Brexit Talks

On Continent, Picking Up the Pieces

schloss borsig berlin source ap
The foreign ministers of Germany, France, the Netherlands, Italy, Belgium and Luxembourg met in Berlin over the weekend to plot strategy in the wake of Britain's vote to leave the European Union.
  • Why it matters

    Why it matters

    • While Britons voted decisively for a Brexit, the precise timetable for the U.K.’s actual departure from the European Union remains unclear, clouded by British political upheaval and discord among E.U. members on how to proceed.
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  • Facts

    Facts

    • British Prime Minister David Cameron will meet with E.U. leaders on Tuesday, but it is unlikely he will formally initiate the process to withdraw his country from the 28-nation bloc.
    • Some E.U. leaders, including European Commission President Jean Claude Juncker, have called for Britain to make a quick withdrawal. Others, like German Chancellor Angela Merkel, have signalled they will not pressure Britain to leave quickly.
    • The British position is being complicated by Scotland, whose First Minister, Nicola Sturgeon, has signalled that her country’s own parliament must first approve a Brexit for it to take effect. Her claim could raise a constitutional challenge that could delay a Brexit.
  • Audio

    Audio

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How will the European Union navigate Britain’s departure? And in what direction should the bloc and its remaining 27 members be heading? E.U. leaders are expected to come up with answers when they meet in Brussels on Tuesday and Wednesday. But that may not be possible so soon. The German government wants to avoid open conflict and project unity and solidity following last week’s seismic vote.

And yet E.U. countries are hardly in agreement on how to handle the unprecedented situation.

One issue is how much pressure the European Union should put on Britain. Initially, some top officials in Brussels came out with a hard line: European Commission President Jean-Claude Juncker said he would be calling outgoing Prime Minister David Cameron ahead of the summit, urging him to officially declare Britain’s intention to withdraw, which would start the two-year clock for the country’s departure.

But Mr. Juncker, who is not elected directly by European voters but by the heads of government of the 28-member countries, is not necessarily driving the E.U.’s response to the Brexit crisis. Today, the German chancellor, Angela Merkel, is meeting in Berlin with French President Francois Hollande and Italian Prime Minister Matteo Renzi to discuss strategy for the Brexit negotiations. Tellingly, Ms. Merkel and the two leaders are also meeting with Polish President Donald Tusk, who is the chairman of the European Council of Ministers, the upper chamber of European government where government leaders wield an effective veto.

The meeting suggests that Ms. Merkel and the remaining large E.U. countries, not Mr. Juncker and the appointed commission, will take the lead in determining how, when and under what terms Britain leaves the bloc. The meeting was set to take place amid signs that global financial markets had calmed after shedding billions of euros in value on Friday.

London’s FTSE Index was trading down 1 percent at 6075.13 at noon in Berlin, while the British pound was down 0.8 percent at 1.10 per dollar.

 

 

27 p16 Brexit Market Reactions 3-01

 

The European Parliament, largely a deliberative body, is set to call for a speedy withdrawal in a resolution on Tuesday. Parliament President Martin Schulz, who is German, called it “scandalous” that Mr. Cameron planned to remain in office until October.

The foreign ministers of six E.U. founding members met Saturday in Berlin and also called for a quick declaration from London. The European Union had been passive and largely silent during the lead-up to the Brexit referendum, Germany’s Minister of State for Europe, Michael Roth, told Handelsblatt.

“Now they should show self-confidence and determination and demand rapid consequences of the United Kingdom,” Mr. Roth said.

Nearly 400,000 people work in offices of German companies that stand to be particularly affected by the Brexit across the auto, energy, telecom, electronics, metals, retail and finance sectors, according to the industry association BDI.

But it seems unlikely that Mr. Cameron will announce the withdrawal orally or in writing on Tuesday to his colleagues. He and representatives of the Leave campaign are playing for time, but once London begins the discharge procedure by invoking Article 50 of the E.U. Treaty, the clock will start ticking. There will be a maximum of two years to finalize the separation. If Britain and the E.U. cannot agree by then or unanimously extend the deadline, the United Kingdom will lose access to the single market and will have to pay duties on all of its exports to the European Union, giving the 27-member bloc the upper hand in negotiations.

