Theresa May made it clear that Brexit will be a hard one, meaning a clean break from the European Union, regaining control of the borders and leaving the European single market.
Significant uncertainty weighs on the calendar of negotiations: Nicola Sturgeon has proposed a referendum on Scottish independence from the United Kingdom. Theresa May has already rejected the proposal.
What the Lisbon Treaty says:
- Article 50 of the Treaty on the European Union provides a voluntary and one-sided withdrawal mechanism;
- The EU country that decides to leave shall notify the European Council, which has its own guidelines for the conclusion of an agreement. Such an agreement shall be concluded on behalf of the European Union by the Council, after approval from the European Parliament;
- The Treaties shall cease to apply to the country in question from the date of entry into force of the withdrawal agreement or two years after the notification of the withdrawal. The Council may decide to extend this deadline;
- Any country that has left may apply to rejoin, going through a new application process;
- The agreement shall be concluded by the EU Council and it will lay down the procedures for the exit, including a framework for future relations. The agreement must be approved by the Council, after approval by the European Parliament.
It is difficult to translate into figures the trade effects of a European Union exit, but they will be important. The normal WTO tariffs (i.e., the rates that WTO members such as Britain, the US and the EU apply to exports among themselves) are low.
But, as seen in Europe and North America, guaranteed access to markets produces relevant effects because it encourages long-term investments to sell products or services in more countries. The elimination of this guarantee, in the long run, will impact trade negatively, although there should not be any sort of trade war. Another result will be that Britain will become less productive. But, for the moment, all the talk will focus on the financial impact: a market meltdown and recession in the UK. For those who say that the UK has not suffered any real damage from the Brexit process, one has to remember that UK economy is doing better than expected because it has not left the EU yet. However, the country saw a significant drop in the pound, £100bn extra borrowing (meaning more debt) and there is the effect of the Bank of England’s quantitative easing to consider. Last, but not least, bankers are ready to flee from London to Frankfurt, which is now the cheapest financial centre in the EU.
On the Political Side
2017 can be the year of “truth” for Europe, with elections in France, Germany and possibly Italy. This year will show whether there is still an EU project. In France, Marine Le Pen has the clear intention of pursuing anti-euro policies and holding a referendum on a possible Frexit.
Center-right candidate Francois Fillon has seen a significant drop in the polls following the scandal involving his wife, while Macron and Le Pen have 43% and 32% chances of winning, respectively. Looking at today’s France, surely the threat of terrorism is an element that can shift the political balance. A new attack would move the debate further to the right, clearing the way for a challenger that focuses on the contrast between immigration and security.
The Germen Perspective
In Germany, SPD candidate Martin Schultz had an immediate positive effect for his party in the polls, rising as the main preference (50%) against Angela Merkel (34%). In recent weeks, several analysts have pointed out that a series of factors could make the final result a little more uncertain: among them, the rise of consensus for the AFD, the leading German party of the radical right; the party was formed in 2013 and has achieved good results in their first regional elections. Nothing has, therefore, been decided yet, but Merkel, until recently favoured for victory, is likely to miss a fourth term.
Brexit Deal Gives Trade Talks the Go-ahead
The UK has reached a deal on three contentious issues which have prevented negotiations moving on to trade. The deal ensures no “hard border” between Northern Ireland and the Republic of Ireland, that the rights of EU and UK citizens be protected irrespective of whether they live in the UK or EU post-Brexit and commits the UK to a divorce bill settlement estimated to cost between £35bn and £39bn. EU Commission President Jean-Claude Juncker called the deal “the breakthrough we needed.”
— UK Prime Minister (@Number10gov) 8 December 2017
Why It’s Important
“Theresa May has achieved what she wanted – the green light to move on,” said the BBC’s Political Editor Laura Kuenssberg. Britain plans to leave the EU at the end of March 2019, yet trade has not been discussed. May will now be able to negotiate on trade and a transition deal, providing businesses with greater clarity over the regulation. However, the entire basis for UK-EU relations is still to be discussed.
“We all know that breaking up is hard but breaking up and building a new relation is much harder.”
European Council President Donald Tusk
The EU plan to offer Britain a Canada-style trade deal, which would impose new tariffs on trade, a document leaked last month revealed. Trade negotiations are expected to be tough and could take several years. The importance of reaching a clear transitionary framework will be vital for businesses, and a lack of clarity may deter businesses from investing in the UK.
Irish Border Deal Falls Through
Following rumours that consensus had been reached, the DUP’s objection caused it to fall through.
Yesterday, senior officials said that “regulatory alignment” has been achieved on the issue of the post-Brexit Irish border. However, while this appeased Ireland, Northern Ireland’s DUP rejected draft proposals – despite Theresa May personally phoning DUP leader Arlene Foster. Given that the Conservatives owe their working parliamentary majority to the co-operation of the DUP, the latter wields significant power in the ongoing Brexit negotiations. The collapse of the deal comes just days before the December EU summit and therefore reduces the time available for the member states to outline their proposals for the union’s future relationship with the UK.
UK Assault Ships Face the Axe
The Royal Navy may cut key strategic warships in order to plug a £20bn black hole in funding.
Gavin Williamson, the UK’s new defence secretary, may have to axe HMS Bulwark and HMS Albion, Britain’s two amphibious assault ships. Presently, the UK and France are the only two nations in Western Europe with the capacity to conduct large-scale amphibious assaults on enemy territory. As such, the possibility of the UK scrapping this capability has prompted worry among its NATO allies. The US has said that the removal of the UK’s amphibious ships would strongly impact America’s strategy in Europe while also strengthening the hand of NATO’s opponents.
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