Brussels Brexit Briefing – 5th July

Brexit Briefing – 5th July

The Conservative Party starts to choose Britain’s next Prime Minister

Following the shock result of the Brexit referendum, and the subsequent resignation of Prime Minister David Cameron, the Conservative Party has begun the process of selecting a new leader and, therefore, Prime Minister.

There are currently 5 candidates running in the contest, and these will be whittled down to 2 in a series of ballots of Conservative MPs, over the next week. By Tuesday 12 July, there will be two candidates between whom Conservative Party members around the country will choose, on the basis of one member one vote. The result of the leadership election is due to be announced on 9th September.

The candidates for the leadership comprise:

Theresa May MP, Home Secretary: A Remainer, who kept a very low profile during the referendum campaign. She is the most experienced candidate and offers a safe pair of hands. She has by far the most support amongst Conservative MPs, including the current Cabinet. She is almost certain to be in the final two.

Andrea Leadsom MP, Minister of State, Department for Energy & Climate Change: A leading female figure in the Conservative Leave campaign. She has the second highest level of support amongst MPs but her alleged closeness to UKIP makes her a divisive figure.

Michael Gove MP, Justice Secretary: The leading Leave campaigner. Gove was a radical reformer as Education Secretary, and has been a liberal reformer as Justice Secretary. He has promised to be a radical PM.

Stephen Crabb MP, Work & Pensions Secretary: A Remain supporter. His pitch is built around his back story as a working class Conservative. An outsider unlikely to make the final round.

Dr Liam Fox MP, former Defence Secretary: He ran in the 2005 Conservative leadership election, has spent a lot of time cultivating grassroots Conservatives but seems unlikely to build a critical mass of support amongst MPs and is likely to be knocked out in the first round.

The results of the first ballot are expected 6-8 PM CET.

UKIP Leader quits but Labour leader clings on
UKIP leader Nigel Farage MEP resigned on Monday morning, declaring that he wanted his life back, although he will continue in UK politics and resist any compromise on freedom of movement. Meanwhile Labour leader Jeremy Corbyn, who has lost the backing of the overwhelming number of his MPs, has not resigned. He is thought to be clinging on until after the publication of the Chilcott report into the Iraq War on Wednesday.

The other 27: regret, but resolve

For the rest of the EU, the shock of the referendum result gave way to resolving to maintain unity in the face of a departing member. At their summit in Brussels on June 28-29, the EU’s leaders expressed their regret, but also indicated that Britain should not leave the rest of Europe hanging for too long before invoking Article 50, which starts the clock on a two-year negotiation to exit the EU.

Most EU leaders were keen to know what the UK’s plans were for separating, and pushed for a split at the earliest possible moment. But it soon became obvious that no clear plan will emerge from London before a new British Prime Minister is in place in September. Some key figures said the EU should take a firm confrontational position towards the UK in advance of the negotiations: European Commission President Jean-Claude Juncker said there could be no informal talks with Britain before Article 50 is triggered.

The second day of the summit involved a symbolic informal meeting of the EU27 without the UK, in which they managed to reach some common lines. It included the message that the UK should not be allowed to cherry-pick its future arrangement with the EU: if Britain wants full access to the single market, it will have to accept of all four freedoms, including the free movement of people.

Meanwhile, the European Parliament held a noisy debate on the referendum: UKIP leader, Nigel Farage, exulted about his victory, but was widely booed by other MEPs. “When I came here 17 years ago and said I wanted to lead a campaign to get Britain to leave the European Union, you all laughed at me,” he said. ““Well I have to say, you’re not laughing now!”

The MEP’s debate ended with a broad call on David Cameron to trigger Article 50 as soon as possible, to end any economic and financial uncertainty that might hurt both the UK and the EU.

Brexit reveals deep split between governing CDU and SPD on the future of Europe one year before general election

Political and business leaders in Germany expressed shock at the Brexit referendum result. However, the German Government took a strong leadership role in Europe by immediately inviting European leaders to Germany. Yet, one year before the general elections, Brexit has revealed that Chancellor Merkel’s Christian Democrats want more intergovernmental cooperation while their coalition partner SPD want a more integrated EU.

Chancellor Merkel stated that Brexit is a setback for Europe and the European unification process. While her close associate and Chief of the German Chancellery, Peter Altmaier, still hopes for the UK to remain in the EU, Chancellor Merkel has called for prudent negotiations that should not be rushed and impetuous. However, she takes the referendum as a clear signal for her Christian Democrats to advocate for more direct cooperation among the member state governments, thereby reducing the competences of the European Commission. Finance Minister Dr. Wolfgang Schäuble criticised the Commission for not being capable of acting quickly. Yet, this would be essential especially in light of Europe’s urgent challenges: the refugee crisis, youth unemployment, and the need for a digital single market.

