Brexit Briefing No.22 - The EU after Brexit

There were no formal Brexit negotiations this week but the European Parliament was meeting in Strasbourg and both Commission President Jean Claude Junker and Council President Donald Tusk addressed MEPs.

They both said that they were open to the UK staying in the EU, but crucially they did not propose any looser arrangement or concessions to the UK which might encourage it to stay. Their message was essentially you can stay, but only on our terms, and behind the scenes briefings have indicated they would seek to remove the UK budget rebate if such an eventuality occurred. Without any concessions to a reformed relationship there is no realistic likelihood the UK will reverse its position.

Donald Tusk

Meanwhile both the UK government and Michel Barnier, the Commission chief negotiator, were fine-tuning their positions for the upcoming negotiations on the transition period, which will start after the UK leaves the EU on the 31st March next year.

The Commission appears to be developing a stance which would see the UK remain in all aspects of the EU, and fully under EU rules until the end of 2020, the EU’s preferred end date for the transition period due to the end of the current multi-annual budget at that time. This includes free movement and special status for EU citizens arriving before the end of transition. However, during that time the UK would have no input into EU rules. UK MEPs and our Commissioner, and our representation in the Council of Ministers, would all be withdrawn. From the EU side such a situation is the easiest solution, requiring the least changes and inconvenience. It is therefore the obvious starting point for transition negotiations. From the UK side this position at least meets the most basic interpretation of Brexit as we will have left the EU, even if the status quo remains in other areas.

However, delving into the Commission position a bit deeper it is apparent that some of the proposals will be very difficult for the UK to agree to. For example, on trade the Commission position is very tough. The UK will lose access to the benefits of EU trade deals such as those with South Korea and Canada. The UK will have to accept tariff free imports from these countries, but UK exports will have no preferential arrangement and will be subject to WTO tariffs. That is consistent with the situation for any non-EU country that is a member of the customs union, however the UK would need to seek authorisation from Brussels to even enter negotiations with these countries to try to protect existing trade access.

Eastern European countries are believed to be driving demands for continued free movement of EU citizens and for all EU citizens who arrive before the end of the transition period to be able to remain permanently in the UK under the terms agreed under the withdrawal agreement. This is a big issue in domestic politics in many Eastern European countries, but an equally sensitive political issue in the UK, where extending current free movement rules until 2021 could be challenging for the government to sell. Meanwhile the Dutch and the Spanish are leading a push for a hard-line on fishing quotas, with a starting point of no reduction on the quotas for EU vessels to fish in UK water quotas during the transition period. New EU laws would apply to the UK in full during this period, however UK officials would be invited to regulatory committees "exceptionally" on a case-by-case basis. This would give the UK even less input over EU rules than Norway has, a country which is less involved with the EU than the UK will be during the transition period.


So the EU has notably hardened its starting position on a raft of sensitive areas in relation to transition talks. How long these positions hold is questionable, as some of the demands are unlikely to be palatable to the UK.  In addition, the EU position only serves to delay the point of rupture for two years, effectively undermining the point of a transition period at all. To be a success, the transition period would need to outline a gradual divergence on policy to ensure that there is no cliff edge for businesses or individuals at the end of 2020. For example, if EU ships will not be able to fish in British waters after 2020, it would make sense to gradually limit access before then to avoid upheaval in the EU fishing fleet in 2021.

Debates on the future of Europe post-Brexit also dominated politics in Strasbourg this week. The Irish PM Leo Varadkar addressed the European Parliament on the issue. He called for a close UK/EU relationship post-Brexit but he also outlined a significantly federalist vision for Europe. This included a European list for MEPs, a Spitzenkandidat (meaning that the lead candidate from the European political group which wins the European elections should become the next President of the European Commission), greater EU spending and defence building capabilities and a common asylum policy to address the refugee crisis.


However, the future of Europe will likely be decided in Germany and France. In that context the situation in Germany is significant.  Last week Angela Merkel's CDU/CSU and the centre-left SDP agreed on a deal to enter coalition talks. The provisional agreement the party leaders struck echoed much of French President Macron's vision on Europe, including a far more federalised approach. News of the agreement calmed markets and nerves around Europe. However, the agreement may not survive this weekend's Social Democratic Party Conference in Bonn where it has to be approved by party delegates.

The Berlin branch of the SDP has already rejected the agreement and rumours abound that the vote is likely to be lost. If that is the case then fresh elections, most likely in June, will almost certainly follow.  The polls currently show little change from the result in September so a coalition may be just as difficult to agree then as it is now. If that is the case then Angela Merkel may struggle to survive as the leader of the CDU. German political weakness is therefore likely to continue throughout most of 2018, something which is not ideal for either the EU or the UK as Brexit negotiations continue.

In the UK meanwhile, there have been positive signs of preparations for the future from UK research organisations, with Imperial College London forming a partnership with the French research agency UMI, which will allow continued access to EU research funding for the Anglo-French venture whatever the status of research funding after Brexit talks. This shows that there are opportunities regardless of the final outcome. In this case the French research agency gets a collaboration with a UK university, known for its excellence, whilst Imperial College gets the ability to benefit from EU funds. We can expect many more collaborations of this type based on mutual need in the future as institutions and companies are beginning to adapt and prepare for a changed relationship with the EU, which may mitigate some of the risks of a cliff-edge scenario.