Views from the Capitals: Europe prepares for Article 50

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INTRODUCTION

As Theresa May prepares to trigger Article 50 and begin the two years of negotiations over Britain’s exit from the European Union, we set out the positions of the UK’s negotiating partners. This collection of views from the capitals shows a variety of attitudes towards Brexit, ranging from nervousness to indifference. Several EU partners have vulnerabilities – whether in terms of citizens’ rights or economic interests – to a ‘hard’ Brexit, which the UK will no doubt seek to leverage in the negotiations. But the overall impression is that Europe seems ready to accept some damage to national interests in order to protect the European project. In this context, securing a favourable deal for Britain looks a very tall order for Ms May’s negotiating team.

View from Berlin 

by Josef Janning

The truth is that neither economic nor demographic factors will exert much pressure on Germany in the course of negotiations.

After a phase of profound disappointment with the outcome of the British referendum, the debate in Germany has calmed almost to the point of indifference.

Occasionally business associations note the significance of the British market, or city administrations report rising numbers of British applications for German citizenship. But the truth is that neither economic nor demographic factors will exert much pressure on Germany in the course of negotiations.

Germany will certainly notice the economic impact when Britain leaves the single market. In 2015 Britain was Germany’s third largest export destination after the United States and France. But the fact that the US tops this list shows that being outside the single market is no barrier to continuing trade. A future free trade agreement with the UK would likely ease any tariff barriers created by Brexit, and non-tariff barriers should be manageable given the high regulatory convergence between the EU and the U.K.

When it comes to citizens’ rights, Germans make up less than 5 percent of the EU citizens permanently residing in the U.K. And most of the 135,000 German expats in Britain are highly skilled and will remain in demand after Brexit. Moreover, even if they were forced to (or chose to) return home, Germany’s labour market would be able to accommodate them.

Much the same could be said of the over 100,000 British citizens living in Germany. A significant number may want to take up German citizenship, but even if they did not their position in the German labour market would be no weaker than that of US citizens.

In terms of negotiations, the German debate does not focus on ways to punish the U.K. for seeking to leave but rather to control the damage this step could do. German policy makers do not advance particular interests they might have and do not want to engage in exploring special concessions as they do not wish to encourage any other EU-government to do so. Berlin is keen to keep the ball in Brussels rather than to engage in bilateral consultations. In this sense, Angela Merkel’s encounters with Theresa May were meant to alert the British Prime Minister to the consequences of a hard Brexit, but not to secure any special agreement between the two countries.

In Berlin’s view, there is very little room for British maneuver in the negotiations ahead. London may seek to leverage continued security co-operation as a bargaining chip, but the German policy community correctly notes that the UK has its own vested interest in continued partnership in this area. So if Britain wants to leave the single market and the customs union it will have to accept the consequences, including the restoration of fully functioning EU/UK borders - with all consequences that will have in places such as Northern Ireland.

Concessions Margaret Thatcher or even David Cameron could win were grounded in Britain's membership in the EU and Germany’s strong interest in preserving the integrity of the EU. By leaving the union, Britain has lost that leverage. Downing Street may not have noticed that, yet. But the Chancellory clearly has. 

View from Dublin 

by Andrew Gilmore

In both political and economic terms, Ireland is arguably the Member State most exposed to the risks of Brexit.

Two immediate priorities can be identified for the negotiations:

  • Preserving the status quo in Northern Ireland, including migratory freedom, reciprocal rights, labour mobility and the open border;
  • Mitigating damage to the trade relationship.

Northern Ireland

Ireland and the UK are co-guarantors of the peace agreement in Northern Ireland, but this peace remains fragile. Brexit is an unwelcome development in a region where political disagreements need little encouragement to become dangerous schisms. Preserving the status quo is a priority – but equally so is ensuring that issues related to Northern Ireland are handled in the negotiations with due sensitivity for the North’s unique circumstances.

