BREXIT: LECTURE BY THE GOVERNOR OF THE AUSTRIAN NATIONAL BANK (OeNB) 20 MARCH 2018

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1 From: C A Munro, Chairman of UK Citizens in Austria(UKCA) Date 21 March 2018 BREXIT: LECTURE BY THE GOVERNOR OF THE AUSTRIAN NATIONAL BANK (OeNB) 20 MARCH 2018 Summary 1. Excellent lecture by the Governor of the Austrian National Bank. Prof. Nowotny saw little prospect of Exit from Brexit although he would welcome it. Even on the most favourable outcome of the present incredibly complicated negotiations, the UK, including the City of London, would lose the benefits of belonging to an economic entity that could stand up to the US and China. The Bank of England was in no doubt about this. The poorest would suffer most from the downturn in the UK economy which was already evident. But the referendum had been about emotion, not economics. Stronger bilateral relationships, including in security, between EU member states such as Austria and the UK, would remain on hold until the divorce had been settled. The UK s aversion to the Court of Justice of the European Union was a major obstacle to progress. 2. I was invited to join the Governor on the podium to speak from the perspective of UK Citizens in Austria. I emphasised the unresolved problem of freedom to move from one EU country to another to live and work after Brexit. I also explained the position in Scotland including the possibility of a constitutional crisis if Scotland should refuse legislative consent to Brexit legislation passed in London. I argued that the intractable problem of the Irish border could yet halt the entire negotiation. Detail 3. Lions Club Wien Vindobona kindly invited me to a Brexit lecture on 20 March by Univ. Prof. Dr. Ewald Nowotny (EN) in the OeNB s splendid art nouveau Kassensaal. About 150 people attended. I, as UKCA Chairman, and the British Embassy representative were invited, after EN s lecture, to make statements on prospects for Brexit,, and to join EN in answering questions from the floor. Before the lecture I drew EN s attention to the fact that the draft Withdrawal Agreement (WA) that should be approved at the meeting of the European Council on 23 March would not allow UK Citizens living and working in one EU member state (MS) freedom to move to live and work in another MS after Brexit. The present draft WA did not cover this important issue at all. 4. EN delivered (in German) an excellent professorial lecture, well-illustrated with PowerPoint, explaining subjects such as the EU s four freedoms (of persons, goods, services, and capital), and his own estimate of the possible outcome of the negotiations: a cliff edge

2 no deal at one end of the spectrum, and a Norwegian European Economic Area soft Brexit outcome at the other. 5. After explaining the essential features of the four freedoms, the Single Market (SM) and Customs Union (CU), EN emphasised that after Brexit the UK would be for the EU, a third country. It would have to negotiate a new relationship with the EU on this basis. At present a bank which held a licence in the UK could operate without restriction throughout the EU. When the UK was outside the EU, such a bank would no longer have an EU passport. Thus, there was already a strong exodus of staff from the city of London as banks made arrangements to secure passporting rights, by acquiring licences in the EU. 6. EN argued that as an economic entity, the EU was of comparable weight to China and the US. Economies of scale were the key. The EU could stand up to the US and China in trade negotiations. Moreover, in a development that was virtually without precedent, the states that had founded what is now the EU, beginning with the Montanunion (coal and steel), had devised a project to build peace through economic integration, beginning with the industries crucial at the time for warfare. They had learned from history. The wonderful Montanunion had been the platform for the EEC. 7. EN recalled how the UK had missed out on the early stages of post war European integration. Churchill had called for a United States of Europe in his famous speech in Zurich in 1946, but the UK would not itself join. Then de Gaulle had blocked the UK s efforts to join after all, on the grounds that the UK was not part of the European project. The UK s interest had always been primarily economic. It had been deeply ambivalent about the political aspects of European integration. 8. EN then listed some of the benefits of the EU for ordinary people: ERASMUS from which 250,000 Austrian students had benefitted since 1992 (three years before Austria joined the EU) The European Higher Education Area (the Bologna process encompasses 47 countries) Abolition of Roaming charges Air transport coordination and cooperation Food safety standards (precautionary principle) High standards of social security The Austrian automotive industry benefitted particularly from frictionless supply chains throughout the EU. 9. EN claimed that the Euro did make economic sense and explained briefly the workings of the Eurozone. There were also meetings of the central bank governors of the EU28. The Bank of England had been massively against Brexit for obvious economic reasons. But the Brexit referendum had not been about economics, but about emotion. It had revealed profound divisions in UK society, divisions which were of course also evident in other countries. Prime Minister Theresa May s jibe about citizens of nowhere indicated that UK society was riddled with illusions, and what he described as provincialism. Thus, Brexit posed enormous challenges to the UK. The City of London was of course the most important

