Brexit News, Member News

Vulcan View: Key Events of this Week

By Vulcan Consulting 

Negotiations reach a ‘’very disturbing state of deadlock’’
The fifth round of negotiations between the EU and UK concluded yesterday, with warnings from diplomats that talks had reached a political standstill and almost no substantial progress was made in the past few days. Although Michel Barnier, the EU’s top negotiator, said that decisive progress is still within reach before Christmas, he will not recommend to EU leaders at next weeks summit that ‘’sufficient progress’’ has not been made.
Lack of breakthrough on the areas of citizens’ rights surprised many negotiators directly involved in the process, with one source admitting that ‘’there was nothing, zero, no progress’’. However, the major impasse revolves around the disputed Brexit bill. London still refuses to recognise the EU’s analysis of what it owes, with Brussels estimating the size of the bill anywhere between €60bn to €100bn.
The UK side sought to present a more upbeat attitude at the end of this week’s talks, with the British Prime Minister informing Parliament on Wednesday of this week that ‘’we are very close to agreement on citizens’ rights’’. Such contrasting perspectives on the state of negotiations between both sides is a clear sign that little or no substantial progress has been made, since initial negotiations began five months ago in June.
Michel Barnier’s deadline to have the major divorce terms settled by December appears certain to be missed, the remainder of the entire negotiating process at risk of coming off the tracks completely.
Open border on island of Ireland impossible post-Brexit, Irish report says
A leaked unpublished report, prepared by the Irish Government Revenue Commissioners has set out the enormous potential impact that Brexit could have on the island of Ireland. Analysing the economic and customs challenges that may arise if the UK becomes a third country outside the EU, the report declares that an open border between Northern Ireland and the Republic will be impossible from a customs perspective.
As the UK remains the largest single trading partner for Ireland, the estimated fallout from Brexit on the island of Ireland would be enormous. The 91,000 Irish companies that trade with the UK could see their customs declarations increase by 800% which would result in extra investment, greater levels of bureaucracy and paperwork, and heavy delays. Airports, ferries, border points and post offices would require higher levels of infrastructure and staff to deal with the additional levels of administrative requirements.  
Although the report was written almost a year before the UK referendum was held, its conclusions are still valid as current negotiations point to an increasing likelihood of UK exiting the EU Customs Union and thereby becoming a third country. The inevitability of hard border was reaffirmed this week in London as MPs on the Northern Ireland Affairs Committee were told that a hard border with physical infrastructure was unavoidable in the UK exited the customs union and pursued its own trade policy.
EU Banking watchdog warns City over use of shell companies to access single market
An opinion paper released this week by the European Banking Authority has signalled warnings to the City of London that it cannot retain access to the single market post-Brexit through the use of simple shell companies based in the remaining EU27. The EBA acts as the bloc’s supervisor and ensures that regulations are implemented evenly across the union.
It made strong warnings that any attempt by EU27 national watchdogs to water down regulations to attract companies to its shore would be not tolerated. It emphasised, in particular, that any company seeking authorisation  should have proper substance such as sufficient locally held capital to cover an EU entity that wanted to book so-called back-to-back trades with another one of its entities based outside the EU, such as the UK, after Brexit.
Analysts believe such a warning by the EBA could prompt a wider City exodus, notably those UK companies who are relying on ‘’equivalence’’ rules to maintain access to the EU market. This comes as the EBA, in its paper, said that the current system of evaluating access for overseas broker-deals was ‘’suboptimal’’ and urged the European Commission to redraft its legislation around it.
Spanish PM calls for clarity around ‘independence declaration’
Mariano Rajoy, the Spanish Prime Minister, has called upon the Catalan leader Carles Puigdemont to answer clearly whether his government has issued a declaration of independence or not. Almost two weeks have passed since Catalonia held its independence referendum that brought scenes of violence to the streets of Barcelona as Spanish police attempted to thwart any voting by confiscating ballot boxes.
90% of voters who came out on October 1st opted for secession from Spain and Mr. Puigdemont told the Catalan parliament on Tuesday that this was a ‘’mandate allowing for Catalonia to become an independent state in the form of a republic’’. This declaration of independence was short-lived however, as it was immediately followed by a call from Mr. Puigdemont to suspend it ‘’for several weeks’’ to allow for possible mediation to resolve the dispute with Madrid.
The decision to suspend triggered a furious response from the more ardent pro-independence Catalonia coalition government parties but after warnings from the EU that Catalonia would have to reapply for membership if it seceded and fears that declaring formal independence could drive large businesses out of the wealthy region, the Catalan leader opted for proposed dialogue with Spanish government.
Prime Minister Rajoy rebuked such an offer, accusing Mr. Puigdemont of sowing ‘’deliberate confusion’’ and urging him to call off the independence drive completely. The request for clarification by the Mr. Rajoy acted as a prerequisite for him to trigger article 155 of the constitution, which would allow Madrid to suspend the region’s autonomous power and introduce direct rule. The Catalan leader finds himself in a difficult dilemma as he navigates the next few days between hard-line secessionists and an unyielding Spanish government.
Government formed after 208 days of talks
Following several months of negotiations, four Dutch political parties have come to an agreement and struck a deal in order to establish a working government led by the previous Prime Minister Mark Rutte. Elections, which took place last March, were anxiously watched by observers across Europe as the populist anti-Islam Party for Freedom (PVV) gathered large swathes of popularity across the country, threatening to take a large number of seats in the parliament.
Although the Party, led by the firebrand Geert Wilders, did not top the polls, they came in second to Prime Minister Rutte’s Party for Freedom and Democracy (VVD) with 20 seats. The elections produced no clear winner and with every party pledging not to go into government with the PVV, over 200 days of negotiations were needed for the four political parties of the VVD, the Christian Democrats, the Christian Union and the D66 to reach a consensus.
The fragile government coalition may be finally formed but it remains divided on key issues, ranging from tax policy, immigration and euthanasia. On the area of Europe, the coalition partners did reach an agreement that ruled out any support for a eurozone budget or any common eurozone debt instruments, which will prove to be a blow for French President Emmanuel Macron. While a working government was absent from the country for 208 days, it did little to impinge the economy as growth accelerated 3.3 per cent at the end of the second quarter, the highest it has reached since joining the euro.  


Dates ahead: Monday 16th – Sunday 22nd October:
Thursday 17th October: General Affairs Council (Article 50)
Thursday  19th & Friday 20th October: European Council Summit

23rd – 27th October: European Parliament Plenary (Strasbourg)
26th October: Governing Council of the ECB

Compliments of Vulcan Consulting, a member of the EACCNY