One month on, we examine what post-Brexit developments mean for the political and legislative agenda in Brussels and London, and what this means for business. One month on from the UK’s vote to leave the EU the dust has begun to settle following one of the most tumultuous political periods for the country in recent decades.
The earlier than expected change in personnel at the top of the governing Conservative Party is complete and attention is now turning to the detail of what a vote for Brexit means for the UK’s economy. While it is still too early for comprehensive data to emerge on the impact of the vote, some early indicators are beginning to show the impact of Brexit on investors and consumers.
The view from Brussels
Reactions to the new government
The appointment of Theresa May has been received with cautious relief by policy-makers in Brussels wary of prolonged political uncertainty or an anti-EU leader in the UK, and eager to get on with the process of Brexit. May is well known in Brussels from her time as Home Secretary and respected as a knowledgeable, dedicated and pragmatic politician. She is, however, expected to be a tough negotiator. She has also been welcomed in Berlin and Paris.
May’s cabinet appointments of Eurosceptics Boris Johnson as Foreign Secretary, David Davis as Secretary of State for Exiting the EU (“a title that amounts to a diplomatic provocation of sorts”, opined Politico) and Liam Fox as Secretary of State for International Trade has however caused alarm. “It is interesting to see how many Brexiteers are in key positions,” said Tomas Prouza, the Czech European affairs minister. “I assume it is a warning for us that the negotiations will be tough and long.”
Johnson is not remembered fondly in Brussels from his time as a correspondent for the Daily Telegraph in the early nineties. “Boris Johnson spent part of his life in Brussels; it’s time for him to come back to Brussels, in order to check if everything he’s telling the British people is in line with reality,” commented European Commission President Jean-Claude Juncker. Johnson is notorious for – among many less than diplomatic remarks on foreign policy – likening the EU to Nazi Germany. National politicians were sharp in their reactions to the appointment: French Foreign Minister Jean-Marc Ayrault called Johnson a “liar” who would “have his back against the wall” as the UK tried to negotiate its future relationship with Europe; while German Foreign Minister Frank-Walter Steinmeier said Johnson was an “irresponsible” politician who “lured the country into a Brexit”. The rumours in the cafes surrounding the EU buildings is that Johnson’s first snub came as European foreign affairs ministers cancelled an informal dinner on Sunday 17 July ahead of his first Foreign Affairs Council. The official reason was that they considered it “inappropriate” in the wake of the Nice attacks, but usually an attack would mean all the more need for an extra meeting. This discrepancy has given credence to the rumour that a number of ministers said they did not want to dine with him.
The negotiations going forward
May’s first foreign trips to Germany and France succeeded in tempering the pressure on the UK for an immediate start to exit negotiations with the EU, and it is broadly accepted now among European leaders that Article 50 will not be triggered before the end of the year.
That being said, EU leaders continue to press that negotiations should start “the sooner, the better” given that – in the words of Hollande – uncertainty is “the greatest danger” for Europe’s economic stability. The pressure to ensure a swift break has however been eased slightly by the reported decline of Eurosceptism across the EU following the UK vote. Contrary to fear of political contagion (notably in countries such as France, Germany and the Netherlands with elections in 2017), early polls indicate that European citizens’ appreciation for the EU has risen, and support for similar referenda has dropped.
In the meantime, the EU is developing its negotiating team under Belgian diplomat Didier Seeuws. EU officials are also working to set up guidelines and common rules for the Article 50 provisions, so that there are no misunderstandings during the official Brexit talks about the procedure, for example as concerns the timetable and whether discussions on a future trade deal can proceed in parallel.
In order to move towards consensus on the EU position in the forthcoming talks, an informal gathering of heads of state and government is planned in Bratislava on 16 September. The leaders of Germany, France and Italy also plan to meet in late August in Paris to discuss the issue.
EU leaders remain resolute in their position on freedom of movement, which will be, according to Hollande, “most crucial point” in future exit negotiations. Echoing Hollande and the common EU position, Merkel reiterated that: “Whoever would like to have free access to the European internal market will also have to accept all basic freedoms in return, including the free movement of people.”
The future of the EU and the role of the UK
Although the UK remains a full member of the EU until its formal departure (supposedly two years after the beginning of official exit talks under Article 50 TEU), the shift in Brussels to talk of the “EU27” continue. Commissioner Hill’s replacement by Julian King is proceeding (although it will not be confirmed until September when King will be grilled by MEPs and then, in principle, appointed by the Council) but his portfolio is likely to be minor (some MEPs called for him not be given one at all). The Council on 20 July adopted a decision to bring forward Estonia’s Presidency to take over from that of the UK in the second half of 2018.
British officials continue to apply for passports of other EU countries, as even if they are allowed to remain in their posts, the expectation is that their career opportunities will be greatly restrained. The UK Permanent Representation (UKREP) has been shifted from the FCO to the newly formed “Brexit” ministry, signalling the nature of the future role of British diplomats in Brussels.
Even if most companies have decided for a “wait and see” approach as regards their operations in the UK and access to the EU market, UK and international business are starting to realise the impact of this looming gap of British interest representation in EU policy debates. According to voting projections, the UK’s departure is likely to tip the balance of power in the Council in France’s favour.
