What will the EU27 Governments and the EP Actually Want from Brexit?

As the largest net contributor to the EU’s budget, Germany is likely to keep a hard line on the Brexit Bill, making sure that the UK fully honors its budgetary commitments (currently estimated by the EC to be around 60 billion euros). German Chancellor went a step further since she stated that UK financial obligations could even cover the period after Brexit. If Germany persists on this position until the end, which is quite possible, then it will also have implications on the trade negotiations, bringing the UK in a difficult negotiation position. Additionally, Germany’s hardline position will also be strengthened by the negative perception of any discount to the Brexit Bill by the German public opinion, in particular if German taxpayers will have to contribute to pay the remaining part of the bill.

Germany will do everything to secure that the final Brexit agreement is not perceived as a victory for the UK, in order to avoid other countries to follow suit in the future. Germany will likely not allow the UK to have the advantages of the members of the European Economic Area (access to single market) without the obligations of the four freedoms of movements (services, goods, capital, employees), as well as financial contribution and acceptance of EU regulations. Germany argues that, if the UK would like to have the privilege of the access to the internal market, then it also needs to accept all the freedoms of movement. Granting any kind of preferential conditions for UK regarding the access to the Internal Market would run against German political culture and mentality, as well as give the wrong political signals to the forces advocating for leaving the EU (AfD in Germany but also parties in the other EU member states such as in France, Austria, the Netherlands).

Germany is unlikely to be flexible on this issue, also because of the German strategic role of upholding EU rules and the integrity of the EU’s continental bloc. Additionally, Germany (especially Frankfurt) is already benefitting from Brexit, since the relocation of few banks and financial institutions from London to Frankfurt has already began, although Frankfurt is facing the hard competition of other financial centers in Europe, such as Paris and Dublin.

However, since UK is a very important market for German exports, policymakers know that maintaining positive economic relations with the UK would be beneficial for the German industry. German industrial lobby wants a soft Brexit, although this can hardly offset the opposing strategic and political preferences. A possibility could be that Germany will seek to convince the UK either to partially accept the free movement rule and/or pay to access the internal market

Germany does not have a large expat community in the UK and most of the skilled Germans would not struggle to get a visa permit to work in the UK. Therefore, Germany does not have an intrinsic national interest in the the matter, but it is willing to play this card to keep pressure on the UK regarding the access to the single market. Germany is concerned about the political implications of the UK’s restrictions to the freedom of movement, as this would boost the legitimacy of the extreme right wing and anti-migration political parties that have gained steam both in Germany (with Afd) and the rest of the continent over the last few years. If the UK decides to curb migration, the final economic arrangement should be punitive enough to discourage other EU Member States from following this path.

With thanks to Yannis Salavopoulous, Managing Director, CAPITALS Circle Group and Lecturer, SRH Berlin University, for his valuable insights.

 

As a major contributor to the EU budget, France wants to make sure that the UK pays as much as possible before (and after) leaving. This also means that the UK will be requested to cover both annual farm payments and the administrative costs. French public opinion is not very sympathetic towards granting discounts to the UK and the French government will likely play hardball on the Brexit bill to show the populist forces across Europe that leaving the EU can be very expensive. It is worth noting that, for the first time since 1950, a possible “Frexit” has been considered as a “valid” electoral topic by both political parties and citizens. For this reason, France wants to show that leaving the EU is not a walk in the park. By doing so, it will undermine any arguments advocating for an easy withdrawal from the European project.

France is likely to be hawkish on the future relations between the UK and the EU. France hopes that the relocation of businesses and financial services from London will actually benefit Paris, due to the potential UK’s loss of passporting rights in the European Economic Area. In particular, UK’s clearing business will be strongly affected. Furthermore, as France has always been an advocate for high regulatory standards in the EU, it is at odds with the deregulatory policies advocated by the UK. For this reason, France is likely to try to make sure that the final agreement will ensure a high degree of protection for EU companies from the British competition. It is still uncertain whether the election of Macron will soften French position on Brexit, although some of his proposals, such as the “Buy European Act”, would take a toll on the UK’s economy by thwarting British companies’ access to public tenders within the EU.

Additionally, France does not want the final deal to be perceived as too beneficial to the UK, in particular when it comes to the access to the internal market. France would never allow the UK to trade easily with the rest of Europe while restricting migration and freedom of movement. A too bright outcome for the UK would be used by far-right wing parties to advocate for turning the EU into a mere free-trade area.

Under Macron, France has no interest in supporting UK’s curbs to freedom of movement and settlement for EU citizens, and the relatively large community of Briton expats in France will lobby for a friendly and soft agreement on citizens’ rights. However, freedom of movement is not an intrinsic priority for the French government, as its main concerns are related to the integrity of the internal market and the political implications of Brexit. If any concessions have to be made to the Brits during the negotiations, France may give in on the freedom of movements.