For example, after Brexit Northern Ireland will become home to one of the highest concentrations of EU passport holders outside the EU. But this is quite distinct from the broader EU negotiation issue of migration and reciprocal rights for citizens: it is a direct consequence of the peace agreement, which extended Irish citizenship to all Northern Irish citizens.

Similarly, customs and migration controls with the UK are problematic to some degree for all member states, but the hard-won open border with the North has a deep symbolic significance. A return to the borders of the past cannot be countenanced.

Considering the singular circumstances and the high stakes, there is a growing sentiment that the Northern Irish issues must be compartmentalised, lest they fall victim to a potentially acrimonious negotiation. This will require creativity, flexibility and goodwill – but the case can certainly be made that Northern Ireland is a unique case, worthy of unique consideration.

Trade

Theresa May’s Lancaster House speech made clear what was already suspected: damage to the €1.2 billion per week UK-Ireland trading relationship is unavoidable. The only question is how severe it will be.

The UK’s departure from both the Single Market and the Customs Union raises profound questions over the future of bilateral trade between the two countries. Considering the domestic political constraints, and the EU’s own desire to enforce its rules, it may simply be impossible for Prime Minister May to negotiate the ‘associate membership’ of the customs union she has alluded to. Ireland will be caught in the middle: tariffs and non-tariff barriers to trade will be inevitable, and bring with them the potential to wipe-out many cross-border SMEs with low-margin business models.

The issue also presents a quandary for the Irish side: a comprehensive and accommodating trade deal for the UK, encompassing some manner of flexibility on customs, would serve Irish interests in the short-term, but may work counter to the strategic interests of the EU as a whole. This will be especially true if the UK seeks any exceptions to core EU principles.

An acute awareness that Ireland’s economic and political future lies with the EU, and not with its nearest neighbour, is likely to drive Ireland to  hold the European line on these issues – but it may come at a heavy price, and the country may be forced to seek aid from the EU for hardest hit sectors.

The future relationship

For Ireland, a swift solution to the future relationship would be ideal, but given the complexity of negotiating such agreements it seems  unlikely one will materialise in a rapid timeframe.

In that light, the present debate over whether the negotiations will take place in parallel or consecutively seems less important than securing satisfactory transitional arrangements for the interim period and cushioning the blow of Brexit for the island of Ireland as a whole.

View from Madrid

by Borja Lasheras

Although there is no widespread desire to “punish” the UK, there is little appetite in Madrid for any exit concessions, either.

Spain’s overall position on Brexit has not fundamentally changed since the beginning of discussions in the wake of the referendum. Officials remain adamant that the upcoming negotiations pertain to the UK’s withdrawal from the EU (including issues such as the financial settlement, and rights and obligations of citizens), not its future relationship with Europe. The one exception to this “exit negotiations first” mantra is the status of the border in Northern Ireland, given its specific nature.

At a later stage, officials argue, if exit negotiations proceed smoothly and there is a positive assessment of the engagement of the British Government, then there might perhaps be room to initiate discussions – though not necessarily negotiations - on the terms of the future EU-UK relationship. But these terms are not expected to go much further than those offered to other trading partners such as Canada. 

Spanish public opinion was strongly in favour of the UK remaining in Europe at the time of the referendum. But while there was some hope after the vote that Brexit might yet be avoided, it is now becoming clear for most Spanish policymakers that the UK and Europe are heading towards a “hard Brexit”. Although there is no widespread desire to “punish” the UK, there is a scarce appetite for any exit concessions, either – especially when it comes to fundamental tenets of the European project, such as freedom of movement.

Indeed, the impression is that further concessions to the UK might have been more likely had it chosen to remain in the union.  Instead, the perception in Spain of an increasingly xenophobic, delusional and patronizing attitude of the British establishment is fast destroying any goodwill it once possessed. 