The view from London
There have been some reassuring announcements this week – the Bank of England reported that business and consumer activity had not (in its first analyses) dipped as predicted, and the strongest employment statistics on record were published on Tuesday. However, the International Monetary Fund nonetheless cut its growth forecasts for the UK economy in 2016 (1.3%, down from 2.2%) and warned that even if a quick deal is reached, long-term growth of the economy will be lower than previously forecast. Some commentators have observed that many businesses did not have contingency plans in place for a vote to leave – so ‘business as usual’ in short-term activity may soon change as companies adjust their long-term planning.
Theresa May’s new government is acutely aware of conflicting priorities: the need to curb uncertainty by moving decisively to implement the Brexit mandate while not triggering negotiations before the UK’s negotiating objectives – the long-term vision for its post-EU position – are clear. The importance to her of the compromise position she has carved out – to insist that ‘Brexit means Brexit’ while not beginning formal negotiations until 2017 – is reflected by her determination to defend it in Berlin and Paris over the last couple of days.
Domestically, May’s government has maintained its focus on continuing Cameron’s legislative programme – calming markets and projecting an image of stability – while overhauling the personnel and structure of the government in order to implement her vision of a government built around a new industrial and social strategy, and to prepare the UK’s position for negotiations with the EU.
The outlines of this position are still far from clear – but the political dynamics are becoming more so. It is highly significant that the new Prime Minister’s first major political engagement outside London – before Berlin and Paris – was to Edinburgh, in an attempt to bring First Minister Nicola Sturgeon’s Scottish National Party into discussions on the UK’s negotiating position.
The politics of a ‘unity’ cabinet
In the decisions taken to appoint her cabinet, the Prime Minister’s focus has been on renewal and ensuring Brexit voters within her party and across the country are recognised. The key outcome is that high-profile ‘leave’ campaigners have secured some of the top roles while departments aiming to inject new life into the economy have been allocated amongst a cadre of experienced ministers considered to be ‘safe pairs of hands’.
The appointment of David Davis, a long standing anti-EU Conservative backbencher, as Secretary of State for Exiting the European Union – who joked that he would’ stand by the devil if it meant the UK left the EU’ – should go some way in assuring ‘leave’ campaigners that the Brexit negotiations are being headed by someone dedicated to the cause.
The popular figurehead for the campaign to leave the EU, Boris Johnson, has also been elevated to head up one of the key departments of state, as May’s Foreign Secretary. The prestige of this position has meant this appointment has been heavily scrutinised in the media – but May has also reallocated key responsibilities away from the department.
EU negotiations have transferred to Davis’ department, and Liam Fox is heading up the newly created Department of International Trade. A prominent Brexiter and former Defence Secretary, Fox is nonetheless a relatively lesser known quantity in a business-facing role.
Elsewhere, however, May has opted for experienced appointments that should reassure business – not least in Greg Clark, heading up the newly formed department for Business, Energy and Industrial strategy. Clark is considered one the most intelligent and key thinkers behind Conservative policy.
His experience in developing and implementing policies aimed at devolution and city deals will be crucial given that the UK’s intra nation relations are so critical.
Measured decisions on the economy have also been reflected in the rhetoric delivered by Philip Hammond following his move to Chancellor. Announcements that there will be no emergency budget and the reaffirmation that he is confident that major projects like Hinkley and HS2 will go ahead all ring true of a Government that, where possible on the economy, wants to project consistency.
Taking stock – buying time and building department
Aware of the task faced by the Government in conducting Brexit negotiations both Davis and May are on record saying there will be a pause before Article 50 is triggered, with the most likely timing appearing to be early next year. However, there has been further pressure on May to delay until the governments of the devolved nations agree on a common UK position.
While the Scottish Government has clarified that it holds no veto in triggering Article 50, Nicola Sturgeon has warned that if it is not possibly to keep Scotland in the EU, it is “highly likely” to lead to a second independence vote.
The Prime Minster has also found some success in bringing her European counterparts to a position more accepting of a delay. Having initially received calls from the European Commission to trigger Article 50 as soon as possible, during May’s trip to Germany this week Chancellor Angela Merkel accepted that the UK needs to “take a moment” before triggering official Brexit negotiations.
The French President Francois Hollande has not deviated from Merkel’s line but has underlined that remaining in the single market requires accepting the free movement of people. Anything less than this will require the UK to come to an alternative arrangement.
Behind the scenes, Government machinery is spurring into action to assemble the ‘Brexit department’ as quickly as possible. With the full resources of a department of state (with at least 1,000 civil servants led by high flyers drawn from across Whitehall, in a grand ministry building vacated by the recently dissolved Department of Energy), the new ministry, under David Davis’ leadership, will begin by mapping out the complex legislative tree of the 12,295 intertwined UK and EU laws. The complexity of this exercise – in a department that is starting from an effective headcount of zero – underlines the scale of the administrative task ahead.
Business’ role in shaping the road ahead
Although this delay in triggering Article 50 means a continued lack of certainty around what the future relationship between the UK and the EU will look like, many businesses have responded positively to the Government’s this dialling down of pace. Entering into the unknown will undeniably cause apprehension but an extended period of preparation will allow businesses to input and inform the UK’s negotiating position. This should help officials get the details right and the evidence they need to ensure the best possible outcome is secured.