Europe’s
message to Theresa May: Play by the rules — or else
As
British PM prepares to deliver big Brexit speech, Paris, Berlin and
Brussels are getting worried.
By NICHOLAS VINOCUR
AND MATTHEW KARNITSCHNIG 1/17/17, 5:34 AM CET Updated 1/17/17, 3:43
PM CET
PARIS — As British
Prime Minister Theresa May prepared to unveil her Brexit vision
Tuesday, Europe had these words of warning: play by the rules in
leaving the EU, and forget about striking any backdoor trade deals.
One more thing: No
threats about turning Britain into a corporate tax haven, please.
Head down that path and things could turn nasty.
Of course, few
officials will spell out their views so clearly when May takes the
stage Wednesday. In Berlin and Paris, the default position on Brexit
remains one of icy, wait-and-see aloofness.
There is nothing to
discuss, the refrain goes, until Britain triggers official divorce
proceedings. And even when Article 50 is activated, Britain will have
to abide by all four EU “fundamental freedoms” if London wants
continued access to the European single market.
“It’s not clear
[May] has understood that the four freedoms aren’t up for
negotiation,” said a senior German government official. “The
question is how she’s going to pull off this balancing act.”
The same
no-compromise message could be heard in France. “It’s not up to
Europe to figure out Brexit for Britain,” said Christophe Caresche,
a Socialist MP who sits on the National Assembly’s commission for
European affairs. “They need to present a clear framework, and we
will respond within the negotiation process.”
Tax hangups
But while Europe
maintains its see-no-evil front, officials are following the progress
of Britain’s internal Brexit debate with trepidation. To say that
they find it worrying would be an understatement.
Last week, they took
careful note of leaked parts of May’s speech in which the prime
minister laid out a vision for a “clean” Brexit. According to
briefings given to British newspapers, Britain will seek to wrest
back full control of immigration and exit Europe’s single market,
signaling an abrupt break with the Continent.
Even more worrying
are reports that Britain, working with President-elect Donald Trump,
could seek to strike a bilateral trade deal with the United States
long before Brexit talks are completed.
“There cannot be
any free trade deal for the United Kingdom until negotiations are
over,” Pierre Moscovici, European commissioner for economic and
financial affairs, taxation and customs, told reporters in Paris.
“Even in the case of hard Brexit this [negotiating process] will
take a long time.”
Europeans are also
highly concerned about Britain changing its tax regimen to lure
business away with ultra-low rates.
Last week, May’s
Chancellor Philip Hammond told Welt am Sonntag that Britain could
retaliate against Europe for depriving it of market access for
various goods by lowering its corporate tax rate. “You can be sure
we will do whatever we have to do,” Hammond said.
His thinly veiled
threat raised many eyebrows on the continent. Paris and Berlin —
already at odds with Ireland over its super-low corporate tax rate —
know that fiscal policy is one area where London could punish the
bloc. On that front, they are prepared to push back hard against May.
“I am totally
hostile to the idea of Britain become a tax haven at our borders,”
said Moscovici.
In Germany, the
reaction to Hammond’s threat that Britain would do what it took to
remain “competitively engaged” was just as fierce.
“The U.K.’s two
main economic weaknesses are its considerable trade deficit and a big
budget deficit,” said Norbert Röttgen, a senior MP in Angela
Merkel’s CDU party. “As such, Hammond’s threats with duties and
tax cuts would primarily damage the U.K. and should be regarded as an
expression of British cluelessness.”
Fear of a cushy deal
Behind the bluster
and warnings to Britain, there is a fear: If Britain obtains a
sweetheart deal in leaving the Union, what will stop other countries
from trying to follow suit with further departures?
“What we
definitely don’t want is a negotiation that will create an
attractive standard for leaving the EU that other countries would
want to imitate,” said Caresche. “It’s not just a British issue
— it’s also about not creating incentives for other countries to
leave.”
Even so, while
Europe wants Britain to play by the rules, it also wants to avoid a
disorderly Brexit.
European officials
know that the EU would also stand to lose economically if Britain
severed its ties with the Continent and started to forge new trade
relationships with countries around the world. Michel Barnier, the
EU’s chief negotiator in the Brexit talks, hinted recently that he
was backing away from a hardline stance.
The EU wanted to
maintain a “special relationship” with the City of London after
Britain has left the bloc, he admitted, according to unpublished
minutes of a meeting seen by the Guardian.
Indeed, some EU
officials, particularly from central and northern states, struck a
much more cautious note on the eve of May’s big speech.
“If the U.K. will
be able to sign economic and trade agreements with many serious
actors of the world economy, and if the EU is not able to build this
kind of cooperation with the U.K., then it’s going to be a very
uncomfortable position for us,” said Hungarian Foreign Minister
Péter Szijjartó.
With many EU
countries already losing business to countries with lower tax rates,
the concern about Britain becoming a low-tax paradise is real.
Moscovici admitted that while Britain had to respect G7 rules on
fiscal policy, there was little the EU could do to stop London
lowering its taxes once Brexit was done.
Jacopo Barigazzi and
Ryan Heath contributed to this article.
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