, the proposal was not without controversy. Brussels hopes to bring in a ‘’rule of law’’ mechanism that will link budget payments to member states’ respect for EU law which is undoubtedly a red flag to the likes of Hungary and Poland.  Resistance began to mount within hours of the budget unveiling with net paying states such as the Netherlands and the Nordic countries arguing for a greater shift of spending from traditional areas of farming to digital policy. The EU27 will all have to sign off on the budget proposal and every national government will be bracing themselves for months of long drawn out battles.
 
Macron faces resistance over EU tech-tax plan
French President Emmanuel Macron is facing an uphill battle in his aim to bring in an EU-wide tax intended to target digital giants such as Google and Facebook after finance ministers from the EU28 expressed caution last weekend in Sofia.  Ministers from several member states warned that the plan could prove controversial given that the proposal would target mainly US multinationals.
 
With trans-atlantic tensions already high, it was feared that the plan would further antagonise the Trump administration. Luxembourg finance minister, Pierre Gramenga, highlighted the need for cooperation and added that the idea ‘’must be discussed with the Americans, because if we do this all by ourselves as the EU, this digital tax will be very ineffective and bad for Europe’s competitiveness’’.
 
Paris has been leading the way for the introduction of the tax and has found support from the German, Spanish and Italian governments. However, stiff resistance has been put up from Ireland, Luxembourg and the Nordic countries. French finance minister, Bruno Le Marie, felt particularly irritated from the opposition put forward by the UK, despite it being less than a year away from the exit door.
 
 
EU-US TRADE
 
EU granted extended 30 reprieve from Trump tariffs
The US-President Donald Trump granted an eleventh-hour reprieve to Brussels and its other trading allies this week after days of frantic and intense lobbying from EU officials. Although the decision to delay the incoming steel and aluminium tariffs was welcomed by the EU, the European Commission were far from satisfied as they warned that ‘’as a longstanding partner and friend of the US, we will not negotiate under threat’’.
 
Brussels made it clear that it was ready to work with the US to address the issue of overcapacity in the global steel market and find a mutually agreed resolution. Despite this, the Trump administration indicated that it would not allow Europe to be exempt from the tariffs indefinitely without concessions.  US trade adviser, Peter Navaro, stated that ‘’any country or entity like the European Union, which is exempt from the tariffs, will have a quota and other restrictions.’’
 
The EU will have to navigate a fine line with the Trump White House.  It cannot be seen to back down against Washington’s unfair demands while at the same time ensuring it does not risk setting off a trade war.  Berlin in particular is fearful that any kind of US retaliation will be extremely harmful to its powerful automotive sector and its lobbyists have called for the EU to find an agreed solution to meet Washington’s needs. However, given President Trump’s deep-rooted obsession with trying to fix the U.S. trade imbalance with Europe, the likelihood that a satisfactory trade agreement is reached between the two appears increasingly unlikely.

 
Dates ahead: Monday 7th May – Sunday 13th May

Mon 7th – Fri 11th May: European Parliament Green week
Thursday 10th May: Bank of England Monetary Policy committee meeting

And Beyond 
 
Monday 14th May: EU General Affairs Council (Art. 50)
Mon 14th – Thurs 17th May: European Parliament Committee Meetings
Wednesday 16th May: ECB Non-Monetary Policy Committee meeting

 

Compliments of Vulcan Consulting,  a member of the EACCNY