Sometimes these pieces are stimulated by an event in the outside world, and sometimes by something I read. This is one of the latter. Three stories struck me this week and I found them illustrative of the kind of problems that whingeing Remainers are always identifying only to have them dismissed but not always debated. Here are three things which can't be happening because they're Project Fear. Or something.
Who needs to fly?
I've been told not to be ridiculous more than once when arguing that No Brexit Deal means that there would be no flights into or out of the UK. It's easily labelled Project Fear, but there's plenty of supporting evidence. And it's a perfect illustration of the stupidity, the unacceptability, the sheer absurdity of the proposition that No Deal could seriously be countenanced.
Bernard Jenkin (Tory UDI Brexiter) exploded in disbelief in a Commons question to Labour's Keir Starmer on 26 June. Starmer was arguing that No Deal means no agreement on "aviation, the Northern Ireland border or EU citizens" and no "arrangements for passing across security, intelligence, counter-terrorism and counter-crime information". Jenkin protested: "We would have to believe the EU was seriously insane if it wanted to ground all flights between the UK and the EU".
To which my answer is, Exactly. It would be mad for them to threaten it, just as it's mad for us to consider triggering it. It would immediately damage every country and economy involved. So there would be a deal. There would have to be a deal. It would be a stupid thing to suggest from either side, but if we're left with no agreement on exit day we'd be left with no flights.
The other attack is that this wouldn't happen anyway, that I'm misrepresenting the rules, but I've seen story after story which backs me up. EasyJet was reported last week to have started a new company in Austria. The BBC said "The airline must have an air operator certificate in an EU member country to allow it to continue flying between member states after Brexit" and "nothing will change from the perspective of passengers... all the staff and planes that would fly for EasyJet Europe [are] already employed and based in the other 27 EU countries".
This kind of precaution might eventually be unnecessary if the UK's withdrawal agreement covers this topic in a particularly open way, but companies can't know that now. If EasyJet worked on the assumption that it would all be hunky-dory, and it turned out not to be, there would be no legal basis for a UK-based company to operate between countries within the European Economic Area. The EEA allows carriers from any member country to fly within and between any others. Airlines based outside the area can only fly in and out. Looking at the EU, which in this way is treated as a single unit, some Americans are envious - flying within the US is still the prerogative of American (and perhaps Canadian) carriers only.
That's not the EU being unreasonable. It's just a matter of law. If you have no treaty backing you can't get insurance, you have no valid slot for a flight. The staff would probably refuse to fly. Whether the answer is for Davis & co to try to separate air travel out into a separate deal, as Calio requests, is another matter. Everybody would want one. Because everybody would prefer to shield their business from this mess.
To which my answer is, Exactly. It would be mad for them to threaten it, just as it's mad for us to consider triggering it. It would immediately damage every country and economy involved. So there would be a deal. There would have to be a deal. It would be a stupid thing to suggest from either side, but if we're left with no agreement on exit day we'd be left with no flights.
The other attack is that this wouldn't happen anyway, that I'm misrepresenting the rules, but I've seen story after story which backs me up. EasyJet was reported last week to have started a new company in Austria. The BBC said "The airline must have an air operator certificate in an EU member country to allow it to continue flying between member states after Brexit" and "nothing will change from the perspective of passengers... all the staff and planes that would fly for EasyJet Europe [are] already employed and based in the other 27 EU countries".
This kind of precaution might eventually be unnecessary if the UK's withdrawal agreement covers this topic in a particularly open way, but companies can't know that now. If EasyJet worked on the assumption that it would all be hunky-dory, and it turned out not to be, there would be no legal basis for a UK-based company to operate between countries within the European Economic Area. The EEA allows carriers from any member country to fly within and between any others. Airlines based outside the area can only fly in and out. Looking at the EU, which in this way is treated as a single unit, some Americans are envious - flying within the US is still the prerogative of American (and perhaps Canadian) carriers only.
The reason I'm writing this at all is a comprehensive piece from Sky News. It begins "America's leading airlines are warning that flights could be grounded if
the UK leaves the EU's Open Skies agreement without negotiating a new
deal" and quotes Nicholas Calio, president and chief executive of Airlines for America (the trade body representing major US airlines) as saying "Without that legal framework,
we can't fly".
