Brexit

Brexit: Where Do We Go from Here?

By September 6, 2016 No Comments

Few material changes have taken place in Brussels or London since 52% of Brits voted to leave the European Union on 23 June. But behind the scenes, perceptions are shifting and a world of uncertainty lies ahead of us. It has become clear that the political leadership that raised the Brexit question did not plan for the eventuality of the vote to leave the EU. The complacency of David Cameron’s government is all the more surprising given that, in the informed judgement of the European Union Committee of the House of Lords, “withdrawal from the EU is arguably the most complex, demanding and important administrative and diplomatic task that the Government has undertaken since the Second World War”. The select committee is now quite rightly pushing for Parliament to have the right to scrutinise the withdrawal negotiations and the future of the relationship between the UK and the EU.

The most visible and remarkable post-Brexit changes regard the reshaping of the political power map. Firstly, the result was swiftly followed in Westminster by the replacement of UK Prime Minister David Cameron with Theresa May and a subsequent cabinet reshuffle which saw the PM appoint a brand new team, including new dedicated ministers for international trade and managing Brexit, arch-Eurosceptics David Davis MP and Dr Liam Fox MP. Prime Minister May is however expected to drive the Brexit process directly by chairing a special cabinet committee that brings together Davis, Fox and new Foreign Secretary Boris Johnson MP. Secondly, the UK’s Commissioner for Financial Services Lord Hill resigned in the wake of the referendum result. Hill will be replaced, subject to European Parliament endorsement expected in September, by Sir Julian King, the former British Ambassador to France.

Sir Julian will be in charge of the implementation of the European Agenda on Security. The decision to place King in this position has been well received as a move that plays to the UK’s strengths and elevates the counter-terrorist agenda to a single Commissioner’s portfolio. Thirdly, the UK has withdrawn from its duty at the helm of the rotating presidency of the Council of the EU, which had been scheduled for the second half of 2017. This responsibility will now be taken on by Estonia. Finally, both the Council and the Commission, in a typical Brussels intra-institutional power struggle for leadership of the process, have each appointed a chief negotiator. Didier Seeuws, a respected Belgian diplomat and former Chief of Staff to previous Council President Hermann Van Rompuy, takes on the mantle for the Council, while the Commission has appointed Michel Barnier, a seasoned pro-European French politician and former minister, who proved his capacity to negotiate with the British during his tenure as European Commissioner for the Internal Market and Financial Services.

Even before the formal withdrawal process has begun, the less visible side of the Brexit story in Brussels is manifesting itself in the gradual marginalization of British influence on a number of pending policy decisions in the EU decision-making process.

Before any action is taken, May’s government must first agree on how to face this withdrawal procedure; when to trigger the formal notification required by EU law, and indeed on which goals to strive for. Beyond the legal and institutional scrutiny of the decoupling process, different interpretations are being elaborated on the steps to be taken and on the substance of what the UK could and should put up for discussion as it tries to redefine the nature and scope of its relations with the EU. The creativity and skill of specialist EU lawyers will certainly be able to find plausible legal answers on how best to frame any political decision that emerges, but legalism won’t be a substitute for well-informed, thoughtful and transparent political choices, ideally preceded by thorough parliamentary scrutiny. The outcome of this process, whatever it may be, will have to be negotiated by the European Council with the material input of the Commission, be approved by a qualified majority of EU member states in the Council of Ministers and finally be backed by the European Parliament. Pre-existing scenarios for EU-third party bi-lateral cooperation range from the Swiss model, focusing on selected policy areas, to the Turkish custom-specific model or the more comprehensive free-trade Canadian model that has still to come into force. Examples of a more multilateral cooperation framework include the case of EFTA countries within the European Economic Area, which extends the EU internal market and several other policy programmes to Norway, Iceland and Lichtenstein. The default option of market access to EU countries would be to fall back on World Trade Organisation rules. Some options, such as UK accession to the EFTA-EEA agreement may be less cumbersome to finalise, but all will come at a cost and none of them can replicate the more favourable pre-Brexit conditions.

The EU leadership in Brussels may be willing to afford the UK some patience as the country gathers itself before launching into the formal procedure of withdrawal, but Brussels is unlikely to accommodate a filibustering agenda that allows the UK to cherry-pick the most favourable mutual recognition rules and principles purely in its own interests, potentially jeopardising the EU’s core principles.

Commission President Juncker’s State of the Union speech on 14 September and the parliament debate that follows are likely to publicly uncover the first real insights into the lines that these two institutions intend to pursue going forward. Two days later, on 16 September, the meeting of the other 27 Heads of State and Government in Bratislava will complete the picture with preliminary national perspectives, and will hopefully see the beginnings of a sorely needed common direction on EU focus and approach.

There is general consensus that the EU cannot continue busi¬ness as usual by simply acknowledging the reduction of its members. That said, there is little appetite for upheaval after the clamour of recent months, and a busy agenda of national elections in 2017 precludes a Copernican revision of the EU’s workings in the short term. Although the administration of Brexit will remain centre stage in Brussels for the foreseeable future, the UK remains in the EU with all rights and obligations until the “divorce” is made official, at the current rate not earlier than 2019. Even so, the most resounding signal that the EU is continuing to fully apply its rule book, is given by the 13bn euro tax bill just adopted by the Commission declaring unlawful the Irish “sweetheart” tax regime granted to Apple.

The decision opens the way to further investigations on the alleged practices of Apple and other companies by European and US tax authorities, while reinforcing the principle that any national tax ruling allocating profits to an entity that exists only on paper is a form of illegal subsidy. Moreover, there are a number of new legislative proposals underway, many crucial regulatory decisions to be taken and several hundred executory acts to be finalised as part of the EU’s day-to-day business. From energy to financial services and the digital world, in the following pages we provide an update on the most relevant legislative initiatives in the pipeline. We remain available to support organisations in understanding and navigating the Brussels arena and the interplay with relevant national policy landscapes.

This article is part of the September 2016 edition of Insights Brussels – a regular update on key EU policy developments. For real-time updates, follow @MSL_Brussels or reach out to us on Twitter @msl_group. You can also connect with our team of public affairs experts –Leonardo Sforza, Olivier Hinnekens, Romain Seignovert, Alastair Bealby and François Troussier.

By Leonardo Sforza, Managing Director, Brussels, MSLGROUP

Leonardo-Sforza-150x150Leonardo has 25 years of Brussels-based experience in addressing European Union policy issues and corporate strategies. Until March 2012 Leonardo was the Head of Research and EU Affairs at Aon Hewitt were he has been advising global multinationals and the European Commission on financial service institutions, human capital and governance. Before that Leonardo worked for several departments of the European Commission where he led numerous initiatives supporting job creation and business competitiveness in the service industry. Leonardo has been chairing since 2005 the scientific committee of the European Club for HR, and lecturing on European Community Law at Italian, French and North American Universities.