Friday, 30 September 2016

Why a ‘Hard Brexit’ Looms for Britain

In World Economy News 30/09/2016

European Union governments are refusing to grant the U.K. any leeway on the link between immigration and trade as it prepares to leave the bloc, raising the likelihood of a “hard Brexit.”
Almost 100 days since a referendum signaled the end of Britain’s four decades of EU membership, a Bloomberg News analysis has identified a hardening of positions with even the U.K.’s traditional allies such as Ireland insisting it cannot “cherry pick” in the looming divorce talks.
The U.K. “cannot have the advantages of the European Union without carrying out the obligations,” Irish Finance Minister Michael Noonan said in an interview with Bloomberg Television.
Such intransigence may mean Prime Minister Theresa May ends up favoring a clean break from the EU to secure her goal of tougher immigration controls even if that costs the country access to the single market, a scenario dreaded by bankers and business executives.
“The dynamics within the government give the upper hand at the moment to the hard Brexit supporters,” former Foreign Secretary David Miliband told Bloomberg TV.
The analysis is based on interviews and public comments from officials in all 28 EU governments.
Among the other demands listed is that Britain must have “inferior” terms to what it currently enjoys as an EU member for fear that too many concessions will fan calls to leave from elsewhere in the region. Some want the U.K. to keep contributing to the EU budget in return for what benefits it does secure.
Central eastern European countries are particularly animated on ensuring that the rights of their citizens to work in the U.K. are protected, with some threatening to veto any Brexit deal that doesn’t allow for that. Others are worried the U.K. will seek to slash corporate taxes.
Prime Minister Theresa May declares “Brexit means Brexit,” while arguing that publicly detailing Britain’s negotiating position would risk undermining her in the talks. She has said the new relationship will be bespoke and “will include control of the movement of people coming to the U.K.,” a signal that reducing immigration is more of a priority for her than ensuring access to the single market. She has ruled out an Australian-style points system for controlling labor flows.
On commerce, May simply says she wants the “right deal for trade in goods and services.” Brexit Secretary David Davis went further in saying it was “improbable” that the U.K. could reduce the flow of EU workers and keep current trade links, a comment that earned him a rebuke from May. Davis and Trade Secretary Liam Fox have indicated they would like to withdraw from the region’s customs union to enable deals to be struck with other countries, although May hasn’t been drawn on that.
Chancellor of the Exchequer Philip Hammond is ready to accept the U.K. will have to give up single market membership to restrict immigration, two officials said this month. As for when May will trigger the formal exit process, she has said nothing beyond stating that won’t happen this year. Foreign Secretary Boris Johnson told Sky News last week to expect talks to begin early in 2017 and that they may not last two years, insights which also drew a slapdown from May’s office. May has also said she hopes to grant rights to citizens already in the U.K. so long as Britons elsewhere receive the same treatment.
Austria is pushing for more meetings to prepare for the Brexit negotiations, arguing they can’t be left to the leaders of the large economies. Finance Minister Hans Joerg Schelling says that “it’s worrisome” that May has signaled she won’t honor the EU’s “four fundamental freedoms,” adding that the U.K. can’t cherry-pick the benefits of membership.
Belgium is interested in shoring up the push for closer integration within the EU, at different speeds if necessary, while minimizing disruption in trade with the U.K. Brussels is hoping to attract companies from London that want to maintain a presence in the bloc after Brexit. The government also will be watching closely progress of Brexit-fueled populist sentiment, with a special eye on the nation’s northern region of Flanders.
Like many other eastern European countries, Bulgaria will seek to protect its 70,000 workers and students in the U.K. It is also worried that Brexit may divide the EU into the core and periphery. It is possible the country will seek guarantees it will get sufficient EU aid in case of a new migrant wave from Turkey.
Croatia, the newest EU member, rejects the possibility of cherry-picking elements such as access to the single market, without participating in all four freedoms, especially the freedom of movement.
Cyprus would like a “smooth and painless” departure of the U.K., according to government spokesman Nikos Christodoulides. “The EU is a set menu, not an a la carte arrangement, and the benefits from membership should always exceed those of non-membership,” he said, calling on the U.K. to state its aims with “sufficient clarity.”
