by 25th June 2020
25th June 2020 UK Political, Economic and Social Update during Covid-19

While the Covid-19 crisis has raged in the UK, there has been little time to focus on Britain’s future relationship with the European Union.

However, the issue is now becoming overwhelmingly urgent in London and Brussells once again.  This week, we bring you a special newsletter summarizing the view of Brexit from this side of the Channel and what will happen in negotiations over the summer.


25th June UK Political Update  –  Brexit decisions looming

This week, leading journalists at The Times newspaper have examined the latest state of play in the Brexit negotiations – as we summarise below.

On both sides of the Channel people, resources and political bandwidth has been drained away from the Brexit battles to deal with the immediate Covid-19 crisis.

Decisions have been put off and any negotiations that did take place made no real impact.

Yet it is clear that the coronavirus pandemic has changed politics, both in Britain and Europe, in ways that will have fundamental implications for Brexit.  Now leading Times journalists have made a first attempt to analyse what those implications are, both domestically and internationally.

Back in March, the principal economic concern in the UK was the uncertain effect that a potential no-deal outcome would have on jobs and growth.

At that time in mid-March 2020, as the Times Brexit Briefing makes clear below,  the prospect of a 5 per cent relative long term decline in GDP, compared with staying in the EU, seemed like a significant figure. Now such an outcome would be considered a triumph.

Politically, back in February 2020, the Conservative government was riding high. Labour was leaderless. Downing Street was preeminent and Dominic Cummings, the Prime Minister’s chief aide, was the Svengali who could do no wrong.

Now, it seems that following a series of critical missteps and unforced errors, public trust in the British prime minister and the government has been eroded. And Brexit, once Mr Johnson’s most valuable asset, has the potential to become a political liability.

Not only do British voters not care or think about it as much as they did, but in the light of the inevitable Covid economic slump there is a fear in Tory circles that if things go wrong, Boris Johnson could end up being blamed for making a bad situation worse.

Those around his chief advisor Mr Cummings argue that any economic disruption caused by a breakdown in trade talks is likely to be masked by — and can be blamed on — the much wider economic disruption caused by Covid.

But other senior Tories are not so sure. Voters are fickle and trust is hard to regain. They fear that even Brexiteers could turn on Mr Johnson if they feel that he has made a bad situation worse.

And the international landscape has changed as well. Donald Trump looks far less secure in the White House than he did in February and if he loses November’s election then the prospects of the UK/US trade deal look remote. In Europe, even more so than the UK, the Covid crisis has pushed Brexit down the list of political priorities.

National governments are really not engaged in the details of the compromises that will be necessary to strike a deal. But conversely they may also become more fearful that the UK could seek to undercut them to boost economic growth, if it is not tied into EU structures in areas such as state aid.

None of these political changes are yet “baked in” and no one has any idea what the final economic, political and above all human cost of Covid will be.

So, as Britain leaves the European Union on December 31st, Whitehall is gearing up for its first major trade negotiations in 50 years.

Taking back control of trade policy, the government is starting at the deep end: turning to Brussels and Washington, two of the world’s most formidable negotiating powers.

Brexiteers who have spent years attacking the EU for taking too long to strike trade deals are now expecting it to finalise a series of post-Brexit agreements with the UK — covering everything from fisheries to financial services — in a matter of months.

Boris Johnson is clear: the transition period, preserving the terms of Britain’s EU membership after it leaves, will come to an end on December 31st.

As a result, Bruno Waterfield at the Times believes that Britain and the European Union have only 60 days to make a breakthrough in fishing, trade and security negotiations.

Over the summer, the British and EU negotiators, David Frost and Michel Barnier, will try to close in on four “landing zones” of compromise. Both have been given significant leeway “to create the most conducive conditions for concluding and ratifying a deal before the end of 2020” by “finding an early understanding on the principles underlying any agreement”.

Intensified talks, taking the form of six negotiating rounds that conclude in 60 days on August 21, are now taking place on the basis of an agreement that both sides are ready to shift into concession mode.

If areas of compromise can be found then the EU is ready, according to internal German diplomatic documents, for “September… negotiations [to] enter a hot phase”. This would be the famous Brussels “tunnel” when negotiators lock themselves in rooms for highly secret negotiations to clinch a legal text.

If “the principles underlying any agreement” cannot be established in the next 60 days, then no-deal planning will begin on both sides for Britain to leave the transition period on January 1 2021 on World Trade Organisation terms.

During a recent video conference call with the EU’s top officials, Boris Johnson told them that his negotiators would have a new mandate “to find ways to progress, confront difficulties and find balanced agreement”. There is an element of suspicion in Brussells, a nagging feeling that the prime minister is playing a political game because they can see no evidence that he is preparing the ground domestically.