Two sensitive dossiers for Spain in the Brexit negotiations are domestic tensions with Catalonia’s pro-independence government, which is looking closely at Scotland, and by the thorny issue of Gibraltar. New foreign minister Alfonso Dastis has been vocal in making the point that any provision on Gibraltar will need to be agreed by Spain. Meanwhile, opposition parties, having accepted concessions a year ago, now take a tougher position than Rajoy’s government.

For most Spaniards, then, Brexit is yet another European problem, and a big one at that, to be managed over the coming years. Some policymakers stress the opportunities for Spain in a potential new ‘EU4’ core group of Germany, France, Italy and Spain, or in deeper integration in defence, which, in their view, might progress now that the UK is unable to block such prospects. But the general view is pessimistic.

The UK is among Spain’s top FDI destinations, key for some of its biggest companies (though several may be naturally developing contingencies for scaling down their British businesses or moving elsewhere). Spain is also a major tourist destination for British citizens. Further, at least a quarter of a million of Spanish work in the UK, while the number of British residents in Spain is even higher. There is no willingness to harden regulations on UK citizens’ residence in Spain, but how these factors will play out in negotiations is nonetheless unclear at this stage.

View from Paris

by Manuel Lafont Rapnouil

The outcome of the French presidential election in May will likely change France's position on Brexit.

In France, as elsewhere in Europe, Brexit is far from the headlines. The presidential election campaign is heating up and, beyond France’s borders, the future of Europe is of much greater concern than the future of the UK-Europe relationship. If March is a deadline for Europe, it is because of the Summit in Rome, which Paris hopes will pave the way for a rebound of European effort (if need be through more flexibility), rather than because Ms. May’s cabinet will trigger article 50.

Some members of the British cabinet seem convinced that the French are in a “punitive” mind-set. But the current French government’s approach is more pragmatic than the British press would have you believe. In his recent meeting with Theresa May, Prime Minister Cazeneuve’s appeasing message struck a balance between his “respect” for the choice made by the British people and the importance of “defending the European Union’s unity and interests”.

In this regard, France fully supports the methods put forward by EU negotiators, including the sequencing, which puts exit negotiations before the future relationship. Paris has also been clear in its opposition to any cherry-picking among the “four freedoms”. Nonetheless, France is also aware of the need to move beyond the divorce to help building a new relationship. And on issues ranging from the status of citizens expatriated on either side of the Channel to security co-operation (both bilateral and at a European level), Paris is conscious that both sides would lose in the case of a bad deal.

Yet the outcome of the French presidential election in May will likely change the way it views the topics at the core of the negotiations. Right now, the presidential race is still very much open and its final result hard to predict. Brexit is far from a topic in the campaign, but the future of the EU is certainly on the agenda. By looking at the key positions in the debate, one can anticipate very distinct options for France’s future Brexit policy.

Centrist Emmanuel Macron, who would bring the most continuity, promised to be a tough interlocutor for Britain, mentioning a “Canadian-style” trade agreement, strict conditions for financial passporting, or the persisting European Court of Justice’s jurisdiction under any transitional arrangement in a recent visit to London. But other candidates have very different agendas.

Extreme-right Marine Le Pen and her “Frexit” platform would sympathise with the UK’s choice, but complicate matters for Ms May by putting the future of the EU under pressure and provoking significant economic uncertainties.

Conservative François Fillon  stands for an uncompromising deal, and insists on a renegotiation of the bilateral agreement on migration; but his economically liberal agenda, his conservative approach to immigration or his preference for a more intergovernmental EU might eventually tilt France’s positions more in favour of the UK.

Socialist Benoît Hamon, meanwhile, with his anti-neoliberalism platform, would probably also stand for an uncompromising negotiation position on Brexit, but also be reluctant to the kind of new trade agreement Britain is looking forward to.

In this sense, the French position on Brexit will be less a reflection of French national interests than a by-product of the next president’s European policy.

View from Rome

by Silvia Francescon

Italy's domestic economic situation makes it vulnerable to a ‘hard’ Brexit.

