Vulcan View – Monday 12th of November to Friday 16th of November
KEY EVENTS THIS WEEK:
EU and UK reached a draft Brexit agreement that sparked chaos in London
This week, against all the odds, the UK and EU overcame what had appeared to be insurmountable differences to reach a 585-page draft agreement on the withdrawal of the UK from the European Union, as well as a seven-page outline of their future relationship. Negotiators pushed through decisions on the contentious outstanding issues in order to allow time to arrange a European Council summit for the 25th of November, but the controversial concessions they made continue to present a major challenge.
Negotiators agreed to a UK-wide “backstop” arrangement, with stipulations. The backstop will apply if no trade deal is reached between the UK and EU during the transition period that ends in December 2020. Under it, the UK as a whole would remain a part of the customs union on an “even playing field,” meaning UK businesses cannot undermine EU competitors and they must adhere to certain EU environmental, labour and social standards. Northern Ireland would have minimal regulatory alignment with the single market in order to avoid border checks. Significantly, the backstop, once implemented, could only be ended by the agreement of both the EU and the UK.
On the side of the EU, the next steps are clear. Ministers from the EU27 will scrutinise the text and meet on Monday. According to Council President Donald Tusk, unless “something extraordinary happens,” they will go ahead with the Council summit for EU leaders on Sunday 25 November to “finalise and formalise” the deal, which will then need to be ratified by the EU Parliament. However, Mr Tusk and others have voiced their concern at the volatile response in London, which may undermine the entire process. The tone from Brussels was one of marked regret over the British exit, but EU officials indicated clearly that they will not be willing to re-enter negotiations if this draft deal falls through.
Following the agreement of the draft with Brussels, Theresa May held a tense five-hour cabinet meeting where she sold the draft deal as the best deal and the only alternative, securing her cabinet’s approval. However, the draft deal has since prompted several prominent resignations, including those of her Brexit Secretary, Dominic Raab, Work and Pensions Secretary Esther McVey and Northern Ireland minister, Shailesh Vara. The Prime Minister is also facing renewed a “no confidence” challenge. Mrs May has insisted that she plans to see the process through.
Mrs May’s supporters reminded Pro-Brexit MPs who criticised the deal for keeping the UK too closely aligned with Brussels that voting against it could risk leaving the UK within the EU. Development Secretary Penny Mordaunt met with the Prime Minister Thursday night to push for a “free vote” for Parliament on the final deal, to curb support for a new referendum. Meanwhile critics, including, it seems, Michael Gove, are calling for a new deal to be renegotiated. The Secretary of State has reportedly turned down the Brexit Secretary post. Essentially, Theresa May’s government has fallen into chaos and it remains unclear how Theresa May and her diminishing number of allies will be able to move the process forward to get the deal passed in Parliament following these setbacks.
Italy defies Commission’s order to reduce public spending in budget
The Italian government has ignored the European Commission’s calls to reduce the vastly increased public spending in their draft budget. The budget was rejected by Brussels last month on the basis that it breaks EU spending rules. In a letter accompanying the little revised budget, the Italian finance minister, Giovanni Tria, said that Rome had made the difficult decision to stick to a deficit target of 2.4% of GDP in order to fund crucial measures to revive the stagnate economy.
The Commission has determined that Italy’s deficit is likely to exceed the target, potentially even breaking the 3% ceiling in 2019-20. They forecasted that the country’s debt will remain at 131% of GDP until 2020, more than double the 60% allowed by EU guidelines. Experts, including the IMF, have warned that Italy’s increased public spending will not lead to the growth that Rome intends, with the IMF estimating 1% growth, rather than the 1.5% set out in the budget.
The populist government did offer some revisions, including a commitment to spend 0.2% on much needed public infrastructure. But commission officials suggested these minor changes are not sufficient to avoid sanctions of up to 0.5% of GDP, which may be introduced as early as next week. Officials from Eurozone countries have voiced support for a tough line against the potentially dangerous spending. Brussels will want to renew talks with the Italian government before they are forced to respond. A stand-off between Brussels and Italy, the Eurozone’s third largest economy, will have serious implications for European and global markets.
Angela Merkel addresses the European Parliament on Europe’s future
On Wednesday, German Chancellor Angela Merkel spoke to the European Parliament as part of a series of talks on the future of Europe, that may very well be her swansong in Strasbourg. Though Mrs Merkel has stated that she intends to see out the remainder of her term, her future role in the EU may in reality be challenged by her successor as CDU party leader.
However, contrary to general expectation, the Chancellor’s speech was not merely a conclusion to her term in office, as she notably threw her support behind the French President Emmanuel Macron’s call for a European army, which, she said, should act as a complement to NATO. She also praised current efforts to enhance defence cooperation between member states, including the proposed European joint intervention force, and the “permanent structures cooperation” programme (Pesco).
Greater European solidarity was the dominant message, as the Chancellor reiterated her suggestion that Europe can no longer “unconditionally rely on others,” a clear reference to ongoing tensions with the US. The Chancellor also made renewed calls for Europe to cohesively respond to the questions of migration and the rule of law in Hungary, Poland and Romania, which are currently the greatest threats to cohesion in the bloc. The speech largely met with applause, but was booed by Eurosceptic MEPs, particularly at the suggestion of creating an EU army.
While by no means visionary, the address was nevertheless emblematic of Mrs Merkel’s pragmatic approach towards European policy and was a reminder of her unmatched authority on the European stage. Whether Mrs Merkel and Mr Macron will be able to effectively reinvigorate their movement for European reforms remains in question.