3 financial centre in the EU. But the European Central Bank (ECB) could not allow Euro trading (43% of the total) and trading in Euro derivatives (75% of the total) to take place in London after Brexit. 10. What then, lay ahead? The deal had to be done by March 2019 unless there was unanimous agreement to extend the Article 50 deadline. The negotiations were incredibly complicated. It seemed that agreement had been reached on the transition period that would end on 31 December The negotiations would have to be completed during Austria s EU Presidency by October 2018 to allow time for ratification by the European Parliament. Dispute resolution mechanisms were a particular problem given the UK s aversion to the Court of Justice of the European Union (CJEU). This aversion was understandable in view of the centuries old development of English Common Law. There was a failure to distinguish between Free Trade Agreements and the CU. Nor would the World Trade Organisation (WTO) be a panacea. President Trump was bent on discrediting the WTO. 11. Investors disliked uncertainty: hence the OECD s rather gloomy assessment of the prospects for the UK economy. The post Brexit devaluation of the GBP had not brought significant benefits to the UK economy. Consumers were paying the price through higher inflation. The poor, many of whom had voted for Brexit, would be its first victims. Austria would suffer minimal disruption - 3.1% of Austria s exports went to the UK - in comparison. But there would be difficult discussions about how to fill the gap without the UK s contribution to the Community s budget (UK third highest net contributor after Germany and France). 12. Lions Club Chairman Guenter Eder had referred in his introduction to die Englaender. So, I spoke from a Scottish perspective: 62% against Brexit in Scotland, and even 74% in my native Edinburgh. In addition to the outcomes that EN had mentioned, there was another, admittedly unlikely one Exit from Brexit. This observation was met with a burst of applause. It was moreover possible that the Irish border problem would cause the entire negotiation to collapse. (The best, most up to date explanation is by Jonathan Powell, the civil servant at the centre of the negotiation of the Good Friday Agreement(GFA) concluded in Belfast in 1998, in the Independent (no pay wall) on 19 March.) The only solution, compatible with the GFA was for Northern Ireland to remain within the CU and the SM. Even the best FTA would not cut it. Nor would the Labour Party s approach to Brexit. I added that on the basis of my experience in the Balkans including service as Deputy (to Austrian Ambassador Wolfgang Petritsch) High Representative in Bosnia and Herzegovina, based in Mostar, I considered that the UK government was putting the fragile Irish peace process at risk. This was irresponsible. 13. In response to questions about Scotland, I said that the country was deeply divided on the issue of independence. According to the latest opinion poll 47% in favour: 53% against: very little change compared with However, a majority of Scots seemed to have accepted their country s place as a small European nation in the EU. Brexit was an English identity problem. 14. I also explained briefly the legislative consent issue. According to the devolution settlement of 1998, if the UK parliament is to legislate on a matter such as agriculture or

4 education that has been devolved to Scotland, the consent of the Scottish parliament and government is required. The Scottish government has made clear that as things stand at present, Scotland will refuse legislative consent to Brexit legislation because the UK government intends to repatriate powers from Brussels, first to London, and then devolve them to Scotland. Of course, the UK parliament can override this refusal, but that would precipitate a constitutional crisis. (The UK is not a federal state.) 15. I also explained the Freedom of Movement problem that I had mentioned to EN before the lecture, quoting Jane Golding (Chair of British in Europe Coalition) s comment on the draft WA. As things stand, after Brexit, English Cheddar cheese will have more freedom of movement that British citizens in the EU. 16. The embassy made two points. First, they were attaching top priority to strengthening already now bilateral relations with Austria. What did EN see as the most promising fields? Second, the UK had particular capabilities in security, counter terrorism and defence, but the embassy was finding difficult to engage with Austria bilaterally (the UK has proposed an EU/UK Security Treaty). Again, how did EN assess the prospects? 17. On Exit from Brexit EN did not hold out much hope. Of course, when he visited cities such as Cambridge the opposition to Brexit was overwhelming. On the other hand, neither the Conservative nor Labour parties in the House of Commons was opposed to Brexit. This was one result of the UK s election system. Moreover, he detected a widespread sense of oh well, we made our decision. Let us just get on with it. 18. On bilateral relations, the European Commission had set forth clear guidelines: the divorce had to come first, to avoid UK attempts to divide and rule. He himself hoped that the strongest possible relations with the UK would continue in science, the universities and of course through ERASMUS. 19. The UK had promoted enlargement including for geo political and strategic reasons, Turkey. He could not envisage a European Parliament with Turkish members. One of the UK s objectives in promoting enlargement of the EU had been to weaken it. That said, he would regret enormously the absence of the UK. UK bureaucrats were impressive: the best in the EU, expert, practical, and creative. Moreover, there was no doubt that the Germans were uneasy about the UK s impending departure. Germany preferred a triangle to the Franco German tandem. There were also signs of developing groups, including the Nordics. Visegrad was already dangerous. The EU faced significant challenges including populism a Schicksalsfrage a failure to respect the principle of subsidiarity, fake news, lies and the gulf between rich and poor. This was not a significant problem in Austria, but it had already reached dramatic proportions in the US and the UK. 20. If the UK changed its mind on Brexit, he would welcome it back into the fold with open arms mit Handkuss. Comment 21. I would take issue with EN on one point only: his claim that the UK wanted to enlarge the EU to weaken it. This leaves out of account the success from which Austria has benefitted

5 enormously of the eastward enlargement of Turkey was a very different country in He might have mentioned the UK s contribution to European security after WWII as a founding member of NATO and the Council of Europe, and party to the State Treaty which restored Austria s independence. Churchill made two speeches in His Fulton Missouri speech got the US to return to Europe and launch the Marshall plan from which Austria benefitted (Wolfgang Petritsch, a former Fulbright scholar, is President of the Austrian Marshall Plan Foundation). It also benefitted from NATO s security umbrella throughout the Cold War. 23. I am grateful to the Lions Club for inviting me and above all to EN for his excellent lecture and for giving me the chance to make a few points on behalf of UKCA to a distinguished audience. 24. In the last couple of days Parliamentary Committees have reinforced two points that came up at this lecture. The Home Affairs Committee of the House of Commons has asserted that the UK risks sleepwalking into a security crisis unless a deal is struck to maintain security and policing cooperation with the EU after Brexit. The nub of the problem is that countries such as Germany and Slovakia will not extradite their citizens to non-eu countries. And on the Irish border, even pro Brexit MPs on the Northern Ireland Committee admit that there is no way of avoiding border controls if the EU leaves the CU and SM. Thus, arch Brexiteer, Jacob Rees Mogg, has suggested that the Republic of Ireland should also leave the EU. 25. Watch this space.