Vulcan Consulting –
Leaked reports reveal potential damage of post-Brexit scenarios
Downing Street was left scrambling this week when a government report examining three post-Brexit scenarios was leaked to a media source. The paper analysed three different options facing the UK government once it leaves the EU and the impact that such outcomes could have on the domestic economy. According to its findings, all three scenarios would leave the British economy in a substantially worse position than if its remained in the EU.
In the event that the UK crashes out with no-deal and reverts to trading under WTO rules, the country’s growth rate would drop by 8% over the subsequent 15 years. If the UK secures a Free Trade Agreement with Brussels then growth over a similar period would reduce by a 5%. And in the final scenario whereby the UK stayed within the single market through membership of the European Economic Area, it finds that growth would still fall by 2%.
In addition to the potential damage outlined in the three separate scenarios, the report adds that any gains recovered from free trade deals secured with other counties would be minimal at best. It notes that a deal with the US, so sought out after by hard-Brexiters, would only bring about a boost of 0.2% UK growth over 15 years.
The UK government initially insisted that it would not publish the report in full until negotiations have concluded. But they quickly backed down after MPs voted on Wednesday in favour for the release of the analysis. MPs will now be given strict access to a hard copy of the paper. Downing Street attempted to play down the significance of the analysis but one official within government said it was ‘’a substantial piece of work’’.
Brexit deal for UK financial services sector shot down by Brussels
Britain’s hopes to have its financial services sector included in any future post-Brexit trade deal with the EU took a blow this week when EU27 Brexit negotiators rejected any agreement that might include the City of London. At an internal meeting between the bloc’s remaining member states, it was agreed that any future arrangement should be based on ‘’equivalence’’ which merely grants limited access to third-country institutions.
The negotiators and the Commission believe that such a limited deal for financial services would be a boost for the EU27 as the entire bloc would benefit from a smaller City of London. The UK government has warned Brussels repeatedly that a deal that locked out Britain’s financial services would have considerable consequences for EU groups’ cost of financing and overall financial stability.
However, sources within the Commission stressed that ‘’there was a strong commission message that there be no special deal’’, before making it clear that ‘’they are out of the internal market, that’s it’’. Such a restrictive deal could pose significant challenges for the solidarity shown so far between the member states, however.
Although the deal was backed this week, several diplomats spoke informally of a proposal that would see London pay for access for financial services access. They believed that a locked-out City of London would only help Paris and Frankfurt while a large payment would benefit the entire bloc.
Exiled Catalan leader admits defeat as Spanish government ‘’wins’’
A leaked series of text messages from the ousted president of the Catalonia regional government, Carles Puigdemont, has revealed that he has conceded that he will not be allowed to be reinstated as President and that Madrid has all but won in its attempt to thwart the region’s drive for independence. Mr. Puigdemont still remains in Brussels after he fled from the country following on from last October’s unsuccessful independence referendum.
An arrest warrant on Mr. Puigdemont is still active meaning that he is unable to travel home. It was reported that he would attempt to address the Catalan parliament while in exile in Brussels by use of either a substitute in the chamber to represent him or via video link. However, Madrid’s constitutional court ruled that this would be invalid which forced the speaker of the chamber Roger Torrent to postpone Tuesday’s planned session.
News of Mr. Puigdemont’s concession via text message broke shorty after that when Spanish TV made his SMS conversation with a colleague public. The ousted leader wrote that ‘’I suppose you realise that this has finished’’ before concluding that Madrid ‘’wins’’. His decision to withdraw from politics was revealed in a later text as he makes it clear that “I must dedicate my life to my own defence’’. A source close to the leader said that his words were taken out of context from a broader conversation but such a definitive concession may be difficult to backtrack from.
Attention turns to Italy as countdown to tight election begins
Many around Europe believed that the potential rise of populist Eurosceptic parties had abated as decisive national elections in 2017 passed with little turmoil, but fears have begun to mount again with the Italian general election looming. Italians will be heading to the polls on the 4th of March and with Euroscepticism in the country rising over the past few years, the outcome could have a significant impact on the European Union.
Current polling shows that the still relatively new populist party Five Star Movement (M5S) are scoring strong with 28% of the vote while the outgoing centre-left Democratic party (PD) trailing slightly behind at 23%. However, it is centre-right coalition grouping of Forza Italia (FI), the anti-euro Northern League (LN) and the rightwing Brothers of Italy (FdI) that lead the polls with 36% of the vote.
The most remarkable feature of this coalition group is that it has brought about the resurgence of former disgraced Italian Prime Minister Silvio Berlusconi. Although Mr. Berlusconi is still barred from holding office until 2019 due to previous convictions, he leads this grouping and is likely to be a major playmaker in any government coalition negotiations.
Although both the M5S and the LN have both abandoned ideas of supporting a referendum on euro membership and have no issue of EU membership, they are still Eurosceptic and firmly anti-immigration. This mirrors the latest Eurobarometer which shows that only 37% of Italians have a positive view of the EU. Most observers believe that some sort of weak and unstable broad coalition between the centre-right and –left is the most likely outcome but a potential Eurosceptic government is a real possibility which has left markets around Europe more worried than they would like.
Coalition talks continue as major hurdle overcome
Talks are ongoing between the conservative centre-right alliance bloc of the CDU-CSU and the centre-left Social Democrats (SPD) to form a new coalition government and this week brought some welcome progress as a major obstacle to any arrangement was cleared. Following on from two days of fighting over refugee family reunification between the two parties, a compromise was finally reached.
The agreement will see the current deal on family reunification for war refugees extended until August of this year and thereafter Germany will only take in 1,000 family members of refugees per month. Party negotiators now hope that the compromise will allow talks to move on with the aim of having the rest of the differences agreed by Sunday in order to have a coalition text ready.
Once the text has been agreed, it will still face the final hurdle when the SPD’s rank and file vote on it. The SPD leader Martin Schulz will be hoping that negotiations can be wrapped up quickly without any major hiccups emerging. The previous few weeks of talks have taken their toll on Mr. Schulz, with the latest polls indicating that his approval rating has slumped to a pitiful 15 per cent.
Dates ahead: Monday 5th February – Sunday 11th February
Mon 5th – Thurs 8th February: European Parliament Plenary Session
Wednesday 7th February: ECB non-monetary policy committee meeting
Thursday 8th February: Bank of England Monetary policy committee meeting
Friday 9th February: Opening ceremony 2018 Winter Olympics, PyeongChang, South Korea
Compliments of Vulcan Consulting – a member of the EACC in New York