With thanks to Rémi Augustyniak-Berzin for his valuable insights.

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Italy is not as much a net contributor to the EU budget as France and Germany. However, the debt-ridden country is certainly not in the position to deploy additional financial resources to cover the holes in the budget left by the UK.  Italy will join the other countries in asking the UK to pay to cover farm subsidies and administrative costs. Also, Italy is not keen on letting the UK have its cake and eat it, because this would embolden Eurosceptic movements across the EU. However, economic relations with the UK and freedom of movement are particularly important for Italy. As such, Rome is unlikely to allow the negotiations to fail because of disagreements on the Brexit bill.

Italy hopes that Milan can benefit from the relocation of financial services from London to the continent, but it also wants to avoid an increase in the gap between Milan’s stock exchange and its rivals on the continent (particularly Frankfurt). Despite the potential financial benefits (which will be limited by the lower attractiveness of Italian regulatory system compared to others), Italy wants to maintain close economic relations with the UK. In particular, exports to the UK are perceived to be particularly important to the Italian economy. There are also some key geopolitical and diplomatic aspects that will soften Italian positions in the negotiations: Rome tends to be friendly towards non-continental powers in order to counterweigh the economic and political dominance of France and Germany.

Italy will side with like-minded countries to lobby hard for the right of EU citizens in the UK. The already large Italian community in the UK has increased further over the past few years due to intense economic crisis and high unemployment levels in Italy. In fact, the UK is one of the most important destinations for young Italian people seeking better opportunities abroad. Whether Italy could benefit from a return of emigrated young people home can be disputed, as the shortcomings of Italian labour market have still to be fully solved. Despite the current political climate in the UK, which is in favour of curbing migration flows from the EU, Italy will try to soften the UK’s position on this issue by proposing concessions to the UK on other items.

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Spain will join other Member States in pressuring the United Kingdom to abide by its financial commitments and will also insist to solve this in the first phase of negotiations (i.e. before the end of the year) together with all the issues related to citizens’ rights. Spain shares the common perspective of EU27 and the position of the European Commission that unless there is sufficient progress on this item (not necessarily a final figure but, at least, some consensus) there will be no talks regarding future relations. As a net beneficiary of the EU budget, Spain is worried about potential holes in the EU’s Agriculture and Cohesion budget. However, there is a possibility that, after Brexit, Spain will become a net contributor, which will, paradoxically, make the country to follow a lower profile in this dimension of the negotiations – since the result is not clear. However, Spain is unlikely to allow the negotiations to fail because of this matter, as protecting rights of the citizens across the countries is much higher in the list of Spanish priorities in this first stage.

Spain’s stance on the economic relations between the EU and the UK is likely to be constructive, also because of close trade relations and investment flows between the two countries. Spain wants a UK that is close to the internal market, but if the UK pushes further for a hard Brexit (namely, the end of free movement of persons, unwillingness to provide financial contribution or threats to the EU regulatory autonomy and ECJ jurisdiction), Spain will also align with countries like Germany and France, barring British services and capital access from accessing the internal market. Spain also hopes to benefit from the reallocation of financial services from the UK and it is actively working to promote Madrid as a growing financial hub. Nevertheless, Spain is likely to adopt a UK-friendly position when it comes to its future economic arrangements with the EU. In addition, Spain wants to soften the position of the UK on Gibraltar, which is an important issue (but not as key as it is normally presumed by foreign analysts of Spanish priorities).

Considering the high number of Spaniards living in the UK, as well as the larger British community in Spain (Spain is the only country where the British community is bigger than its national community in the UK) Madrid will lobby hard to reach an agreement with the UK ensuring a high degree of protection of the rights of these two communities. This is an important priority for Spain, as the country benefits twice from the freedom of movement between the UK and the EU: hundreds of thousands of UK’s pensioners boost the local economy by settling down in the south of Spain (plus 17 million tourists annually) and young Spaniards can escape unemployment by looking for job opportunities in the UK. Although restrictions to freedom of movement will likely be put in place by the UK government, Spain will seek to ensure that these restrictions will be as soft as possible.

With thanks to thank Dr. Ignacio Molina, Senior Analyst at Elcano Royal Institute, and Dr. Ilke Toygür, Analyst at Elcano Royal Institute, for their valuable insights.

 

Poland fears that lower financial contributions from the UK will lead to a reduction in the money available for Warsaw (many national programs depend on EU funding). Thus, the Polish government is pushing for the inclusion of annual farm subsidies and administrative costs in the fee that the UK is supposed to pay to the EU. Poland is already worried about a potential decrease in EU subsidies after Brexit, as the average GDP per capita of the EU will be lower without the UK (regional funds are allocated according to this criterion). However, the outcome on the Brexit bill is not the most decisive factor for Warsaw, which is likely to spend most of its political capital on other items (freedom of movement and economic relations).

