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July 28, 2016

Barnier vs Davis

Jean Claude Juncker has appointed Michel Barnier as the Commission's Brexit negotiator - a clever appointment in our view. Barnier is a former French foreign minister and European Commissioner in charge of financial services, so he knows the brief well. And if there is a deal, he will be able to sell it to France. As he tweeted, the job will start on October 1 - which is just as well since the British have yet to make up their mind on their negotiating position, whether to opt for a hard or a soft version of Brexit. 

Sebatisan Payne writes in the FT that May put two strident Brexiteers in charge of trade and the new Brexit department for reasons of party management. But she will eventually have to take back control. The important event to watch out for will be her address to the Tory party conference in October, where she should lay out her vision for Brexit. Payne dismisses all the chatter on Brexit options as "background noise". It is very hard to know what is achievable. The appointment of Barnier suggests that the EU will play hardball. The Independent also believes that Barnier will be a tough Brexit negotiator.

The FT also has an interesting scenario analysis about the future for the City of London, which it divides into three. The first is a souped-up Singapore, with Britain becoming an off-shore financial centre for renminbi and euro trades. The second is a dramatic decline in business. Both of these scenarios are premised on a hard Brexit. The third scenario is based on the EEA, in which case everything stays in place including the UK's role in euro clearing.

We would not characterise the Barnier appointments as a signal of toughness. The toughness lies in the position of the EU as a whole, that is the position of the European Council, which is very unlikely to offer the UK any favourable deals no matter who the negotiator on the ground may be. The main job of any European negotiator initially will be to get rid of the myth - still widely believed in the UK - that you can combine single-market membership with immigration controls. If Britain opts for the EEA, it will be a vanilla arrangement very similar to what Norway has. There is, in fact, not a lot to negotiate.

If Britain opts against the EEA, than the Art 50 talks will be mainly concerned with transitional arrangements until the conclusion of an FTA, which would take much longer.

Regarding the City of London scenarios: we are not sure whether EEA membership would be the same as EU membership for the City of London. While City firms would retain the single passport, it is far from clear whether the ECJ's non-discrimination ruling against the ECB's attempt to repatriate euro-clearing to the eurozone would automatically extend to the EEA.

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July 28, 2016

Orban's Europe

Viktor Orbán's speech caught the headlines for his endorsement of Donald Trump, but this is not really what is most shocking about it. It is worth reading it in full - not on a full stomach, though - because it shows more clearly than ever before that it will be impossible to move Europe forward with people like him in charge. And while Orbán is probably the most extreme of all EU leaders, he is not alone.

In his speech Orbán argues that the EU must immediately abandon any attempt at further power centralisation. Second, the EU needs to lower its ambitions post-Brexit: it is no longer a global but a regional power. And third, we should stop idealising Europe. The migration crisis is the result of the EU acting jointly. It was only after Hungary and other countries unilaterally decided to close their borders that the crisis abated.

Moreover, he questions almost the entire acquis his own country signed up for when it joined the EU. He specifically rejects the following: the increase in the powers to the European Parliament; allowing the Commission to become a political body; and abandoning unanimity for QMV in many policy areas.

What is becoming increasingly clear to us is that the next stage of European integration will have to be preceded by a stage of distintegration that would flush out the likes of Orbán. The problem is not that Orbán has a different view about the future of the EU. The problem is that he rejects pretty much everything the EU has done since the 1980s. The really big mistake made by the EU in the past was to allow countries to join that do not share the EU's fundamental values. 

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