Brexit weekly: 5 things

June 9, 2017 11:10 am

It’s all gone a bit wrong for the Conservatives…

The shock result of the UK general election and resulting hung parliament leaves Theresa May’s Conservatives short of a majority needed to govern – a fact that will not go unnoticed in Brussels, Berlin and Paris. Given that the major point of this election was to provide the Government with a mandate to manage Brexit, the losses the Conservatives suffered overnight have severely undermined the narrative of following the will of the British people. The Prime Minister has said she will carry on, but there are serious questions about whether she can continue with any level of credibility – and the Tory Party is an organisation that doesn’t tolerate failure. The situation facing Mrs May in the Commons is stark: even a Conservative Party voting in unity will be dependent on the DUP to pass legislation, and the Northern Ireland party will no doubt demand a ‘softer’ Brexit in exchange for their support. It may be that only an election in the autumn can resolve the current situation. Yes. Another one.

…Brexit negotiations may be delayed

EU officials have said that they’re willing to delay the start of Brexit negotiations, originally scheduled to begin on 19th June. The Government will be loathed to take up this offer, and will almost certainly press on with talks regardless to project an image of stability (as long, that is, the Conservatives do in fact govern as a minority). EU officials might have been chuckling slightly at the election result – Michel Barnier is on record as noting how unified the EU is in a not-so-coded reference to the UK’s trip to the ballot box. To be fair, discussions on major issues won’t start until after the German federal elections in September – but EU negotiators know full well the UK is in a state of flux, and that a further election (yes, another one) could be in the offing. So there’s no guarantee that anything agreed to in the short-term will stick.

The submission of Article 50 by the UK in March kicked off a two year countdown to the country leaving the EU. In theory, the deadline could be extended with agreement by all 27 of the other EU members. The only other way the UK could (again, in theory) unilaterally buy itself more time is to withdraw Article 50 – something that may or may not be legally possible – and then resubmit it later to ‘reboot’ the process. The alternative – drafting and agreeing an all-encompassing deal with a crippled government in the space of only 21 months – is daunting and doubtless the cause of some sleepless nights amongst the ranks in Whitehall.

The OECD doesn’t fancy the chances of a Brexit deal

The OECD warned this week that the UK’s economy will slow down in 2018 as concerns about a hard Brexit take their toll on confidence. Growth is expected to slow to one percent of GDP in 2018,  meaning Italy will be the only G7 nation with an economy performing more poorly than that of the UK.

The OECD’s calculations assume that the UK will leave the EU without a comprehensive free trade agreement, and be forced to trade with the bloc on WTO terms. Theresa May has left the door open to transitional arrangements, but given that the far simpler EU-Canada free trade deal took some seven years to put together (and didn’t have the preamble of being a divorce settlement), this may not have been the last general election we’ll have with Brexit as a live issue (yes, another one).

Without the UK, the EU is moving ahead with more joint defence work

Unencumbered by the UK’s insistence that NATO alone takes responsibility for European defence, the EU has this week unveiled plans to increase the level of security cooperation between member states. Unsurprisingly, the project is led by Germany and France, and is seen as a key part of the drive to help the EU recover from recent traumas. “Defence and security is one of the fields through which we can re-launch the European Union,” EU Foreign Policy chief Federica Mogherini said at the plan’s launch. The European Commission said it would put forward an initial €1.5 billion a year from the EU’s research and development budget – and the entire scheme could be worth up to €5.5 billion with member states contributions.

Although the UK has pledged its NATO role will ensure it retains a leading role in Europe, the EU has moved forward rapidly with its own programme to improve its self-sufficiency. Although only a small start, it will still alarm those in Westminster who believed military power was a key card for Brexit Britain.

Macron on course for a crushing victory in parliamentary elections

Even as the Conservatives come to terms with the loss of their majority, signs are that France’s President Macron, already riding on a tidal wave of good will, is set for a landslide victory in France’s parliamentary election, which will take place on 11th and 18th June.

Marcon’s La République En Marche (Republic on the Move) was set up as a political party only a year ago, but is now projected by Ipsos Sopra-Steria to be on course to receive 29.5% of the first-round vote, compared to the Republican and wider centre-right’s projected share of 23%. The National Front is expected to get 17%, with the Socialist on 8.5% and the hard-left France Unbowed at 12.5%. Taken forward to the second round, La République En Marche is expected to win 385-415 of the available 577 seats – potentially the largest landslide in modern French history.

Marcon is fiercely pro-European, and is expected to act to ensure the EU comes out from the Brexit negotiations in a sound shape. In his election manifesto, he described Brexit as a “crime” that will plunge Britain into “servitude”. He’ll probably roll-back this language during negotiations, but the former banker and Finance Minister will show little mercy in poaching investment from the UK.  Should the expected election result allow him to succeed in pushing through reforms to the economy, many multinational businesses that currently reside in Britain could find France a tempting proposition – a situation unlikely to be helped if the UK’s instability prompts another election. Yes. Another one.

For more information about Brexit and its impact, please visit https://www.whitehouseconsulting.co.uk/project-brexit/

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