15 February 2018

EU discusses relaxing Brexit transition arrangements

The EU is considering relaxing the terms of a Brexit transition arrangement, Politico reports. The European Council’s Brexit working party has met yesterday and will meet again today to consider shifting the EU’s position on the mechanism to sanction the UK if it breaks EU rules during a transition. Under the new proposal, if the UK fails to comply with EU law during this period, the Commission would start an infringement procedure against it under Article 258 of the EU treaty. Only if the UK is found in breach of EU law and refuses to act on such a judgement would unilateral measures of suspension be considered.

Separately, the EU will grant increased powers to the European Supervisory Authorities (ESA) during the transition period, The Telegraph reports, adding that the authorities will demand legal access to information from British financial services firms, as well as the right to conduct on-site expectations. This data will be used in the decision-making on whether the European Commission will grant equivalence status to the UK banking industry.

Elsewhere, David Dingle, the chairman of Maritime UK, a promotional body for UK shipping and ports, has called on the government to agree a Brexit transition period “as quickly as possible” as without one “the industry as a whole will be in trouble and the whole logistics chain will be in major trouble.” He argued, “You could have a permanent Operation Stack (the procedure used in England to park lorries on the M20 motorway when services across the English Channel or from the Port of Dover are disrupted) for 20 miles, it [the traffic] will just sit there.” He added, “Drivers can be stuck for days; it [Stack] can be horrendous.”

Source: Politico Brussels Playbook The Guardian The Telegraph

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UK should diverge from EU standards after Brexit, says Boris Johnson

Speaking yesterday, Foreign Secretary Boris Johnson outlined his vision for a “liberal Brexit.” Johnson said, “We would be mad to go through this process of extrication from the EU and not to take advantage of the economic freedoms it will bring.” Johnson also said that the UK should diverge from EU rules after Brexit, explaining that, “When it comes to EU standards for washing machines or vacuum cleaners or hairdryers or whatever, it may very well make sense for us to be in alignment…But I don’t think that we should necessarily commit forever and a day to remaining in congruence.” He stressed that it was “all about voluntarism”, adding, “If you’re going to come out, then you might as well take the advantages of difference.” During the implementation period, however, “Things will remain as they are,” he said.

Johnson argued that the priority goal of EU laws was to “help to build a United States of Europe,” and that “If we are going to accept laws, then we need to know who is making them, and with what motives, and we need to be able to interrogate them in our own language, and we need to know how they came to be in authority over us, and how we can remove them.”

Responding to Johnson’s speech, European Commission President Jean-Claude Juncker said, “Some in the British political society are against the truth, pretending that I’m a stupid, stubborn federalist, that I’m in favour of the European superstate… I’m strictly against a European superstate.”  He added, “We aren’t the United States of America, we are the European Union, which is a rich body because we have these 27, 28 nations…The EU can’t be built against European nations, so this is total nonsense.”In a press conference, Juncker also defended the Spitzenkandidat process for selecting his successor, arguing, “We need candidates who are put forward both by the Council and by the Parliament…The lead candidate … will therefore have a double legitimacy. He will be endorsed by the Council and European Parliament.” He also repeated his proposal to combine the European Commission and Council presidencies, although this change could not be carried out in time for the 2019  election. “We ask too much from member states, but it would make sense,” he argued.

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EU budget commissioner calls for larger EU long-term budget

Speaking at a news conference in Brussels yesterday, Budget Commissioner Günther Oettinger called on member states to increase their contributions to the EU long-term budget, suggesting this should be increased from the current 1.03 to “1.1x” percent of the total EU gross national income. Commenting on the resistance of some net contributors, Oettinger said, “We will only be able to square the circle with more. We won’t be able to with what we currently have. And that is why I believe that no matter what the starting position is, the end position of a given government can be different.”

Also talking about the future EU budget, European Commission President Jean-Claude Juncker said the EU should “first discuss the Europe we want. Then, Member States must back their ambition up with the money to match.” He also suggested that the EU budget should be seen as an investment by the member states and that everyone is ultimately benefiting from it, saying, “Whilst we all need to understand that business as usual is not an option for this upcoming discussion, I firmly believe that we can square the circle and agree on a budget where everyone will be a net beneficiary”

Meanwhile, the Commission has outlined in a document published yesterday different options for the budget. The document stresses, “The withdrawal of the United Kingdom from the Union will mean the loss of a significant contributor to the financing of the Union’s policies and programmes. This will require us to take a critical look at where savings can be made and priorities delivered more efficiently.” Proposed measures include attaching conditionality to funds in the form of respect for the rule of law, as well as cuts in areas such as the Common Agricultural Policy and cohesion funds. The Commission also suggests that a way to increase the budget would be to destine some money derived from corporate or the EU’s Emission Trading Scheme taxes to the EU. The Commission is expected to publish a draft of the long-term budget on May 2.