Brexit is not the primary international concern for policymakers in Italy, with Libya and Russia occupying much greater attention. As such, the priority for Italy in dealing with Brexit is to keep disruption to a minimum, and to avoid a domino effect of anti-EU sentiment in the rest of the bloc.

Italian PM Paolo Gentiloni, during his UK visit in February, announced his determination to continue constructive co-operation with Theresa May’s government. This is a softer approach than that of his predecessor Matteo Renzi, who saw Brexit as “a boulder in EU history”.  Nonetheless, both share the aim of safeguarding Italian interests, and both respect the British decision despite their disagreement with its wisdom.

While maintaining the link between single market access and free movement is important for Italy, it faces a troubling domestic economic situation, making it vulnerable to a ‘hard’ Brexit. SACE, an Italian joint stock company, estimates that Brexit could result in a 3-7% contraction in exports in 2017 alone. Investment will also likely take a hefty hit, with reciprocal transfers set to decline by €1.7 billion in the same year.

Three major Italian companies will be particularly vulnerable, given that much of their revenue comes from the UK market. The fashion retailer, YOOX, aerospace and defence multinational, Leonardo, and cable manufacturer, Prysmian, are all set for losses of between 13% and 15% in sales volume, and risk being subject to speculative attacks.

Even a 5% tariff on exports to the UK (seen as a ‘soft’ figure) will create huge losses for Italian companies. Given their focus on maintaining competitiveness, any such tariff is likely to be internally absorbed, reducing Italian profits by at least €1 billion per year.

Italy will welcome the UK House of Lords’ demand that the government safeguards the rights of EU citizens already in the UK, given that more than 600,000 Italians live in Britain at present. With a further 65,000 UK citizens resident in Italy, labour market and residency rights are a bilateral priority that needs to be addressed as soon as possible.

The final crucial sector for Italy in the Brexit negotiations is that of security-cooperation. Theresa May and Paolo Gentiloni seem to agree on this, and have already begun laying the groundwork for cooperation on stabilizing Libya and Ukraine, among other issues. In other words, both parties seem to be ready to work together to foster continued cooperation after Brexit.

In advance of the Brexit negotiations themselves, there will be an important symbolic moment on the 25th of March, when Europeans will celebrate the 60th anniversary of the Rome Treaties. Even if Brexit represents – as Theresa May often repeats – a withdrawal from the “European Union” and not from “Europe” in a broader sense, it is clear that Brexit is a break-up of sorts. This is regrettable for Italy, but far more important now is safeguarding the relationship between the remaining 27. To risk that for the sake of preserving ties with the UK could result in much greater regrets in the future.

 

View from Tallinn

by Kadri Liik

Estonia's concerns with the UK's contribution to the EU budget and security will provide some background to the Brexit talks.

Estonia does not have particularly strong vested interests in Brexit in terms of trade or citizens’ rights. Tallinn is, however, concerned about the EU budget, and extremely interested in continued British contribution to European security, given its proximity to Russia.

As concerns the sequencing of talks, the view in Tallinn seems to be that in the end, the talks about exit and future relationship will end up being on the table simultaneously. Estonia is about to assume its first EU presidency in the second half of 2017, and Tallinn hopes that by the time it takes over in July, the procedure for Brexit talks will have been established and negotiations will be well under way.  As presidency, it will place itself in the service of the EU 27. 

Estonia has around 15,000 citizens living in the UK. In both absolute numbers as well as per capita this is far less than the number of immigrants from larger East European countries. Also, many Estonians in the UK do not intend to stay permanently, but move on or go back home after a few years.  So in the case of Estonia, migration and rights of migrants is not something the UK could use as leverage. Estonia’s needs are modest and likely to be well defended by the EU countries that have stronger feelings on the issue.

Likewise, trade with the UK does not figure high in Estonia’s agenda. The UK is not among Estonia’s top 10 trading partners, and there are no sector-specific interests. Estonia would like to see deep and wide free trade agreement between the EU and the UK, but when it comes to the four freedoms, Estonia is fairly orthodox and would not happily accept deviations.