Poland has a growing trade surplus with Great Britain. Limiting tariffs and non-tariff barriers is important for many sectors of the Polish economy, including agro-food, cosmetic, furniture, automotive and transport industries. For this reason, Poland will advocate for maintaining close economic relations between the EU and the UK. Siding with the UK would also ideologically suit the government in power, which is promoting a more decentralized and anti-federalist view of the European Union.

Poland will play it soft during the negotiations as it also aims at keeping close diplomatic and security relations with the UK (although they have not always seen eye-to-eye on such matters). In fact, differently from the other large countries in the EU (Germany, France, Italy), the UK tend to be more hawkish on the relations with Russia. In this respect, UK’s stance on relations with Russia fits the geopolitical views of Poland.                                                                                                                        

Poland is also concerned about the status of its citizens in the UK and it will push for as soft a border as possible between the EU and the UK. As many Polish workers in the UK are unskilled labor force, the establishment of quota or visa requirements for EU citizens by the UK’s government would set substantial obstacles for Polish migrants. However, Polish position is more nuanced due to potential demographic benefits of the return of some of its migrants abroad (Poland is facing a shortage of labour force). However, there is no guarantee of a return of Polish workers, as many of them would prefer going to another country where the wages are higher than in Poland (in particular if linguistic barriers are low, as in Ireland). Besides, the Polish government receives significant support from diaspora abroad, which means that Warsaw needs to show that it is fighting for their rights.

Nevertheless, the views of the current political majority in the UK are particularly strong when it comes to migration: curbing the flows of low-skilled workers from the EU was one of the main factors driving to a “Leave” vote to in the referendum. Therefore, Poland would need to negotiate hard to make sure that its citizen can still easily access the UK.

With thanks to Łukasz Antoni Król for his valuable insights.

 

Ireland wants a Brexit as soft as possible, therefore it will not allow the negotiations to fail because of disagreements on the amount that the UK has to pay the EU. Although Ireland will rally behind the other Member States in requesting the UK to abide by its financial commitments, when push comes to shove Dublin will back a more flexible stance. Irish government is aware that a lot of political capital is needed to convince the UK to soften its position about freedom of movement and access to internal market. Concessions on the Brexit bill might help finding a compromise on these other items.

Economic relations with the UK are particularly important for Ireland (the UK is the largest exporting market for the Republic of Ireland). For this reason, the economy of the country would be the most severely affected by a hard Brexit (after the UK itself). Dublin is afraid of the likely loss of access to the British market for Irish businesses as well as the introduction of custom checks into British or from Irish ports (or both). If customs checks are not introduced on two different customs unions, (and instead done so electronically or similar), this would be the first time that this would ever have been done (all other examples of customs exemptions are for very small cantons).

Dublin will push for a soft border for the circulation of good between the EU and the UK. Although Dublin might benefit from the relocation of financial services from London, this would hardly offset the economic losses due to the re-emergence of both tariff and non-tariff barriers between the EU’s internal market and the UK.

This is one of the most delicate aspect of the Brexit negotiations for Ireland. A hard border between the UK and Northern Ireland would wreak havoc in Northern Ireland, where the longstanding tensions between Unionist and Republicans have never completely subsided (these tensions are further exacerbated by the increasing influence of the Unionist DUP on the UK’s government). Brexit seriously threatens the Common Travel Area (CTA). This is a sort of mini-Schengen area between the UK and Ireland in which citizens move freely, no questions asked. Of course, the Britain’s hard/physical border with Ireland (Northern Ireland) will also be Britain’s only land border with the EU (apart from Gibraltar). EU migrants wishing to go to Britain could fly to Dublin, travel to Belfast (a UK city on the Irish island), then travel across to the UK, unless there is a change in the status of the CTA.

A solution could be to install border and customs controls between the island of Ireland and the UK, rather than the Republic of Ireland and the UK, in essence, a sea border. This would avoid a hard, physical land border, but would nonetheless still cause enormous disruption, particularly within the unionist community, as in the words of Arlene Foster, you “are not to show your passport within your own country” (her Democratic Unionist Party has become the kingmaker in Westminster since the last elections).

To address this problem, Ireland made sure that the negotiations guidelines adopted by the Council of the European Union took into account the perspective of an Irish reunification. In case of a hard border with the UK, Ireland would advocate for holding a referendum in Northern Ireland.

However, Dublin will first try to reach an agreement with the United Kingdom on the freedom of movement, although this will not be an easy task, considering Westminster’s opposition to maintain the free access of EU citizens to the UK. Fortunately for Dublin, all the players are aware of the special needs of Ireland and they are not ruling out the inclusion of special arrangements for the Irish situation in the final agreement.