June 27, 2016
Just over 72 hours after the Brexit referendum, politicians and business far and wide spent the weekend reflecting on the outcome and attempting to anticipate the implications and next steps. In the United Kingdom, the result continues to impact political parties across the divide and throughout the whole of the country. Further developments lie in store during this week as the European Council, European Commission’s College of Commissioners and the European Parliament all hold meetings.
The implications will continue to be uncertain and evolve over the coming days and weeks. You will need as much clarity as possible at each step of this fast-moving process to understand how this could impact your company and core business activities to secure your trading, regulatory and operating environment. FTI Consulting is ideally placed to support you. We focus on the political and regulatory environment 24/7.
The outcome of the UK’s referendum on EU membership continues to reverberate across the continent; as this summary of reactions in Member States shows, consensus on a common approach appears elusive.
The UK has seen Prime Minister David Cameron announce his resignation, and the ruling Conservative Party preparing for what could be a bitterly-contested leadership contest. In parallel, the main opposition party is facing its own leadership dilemma, with members of the shadow cabinet resigning in significant numbers.
Financial markets have reacted negatively – in London, and beyond – creating an unpredictable and volatile atmosphere.
Amidst all this uncertainty, one thing can be said for certain: the impacts are likely to be felt for a long time to come.
Over the weekend, the Conservative Party, following the resignation of Prime Minister David Cameron, began internal discussions on who will lead the Party; in parallel, Labour opposition leader Jeremy Corbyn found himself with his own crisis as half his Shadow Cabinet resigned and more junior members of the team announced their resignation on Monday morning.
Boris Johnson, the clear front runner for Conservative Party leader, spent the weekend in discussions with Conservative MPs as he started to build his support base and prepare to stand for the leadership. Home Secretary Theresa May appears to already have become the de facto ‘Stop Boris’ candidate. She also spent the weekend canvassing support and views from backbench MPs. Whilst she is widely respected, she doesn’t have a close knit group of allies. If she does become leader, she will lack a core group of allies and could find herself isolated fairly quickly – particularly if she was, as a ‘Remainer’, not to give her unequivocal commitment to the Brexit renegotiations.
Conservative MPs will put forward two names as potential leaders of their party, but that shortlist will then be voted on by the entire membership of the Conservative Party who will decide who becomes the next Prime Minister.
For Jeremy Corbyn, it has not been a good weekend as the constant stream of Shadow Cabinet resignations continued while he tried to rebuild his senior team. Corbyn’s deputy, Tom Watson, is seen by many as the best figure to replace him, and crucially is well liked and connected with the trades unions. Corbyn himself seems determined to fight and has focused on rebuilding his shadow cabinet. But the resignations keep coming.
Monday is seeing a busy round of shuttle diplomacy with President of the European Council, Donald Tusk, travelling to Paris and Berlin on Monday for consultations.
On Tuesday, at a meeting of the European Council in Brussels, Prime Minister Cameron will outline the situation in the UK to his fellow heads of state and government of the 28 Member States.
On Wednesday, leaders of the 27 Member States – without the UK – will meet informally to consider the so called ‘divorce process’ as described in Article 50 of the Treaty, and start discussions on the future of the EU of ‘27’.
The European Commission’s College of Commissioners – under the guidance of President Jean-Claude Juncker – will meet on Monday afternoon to consider the implications of the Brexit vote, having received on Saturday confirmation that UK Commissioner, Lord Hill, had resigned his post, saying “I don’t believe it is right that I should carry on as the British Commissioner as though nothing had happened”. He will leave office on July 15 2016, and the UK Government will have an opportunity to nominate a replacement if it wishes.
Commissioner Hill’s responsibilities – covering financial services and financial stability – will move to the Vice-President of the Commission, Valdis Dombrovskis of Latvia.