More important for Estonia is the EU budget. As a net beneficiary and skilful user of the Cohesion Policy, Estonia will push for reassurances that the revenues side of the EU budget will be maintained as much as possible, preferably to the full. 

But security is the field where Estonia really needs the UK. This is so both in the EU context – Tallinn is unhappy that, without the UK, the potential for common foreign and security policies will weaken - as well as in the NATO context. The UK is Estonia’s ‘framework nation’ for NATO reinforcements and is about to send hundreds of soldiers to bases in Estonia.

However, the expectation in Tallinn seems to be that the UK will refrain from cynically using that as leverage in Brexit talks. First, the UK reinforcements are in Estonia under NATO, not the EU, and, at least for the time being, the UK is not interested in NATO becoming a conditional alliance. Secondly, the UK itself is interested in continued cooperation with EU members in justice and home affairs. Thirdly, the expectation is that the UK government will understand that using East Europeans’ security worries as a way to blackmail the EU would be seen as bad taste among Europeans and end up making Brexit talks even harder than they will likely be anyway.

That said, security cooperation between the UK and Estonia will probably inevitably provide some background to the Brexit talks. And the combination of Estonia’s EU presidency, 800 UK troops, good-looking local girls, cheap booze, and Britain’s Euro-sceptic British tabloid press could yet result in a news agenda that is anyone’s to imagine. 

View from Warsaw 

by Piotr Buras

Warsaw is likely to play according to the Commission’s script in the negotiations.

Poland’s role in the upcoming Brexit negotiations is marked by a high degree of ambiguity. It has more citizens (900,000) resident in the UK than any other EU member state, and must defend their interests. But the decision made by the UK House of Lords last week to guarantee the rights of EU nationals already in Britain might well take care of that issue. And the conservative PiS government in Warsaw shares the UK’s opposition to centralisation of power in Brussels and is inclined towards giving the UK a good deal.

In November 2016 Theresa May rolled out the red carpet for Prime Minister Szydlo, and expressed her wish that other countries would behave “in the same constructive and positive manner”. It did not go unnoticed in Poland, either, that Ms May underlined in her Brexit speech in January that the UK’s commitment to EU’s security would remain unchanged – a very welcome development given Warsaw’s reliance on UK security co-operation.

Yet despite this, Warsaw has in recent months backed away from the prospect of opening up bilateral talks with the UK over Brexit arrangements. The Polish-British Civic Forum will celebrate the special relationship between the two countries on March 9, with attendance from both prime ministers, but Warsaw is not likely to support the UK on the key battles ahead in the negotiations.  

This is because the strategy outlined by the EU’s chief negotiator, Michel Barnier – which puts exit conditions before any talk of a trade deal between the EU and UK - is very welcome in Warsaw. Poland is the main beneficiary of the EU budget and will be determined to secure as large an ‘exit bill’ from Britain as possible, as well as substantial future contributions.

The same is true regarding the rights of EU citizens in the UK (the Commission’s second priority). Poland is concerned especially about the pension rights of Polish workers in the UK: if they are not secured, they could become a huge burden on the already-strained Polish pension system in future.

The UK is Poland’s second-largest export market, behind only Germany. So a deal with the UK that minimises trade barriers is very much in the Polish interest. However, it does not seem likely that Poland will seek bilateral sectoral arrangements with London. Rather, it will prefer to make the UK pay (in the form of contributions to the EU budget) in return for any concessions when it comes to the access to the EU single market.

As much as the relations between the Commission and Poland are difficult due to the rule-of-law investigation, Warsaw is likely to play according to the Commission’s script in the negotiations: most of the Polish interests can be better served if Warsaw has the support of the whole EU than if it goes it alone with Britain.

More on: View from the Capitals, European Power, Politics & Cohesion

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