Brexit: Tuesday Afternoon Update

Managing Director
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Posted on June 28, 2016

Story of the Day: EU Summit

Prime Minister Cameron was subjected to a difficult meeting with the EU Council of Ministers – his last as PM. It was left to Cameron to explain what has happened in the UK over dinner to the EU and Member States.
Wednesday’s meeting on Brexit specifically excludes Cameron. Complicating matters from a UK perspective is the fact that European Commission Chief Juncker has explicitly ruled out any dialogue (even informal) between the EU and the UK until Article 50 is triggered.

Prior to Cameron’s visit, UK Independence Party (UKIP) leader Nigel Farage addressed the European Parliament expressing his belief in the need to reach a bilateral trade deal that excludes tariffs on UK/EU trade. During his address, which was met with boos, chortles and discontent, Farage stated that the UK would not be the last to leave the EU and explicitly taunted his audience. The level of discord is captured by the branding of Farage’s speech as ‘Nazi Propaganda’ by some Ministers. Clearly, Farage is poorly positioned to represent UK interests to the EU through negotiations, and must take a back seat as his adversarial nature will poison any remaining good faith and sentiment.

German Chancellor Angela Merkel, issued her own rebuke to British musings of continued access to the EU single market. Chancellor Merkel insisted single market access would be tied to EU fundamental principles, notably, freedom of movement.

Overall, this emotional response from EU Member States was predictable and David Cameron knew he was in for a rough ride. There remains a great deal of anger, not least from Italy whose banks now need a $40B bailout (triggered by Brexit), from Spain over cessation concerns of their own, and from France which is even more anti-EU than the UK. While it is unlikely to be an easy divorce, both sides ultimately know they will need to reach some kind of agreement in the end.
Labour Leadership

Jeremy Corbyn has lost a vote of no confidence 172 to 40 but remarkably he has vowed to carry on and put his name forward as leader. He can do so without the support of the Parliamentary Labour Party as he is likely to retain the popular support of the rank and file Labour membership.
Since the coup against Corbyn began two and half days ago with the sacking of Hilary Benn, Corbyn has lost two-thirds of his shadow cabinet. Calls for Corbyn to step down are accompanied by forecasts of the party self-destructing. This is worrying for two reasons. Firstly, there is in effect no effective opposition at a crucial time for the British Parliament; and secondly, Labour’s disarray could lead directly to the rise of the UKIP as Labour voters who voted ‘Leave’ may seek new leadership in Farage over disappointment in Brexit’s progress in slowing immigration.

Angela Eagle and Tom Watson, are among those who may be in contention for Labour leadership.
Conservative Leadership

Understandably, much interest continues to be focused on the selection of a new Tory leader and Prime Minister. While the Conservative Party has announced a new, accelerated leadership timeline, the field is beginning to emerge. Chancellor George Osborne has today ruled himself out of a process that will see nominations due by end of this week and a new leader selected by September 9, 2016.
Boris Johnson & Teresa May are the leading candidates, however, Sajid Javid (Secretary of State for Business) and Andrea Leadsom (Minister of State for Energy) have not ruled out the possibility of throwing their hats in the ring. In an early statement of intent, Johnson has hired election strategist Sir Lynton Crosby, who masterminded the 2015 Tory victory.

The leadership timeline may yet be brought further forward should there be market pressure or EU pressure to trigger Article 50 and start the exit process. The Tories know they need to get a move on and the markets’ positive bounce today was in reaction, in part, to the move by the Tories to install a new PM sooner than later.

 
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To speak to someone on the ground in London, connect directly with our London lead Ashley Prime at aprime@navltd.com.

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