The costs for Britain would be substantial: About 45 percent of U.K. exports go to E.U. countries.

One of the biggest unknowns on Monday was whether the resulting political turbulence in Britain unleashed by the Brexit would delay or even prevent the country from doing what U.K. voters are demanding – withdraw their country from the European Union.

A huge unknown is Scotland, which appears determined to leverage the Brexit vote to effect its own departure from Britain. Over the weekend, the Scottish first minister, Nicola Sturgeon, asserted that the Scottish Parliament must first ratify the results of the Brexit vote before it can become valid — a questionable assertion that could set off a lengthy legal challenge that slows the exit.

The majority of voters in Scotland voted to remain in the European Union last Thursday. Ms. Sturgeon is using the result to bolster Scotland’s case to secede from Britain. On Saturday, she said there was a high probability that Scotland would initiate the negotiated process with Westminster to hold a second referendum on independence from the U.K.

Even if the U.K. can decouple from Scotland’s agenda and press ahead with a formal Brexit, there remains uncertainty on the Continent.

German Chancellor Angela Merkel appears to be more understanding of the U.K. position, saying there is no reason to get “nasty” with the British and she won’t press for an earlier U.K. withdrawal. Unlike Mr. Schulz or Mr. Juncker, Ms. Merkel is also willing to discuss the status of the United Kingdom after it leaves the European Union in parallel to the withdrawal negotiations.

 

But Ms. Merkel is also aware that German companies will suffer should the future of trade relations with Britain remain unclear for too long. Nearly 400,000 people work for German companies that would be greatly affected by a Brexit in the auto, energy, telecom, electronics, metals, retail and finance sectors, according to Federation of German Industries, the leading business lobby group.

 

27 p7 Without the Brits, Europe Will Lose Part of its Power-01

 

The association’s director general, Markus Kerber said: “In the coming months, we expect a significant decline in business with the British.” 

There is much at stake for London. Some large banks had announced ahead of the referendum that they would be relocating jobs to other parts of the European Union. London is by far the most important financial center in Europe, and the world’s leading center for currency trading, but its importance rested on the fact that international investment companies and banks were able to sell their products throughout the European Union from the there.

With Brexit, the United Kingdom’s access to Europe’s single market is now in question. 

The London financial district, called The City, has already lost some important stakeholders: Jonathan Hill, the European Commissioner for financial issues, announced his resignation after the referendum. His position will be filled by Latvian Valdis Dombrovskis, who was Commissioner for the Euro and Social Dialogue.

Commission sources said that Mr. Juncker was sending a signal: Mr. Dombrovskis is now responsible for both the euro area and banking regulation, signaling that Mr. Juncker wants the 27 remaining European Union countries to adopt the euro.

With this move, Mr. Juncker underscored his goal of closer integration for the European Union for the 27 remaining members.

Over the weekend, German Foreign Minister Frank-Walter Steinmeier and his French counterpart, Jean-Marc Ayrault, presented a paper in which they proposed concrete steps towards integration on economic, security and refugee policies. In the case of the accepting refugees, Germany and France were prepared “to go ahead with a group of like-minded partners,” according to the 10-page statement.

But the proposal also foresaw a two-track process, a concession to the other E.U. members who don’t support the bloc’s official line, especially on controversial issues like accepting refugees.

There are areas where countries’ “different levels of ambition” must be taken into account, the German-French document said. “Not to exclude hesitant countries, but instead to encourage them to join them later,” said Mr. Roth, the German state minister.

Today, Mr. Steinmeier is in Prague to speak to leaders from the Czech Republic, Poland, Hungary and Slovakia. Above all, it is these four Central European countries that have struggled with a deeper integration into the European Union.

Yasmin Osman is a banking correspondent for Handelsblatt in Frankfurt. Kirsten Ludowig reports on companies and markets for Handelsblatt. Ruth Berschens is Handelsblatt’s bureau chief in Brussels. Till Hoppe covers foreign policy for Handelsblatt. Kevin O’Brien is Editor-in-Chief of Handelsblatt Global Edition. To contact the authors: hoppe@handelsblatt.comberschens@handelsblatt.com, ludowig@handelsblatt.com, osman@handelsblatt.com

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