09.15.2016
By Rob Daly

Brexit’s Swiss Connection

The global markets may see a sneak preview of the EU’s approach Brexit next week as EU President Jean-Claude Juncker travels to Switzerland to begin on end negotiations over a new framework agreement between the EU and Switzerland.

One stumbling block in negotiations will be Switzerland’s 2013 referendum, where the Swiss voted against mass migration and forced the national government to implement restrictions in the free movement of labor from the EU, said Jacob Funk Kirkegaard, a senior fellow at Peterson Institute for International Economics during a panel hosted by SIFMA.

The EU officials noted that Switzerland could apply such restrictions, but the EU could annul every bilateral economic agreement it has with Switzerland of which there are more than 100 in response.

Jacob Funk Kirkegaard, PIIE

Jacob Funk Kirkegaard, PIIE

“People will say that Switzerland is not the UK, but it is the EU’s fourth-largest trading partner while the UK is its second-largest trading partner,” added Kirkegaard. “My gut feeling is that the EU is going to play hardball.”

Fellow panelist Clay Lowery, a vice president at Rock Creek Global Advisors, agreed.

“The EU’s objective is to keep its union together,” he said. “I think it is a hard-headed thing to set an example of not making it easy to leave the EU, especially given the EU’s current troubles besides Brexit- the banking crisis and migration crisis.”

In the meantime, UK Prime Minister Theresa May also may need to offer greater details on her government’s Brexit strategy beyond “Brexit mean Brexit.”

May’s government already has taken the step of creating the new Department for Exiting the European Union, which will be responsible for leading the negotiations with the EU, according to Antonia Romeo, the UK’s Consul General in New York and Director-General Economics & Commercial Affairs USA and who also spoke at the SIFMA conference.

Romeo did not want the audience to confuse the UK government’s silence with indecision as it is consulting with the various stakeholder in the British economy before forming a strategy for negotiations.

“Some may ask why we aren’t saying more about our plans,” she said. “You wouldn’t enter a negotiation revealing all your priorities for that negotiation in advance.”

However, that is what she might have to do within the coming weeks, according to Kirkegaard.

The pressure to reveal greater details will not come from the EU, but from the right-wing UK press that pushed hard for Brexit and will continue to exert pressure on the prime minister and the Conservative Party to move things along, he predicts.

“However, there’s no consensus in her party, in the UK’s parliament, or the UK society writ large,” said Kirkegaard. “It’s a problem for a prime minister without an electoral mandate. She essentially is unelected, and her majority in parliament is 16 MPs, which means that she need to get near unanimous consent of her party to do anything.”

He doubts that she will be able to lay out a political plan in time for the Conservative Party’s annual conference, which starts on October 2 in Birmingham, UK.

“I think she would like to keep stalling, but I think she will be forced by her party, not European pressure but domestic pressure, to get the ball rolling,” said Kirkegaard.

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