May 22, 2017
2017 was already marked as a big year for elections in the European Union, and that was before Theresa May’s surprise announcement of a June vote in the UK.
Our guest contribution this month comes from our Berlin office, with a piece looking at the reaction to Brexit amongst political leaders in Germany and how the issue is playing into September’s federal elections. Protecting the achievements and unity of the European Union is clearly an overriding priority for Mrs Merkel’s government.
We also consider the election announcement from Theresa May, which will mean that the UK’s approach to Brexit will feature heavily in the political campaign ahead of 8 June. Mrs May’s objective is to secure stronger domestic backing for her premiership and Brexit strategy – an achievement which she hopes will also strengthen her hand in Europe.
With Article 50 triggered, the EU27 are now carefully preparing the details of their negotiating position, which should be approved at a meeting of EU leaders this Saturday, 29 April. A more detailed and elaborated framework is due to be further agreed by the end of May. Our Brussels contribution this month considers these guidelines in detail, and looks at how they may affect the negotiating dynamic of the EU27.
While the preparations for the hard grind of Brexit negotiations are now well advanced, what Europe’s current election-fever does mean is that the dynamics for the Brexit negotiations are much more interesting, and ultimately unpredictable.
– Louise Harvey
Germany is having a tough time digesting the Brexit dish served by the May Government. Since Article 50 was activated at the end of March, the leaders of the governing grand coalition, including Chancellor Angela Merkel of the CDU, have used cautious language,. Externally, they see no advantage in provoking the UK. Internally, they don’t want to play into the hands of the populist, xenophobic AfD party in the run-up to the national elections in September 2017.
But behind the scenes, many make no secret of their doubt whether the UK Government has fully grasped the historic enormity of Brexit’s implications. British aspirations and associated timeline are being heavily questioned in Berlin. The idea that the UK will be able to reinvent the glory of the old British Empire is met with deep scepticism. Newly elected German President Frank-Walter Steinmeier (SPD), formerly Minister of Foreign Affairs, recently spoke at the European Parliament, stating quite bluntly: “It is irresponsible to say that in today’s world, a European nation will be able to make its voice heard by itself without the European Union, or implement its economic interests.” This was unusual. His position as head of state traditionally calls for caution in comments on topical politics, but many will have tacitly agreed with him.
Chancellor Merkel herself has made it repeatedly clear where her priorities lie: It´s less the fate of the UK, but more the fate of the remaining union which is her priority: “We must make sure that the 27 remaining member states don´t end up divided but have a strong future together,” she says, adding that there will be “no cherry-picking” for the UK. This last message, however, is also targeted at domestic audiences, particularly those in German industry who fear to lose their market share in the UK in the process; German car-makers, for example.
Her junior partners in government, the SPD, despite being eager to escape the trappings of the grand
coalition, support her on the issue. Foreign Minister Sigmar Gabriel, also acting as Vice Chancellor, rules out a “rebate for Britain”, making clear that “being outside is less than being inside.” He also publicly doubts that a new trade agreement will be in place by 2019.
The FDP liberals, now in opposition, position Norway as a future UK model warning that full access to the internal market will only be granted so long as the fundamental freedoms of the EU will be accepted in the UK as well.
The opposition Greens take the Brexit decision as a wake-up call for all committed to Europe, and warn “not to leave the arena open to populists and anti-Europeans.”
But even the AfD have toned down its initial triumphalism over Brexit, looking on helplessly as its support in the polls has eroded to levels back where it was before the refugee crisis started in September 2015.
Brexit, it seems, is a topic many in Germany still feel uncomfortable getting close to, a political unease which is also reflected in public opinion. Most would rather let the dust settle first.
UK Prime Minister Theresa May has framed the upcoming UK general election as an opportunity to “guarantee certainty and stability for the years ahead” and to strengthen the government’s negotiating hand in the advancing Brexit negotiations.
In announcing the surprise general election that will take place on 8 June (an election was not due to take place until 2020) and in explaining her dramatic change of heart on an early election – a call she and her team had roundly dismissed as idle speculation only days ago – PM May evoked Brexit, saying: “If we don’t hold a general election now, [the opposition’s] political game-playing will continue and the negotiations with the European Union will reach their most difficult stage in the run up to the next general election… So we need a general election and we need one now. We have at this moment a one off chance to get this done”.
The following day the PM effortlessly secured the two thirds majority required in Parliament to pass the motion to hold a general election, with only 13 MPs voting against.