The European Parliament (EP) will hold a meeting in special session on Tuesday devoted to Brexit, and will vote on a motion outlining its position. A draft motion put forward by the four main political groupings in the Parliament calls for an immediate start to Article 50 negotiations, emphasising the EP’s role in the process of securing a deal with the UK. The future role of UK MEPs is also being questioned, with one already relinquishing his role in charge of a negotiation on the EU’s emissions trading system.
Parties in the governing coalition started to take differing views on how to proceed over the weekend. Chancellor Angela Merkel made clear her intention to not exercise pressure on the UK to formally trigger Brexit by invoking Article 50, in order to give UK political figures time to consider the implications of Thursday’s vote.
Aware there is no legal basis for the 27 remaining members to simply kick out the UK, she stated that the UK’s application “shouldn’t take too long, but we shouldn’t get into a fight over just a short time-span.”
Social Democratic junior partners adopted a notably different view: Foreign Minister Steinmeier urged for Brexit procedures to “start as quickly as possible”, while Social Democratic MPs went further, saying their party will “not accept if Merkel succumbs to Cameron’s timeline at tomorrow’s EU summit in Brussels.”
Such disagreements between the major parties – coupled with a general sense of uncertainty in Germany regarding the future of the EU – could benefit the interests of the populist Eurosceptic and anti-immigration opposition AfD party.
The initial unity on Friday between Paris, Berlin and Rome is less evident today. Foreign Minister Jean-Marc Ayrault made it clear that France expects the earliest possible start to the Brexit process.
Amongst the main political parties there is strong determination to avoid opening the door to any potential ‘Frexit’ scenario ahead of the 2017 presidential elections.
While French businesses had previously offered their support for the UK remaining a member of the EU – including a declaration signed by more than 30 CEOs from companies such as BNP Paribas, Airbus, Michelin and Orange before the referendum – business and politicians alike may adopt a pragmatic view in future.
Paris EUROPLACE, the organisation promoting the Paris financial marketplace, stated: “There must be no concessions in the negotiations on the conditions for the UK’s exit from the European Union … Outside the European Union the UK will no longer be a member of the single market and must be considered a third country … We are prepared to extend a broad welcome to companies that intend to deepen their presence in the European Union.”
Brexit has been the main theme of the political and media debate over the weekend. On Friday, Premier Matteo Renzi said Italy remained committed to the EU, but also stressed the EU needs reform: “Europe is our home, the home of our children and grandchildren. We say this more than ever, convinced that the home needs renovating, perhaps freshened up, but it’s our home of tomorrow”. He said the vote will not cause instability across the continent and that he did not foresee a risk to the Italian economy, though the Bank of Italy and the Ministry of Economy were ready to intervene. After his informal meeting with President Hollande on Saturday, PM Renzi is also planning to promote in Rome, on the occasion of the sixtieth anniversary of the Treaties, a ‘conference for a new European governance’, which he is likely to announce later today before Parliament.
Claudia Pomposo, Partner at Cattaneo Zanetto & Co, FTI Consulting’s affiliate in Rome
The UK referendum result impacted Spain’s general election on Friday, with leaders of the four main political parties commenting on the UK’s decision to leave the EU.
Acting Prime Minister Mariano Rajoy, highlighted the importance of political and economic stability, stressing the need for certainty and stability. Pedro Sánchez, of the socialist party, warned of the unintended consequences of referendums. Albert Rivera, from the emerging centre party Ciudadanos, referred to a vote based on fear and hatred fuelled by populist and nationalist sentiment. Pablo Iglesias, from the left anti-austerity party Podemos, highlighted the importance of consulting citizens on key decisions.
There was speculation the Brexit vote would impact upon voter turnout; this proved not to be the case. However, some analysts have suggested the uncertainty caused by Brexit benefited the incumbent party.
Spanish media reported the Ibex 35 suffered the biggest drop in its history, losing €63,900 million thus far. The media also speculated that tourism, business investment and exports would be among the Spanish economic sectors most affected by Brexit; and that the risk premium and cost of Spanish debt may increase.