On its part, the EU has started to signal, without fanfare and softly, that it is ready to make concessions by dropping elements of the restrictive mandate given to Mr Barnier. The hints, given by the EU’s negotiator and his boss Ursula von der Leyen, the European Commission president, mean that the contours of a potential compromise can be glimpsed between the lines.

Landing zone one: fishing
This is one of the most politically difficult areas of the talks and is so sensitive that Mr Barnier had to back away in the last round of talks because word got out to France and other fishing countries that he was going to compromise.

The EU has quietly dropped demands that the catch quotas for European fishing boats must remain more or less unchanged under a new fisheries deal. Instead, Mr Barnier now recognises that an agreement will mean movement to a reduced European catch in British waters and that it will be modelled on the EU-Norway agreement.

The shift makes a deal possible but it is only the beginning of a brutal negotiation over the “hard numbers” of future fish quotas, setting the scene for fishing protests in France, Belgium and the Netherlands.

Mr Frost has been warned that while the EU will compromise he should not push his luck with too many British demands linking European fish quotas to other EU concessions on trade, such as rules of origin or mutual recognition.

Landing zone two: police and security cooperation

This remains difficult for the government because Mr Barnier will insist that European judges continue to have oversight of crime database-sharing because it is based on specific EU law.

It would mean that police and security cooperation by European governments or institutions could be stopped by the EU courts if data-sharing or other activity was found to be in breach of European law.

It is expected that Mr Frost will make some concessions here, especially as the EU has signalled that it does not expect that the European Court of Justice will review UK cooperation with international human rights legislation.

Landing zone three: the “level playing field”

Mr Barnier and the EU have quietly dropped a demand for the UK to fully apply European law on competition and subsidies, including full oversight of the ECJ.

EU negotiators have told Mr Frost that they do not expect that any “level playing field” fair competition rules are based on “cutting and pasting” European law.

While dropping demands for the UK to align with EU law, European governments will push for a “robust toolbox” to prevent regression from social and environmental legislation. Mr Frost will be expected to concede safeguards that go beyond existing precedent in trade deals, such as the one between the EU and Canada.

Landing zone four: “governance”

The EU’s concessions in other areas push the question of “governance” – how to enforce the deal – to the top of the political agenda.

European negotiators want an overarching enforcement structure with a binding dispute mechanism that suspends elements of the deal across the board. This means that a future dispute on fishing could lead to trade sanctions, or that a row over industrial subsidies could lead to restrictions on the City of London.

The EU is keen to avoid a repetition of its relationship with Switzerland, which is governed by a myriad of bilateral agreements. Government negotiators have resisted the demand because of fears that the ECJ would get a role policing implementation of an agreement.

That fear is now reduced by EU concessions in other areas and Mr Frost will be under pressure to make enforcement concessions. “If the UK has got its way on the content of the different areas, level playing field or fishing, why not consider one disputes body,” said one source close to the talks.

So far, the issue has been a sideline in the talks but over the coming weeks “governance” will be a hotspot as the EU makes it the precondition for the concessions in other areas.

For a useful Brexit summary from Chamber members Martinez Echevarria, click here.


 

25th June UK Economic Update –  Things are looking up

Manufacturers led the largest rebound in economic activity on record in June as the government eased the UK’s lockdown.

IHS Markit’s Purchasing Managers’ Index – where anything above 50 represents growth – rose from 30 in May to 47.6 in June. That exceeded economists’ forecasts of a rise to 41.

The manufacturing sector rose from 40.7 to 50.1. The services PMI rebounded from 29 to 47.

That’s the PMI’s second consecutive record rise and joins a growing body of evidence showing the British economy is beginning to find its feet now lockdown is easing in so many sectors. UK grocery sales, for example,   surged 19% in the four weeks to the 14th of June.

For PWCs detailed report click here


 

25th June UK Social Update –  Life but not as we know it

On Monday 29th June, the government will review its 14 day quarantine restrictions which currently apply to all incoming travellers.  It is thought that next week up to 10 new ‘travel corridors’ between the UK and ‘low-infection’ countries will be announced.

France, Spain, Italy and Greece are likely to be at the top of the list, allowing some summer holidays to progress.  Due to recent increased cases of Covid-19 in Lisbon and the Algarve, the inclusion of Portugal on the list is ‘under active discussion at this time’.

The government also announced this week that pubs, bars, restaurants, hairdressers, hotels, places of worship, libraries, cinemas, bingo halls, theatres and outdoor skating rinks will all reopen from July 4 provided they are “Covid-safe”.

Nightclubs, casinos, bowling alleys, soft play centres, gyms, spas, nail bars, swimming pools and tattoo parlours remain closed until later in July.