14 June 2017

The Times: Philip Hammond leads the charge for the UK to remain in the EU Customs Union

The Times reports that Chancellor Philip Hammond is preparing to lead the charge within government to keep the UK inside the EU customs union. One member of the Treasury told The Times that Hammond was predicted to win the support of newly appointed First Secretary of State, Damian Green. This comes as Environment Secretary Michael Gove yesterday reaffirmed the Conservatives’ commitment to leaving the EU customs union, saying, “We will be outside of the customs union as it is understood.” Open Europe has previously argued that the UK should leave the customs union in order to realise the full potential benefits of Brexit.

Separately, former Prime Minister David Cameron told a conference in Poland, “It’s going to be difficult… but perhaps [there is] an opportunity to consult more widely with the other parties on how best we can achieve it.” He also said, “I think there will be pressure for a softer Brexit,” adding that parliament “deserves a say” on the final deal.

Elsewhere, Scottish Conservative leader, Ruth Davidson, has reportedly told Prime Minister Theresa May that the UK must not trade away any fishing rights for concessions elsewhere in Brexit negotiations. She has called for the UK to withdraw fully from the EU common fisheries policy and establish a 200 mile fishing limit. Davidson’s election successes came largely in northeast Scotland, where the majority of the Scottish fishing fleet is based.

Source: Open Europe Intelligence: Nothing to Declare The Times Reuters

EU shies away from forced relocation of euro-clearing business from UK

In a statement that accompanied new European Commission proposals on the supervision of non-EU central counterparties (CCPs) engaged in euro-denominated clearing, Valdis Dombrovskis, Commission vice-president for financial stability, financial services and capital markets union, said, “The continued safety and stability of our financial system remains a key priority. As we face the departure of the largest EU financial centre, we need to make certain adjustments to our rules to ensure that our efforts remain on track.” The proposals establish a new “two tier” system for assessing how “systemically important” non-EU CCPs are. Tier one entities, which are judged to be not systemically important, would continue under existing supervisory rules established by the European Market Infrastructure Regulation (EMIR). New rules would apply to systemically important Tier 2 CCPs, including compliance with relevant central bank requirements and the provision of information to enable on-site inspections by the European Securities and Markets Authority (ESMA). Crucially, the new rules would allow ESMA to request that the Commission rule, in agreement with the relevant central bank, that a CCP must base itself in the EU in order to provide services there if it is deemed to be of sufficient systemic importance. Prior to the announcement, Xavier Rolet, chief executive of the London Stock Exchange (LSE), had said that forcing firms to move from the UK to an EU-27 country would produce a “rump, illiquid, and systematically more dangerous” euro market, although he added that the LSE was “well positioned to react and to take advantage of opportunities.”

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May aims for continued cooperation with EU as Macron says UK could still reverse Brexit

Following discussions with French president Emmanuel Macron, UK prime minister Theresa May said, “I confirmed to President Macron that the timetable for the Brexit negotiation remains on course and will begin next week… We want the EU to continue to remain strong and we want to continue to cooperate.” Macron said, “Until negotiations come to an end there is always a chance to reopen the door… As the negotiations go on it will be more and more difficult to go backwards.” This echoed earlier comments in an interview with Bloomberg by German Finance Minister Wolfgang Schäuble, who said it “would not be helpful” to speculate about the possibility of the UK reversing the triggering of Article 50 in light of the General Election results, while adding, “We take the decision [to withdraw from the EU] as a matter of respect. But if they wanted to change their decision, of course, they would find open doors.”

Answering questions about the Belfast Agreement and the Conservatives’ negotiations with the Democratic Unionist Party (DUP) pursuant to a governing majority in the UK parliament, May said, “We as a government remain absolutely steadfast in our commitment to the Belfast agreement and the subsequent agreements… We stand at a critical time with those Brexit negotiations starting only next week, I think that stability is important. We have worked as a party with the DUP before and those are productive talks.” 

Separately, the leader of Northern Ireland’s Democratic Unionist Party, Arlene Foster, yesterday said discussions for a ‘confidence and supply’ agreement with the Conservatives were “going well” and she hoped for a “successful conclusion.” Foster’s requirements for a deal are thought to include greater investment for Northern Ireland and assurances that the UK will pursue a soft border with the Republic of Ireland post-Brexit. She is also expected to call for maintaining both the pensions triple-lock and universal winter fuel allowance. Talks between the DUP and the Conservatives are set to continue today, with Sky News reporting a deal could be reached either today or tomorrow. This comes as Enda Kenny formally resigned as the Republic of Ireland’s Taoiseach yesterday. Leo Varadkar, the new leader of Kenny’s Fine Gael party, will be formally voted in as Taoiseach today.

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City leaders call for cross-party Brexit team

Douglas Flint, Chairman of HSBC, and a group of other top figures in the City of London have called on the government to disregard political barriers and tap “all the talents” available for the Brexit negotiations. Speaking to the Financial Times, Flint said, “If ever there was a time for cross-party agreement, surely it is now in relation to the Brexit negotiations. The UK surely would be best served with a negotiating team made up of the best talents [in the country].” The view was echoed by Anne Richards, chief executive of M&G, who urged the government to “put narrow party politics to one side,” and Lord Mervyn Davies, the former banker and Labour trade minister who said that “calmness, teamwork and consensus-building” were essential. City figures also called on the government to involve business more closely in decision making on Brexit, with Dame Alison Carnwath, Chair of Land Securities, saying that if business were “more democratically engaged with politics… and embedded in policy decisions, then we might be able to build an agenda for growth and prosperity which the population really needs.”

