Brexit News, Member News

Vulcan View: Key events this week

BREXIT

New round of negotiations brings division over Brexit bill

Last Monday marked the beginning of a new round of EU-UK Brexit negotiations and unsurprisingly, an impasse was hit on Tuesday over the size of Britain’s Brexit bill.  While both sides have admitted that the mood has improved substantially after London last week admitted that it does have obligations to the EU, the UK has been reluctant so far to suggest a figure.

Estimates from Brussels range up to the €100bn mark but Monsieur Barnier has told his staff not to talk numbers. However there is some consensus among EU negotiators that the Brexit bill should amount to at least €65bn, given the British share of the EU’s common budget which has already been planned for up to 2020. According to diplomats from within the negotiations, Monsieur Barnier was growing increasingly frustrated with the UK’s hesitancy to make a counter-proposal. It was suggested that the EU’s chief negotiator was prepared to ‘’stall’’ if the situation continued.

This warning did not stop the UK’s Brexit minister David Davis from suggesting at yesterday’s press briefing that both sides will have to ‘’compromise’’ over the Brexit bill. Such a compromise seems unlikely given that the remaining EU27 are determined that the UK pay its obligations in full, highlighted this week by the French economy minister Bruno Le Maire who quoted British Prime Minister Margret Thatcher by saying ‘’we want our money back’’, before adding that the ‘’UK must pay what it owes to the budget of the EU, it is a non-negotiable prerequisite at the start of discussions’’.

The exit bill remains the biggest stumbling block and risks bringing down the negotiations entirely, leaving the UK to walk away from the table with no deal. Such a scenario would be a nightmare scenario for both sides.  Unfortunately both parties remain divergent on the issue, signified by Monsieur Barnier when he remarked at this rounds concluding press conference that ‘’a clarification of the UK positon [on the bill] is vital’’.

EU and Britain prepare plans on WTO membership after Brexit
 
Although future trade relations between the EU and the UK will not begin until substantial progress has been made on the priority divorce issues, both sides have initiated talks on how they will trade globally post-Brexit within the Word Trade Organisation. The concern lies primarily in how the WTO obligations, known commonly as “schedules” will be shared. Currently Britain trades under the EU’s schedules and would be unable to draft up its own without the approval of the remaining 164 WTO members.
 
An EU source revealed earlier this week that London and Brussels are planning to present a joint proposal to the international trading body with their new reforms next September or October. The joint approach would address  certain difficult schedules of agricultural tariff quotas, agricultural subsidies and several more that are not easily split between Britain and the EU27. Additional complications arise, however, over how the two sides will untangle the shared liabilities that have arisen from trade disputes, such as the long-running WTO litigation case over Airbus subsidies with the United States.
 
Post-Brexit UK may only need 10 new regulators 
 
A source from within Downing Street has suggested that Britain will probably only require 10 new regulatory bodies once it exits the EU. It has long been feared by the British civil service and the business community that the country would need to establish dozens of bodies in order to regulate British sectors. However, the government source revealed that the number would be much less than anticipated.
 
Currently, many British sectors are regulated at EU level and the leading business lobby group, the Confederation of British Industry (CBI), had warned that up to 34 EU regulators would no longer have jurisdiction over Britain once it departs from the bloc. Many believe that replacing such bodies with UK-equivalent regulators would place a huge burden on the British civil service and force businesses to comply with more red tape and an entire new regulatory system.
 
The government source outlined that an assessment of which new regulators would be required will be carried out under the new repeal bill which was published by Downing Street last week. While it was not revealed what industries might need a new regulatory body, the low estimate suggests that officials are looking at ways to push regulatory functions onto existing domestic industry regulators. 
 
One alternative possibility is that the UK may seek some sort of associate membership of EU bodies. While this would ease Britain’s departure from the EU, it would be vehemently opposed by eurosceptics in the government who fear that it would lead to the European Court of Justice having continued jurisdiction over the UK even after it leaves the EU.
 
France and Germany join forces to shut out the City 
 
In an effort to block the UK from the €1 trillion financial market post-Brexit, lobbyists from France and Germany have united in an effort to make it impossible for financial institutions based in London to clear trades in euros when Britain leaves the EU. The process of euro-clearing currently runs through London mainly and the fight over the lucrative industry has been a long-protracted battle between the European capitals.
 
Brexit has only inflamed this struggle, with Paris and Berlin determined to take control and win business from London. The united front has alarmed many within the City, including the former Liberal Democrat Minister and now City Brexit Envoy Jeremy Browne who warned earlier this week that the French government and its banking chiefs were plotting to ‘’actively disrupt’’ the UK’s financial sector.
 
It is no secret that Paris is keen to charm business from London after Brexit and the election of Emmanuel Macron has only increased the attractiveness of Paris as a business-friendly city. Mr. Browne’s recent warning over France was unwavering, declaring that ‘’they see Britain and the City of London as adversaries, not partners’’.

EUROZONE
 
ECB to continue programme of quantitative easing despite Eurozone recovery
 
The president of the ECB, Mario Draghi, pledged that the central bank was determined to keep in place and even step up its €60bn-a month quantitative easing model in order to maintain the Eurozone’s recent improved growth. Fearing that doing otherwise may put the recovery at growth, Mr. Draghi stressed that the challenge now was to balance out the pressures brought about by the improved growth and the persistent weak levels of inflation.
 
In the run up to this yesterday’s meeting, many analysts believed that the ECB would show some signs that it might begin to wean the Eurozone economy off its quantitative easing programme.  Mr. Draghi had given such an impression last month when he seemed to indicate that the bank was about to tighten its policy and the markets anticipated a step toward tapering 2018 asset purchases.
 
Such an outcome did not materialize though, as Mr. Draghi yesterday said that ‘’inflation is not where we want it to be and where it should be’’, before adding that unwanted tightening of policy may jeopardize Eurozone progress. Speaking to reporters after the ECB’s governing council monetary policy meeting, the head of the central bank was reluctant to reveal much but did let slip that the ECB would discuss the next stage in its quantitative easing programme ‘’in the autumn’’. Although that promise came with the warning that policymakers must remain prudent, patient and persistent, signaling the president’s cautious approach to any policy tightening.
 
FRANCE
 
Macron’s election pledges at risk by spending cut crisis
 
The honeymoon period for French President Emmanuel Macon came to a grinding halt this week when the head of the armed forces resigned in protest over planned cuts to the defense budget. General Pierre de Villiers’ has previously warned the president, in an unlikely public manner, that he would step down if the proposed €850 worth of military cuts was carried through, but President Macron responded firmly that it was ‘’undignified to wash dirty linen in public’’.
 
Unfortunately for the President, the General followed through with his threat and became the first chief of defense to resign in 60 years. His departure highlights the challenge that Monsieur Macron faces as he attempts to follow through with his campaign pledges to cut taxes and make the country much more business-friendly by reforming the strict Labour laws.
 
Before following through with such policies however, the President must make up to €60bn worth of savings over five years, as well as finding €4bn of new savings this year to meet the EU target. This challenge has been heightened further after the teacher’s union criticized the cancellation of €331 funding for higher education and research, while local governments fumed over the announcement that they will have to make €13bn of savings by 2022, €3bn more than expected.
 
President Macron’s early days have so far been deemed a success but this latest crisis will be the clearest indication what kind of leader he is.     

 
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