EU Council Update: September 2016

EU COUNCIL UPDATE THE 2016 STATE OF THE [DIS]UNION: VIEW FROM BRUSSELS This year’s State of the Union speech by Commission President Jean-Claude Juncker was eagerly anticipated, particularly as it followed the UK referendum on EU membership by just a few months. For those who believe big challenges require bold action, Wednesday’s speech was particularly uninspiring. President Juncker acknowledged the Union is facing a major existential crisis.

Never before has he “seen such little common ground between Member States. So few areas where they agree to work together”. Making matters worse, for the first time “we are even faced with the unhappy prospect of a member leaving our ranks”.

As sad as that prospect may be, President Juncker repeated once more the request for the UK to activate Article 50 “as soon as possible”. During the debate following his speech, President Juncker was adamant that a Switzerland-type agreement is not an option for the UK as “Access [to the single market] will only be given to those that respect the free movement of workers”. UKIP MEP Nigel Farage retorted that if the UK is not granted exemptions in this regard, there will be “no deal” – leading some to wonder how the UK could possibly benefit from leaving the EU without any agreement regarding its future relationship with the EU, including access to the single market.

On the state of the Union, President Juncker reviewed progress achieved since last year, highlighting a number of measures adopted to protect EU citizens’ privacy, rights and security. He also proposed a list of actions for the next twelve months to “deliver a better Europe”, including: • I nvesting in job creation to lower current rates of unemployment, including by supporting the free trade agreement with Canada, reviewing the Capital Markets Union, and doubling the financial capacity of the European Fund for Strategic Investments (up to €630 billion by 2022).

•R eforming the telecoms markets, by creating a new legal framework to attract and enable investments in connectivity. The Commission proposes to fully deploy 5G across the EU by

2025, and free wireless internet access by 2020.

• Reinforcing the EU’s security and defence mechanisms, by introducing a new European Travel Information System to track who will be allowed to travel to the EU, strengthening Europol, and advancing the EU’s defence policy.

The largest political groups in the European Parliament welcomed President Juncker’s speech and supported the direction and initiatives proposed. Smaller parties were not as thrilled. Speaking on behalf of the European Conservatives and Reformists group, UK MEP Syed Kamall expressed concern that “project Europe has been set to cruise control and its drivers are unwilling to apply the brakes whilst they ignore the warning lights”. In his view, more European integration will lead to increasingly detached citizens and more calls to leave the Union.

European Council President Donald Tusk would probably agree with the latter view. He shared his assessment of the situation in a letter to the heads of state of the 27 Member States who meet in Bratislava today (16 September) to discuss the consequences of Brexit for the EU. Mr. Tusk highlighted the three main challenges EU leaders will need to address as a priority to regain their citizens’ trust and re-build confidence in the European project: migration, terrorism, and globalisation. He believes the best approach to further strengthen the EU, enabling it to effectively address those challenges, is for Member States to work together, rather than giving additional powers to European institutions. Some would say that is exactly what has been tried throughout the last decade, leading to the situation we are in today.

Donald Tusk hopes to convince Member States to at least agree on the main challenges and priorities for the EU at 27, and on how to begin addressing them. Most will agree this is an extremely ambitious goal, particularly for a one-day meeting of such historic proportions. As President Juncker highlighted in his speech, Europeans “want more than promises, resolutions and summit conclusions. They have heard and seen these too often”. So let’s hope the Bratislava meeting will not reach uninspiring conclusions, thereby confirming the true state of our disunion.

FURTHER INFORMATION Miguel da Silva Director Edelman Brussels Miguel.Silva@edelman.com +32 25480278 Edelman | Southside | 105 Victoria Street | SW1E 6QT London | www.edelman.co.uk | 0203 047 2000 | @edelmanUK

EU COUNCIL UPDATE VIEW FROM BERLIN In the days and weeks after the referendum, the shock and consternation at the Brexit vote has been strong in a country that, due to its history and geographic position, is deeply rooted in the European Union.

Three months after the vote, the debate in Berlin on how to proceed with the UK leaving the EU has turned rather pragmatic. One awaits the next steps from the UK Government, while at the same time the Merkel Administration is looking into building new alliances.

With the departure of the UK, Germany has lost an important and long-standing partner in the EU. Without a major net contributor to the EU by its side, Germany now needs to deal with new alliances to act on pressing issues such as migration and economic stability.

The overall aim is clear: keeping the EU together, stable and strong without Britain, as the outcome of the referendum seems irreversible and commonly accepted. Finding a consensus within the Merkel Administration on how to achieve this will be critical, as Germany’s key position in the European architecture, both on political and economic aspects, has gained even more weight with the UK leaving. Surprisingly though, a wider public debate on the future of Europe and the German role in shaping this future has hardly taken place so far.

Notwithstanding a great amount of uncertainty, the British decision has also generated some positive effects. Support for the EU has risen in Germany after Brexit: 52% of those surveyed in a monthly Deutschlandtrend political opinion poll in July said that EU membership was beneficial overall. The previous poll, conducted just before the UK’s referendum, delivered an approval rate of only 39%. At the same time, the rise of populist and nationalist movements in many European countries, including Germany, is

unsettling. The success of the right-wing AfD in recent regional elections has further spurred the intensive debate on how to deal with these movements; that this debate has not previously been connected with a wider debate on the future of Europe is startling and overdue.

With general elections coming up next year, both issues will play a key role on the political agenda in the coming months.