“There is no way whatsoever for the U.K. to have the cake and eat it,” Czech State Secretary for EU Affairs Tomas Prouza said in an interview. “For us, it’s the four freedoms or no freedoms,” he said. “We would be very much against any compromise on the free movement of labor.” If the U.K. wants access to EU markets and for its banks to be able to easily sell their services in the bloc, then it needs to offer equal treatment for Europeans coming to the U.K., Prouza said.
Denmark, which has previously expressed sympathy for Britain’s view that there should be a crackdown on benefits to EU migrants, has since warned that remaining member states should not have to pay more into the EU budget once the U.K. leaves. That concern extends to the EU’s rebate system, which was instituted after Margaret Thatcher’s famous 1984 battle cry “we are simply asking to have our own money back,” and which now affects several member states, including Denmark.
The rest of the EU has “no time to wait” and must “overcome the shock of Brexit and move on together,” Prime Minister Taavi Roivas said on Sept. 9. “We need to remember that war is continuing both in Europe and its close vicinity and we need to stick together in these difficult times.” For Estonia the most important topics are safety and security as well as the internal market, he said. “We need to expand our opportunities with the closest partners by means of free-trade agreements.”
Finland cautions against British businesses being granted any unfair advantages, with Finnish Economy Minister Olli Rehn warning Britain over any attempts to initiate a corporate-tax arms race.
France continues to argue that if the U.K. wants to have access to the single market and retain “passporting” rights for banks, it will have to fully apply the rules of freedom of movement. Its bilateral concerns remain fishery territories and that status of French residents in the U.K. The French government also wants the U.K. to help handle regional migrants.
Chancellor Angela Merkel’s government hasn’t budged from its position that any U.K. access to the single market when outside of the EU would require the preservation of the so-called four freedoms, including the freedom for EU citizens to work in the U.K. Outside the official line, some members of Merkel’s coalition say Germany’s goal of maintaining close ties with the U.K. requires flexibility by the EU. “We should think out of the box, not only black or white,” Norbert Roettgen, head of parliament’s Foreign Affairs Committee, said in a Bloomberg interview on Sept. 8.
Prime Minister Alexis Tspiras has said little on Brexit other than to complain about the amount of EU attention devoted to Europe’s northwest when its southeastern corner is in such need. Europe must “stop walking in the wrong direction,” he said.
Hungary, along with other central European allies, supports vetting any Brexit deal that limits the movement of labor to the U.K., Prime Minister Viktor Orban told news website Origo on Sept. 22. At the same time, the EU should be “fair” to Britain in the negotiations and should focus on protecting trade, Janos Lazar, minister in charge of the Hungarian prime minister’s office, said on Sept. 22.
Ireland wants the U.K. to have as much access to the single market as possible, though it also wants Britain to allow free movement of EU citizens. In addition, Dublin is determined to avoid the reintroduction of any hard border with the south and north of Ireland.
“The best possible position for Ireland is that the position after the settlement will be very close to what the situation was before,” Finance Minister Michael Noonan told Bloomberg TV on Sept. 23. “But they cannot have the advantages of the European Union without carrying out the obligations,” he said.
Prime Minister Matteo Renzi doesn’t think it possible for the U.K. to reach a deal with both access to the single market and controls on immigration “because this is against European rules.” He told reporters on a September visit to New York: “For me, it is obvious the two things cannot co-exist.’’ Still, Foreign Minister Paolo Gentiloni says Europe has “every interest” in maintaining economic and foreign relations with the U.K. and “we are flexible up to a certain point.”
Latvia wants the status to remain the same for its nationals in the U.K, and for British nationals in the EU. It also wants the U.K. to remain close to the EU and continue to participate in the foreign policy and security community, Latvian Foreign Minister Edgars Rinkevics said in an interview with Bloomberg Television on Sept. 22.