As with every other sector, airlines have their own special interests and their own worst case. "The industry is warning that without a new legal agreement between the
UK and the EU flights will be suspended and people's holidays for summer
2019 will be cancelled." You can argue that they wouldn't do it, that it's not in anybody's interests, and I agree. The fact remains that "some 85% of flights leaving the UK go to areas covered by treaties negotiated by the European Union" and if somebody is stupid enough to come out in March 2019 without a deal, there will be no legal basis for any of these flights.
The city of London sheds a few operations
Another thing that really isn't going to happen, and certainly isn't happening now is "banks moving out of London". Except that it is, and they are. I know it's not whole banks (though who knows, with some of the smaller ones?). It's functions, operations, departments, but it's also focus. London isn't going to stop being a major financial centre any time soon, but if all the trading of particular sorts, and all the business within EU27 countries has to be run from a subsidiary within the EU27, the balance will have shifted.
Remember, the European Banking Authority is moving from Canary Wharf and pressure to move euroclearing business inside the EU or the euro area isn't going away.
Deutsche Bank is a good example. CEO John Cryan (a Brit, and therefore an Enemy of the People no doubt) has told the bank's staff that "the bank can't afford to postpone decisions on Brexit pending the outcome of negotiations on Britain’s future relationship with the EU" and that the "vast majority" of trades will be booked in Frankfurt rather than London in future.
This move "squares with Cryan's new goal of reorganizing the investment bank to emphasize its corporate business in its home market", reports Bloomberg. The London and New York offices will still take orders, but "the jobs of several hundred traders and as many as 20,000 client accounts will likely be shifted". Depending on the outcome of the Brexit negotiations (if Davis & co ever get off the starting blocks) the London operation might have to become a subsidiary of that in Germany.
Dublin on the other hand, is looking forward to welcoming Bank of America Merrill Lynch's "EU hub". The group CEO Brian Moynihan can't say yet how many staff will be needed because "the question of what gets located everywhere is a long-term question based on a set of rules which no one has negotiated yet" reports the Irish Times, going on to quote the group's EMEA operations president: “Until the final outcome of the political
negotiations has been reached, none of us will know how we will operate
in the future. We do know that we’re going to have to have entities in
place within the single market. But a hub starts attracting
other things into it… creating a magnetic influence on the business.”
The Irish Times might be a little less than impartial in listing the financial operations being attracted their way - "Barclays, Morgan Stanley and Citigroup have revealed in the past week that they plan to expand their Irish operations as they prepare for the UK to leave the European Union in March 2019" - but they do note that "Citigroup and Morgan Stanley both plan to establish their EU trading hubs in Frankfurt". Which fits in with Bloomberg's observation:
"Frankfurt has emerged as a winner of the Brexit vote, with Standard Chartered Plc, Nomura Holdings Inc., Sumitomo Mitsui Financial Group Inc. and Daiwa Securities Group Inc. all choosing the city as their EU hub in recent weeks. Morgan Stanley and Citigroup Inc. also have settled on Frankfurt for their European trading headquarters, people with knowledge of their plans have said."
I called it focus, the Bank of America guy talks about magnetic influence, but whatever it is it's shifting from London. Nobody's dropping everything and getting out - why spend more than you have to? - and we still have no idea how attractive or otherwise the UK will be as an (unpassported?) environment for the money business. But the attention is certainly elsewhere.
Regulatory changes to attract Saudi Aramco to the London Stock Exchange might be only the start of new moves to bolster the City of London. Labour would signal that the government might go for a race to the bottom, and a pretty conservative German - Wolfgang Schäuble - has warned against the same thing: "I have heard Prime Minister May saying the UK will be a
truly global economy. A truly global economy has got to stick to what
has been agreed globally" (by G20 countries).
May had told the Davos gathering that a lone UK would become a "world leader" in trade but Schäuble was remembering her Lancaster House speech two days before, in which she warned that the UK might adopt a low-tax model if she failed to reach a good deal with the EU: "We would have the freedom to set the competitive tax rates and embrace the policies that would attract the world's best companies and biggest investors to Britain".
May had told the Davos gathering that a lone UK would become a "world leader" in trade but Schäuble was remembering her Lancaster House speech two days before, in which she warned that the UK might adopt a low-tax model if she failed to reach a good deal with the EU: "We would have the freedom to set the competitive tax rates and embrace the policies that would attract the world's best companies and biggest investors to Britain".