Catalan newspaper La Vanguardia reported that Nicola Sturgeon, Scotland’s First Minister and leader of the Scottish National Party, was exploring the possibility for a new independence referendum.
Brexit dominated political discourse and media commentary over the weekend. Ministers have participated in weekend current affairs programming and panel discussions, and the Irish Government published information on its contingency planning for Brexit. Looking ahead to the negotiations, political and official sources say Ireland’s interests clearly lie in Britain remaining a member of the single market, and Ireland will strongly support Britain if it seeks that (which may entail standing against other EU members who want that option off the table). The meeting of the founding members of the EU over the weekend was also noted and received some negative commentary.
Other themes that permeated domestic media coverage include impacts on the Irish economy, implications for Irish companies with activities in both Ireland and the UK, and the wider investment environment in Ireland. There has also been debate as to the consequences on Northern Ireland and the ongoing peace process.
On the financial markets, Irish shares fell in early trading today at a faster pace than London and broader European markets as investors continued to baulk at the impact of Brexit on its closest trading partner. The Iseq slid 2.5% to 5,741.5 within minutes of the session getting underway, following its 7.7% plunge on Friday.
The three Baltic states are mainly concerned about the effects on their nationals living in the UK and how it could weaken the EU position on Russia. Baltic States wish the negotiations to start as fast as possible to minimise political and economic instability. Initial statements from the heads of state focused on the need to continue constructive debate with the UK. Lithuanian President Dalia Grybauskaitė said the UK will remain a very important defence and economic partner. Latvian Ministry of Foreign Affairs announced that in negotiations with the UK, the Latvian Government will make every effort to protect its national interests, the interests of Latvian nationals in the UK and the EU’s common interests. Estonian President Toomas Hendrik Ilves hopes that Britain’s leaving will strengthen co-operation between the remaining 27 EU Member States. Estonia, which is due to hold the EU Presidency in the first half of 2018, after the planned UK Presidency, said that it would be ready to consider a reordering or an extension of its presidency. Much of the media’s attention was focused on Russian media propaganda and the official reactions by President Vladimir Putin who was very positive about the outcome of the referendum.
Dutch Prime Minister, Mark Rutte, said “we need to work closely together in order to reform the European Union and to create greater prosperity, more jobs and more security.” Interestingly, Foreign Minister Koenders had been calling for a swift opening of the exit negotiations: “we shouldn’t waste time, as Boris Johnson is proposing now”. Geert Wilders, leader of the Dutch Party for Freedom (PVV) reacted with enthusiasm to Brexit, saying: “now it is our turn” and called for a ‘Nexit’. Emile Roemer, leader of the Eurosceptic party SP, said a Dutch exit from the EU would be a “bad idea” and that “Brussels needs to reform: become less super state and more democracy”.
Public debate on the EU continues to be fierce in the Netherlands. While some commentators talk of ‘Nexit’, according to a recent study by TNS Nipo, 54% support EU membership and only 32% would be against it.
On the finance markets, traders spoke of a ‘black Friday’. Analysis by ABN AMBRO said that the Dutch economy will be impacted by Brexit and would continue to be in the coming years. AEX opened almost 9% lower on Friday, a situation not seen since 1987. The media reflects this view, focusing on the political chaos and the impact on financial markets. Dutch investments into the UK are also reported to have been put on hold.
The outcome of the referendum is seen as an opportunity to launch a campaign to reshape the EU and push it away from a federalist model. Jaroslaw Kaczyński, the leader of the ruling party ‘Law and Justice’, said that the EU needs a new treaty and new rules to clarify relations and the division of competences between Brussels and Member States. Kaczyński said that the principle of subsidiarity should be restored. In his view, the status quo or deeper integration are not appropriate responses, and the decision process in the EU should be more consensual. Prime Minister Beata Szydło also called for reform of the EU and a “strong and united Europe of sovereign states”, rejecting the idea of building a Europe of small groups of countries. She pledged to work to keep the rights of Poles living in Britain. Polish media coverage focused on the potential impact a Brexit could have on Poles living in the UK, largest non-British nationality.