Lithuania’s red lines for the U.K. to stay in common EU market are free movement of labor and contributions to bloc’s budget, Deputy Foreign Minister Raimundas Karoblis said. “Our interests are immigration and EU budget contributions — they should pay if they stay in the common market,” he said on Sept. 27. “If the British accept the free movement of people, theoretically we could let them intervene if there is too big an influx of immigrants from the EU. However, this should be proportionate and temporary,” Karoblis said.
A hub for investment-fund administration, Luxembourg is most interested in continuing to do business with London and establishing closer ties with the City of London after Brexit. The Grand Duchy is among secondary European business centers making a pitch to businesses that want to secure access to the EU’s single market.
Maltese Prime Minister Joseph Muscat says any deal for the U.K. must be “inferior” to the benefits of membership. He wants the agreement “balanced and just for all sides.”
Dutch Prime Minister Mark Rutte said in Bratislava in September that the damage of the U.K. leaving EU must be “limited as much as possible.’’ For Rutte, the U.K. is part of the EU as long as it doesn’t push the button to leave.
Poland, the biggest exporter of workers to the U.K., joined a chorus of voices from the EU’s eastern nations and signaled it may veto any Brexit agreement that would erode the rights of its citizens to live and work throughout the bloc’s single market. Deputy Foreign Minister Minister Konrad Szymanski told Bloomberg that Poland won’t support a deal that isn’t “balanced” in terms of the four principles of the single market — the free movement of people, goods, capital and services.
“It’s clear that negotiations on a new relationship are being held under pressure of a veto,” Szymanski said, when asked about the possibility of Poland blocking a deal. “Negotiations are aimed at avoiding a veto, but we will not seek a compromise at any cost,” he said.
Portugal insists that continued access to the EU single market depends on accepting free movement of labor, Secretary of State for European Affairs Margarida Marques told Bloomberg in August. “The ‘red lines’ are well defined and there is a broad consensus at the European level,” she said. “In the scenario of a relationship in which the freedom of movement of people is restricted, that would mean no access to the internal market.”
Portuguese Prime Minister Antonio Costa tried to sound optimistic when speaking to reporters on Aug. 31. “The U.K. will always be a fundamental partner of the EU, whether it’s in or out,” Costa said. “I have a very optimistic view about how the rights of the Portuguese who currently reside in the U.K. will be defended,” he said.
Romanian leaders from the president on down say the U.K. should not have a privileged status in relation to the EU after Brexit, which is, from their point of view, an irreversible move which must occur within two years. For Romania, protecting the rights of its citizens working and living in the U.K. is of paramount importance and thus the country plans to have a “very active role” in negotiating the Brexit terms, President Klaus Iohannis said.
Romania has the second-largest community of citizens currently working in the U.K., after Poland. It’s also counting on an existing bilateral investment agreement with the U.K. to ensure than British companies continue their investments in Romania and that Romanian investors retain their ability to expand in the U.K., according to Deputy Finance Minister Enache Jiru.
Premier Robert Fico said his nation, current holder of the rotating EU presidency, will reject cherry picking by Britain. “All of the fundamental freedoms must be respected and that has been clear from the very first moment we learned of the result of the British referendum,” Fico said after a Sept. 16 Bratislava summit of the EU’s 27 leaders minus the U.K.
Brexit talks must prevent creation of “second-class citizens” from workers of other member states now residing in U.K., Fico said on Sept. 26. Fico has warned that he and other eastern European neighbors may veto any deal if the U.K. doesn’t offer rights to their citizens working in Britain.
Slovenia has echoed its neighbors in opposing cherry picking in the Brexit talks. The government also says it will pay “particular attention” to EU budget issues in the negotiations as it doesn’t want the region’s coffers to be affected.
Spain’s interest is dominated by the protection of more than 100,000 Spaniards living in the U.K. as well as making sure that the economic contribution of about 800,000 of British people living in Spain at least part of the year continues. Acting Spanish Foreign Minister Jose Manuel Garcia-Margallo said this month that he aims to win joint sovereignty over Gibraltar as part of the Brexit negotiations.
Sweden says single-market access entails freedom of movement for people. Minister for EU Affairs Ann Linde says that while her government wants to be “a very constructive voice” during Brexit discussions, the country’s relationship with the EU is more important.

Source: Bloomberg