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March 01, 2019

Stars seem to align in favour of the Brexit deal

There are two Brexit developments we would like to draw to your attention this morning - each interesting in their own right, but more so when taken together. The first is a legal opinion of the German Bundestag, according to which Art. 50 cannot be extended beyond May 23-26 unless the UK hold European elections. The second is that the Labour leadership is fast-tracking the so-called Kyle amendment, which would commit the party to abstain in the meaningful vote in exchange for a referendum. Both of these developments together raise the odds that the deal passes, either this month or after a very short extension.

The Bundestag's legal opinion is based on the fundamental rights of EU citizens, enshrined in EU law, to elect MEPs and to stand for election. If the UK fails to hold European elections while still being a member of the EU, the rights of UK citizens - but perhaps more importantly of EU citizens in the UK - would be violated. The ECJ could get involved, either through an infringement procedure brought by the European Commission directly, or - in our view, more likely - through a national court case that would be referred upwards. The ECJ could pass a preliminary ruling. 

The legal uncertainty is unlikely to be cleared up by the time the European Council takes a decision on extending Art. 50. We would assume that both the UK government and the Council would want to avoid the risk of a court case that could compel the UK to hold European elections. A problem arises for the EU in this case, as the chaos of a hard Brexit could overshadow the elections. Both sides thus have a very strong incentive to get this over and done with. We would urge the European Council to make it clear right now that there can only be a single extension - and only for the purpose of ratification of an agreed deal - thus confronting the UK with a take-it-or-leave-it choice right now.

The second story - of Labour endorsing a revised version of the Kyle amendment - also plays in favour of the deal passing. The amendment vote would be held immediately before the meaningful vote. It would say that Labour is withholding support on the withdrawal agreement until it is ratified by a second referendum. A previous version compelled the party to accept the deal, subject to a referendum. 

We believe that the number of Labour MPs who will reject this amendment will surpass the number of Tory MPs who will accept it. It is also not clear to us whether this has the universal support of all other opposition MPs. Some of the more extreme second-referendum supporters baulk at the idea of supporting an amendment that in their view is purely designed to minimise conflict within the Labour Party. More importantly, they fear than this amendment could kill off the second referendum for good. Their preferred strategy had been to wait until the very end of the process, and to pitch the second referendum against a no-deal Brexit. 

The Guardian quotes a Labour MPs as saying that at most 10 Tories would support the amendment, which is not enough given the known Labour opponents to a second referendum. The MP, who is said to be in favour of a second referendum, said he doubted whether the leadership is really serious about winning, or whether Corbyn was just going through the motions. A Labour MP from a strong leave-voting constituency said the number of MPs who oppose a second referendum was far greater than previously thought. Even some of the previously-committed members of the so-called people’s vote campaign were saying privately they would vote against it. 

The government's strategy continues to be unaltered - run down the clock until the choice reduces to deal vs. no-deal, in which the case the deal would pass. With the legal uncertainty over the timing of the extension, the pressure for an early deal is rising. 

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March 01, 2019

The hidden traps of the UK rebate

If you think the Brexit debate in the UK is surreal, wait until the member states have to talk about the rebates. The rebates were granted to the UK under Margaret Thatcher. But Germany, the Netherlands, Austria and Sweden also benefited from so-called rebates of the rebate to limit their own contributions to the UK rebate. 

The European Commission's current proposal is that, if the UK leaves the EU with no deal, it has three weeks to decide whether it wants to participate in the EU budget as agreed last December. But, since the UK would no longer be in the EU, its rebate and the rebates of rebate would cease to exist. The Commission calculated an UK contribution of €7.1bn in net terms, which includes indirectly the €5bn rebate to give the UK an incentive to pay, but not the rebates of the rebate. 

The FT writes this means that the Germans may have to pay €728m extra this year, the Dutch contribution would increase by €128m, and Austria and Sweden would each have to pay around €85m more. By contrast France - a long-standing opponent of the rebate system - would gain roughly €460m, while Italy would gain about €350m according to FT calculations. So, in a no-deal Brexit scenario the UK may still be expected to contribute to the EU budget and get the same conditions than under the rebate, while other member countries will have to shoulder a higher contribution because the rebate officially no longer exists. Another row between France and Germany beckons. The Brexiteers of course see no reason why they would have to contribute to the EU budget after leaving the EU. Their only concession would be that the contribution would have to be smaller and only in return for single-market access.

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March 01, 2019

Orbán coming dangerously close to EPP expulsion

Are we witnessing the final days of the EPP as we have come to know it, that is with Viktor Orbán’s Party Fidesz in its ranks? We believe it is still too early to say, but it could be. Things have certainly moved with remarkable speed in the last few days. At the time of writing, four national constituent parties - out of the seven from five countries that are necessary – have joined Sweden’s Moderates in moving to remove Fidesz from the EPP’s ranks permanently, or alternatively to suspend its membership in what has been for a long time the European Parliament’s biggest and dominant group. As Politico reported, the Flemish Christian Democrats, the Walloon Humanist Center, and Luxembourg’s Christian Social People’s Party, had all written to the Joseph Daul, the EPP president, to that effect. A fourth party, Portugal’s CDS-People’s Party, wrote to Daul to urge him that Fidesz be either expelled or suspended. Meanwhile, Die Welt reported from Germany that Annegret Kramp-Karrenbauer, CDU leader, had received emissaries sent by Orbán to plead with her to avert Fidesz' expulsion. The intention was for these talks not to become publicly known – pleading for anything does not sit well with the impression of singular strength Orbán is trying to project – but they did. There can be little doubt that someone in the CDU fed this to Welt journalists, a newspaper traditionally close to the party.

All this shows that Orbán, long seen by some in the EPP as no more than a headache, is now hovering between the state of a bad migraine, which one can live with, and something far more dangerous to the party’s overall body politic, which one cannot. The Finnish EPP party leader tweeted to the effect that Fidesz’ membership should be formally debated by the parliamentary group. The quorum of seven parties from five states is coming dangerously close for Orbán, and his many enemies in the EPP will by now have smelled blood and will be stepping up their own internal lobbying efforts. We would not be surprised if things continued to move fast in the coming days.

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