From an economic point of view, the consequences of the Brexit decision are expected to be generally negative. Experts predict slowing economic growth due to a decrease in exports to the UK and the general uncertainty that Brexit generates among German companies, many of whom are traditionally export-oriented. The impact on public finances is also severe: once Britain leaves the EU, Germany’s contribution to the EU budget is expected to rise by €4.5 billion, according to an internal report from the Finance Ministry. However, even economically the ever-critical German may find an upside: opportunities are opening up for Frankfurt as a financial capital, as well as for Berlin – which is home to many start-ups – in attracting new business and skilled labour from London.

Rise in approval rate for EU in Germany after UK Referendum

39% (21 June 2016)

UK Referendum (23 June 2016)

52% (7 July 2016)

Approval rate for EU according to Deutschlandtrend political opinion poll

FURTHER INFORMATION Steffen Braun Head of Political Communications EdelmanErgo Steffen.Braun@edelmanergo.com +49 30 20180521 Edelman | Southside | 105 Victoria Street | SW1E 6QT London | www.edelman.co.uk | 0203 047 2000 | @edelmanUK

EU COUNCIL UPDATE VIEW FROM PARIS Three months after the Brexit vote, French commentators are in a state of anticipation.

After the shock of the initial vote and the expectation that the worst possible scenario for Europe and Britain would result, French media are now more willing to consider the possibility that Brexit will be a “non-consummated divorce”. This is not exactly the position of the French President and Government.

President François Hollande was very clear on September 14th that Britain must clarify the situation and speed up the exit process, saying: “France hopes that the situation of indecision will eventually be lifted and that discussions will start by the end of the year or early next year with the use of Article 50”.

The President and his majority are weak and he has to find ways to reaffirm his leadership and his ability to force other European partners to move forward.

Former President Nicolas Sarkozy – who is now running for the Republican candidacy for the 2017 presidential election – regularly reminds people that France played a key role in the post-2008 crisis in Europe by taking the initiative alongside Angela Merkel.

He has also denounced President Hollande’s inaction, attributing it to his political weakness and flat popularity. The current status quo following the Brexit decision has become an electoral weapon for political competitors in France in the context of the 2017 presidential campaign. It is exactly the same situation regarding the immigration issue; some French political leaders claim that, with Brexit, Britain should manage the flow of migrants who want to enter the UK without the support of France (the La Touquet agreement signed in 2003 by the two countries transfers border control responsibility for the Channel to the French customs authorities).

the rising of protectionism and populist ideas. Marine Le Pen – the far right leader who is leading the voting intentions in polls for the first round of the next Presidential election with around 30% – uses Brexit as an example of sovereignty and people power, a precedent for the start of a new political cycle in the West. She sees Brexit, Chancellor Merkel’s weakening position and the potential election of Donald Trump as part of a continuum of events which will culminate in her victory in 2017. Her confidence is strengthened by the fact that the economic catastrophe predicted by many experts in the event of Brexit hasn’t really occurred.

From an economic point of view, Brexit was considered an opportunity for France to attract companies and bring back factories and jobs. Two months after the vote, the analysts and experts are less optimistic. The UK economy is still dynamic and the falling value of the pound seems to have a positive impact on tourism in the UK. In France, by contrast, this summer was one of the worst for the economy – largely due to the attacks in Nice, which discouraged foreigners to spend their holidays in the hexagon.

Paradoxically, Brexit is renewing the idea of a common European defence force. France, which is uncomfortable with working with Germany on the issue for historical reasons, could end up taking the lead in creating a new dynamic on defence with the British. Is history repeating itself?

The impact of Brexit on French politics is also visible in

FURTHER INFORMATION Stéphane Harrouch Associate Director Edelman France Stephane.Harrouch@elanedelman.com +33 1 86 21 51 48 Edelman | Southside | 105 Victoria Street | SW1E 6QT London | www.edelman.co.uk | 0203 047 2000 | @edelmanUK

EU COUNCIL UPDATE BREXIT MEANS BREXIT: VIEW FROM LONDON This has been the mantra of the new Prime Minister Theresa May who told her Cabinet in her first meeting in the Chair “we are all Brexit Minsters now”.

But she has been coming under increasing pressure to explain what Brexit will actually entail. The Prime Minster has sought to explain the lack of detail by

arguing that she was not ready to put all her “cards on the table” ahead of her negotiations with Brussels on Britain’s future relationship with the EU. But it has become apparent that she does not have all her cards in her hand and some have not yet left the dealer’s hands!

On the two crucial issues of immigration and access to the single market there is at least confusion within Government.

On access to the single market for instance, Mrs May recently rebuked the Minister in her Cabinet, David Davis, who is responsible for Brexit. He told MPs in his first Commons statement in his new role at the beginning of the month that it was “very improbable” that the UK could remain a full member of the EU’s trade zone while withdrawing from free movement rules.

However, the Prime Minister’s spokeswoman instantly rebuked him, insisted that he was giving a personal opinion rather than outlining Government policy, the work on which is ongoing.

On immigration, differences have also surfaced. During the referendum, Vote Leave, one of whose leaders, Boris Johnson, is now Foreign Secretary, advocated an Australian-style points system. This emphasised that Britain would choose who came into the country.

However Theresa May recently ruled this out – “It’s not a silver bullet” - not because it would be too strict, but that too many people would meet the criteria and come in. Indeed, after the former UKIP leader Nigel Farage suggested that the Prime Minister was betraying Leave voters, Mrs May’s office issued a statement saying the Government would devise an immigration system that gave it more control than a points-based system.

FURTHER INFORMATION David Robertson Director, Public Affairs Edelman UK David.Robertson@edelman.com +44 20 3047 2154 Edelman | Southside | 105 Victoria Street | SW1E 6QT London | www.edelman.co.uk | 0203 047 2000 | @edelmanUK