The results of the referendum have been closely followed in Slovakia, which will take over the 6-month presidency of the EU on 1 July 2016. Slovakia will now need to revise its priorities and focus primarily on Brexit. The Slovak Government made clear that Britain’s departure should happen as soon as possible, and so Bratislava intends to facilitate the process accordingly.
Slovakia currently belongs to a group of relatively pro-European countries in the region, as its EU membership has provided a certain guarantee of political and economic stability. However, Prime Minister Robert Fico said the economic and migration policies will need to change given the lack of public support in the EU for them.
Although it is believed that Brexit is likely to have only limited impact on Slovakia, indirect impact might occur given many Central European countries often coordinate their EU positions with the UK.
Prime Minister Stefan Löfven, of the Social Democrats, issued a statement on Friday, noting the outcome was not what he had hoped for and that it represents a wake-up call for the rest of Europe; Brexit also meant Sweden would lose an important ally in the EU. Prime Minister Löfven dismissed demands for a renegotiation or a referendum on Sweden’s EU membership, arguing that this would cause uncertainty. The mainstream parties regretted the result of the vote while noting it sends a clear signal about the need for reforming the EU.
Anna Kinberg-Batra – leader of the Moderates, Sweden’s largest opposition party – observed that Europe and Sweden would lose an important partner; more widely, she noted the EU itself needs a constructive way forward, focusing on hands-on delivery of important issues.
Jimmie Åkesson, leader of the populist and anti-immigration Sweden Democrats, welcomed the vote and called for a similar referendum in Sweden. Left Party leader Jonas Sjöstedt claimed the vote changed prerequisites for the EU project and demanded renegotiation of Sweden’s EU membership followed by a referendum.
Denmark enjoys a long-standing relationship with the UK, based on deep economic ties and similar opt-out policies. However, there will be no referendum in Denmark – for now. That was the message from Prime Minister Lars Løkke Rasmussen, at a press conference on Friday morning, a sentiment echoed by most opposition parties. Mr Rasmussen called on his fellow EU leaders to stay together and take Euroscepticism very seriously.
Danish politicians and opinion leaders see Brexit as a wake-up call to reform the EU. The resounding call from business leaders, commentators and former EU Commissioners this weekend was for the EU to re-connect with citizens by focusing on internal market policies rather than social policies.
This echoes the thoughts of Mette Frederiksen, leader of the opposition Social Democrat opposition party, who earlier in June announced her preference for the EU to focus on three areas: employees’ rights, tax avoidance and external border-controls.
On the latter, Brexit brings uncertainty to the renegotiation of a parallel deal with Europol following the renewed Danish opt-out of EU police and justice cooperation, as decided in December 2015’s referendum. This illustrated the gap between citizens and mainstream political parties, the latter having hoped to remove one of Denmark’s four opt-outs.
The Athens Stock Exchange fell 13.7% the day after Brexit, the steepest decline of any market in the EU. Brexit is also expected to take a heavy toll on Greece’s tourism sector as Sterling crashed; Greece typically expects around 2.5 million British tourists every summer.
Prime Minister Alexis Tsipras described the outcome as a “negative development” for the EU, while calling for a “fresh vision” for Europe, as well as “progressive reforms to raise a wall against Euroscepticism.”
Greece’s mainstream politicians view Brexit as a victory for populism. Former Foreign Minister, Dora Bakoyianni (New Democracy) tweeted that “The cost of populism is plain for all to see. Cameron’s responsibility for this is enormous.”
A minority of public opinion viewed the result as positive, arguing that it sends a message to the EU with regards to harsh austerity policies.