Brexit

Q&A with MSLGROUP’s EU Affairs Lead on the BREXIT

By June 18, 2016 No Comments

With a week to go before the landmark British referendum that on 23 June will call on national voters to decide for or against EU membership, we have asked Leonardo Sforza, managing director of our office in Brussels and head of EU affairs at MSLGROUP, to share his views on and insights into an historic decision that will have far-reaching consequences well beyond the United Kingdom’s citizens and businesses.

Leonardo Sforza

What is the current state of mind among EU bureaucrats and diplomats in Brussels at the eve of the British referendum?

The horrific murder of British Labour MP Jo Cox in her constituency while campaigning for Britain to remain in the EU has stunned and saddened Brussels, as it has everybody that believes in democracy and rejects the hatred that has killed a peaceful and altruist woman. Jo was well known in Brussels, where she had worked as head of policy at the international charity Oxfam, and for former British Labour MEP Glenys Kinnock, before being elected to Westminster last year. Her murder should also be a source of reflection on the type of political debate that we wish for our democracies and for citizens’ engagement, putting a stop to the hate-filled and intolerant rhetoric in public speeches. 

The fact that the attacker is suspected to belong to a far right nationalist party and screamed “Britain first” before the attack is likely to change the dynamics of the referendum campaign that all party leaders have agreed to stop to honour Jo Cox memory.

Until this tragic murder, there has been a complex mix of feelings, with the mood being marked by denial, weariness and, particularly in these last few days, panic.

Denial of the possibility that the ‘leave’ camp could win the favour of the majority of British voters. This is perhaps justified because an overwhelming battery of factual evidence produced by independent and authoritative organisations shows that rationally nobody could claim any financial, social or political benefit to the United Kingdom and her citizens of exiting the EU. For every pound the UK puts into the EU budget, the City of London alone gets 10 pounds back in the form of increased trade, new investments, lower prices and jobs. Brexit, on the other hand, would sentence the UK to reduced growth by between 3.6% and 6% of GDP over the next two years, and a blow to employment through the loss of at least 520,000 jobs. Yet the advantages to the UK of remaining are even greater since this February, when Cameron and the other EU leaders agreed to redefine UK-EU relations with a compelling new legal framework that is fairly favourable to British interests. This would only come into effect if the electorate chose to remain. Of course, all deals are off if Brits decide to leave. Moreover, on one of the most fiercely debated issues concerning the recognition of welfare benefits to EU migrants to the UK, the European Court of Justice has just ruled in favour of the British government. The highest European Court has recognised the right of the host country, in this case the UK, to limit the conditions under which social security benefits are provided.

Weariness is also pervasive, and tinged with a sense of guilt. There is a recognition that, over the last decade, both EU decision makers in the institutions as well as the broader Brussels stakeholder community have frequently adopted an inward-looking, ‘head in the sand’ attitude and pursued too many seemingly disconnected, self-referential initiatives rather than addressing simple, but crucial political questions: What should the European Union stand for? How should its mechanics be reshaped to reflect its raison d’être in an evolving social, economic and geopolitical environment?

In the final stages of the debate, there has been a surge of panic surrounding the unforeseeable consequences of Brexit and the long period of uncertainty that will follow for businesses, investors and citizens. This great alarm is palpable here in Brussels within the large and influential community of British expatriates, among EU civil servants, and among all other expat residents from around the world. Some early signs of such panic permeating the financial markets are already evident. Polls predicting a win for Brexit supporters have triggered a nosedive on the London Stock exchange, with £100 bn. wiped out over the last four days alone, and has been affecting all other main stock exchanges. Meanwhile Sterling has been losing ground on the exchange rate against the US dollar and the Euro.  

What is your advice to clients at the moment on how to prepare for the initial consequences of a Brexit and a Bremain?

There is change ahead of us after the 23 June, irrespective of the result of the referendum. With my team, we have already begun to advise public and private organisations on the implications of regulatory changes and policy orientations that will follow in one scenario or the other. The reality is that, given the inter-dependence of UK and the EU markets, there will be material consequences for businesses irrespective of the industry or countries in which they operate. The knock-on effects of the referendum result will also necessarily have an impact on other economies, national governments and public opinion.