For a famously-cautious Prime Minister who has long trodden a cautious path, the announcement was a gutsy move. While the Conservative Party presently enjoys a 20% lead over Labour in the opinion polls, both Theresa May and her party will now have to weather a six week campaign in which Britain’s post-Brexit future will be debated and poured over in torturous detail.
While an election is undoubtedly a risk for the Conservatives, it also offers the opportunity for incredibly high rewards. At present, the party enjoys a working majority of just 17 seats – a margin that has proved highly susceptible to backbench revolts and coordinated attacks from the Labour Party. If, as the polls presently suggest, the Conservatives dramatically extend their majority, the Prime Minister’s hands will
be dramatically strengthened in the field of both domestic and international policy. An electoral triumph will also strengthen May’s position ahead of the Brexit negotiations, bolstering her personal mandate for Brexit among European leaders, and easing the passage of the estimated 12-14 new Brexit bills needed to go through Parliament over the next 18 months.
PM May’s surprise election announcement will also serve to shift the Brexit focus back to the UK, which had up to now been on the European Council and their formulation of the EU’s draft negotiating guidelines.
European Council President Donald Tusk was quick to respond to PM May’s 6-page letter formally notifying the EU of the UK’s departure from the bloc.
Just two days after the British PM triggered Article 50 on 29 March, President Tusk released the draft guidelines and core principles that will lay down the framework of the forthcoming negotiations.
The draft guidelines are currently under review by the 27 Member States and will be adopted at the extraordinary European Council summit on 29 April. These will be complemented by a more detailed negotiating mandate being drafted by the European Commission, due to be released early in May and then approved by European Affairs Ministers of the EU27 on 22 May. Once these are approved, the EU27 will be ready to start the negotiations for real.
The content of the draft guidelines clearly follow the approach the EU27 have consistently taken since the UK’s referendum. They stipulate that the integrity of the EU’s four freedoms is sacrosanct; that there will be no agreement until everything is agreed; that the withdrawal should be orderly; and that the UK should not get a better deal outside the EU than inside.
The guidelines also provide clarity as to the so-called ‘phased’ approach that the negotiations are due to take, and which both the European Commission chief negotiator Michael Barnier and Mr Tusk have emphasised. The negotiations can be broken down in two or three consecutive phases. ‘Consecutive’ is the important word here.
The first phase will focus on finding an agreement on citizen rights, border/sovereignty issues and financial liabilities. If the EU27 deem that sufficient progress has been made, only then will they be willing to move on to the second phase to discuss the framework of a future relationship between the EU and the UK.
Some European leaders, such as German Chancellor Angela Merkel, have already cast doubt over the extent to which a withdrawal and trade deal negotiations can take place in parallel. The guidelines clearly state that such a deal cannot be concluded before the UK leaves the EU.
The draft guidelines also state that “to the extent necessary and legally possible” the negotiations might also include a third phase dealing with transitional arrangements. The negotiating mandate will also be regularly updated by the EU27, depending on the evolution of the negotiations.
The phased approach will create a very particular negotiating dynamic and will pose different challenges for both sides. It will clearly test the EU27’s unity as the interests of each Member State are not completely aligned. Member States with important trade interests will be keen to wrap up the first phase of the talks as soon as possible so that sufficient time is devoted to discuss the future trade arrangements. Meanwhile, those Member States who have a significant number of their citizens residing in the UK will want to spend as much time on the first phase of the negotiations. Informal coalitions are already forming, with Denmark, Ireland and the Netherlands meeting last week in The Hague to discuss their own priorities.
The one topic where the EU27 are expected to remain in full agreement throughout the negotiations is over the financial settlement (how much the UK government will need to pay into the EU budget). The EU27 want the UK to pay back everything it owes to the EU27 to the very last cent. However, agreeing on a principle is one thing; the actual size of the bill will matter and will have important consequences for the negotiations. The higher the bill, the greater the UK’s demands will be for a future trade deal. All of these issues will be discussed when Theresa May meets
European Commission President Jean- Claude Juncker in London on 26 April.
Where do all these developments leave business? Clearly firms across all sectors will need legal certainty as soon as possible and they will also need a sufficiently long transition phase post-Brexit. However, the draft guidelines suggest that transitional measures will only be discussed at the very end of the negotiations, possibly leaving very little time to address them properly. This means it will be very important for business to continue to make a strong case for an appropriate transition period, to political leaders and officials both in London, Brussels as well as in the other EU Member States.
While governments across the EU will try to do as much as they can to mitigate any negative impacts caused by Brexit, it is inconceivable that the business and regulatory environment will remain the same. That means that while businesses should of course hope for the best, equally they should prepare for the worst.