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“Overwhelming majority” of small and medium-sized companies want to stay in the customs union, according to survey

A survey conducted by the Harvard Kennedy School and the former Labour shadow chancellor, Ed Balls, finds that “the overwhelming majority” of small and medium-sized businesses want to stay in the customs union and believe that “the potential gains from Britain negotiating its own trade deals elsewhere in the world cannot offset the substantial disadvantages of leaving the customs union.” The survey also finds that a “large majority” wanted to remain a member of the single market. The survey polled the opinions of 80 small and medium-sized businesses in Britain.

Separately, Nick Timothy, the former chief of staff to Prime Minister Theresa May, writes in The Daily Telegraph that a cross-party amendment calling on the government to “maintain the United Kingdom’s participation in the EU’s customs union” would offer “the worst of all worlds.” He argues, “We should want a comprehensive trade agreement with the EU, including regulatory cooperation and a close customs partnership, but we must leave the customs union.”

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German government warns that "time is running out" in Brexit negotiations

Ahead of Prime Minister Theresa May’s visit to Berlin on Friday, German government spokesperson Steffen Seibert warned that “time is running out” in the Brexit negotiations, adding, “It is important for us for Britain to make concrete its ideas.” He said, “All the EU27 want a close and deep relationship with this important partner [UK]. It is also clear that the relationship will be different from when it [UK] was in the EU.”

This comes as the German government’s Brexit coordinator, Peter Ptassek, on Tuesday stressed there were no hints the new German government would shift its Brexit strategy, announcing, “Expect us to follow our long-standing interest in the integrity of the single market and cohesion of the EU.”

Elsewhere, Open Europe’s Leopold Traugott commented on the resignation of German Social Democratic leader Martin Schulz yesterday, telling French newspaper Liberation, “It is not clear in how far the Social Democratic Party will continue to push ahead with Schulz’ European agenda now”. Traugott is positive that the party will vote in favour of the coalition deal however, saying, “They [the Social Democratic Party] did get quite some things out of the agreement, for example the finance and foreign ministry. And although their key reform demands were not fully realised … the coalition agreement still carries their mark quite clearly.” He also spoke to The National on the vote, arguing, “With Schulz gone, a lot more people will be optimistic about the coalition.”

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IMF: UK economy requires reform to improve efficiency

The International Monetary Fund’s (IMF) annual review states that UK GDP and productivity growth have been weak since the financial crisis, and it predicts that annual GDP growth will remain at around 1.5 percent until 2023, and productivity growth will increase by 1.1 percent. The review warns that the UK government must introduce reforms to pensions, the planning system, infrastructure, education and training, and research and development in order to boost economic growth.

Regarding post-Brexit trade and the possibility of greater trade barriers with the EU, the review said that some industries were more likely to be affected than others, which could result in “a reallocation of resources across sectors post-Brexit”. The report said that “active labour market policies” could help the workforce to readjust.

On education, the review states, “UK students rank low on tests of basic numeracy and literacy…Low educational achievement hurts the labour market prospects of young people: unemployment rates are the lowest among those with higher education.” The review also states that expensive housing is undermining economic growth. It explains, “Efforts should continue to boost housing supply, including by easing planning restrictions and reforming property taxes…Increasing supply would support near-term growth, facilitate labour mobility across regions, support financial stability by making homes more affordable.”

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Irish government will “act” on advice of Irish Brexit impact report

Following the publication of a Brexit impact report on the Irish economy, conducted by Copenhagen Economics on behalf of the Irish government, which estimates that Ireland’s economy could be 2.8 to 7 per cent smaller by 2030, compared to a no-Brexit situation, a spokesperson for the Irish government said, “The Taoiseach’s view is the government’s view, which is that it is important to note that this report talks about a contraction of growth from the point of view of what would happen if nothing was being done by the government. But the government is undertaking a large number of co-ordinated actions. The report was commissioned by the government, the government will act on its advice, and it will inform the government in terms of future decisions.”

Meanwhile, talks to restore power in Northern Ireland Assembly between Sinn Féin and the Democratic Unionist Party (DUP) have “collapsed.” In a statement, DUP leader Arlene Foster said, “Despite our best efforts, serious and significant gaps remain between ourselves and Sinn Féin, especially on the issue of the Irish language.”  She added, “It is now incumbent upon Her Majesty’s Government to set a budget and start making policy decisions about our schools, hospitals and infrastructure.” Meanwhile, Michelle O’Neill, Sinn Féin’s leader, said Sinn Féin had “reached an accommodation with the leadership of the DUP,” but “the DUP failed to close the deal.”

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Bank of England: UK to see largest annual wage increases in a decade

A survey of 368 businesses carried out by the Bank of England (BoE) has forecast the largest annual rise in UK wages for a decade, with salaries expected to increase by 3.1% this year, up from last year’s 2.6% increase. The increases are expected across the board, with the exception of the construction sector which has been hit by post-referendum uncertainty. The BoE also expects that wages will begin to rise above inflation, which stood at 3% last month.

The report outlines that the wage rises can be attributed to the increasing minimum wage and the “elevated level” of recruitment shortages.

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