In the case of Brexit, companies will need to reassess and reorganise their market strategies and operations, review market access requirements, reengineer as appropriate their legal structure and financial model, review their HR policies and redefine their public affairs and communication strategies. In a nutshell, it will cost a lot of energy and resources throughout the transition period until the exit process is finalised. Even then, such costs will continue in preparing the new round of negotiations with EU countries after the exit is formalized, and that can take another 4 to 6 years. In the case of the UK remaining in the EU, there would be much less to do, but nonetheless there will be a number of changes to be assessed and addressed as a consequence of the new UK-EU agreement, which will institutionalise a number of exceptions for the UK.  

Can you already foresee any concrete long term consequences of a Brexit on EU regulatory matters?

There are far-reaching consequences that can already be predicted, and many others which remain completely unknown. What is certain is the snowball effect a Brexit decision on financial markets, investment flows and on the potential reactions of other countries where euro-scepticism has been gaining ground – and this should not be underestimated. Immediately after the referendum results are formally certified, the UK must notify the EU. In case of Brexit, the EU treaty allows for a maximum period of two years during which the UK government and the EU, under the direction of the Commission, will have to finalise the terms and conditions of the divorce before it becomes effective.

There are countries, such as France, that will push to speed up this process and unwind all treaties and agreements binding the UK as quickly as possible in order to send a strong signal across Europe about the real and tangible consequences of leaving the EU, and reduce as far as possible the period of uncertainty surrounding it. Trade relations will have to be re-evaluated sector by sector, British supervisory authority and the portability of British decisions, which are recognized today by other EU authorities, will no longer be recognized. This will lead to the re-location of many businesses, notably in financial services, from London to other EU capitals. The 1.2 million British citizens living in other European countries will no longer have automatic access to social services and healthcare, to consumer protection, access to justice and redress.  And these are just a few of the very concrete examples of consequences. The process will be incredibly cumbersome and full of uncertainty for everybody doing business in or with the UK.

What is the sentiment in Brussels on how a possible Brexit would affect the role of the “European Capital” as such? Will a weakened EU also make Brussels less important?

Brussels is and will remain one of the two most important axes of powers, communication and influence, alongside Washington D.C. Almost all companies and governments, most notably those from outside the EU, have come to understand the unique strengths of the Brussels arena.

The multi-polarisation of the centres and actors of influence in the EU over the last decade has increased and not diminished the importance of Brussels. The fact is that in today diplomacy and international relations the sharing of power is not a zero sum game or a confrontation of one power against others. It is the ability to aggregate and work with others, build coalitions and networks based on common ground to shape new policy direction and decisions. Even if the political drivers and “hard powers” are based in Berlin, Paris, Washington, Moscow or Beijing, soft powers centres of influence matter more. Brussels has more than proved itself to be one of these and may even become more important in the near future since it remains the most “neutral” ground for addressing new compelling global issues.

In conclusion, although the British approach to the European Union has always been more transactional and opportunistic, rather than truly strategic and politically visionary, the referendum can claim the merit of pushing a few in the Brussels bubble and several leaders in the Member States to address a number of un-answered questions; questions raised not only by the British, but by the many citizens across the continent. From Sweden to Italy, from Poland to Portugal, each with their different nuances, there has been a final call to Brussels for a less bureaucratic and more people-centric European political project.  

The challenge posed by the British still has the potential to develop into a great opportunity for the UK itself, if the country decides not only to remain but to eventually “join in” and lead a new phase of the European Union project. It is also an opportunity for the other EU leaders to redefine and cement a new pact for Europe, based on the fundamental values and freedoms that this project has been promoting – often successfully – rather than adopting the bean-counting attitude that I have too often witnessed in EU meetings in Brussels, where the power of bureaucracy has only been reinforced by filling the vacuum created by feeble political will, lack of leadership, and stakeholders dis-engagement.

 

By Leonardo Sforza, Managing Director, Brussels, MSLGROUP