In contrast, Vice Chancellor and Minister for Economic Affairs Sigmar Gabriel, together with European Parliament President Martin Schulz, published a position paper in which they called for a new beginning for the European Union with a focus on better economic development. Gabriel also called for reductions in the EU’s bureaucratic apparatus, including the number of Commissioners, as well as shifting subsidies from agriculture towards research, innovation, and education. The Social Democrats want fast and tough negotiations with the UK and, as underlined by Minister of Foreign Affairs Dr. Frank-Walter Steinmeier, the UK will only get access to the single market through agreements that provide appropriate concessions.

While German business associations and economists see economic challenges coming ahead, they expect less negative impacts for the EU than for the UK. Yet, the German Institute for Economic Research DIW expects a 0.5 percentage points slowdown in economic growth in Germany in 2017, as a result of lower German exports to the UK. Frankfurt’s finance sector is hopeful of benefiting from Brexit. However, the President of the German Federal Financial Supervisory Authority (Bafin), Felix Hufeld, expressed scepticism about the potential merger of the London Stock Exchange (LSE) and the Deutsche Börse. There is speculation that the merger may be derailed if the parties cannot agree on an alternative location to London for the head office.

It is likely that the future of the European Union will become a major topic for the upcoming elections at national and state level. The right-wing populist party AfD, in particular, may benefit with its Euroscepticism. According to a poll, the majority of Germans prefer the intergovernmental approach proposed by the Christian Democrats over giving Brussels more competences.

Au revoir London, Bonjour Paris

Since the Brexit announcement just over a week ago, the fiercely pro-European French political elite has been shaken to the core. Although the political class has not yet decided how to salvage their beloved European project, many are already hoping Brexit could be a blessing in disguise for the French economy and are keen to retain close military ties with the UK.

President François Hollande immediately spoke out on 24 June, calling Brexit a “painful choice” which puts Europe “under great strain”. With his popularity ratings at an all-time low, Hollande is attempting to leverage Brexit for his own gain. He has insisted that Britain’s departure from the EU be expedited as swiftly as possible to avoid harmful uncertainty – a point he reiterated to David Cameron in a brief ten-minute exchange during the 100th anniversary celebrations of the battle of the Somme on 1 July.

Both the President and Prime Minister Manuel Valls have been at pains to stress that Europe cannot continue as before and that now is the time to “re-found, reinvent another Europe by listening to the peoples”. As was the case following the November terrorist attacks, Hollande invited all leaders of the key parliamentary parties to the Elysée to discuss the momentous events. Most mainstream politicians were broadly in agreement that something had to give and that it was time to go back to the drawing board. The former President and Republican party leader, Nicolas Sarkozy demanded a new European treaty. Jean-Luc Mélénchon, a far-left leader, criticised Hollande’s “bric-a-brac approach” and for trotting out the “same old” solutions.

It was a different story for the far-right National Front whose leader, Marine Le Pen, described Brexit as “wonderful” and immediately called for a French referendum – a proposal that was immediately shot down by the President. The idea, being discussed by a small minority, would be a huge gamble for any mainstream politician as no one is sure that the remain vote would win. In the run-up to next year’s presidential elections, Marine Le Pen views Brexit as an exciting opportunity to further galvanise her growing populist movement.

All is not doom and gloom, however. Many French politicians are rubbing their hands together about the potential economic benefits of Brexit for France. Manuel Valls, French Prime minister, made a plea on 2 July to British companies saying “Welcome to Paris! Come invest in France”. He is currently said to be working to reinforce France’s attractiveness for expats by setting up a special tax status. On 27 June, Valérie Pécresse, President of the Greater Paris region, wrote a letter to 4,000 international companies vaunting the advantages of Paris as a business hub with its qualified workforce, concentration of companies, the pre-eminence of CDG airport, academic excellence and the high quality of life. In a tongue-and-cheek reference to David Cameron’s promise back in 2012 to roll out the red carpet to French companies setting up in Britain, Finance Minister, Michel Sapin said that the “red carpet was still in place but that it could work both ways”. Paris is particularly eager to take on business from the City such as asset management and financial supervision, while preventing the London Stock Exchange from merging with Frankfurt, to protect its own exchange.

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