Vulcan View – Monday 29th of October to Friday 2nd of November
KEY EVENTS THIS WEEK:
Brexit talks on financial services reveal continued divisions on trade
Reports emerged this week that Brussels and London reached an agreement on financial services trading, causing the pound to rise significantly on Thursday. The question of the UK’s financial services sector’s access to the EU market has been a key issue in negotiations, as UK-based banks have pushed for close alignment with the EU. The EU’s existing “Equivalence” regime for third countries allows non-EU financial firms access to the single market if it judges their regulations to be as strong as those of the bloc, and is the same financial relationship granted to the US and Japan, among others. However, critics have said this status will essentially leave the UK subject to EU financial regulations, without any power to negotiate their terms.
Both EU officials and representatives from the UK government have denied that a deal has been reached. The UK Prime Minister’s spokesperson has said that the UK’s aim remains to secure an “enhanced” deal, in a new economic and regulatory partnership that would guarantee the autonomy of both and would require both to consult the other before withdrawing access. However, the EU has repeatedly stated that it will not grant the UK a special deal.
Negotiators in Brussels have said that, though talks continue, a deal on the details of the bloc’s trade relationship with the EU would be jumping ahead to the second phase of Brexit negotiations, which can only begin once Britain has left. However, Prime Minister Theresa May wants a “precise” outline of a future trade deal to be included in the Article 50 withdrawal treaty. Brussels has said this outline will not exceed a few pages.
UK Chancellor ties budget giveaways to Brexit deal
On Monday UK Chancellor of the Exchequer Phillip Hammond presented his budget to parliament in a speech that made clear his intentions were just as much political as they were economic. The Chancellor has offered a number of giveaways including tax cuts and increased spending and other minor measures to help small businesses, in an effort to uplift the Brexit-weary conservative party.
Mr Hammond has also promised spending and tax cuts would be increased further, in a “double-dividend,” if a Brexit deal is reached, as funds set aside to deal with the fallout from a disorderly Brexit would be made available. It is clear Mr Hammond, who is usually fiscally conservative, is hoping that a more generous budget will convince sceptics to back the Prime Minister’s pragmatic Brexit.
However, the Chancellor also made clear that the budget would have to be torn up in the event that no deal on Brexit is reached. Overall the budget was meant to incentivise MPs to get on board with the government’s softer Brexit plans, but it becomes redundant if the government cannot secure a deal with the EU, a prospect that is becoming ever more likely.
Elections in Hesse are another blow for established Germany parties
Last Sunday Germans were asked once again to head to the polls in another state election. In Hesse, a state in central Germany, Angela Merkel’s CDU had been governing alongside the Bündnis 90/Die Grüne Party (the Greens). Even though this election was not as highly anticipated as the recent election Bavaria, which saw huge losses for the CDU’s sister party the CSU, it was seen as another test for the current government in Berlin.
Even before the election took place, polls suggested that both CDU and SPD would lose out significantly, with the smaller parties such as the right wing AfD, the left wing Die Linke, and the Greens gaining votes. Though the CDU will continue to be the strongest party in the state, it achieved its worst result in several decades, losing 10 percentage points. Likewise, the SPD lost almost 11 points, dropping to just 20 percent. The big winners of the night were the Greens who were able gain over 8 percentage points. The right wing nationalist group AfD was also able to achieve over 13 percent of the vote, and now represented in every state – a significant milestone.
Parties like the AfD and the Greens have seen an increase in national support, with more people openly showing their frustration with the German government that has been struggling since the last general election in the autumn of 2017.
Merkel announces she will be stepping down as chair of the CDU
A defining era in German politics is coming to an end, as German Chancellor Angela Merkel announced this week that she will not be seeking re-election as leader of the CDU at their party conference in December. Ms Merkel has held the post of chair of the centre-right party since 2000. She also officially announced that her current term as chancellor will be her last one and she will not be standing for any office during the next general elections in 2021. She has been Germany’s chancellor for fourteen years.
Merkel’s announcement came after Sunday’s election in Hesse, in which the CDU experienced another great setback. The Chancellor said she is “politically responsible” for the wins and losses both as CDU party leader, and as Chancellor. Ever since her fourth re-election as Chancellor last autumn, Ms Merkel has been struggling to gain the same political momentum for her party, which had, up until now, been seen as the embodiment of political stability in Germany under her leadership. German politics is quickly becoming more volatile, as support for the far-right AfD and the Green party continues to rise.
Ms Merkel appears to be hoping to restore faith in her party and in the government by separating her party leadership with her role as Chancellor. It remains to be seen how a new party leader will affect the end of her premiership. Candidates have already emerged in the battle to succeed Ms Merkel as the leader of the CDU. Jens Spahn, Minister of Health, Annegret Kramp-Karrenbauer general secretary of the CDU and Friedrich Merz, a lawyer and former CDU politician have all announced their intent to run for the position. Ms Merkel has said that she will not get involved in the race.