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Poll of economists finds expectation of UK single market exit reduced since general election

According to a poll of economists conducted by Reuters, the chances of the UK leaving the single market have receded after the general election. 33 economists out of the 49 polled suggested that the chance of a ‘hard’ Brexit had receded somewhat, and three said it had receded significantly. Nikesh Sawjani of Lloyds Banking Group said, “The prime minister may have to change her stance and approach to Brexit following the election outcome,” while George Brown of the CBI said, “The reduced majority of the Conservatives means that the mandate for a hard Brexit just isn’t there anymore.” The poll also reported that the pound might weaken even further, after sterling reached a two-year low on Friday. 26 of 50 economists predicted a further decline, fifteen said there would be no change, and only nine predicted that the pound would recoup some of its losses. Joanna Davies at Fathom said, “With markets unduly optimistic about the prospect of a Tory-led coalition, sterling is vulnerable to a further sell-off.”

Separately, in an interview with Bloomberg, German Finance Minister Wolfgang Schaeuble said it “would not be helpful” to speculate about the possibility of the UK reversing the triggering of Article 50 in light of the General Election results. He added, “We take the decision [to withdraw from the EU] as a matter of respect. But if they wanted to change their decision, of course, they would find open doors.”

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Commission to commence legal proceedings against Czech Republic, Hungary and Poland over refugee resettlement

The European Commission said that it will “launch infringement procedures” today against the Czech Republic, Hungary and Poland, as it judges them to be “in breach of their legal obligations” on resettling refugees. Migration Commissioner Dimitris Avramopoulos said, “There is still time ahead. Let’s hope that not only reason but also the European spirit will prevail.” However, separately, Poland’s deputy foreign minister Konrad Szymanski warned, “Poland is ready to defend its standpoint before the Court of Justice… [the Commission’s decision] may deepen the divisions within the EU.”

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UK inflation rises to four year high

According to figures from the Office of National Statistics (ONS), inflation rose to 2.9% in May up from 2.7% in April. The latest inflation rate is the highest since June 2013 and has exceeded the Bank of England’s 2% target. The ONS said the upward pressure came from “recreational and cultural goods and services,” particularly games, toys, and package holidays. The fall in the value of the pound since last year’s EU referendum has also increased the cost of imports, which has been one of the key factors behind the rise in inflation.

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Report finds cautious hiring optimism but warns of economic impact of cutting immigration to tens of thousands

Following the publication of a report by Manpower Group that found employers cautiously optimistic about hiring, James Hick, Managing Director of Manpower, said, “Employers have faced a triple whammy of uncertainty over the last few months – a snap election, the triggering of Article 50, and weak economic data for the first half of 2017. You might have expected hiring confidence to have taken a real hit, but employers have been standing firm. However, unquestionably they feared the outcome of a hard Brexit on the jobs market.” He continued, “The election result throws into question the Conservative commitment to slash immigration to the tens of thousands and double the levy on non-EU workers to £2,000. People might be surprised to learn that in the last year 80,000 Bulgarians and Romanians entered the UK workforce, while the size of the UK-born workforce did not increase at all, demonstrating just how accustomed we have become to a steady stream of labour from overseas. Slamming the door shut will leave us seriously exposed.” The report found the strongest regional hiring prospects in Yorkshire and Humberside, the South East and West Midlands, and that manufacturing, hospitality, utilities and agriculture are the sectors with the greatest prospects.

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Number of Britons acquiring German citizenship rises by 361%

According to the latest data from Germany’s Federal Statistical Office, the number of Britons acquiring German citizenship quadrupled last year, rising from 622 in 2015 to 2,865 in 2016. Even though Britons remain a small group within the overall numbers of naturalisations, which rose by 2.9% in 2016 to 110,383, these figures represent the highest annual number ever registered for UK citizens. Turks constitute the biggest group, with 16,290 becoming German citizens in 2016, while Poles come second with 6,632. German citizenship is granted to foreigners after eight years’ residence, with EU and Swiss nationals allowed to maintain dual citizenship.

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ECJ rules that UK and Gibraltar can be treated as single EU member state for the purposes of trade

The European Court of Justice (ECJ) ruled yesterday that trade between the UK and Gibraltar cannot be treated in the same way as trade between separate EU member states. In a ruling that could have practical consequences for Spain’s demand of a right of veto over Brexit trade arrangements insofar as they apply to Gibraltar, The Court upheld Gibraltar’s separate and distinct status within the EU, but said, “It follows that the provision of services by operators established in Gibraltar to persons established in the United Kingdom constitutes, under EU law, a situation confined in all respects within a single Member State.”

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Booth: UK must have the tools to chart its own course after Brexit

Writing for CapX, Open Europe’s Stephen Booth argued, “While public concerns about the scale and control of immigration certainly haven’t gone away, this election result certainly wasn’t a mandate to prioritise reducing immigration above all else. A more flexible UK attitude to immigration policy could ease both a smooth transition, and help the UK secure better terms in a new EU trade agreement.” He continued, “Yet in establishing a sustainable long-term relationship with the EU, it is essential that the UK does not deprive itself of the tools to chart its own course after leaving – such as an independent trade policy and control over its domestic regulation. Remaining in a customs union with the EU, or in the single market, rules out negotiating meaningful new trade arrangements with non-EU countries in goods and services. Without a vote in the councils of the EU, the UK would end up more, not less, dependent on Europe’s economic fortunes and political direction.” However, he added, “This does not rule out some form time-limited transition to a new relationship, via something resembling the EEA or even single market membership. Likewise, as Open Europe has previously suggested, it would make sense for the UK to remain in the customs union temporarily until new systems are in place at the Irish border and across the Channel, which might well take longer than the Article 50 timetable allows.” He concluded, “The central question – and the one which has always been the most important – is this. The UK is leaving the EU, which a huge majority in this new Parliament accepts. So how much control over the UK’s destiny is it acceptable to grant to the EU in order to secure favourable trade terms?”

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