19 August 2016

Paul Goldschmidt: It behooves the European Union to impose a calendar for the Brexit negotiations

[...]If legally, the Treaty clearly confers the initiative of triggering Art. 50 on the departing State, it is nevertheless inadmissible that, by postponing technically its notification, the withdrawal of the U.K., officially confirmed by the British Government, is allowed to affect adversely vital interests of remaining EU Members.
 
While granting a sufficient delay allowing both parties to prepare for an unprecedented set of negotiations is perfectly reasonable, as Chancellor Merkel has recognised, it is urgent to fix limits to such flexibility. Indeed, it would prove highly damageable if either party invoked, for instance, the upcoming French and German elections to further delay the process, postponing the effectiveness of Brexit until end 2019. Such a measure would just further increase uncertainties which are the bane of economic actors as well as feared by financial markets. It would also lead to other complications such as the participation of the UK in the next European Parliamentary elections due in April 2019, which is, as a matter of principle, totally inconceivable.
 
One should also worry that postponing these deadlines will serve as a convenient excuse for the 27 to delay the Union’s necessary reforms, whether they concern immigration, defence, completing EMU, etc., as well as the necessary institutional adaptations they imply. Without a vigorous action plan, the likelihood of a new financial crisis imperilling the survival of the € would increase significantly, despite the impressive means deployed to date by the ECB. They would however, in all probability, turn out to be insufficient to deal with a severe banking crisis because the efficacy of its ultra-loose monetary policy (negative interest rates and QE) is being undermined by the negative outcomes it induces: shrinking bank profitability thus limiting dividends (and bonuses!) leading to a vicious circle of lower share prices, difficulties to bolster equity capital and reducing the capacity to increase lending to the “real” economy. 
 
Furthermore, one should not, unfortunately, discount the possibility that a number of Brexit’s advocates, having realised too late the total lack of preparation of their country, are deliberately seeking to engineer the implosion of the EU: it would render any negotiation pointless and would exonerate ex post Brexeteers for their thoughtless posture! The global economic drama that would unfold following the implosion of the Euro (and of the EU) would then be held responsible for the negative consequences making the UK one of its “victims”.
 
Thankfully, more and more authoritative voices, including those of the German and Italian Ministers for European Affairs, Michael Roth and Sandro Gozi, are drawing attention to the need to avoid such a trap and are demanding the rapid start of the negotiating process. [...] Such a program should be totally independent from the Brexit negotiations; it will probably require having recourse to the cumbersome machinery of Treaty change.
 
The final communiqué should also specify a deadline for the UK to invoke Art. 50, and serve notice that further delay would compromise the Union’s existing will to negotiate a mutually advantageous accord. In addition it should be reiterated that negotiations over Brexit and concerning a bespoke agreement on future relations between the EU and the UK should remain separate (even if they could be initially carried out in parallel); only the first part would be subject to the two year guillotine envisaged by the Treaty. [...]

Full article on Paul Goldschmidt website

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