A good time to invest?
When a big multinational announces an investment in the UK, Brexiters crow "Where's Project Fear now?". They particularly liked Nissan's decision last October to build new models at Sunderland, even though it only happened after hard talking and a still undisclosed letter of assurances from government (a contact with information direct from the industry talks of "documentary evidence of absolute guarantee against any Brexit damage to Nissan profits") . After all, May was able to say she expected the post-Brexit environment to be perfectly friendly.
Colin Lawther, Nissan's senior vice-president of manufacturing supply chain told the Commons international trade committee that the investment decision was made according to circumstances at the time, and “as those circumstances change, and we wouldn’t wait until the end of
the process, we will continually review the decisions that we take,
based on anything that materially changes”. He also put in a hefty bid for government financial support in building a UK-based supply chain and told them that Nissan was strongly in favour of the UK staying in the customs union (WTO dealing would be a financial “disaster”
with a 10% tariff on exports costing Nissan up to £500m a year).
Then in March Toyota made a similar decision - £240 million for its Burnaston plant in Derbyshire - and it turned out that there had been another letter. Which we're not going to see. Japan Today reported "One source, who is familiar with the letter, said that Toyota delayed
the decision due by the end of December while it weighed up a number of
factors including Brexit" and "They received a similar set of warm words as Nissan on electric
vehicles, commitment to further training and to ensure the
competitiveness of the UK automotive industry".
Assurances have also been made to Volkswagen in an attempt to keep Bentley production in the UK, but the company has spare capacity within the EU, so anything but the right Brexit deal could still see the once-iconic British cars turned out from a plant in Germany. Or the Czech Republic.
Figures from the Society of Motor Manufacturers and Traders (SMMT) show that investment in the British automotive industry was delayed in the run up to the 2016 referendum and has fallen in the first half of 2017. Total investment this year could be around a quarter of that in 2015. SMMT CEO Mike Hawes is quoted as saying "It is very difficult to cost investment if you don’t know what your output price is going to be. The industry wants a lot more certainty". It seems that automotive investment is being delayed generally, and multinationals need lots of assurances.
Assurances have also been made to Volkswagen in an attempt to keep Bentley production in the UK, but the company has spare capacity within the EU, so anything but the right Brexit deal could still see the once-iconic British cars turned out from a plant in Germany. Or the Czech Republic.
Figures from the Society of Motor Manufacturers and Traders (SMMT) show that investment in the British automotive industry was delayed in the run up to the 2016 referendum and has fallen in the first half of 2017. Total investment this year could be around a quarter of that in 2015. SMMT CEO Mike Hawes is quoted as saying "It is very difficult to cost investment if you don’t know what your output price is going to be. The industry wants a lot more certainty". It seems that automotive investment is being delayed generally, and multinationals need lots of assurances.
Moving on from cars, the item which popped up this week is in the pharmaceuticals sector, another of the supposed jewels in the British industrial strategy crown. In a review of all its operations GlaxoSmithKline has pulled a new £350 million biopharmaceutical facility in Ulverston, Cumbria. We are assured that the decision has nothing to do with the Brexit vote.
My interest in this one is twofold - in a part of the country which is also supposed to host the Moorside power station, whose fate has been unclear since Toshiba (a partner in the project) announced a review of all its overseas nuclear activities due to a financial meltdown. And we'll all be keeping an eye on pharma decisions with the loss of the European Medicines Agency.
My interest in this one is twofold - in a part of the country which is also supposed to host the Moorside power station, whose fate has been unclear since Toshiba (a partner in the project) announced a review of all its overseas nuclear activities due to a financial meltdown. And we'll all be keeping an eye on pharma decisions with the loss of the European Medicines Agency.
****
Brexit is the enemy of business confidence and certainty and big companies are spending money on insulating themselves from the damage it could do them. Smaller enterprises, and not just those which actually do have dealings with the EU, might just hold back on investment and watch the Brussels pantomime.
biopharmaceutical
facility in Ulverston HealthcareMenu
http://healthcaremenu.net/2017/07/20/gsk-backs-out-of-350m-investment-at-ulverston-site/
