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Mixed results

24 July 2017

The article was written by DeHavilland EU and originally published in ERA’s Regional International magazine

The long-awaited elections in France and the UK are now over. Those who relied on polls to gauge the future of the two countries may have been left disappointed. In France, Emmanuel Macron has become France’s youngest President. Initial scepticism of his viability was replaced by wide support across party lines and he secured a victory with a margin that few expected. In the UK, Prime Minister Theresa May’s gambit to call for an early election to secure a larger majority in the House of Commons and strengthen her hand in Brexit negotiations has backfired. She failed to increase her control, instead losing 13 seats, resulting in a ‘hung’ parliament. Both events came as surprises to a different degree, yet both will have a strong impact on the EU.

French fears

For the EU, the election of Macron as President came as a relief if nothing else. Fears that Marine Le Pen might end up running the country and put into action her plan to take France out of the EU was a nightmare scenario. In addition to Macron becoming President, his party, La République en Marche, has now also secured 301 seats in the 577-seat National Assembly following the second round of elections on 18 June. This gives Macron a strong mandate to undertake changes proposed as part of his election campaign. From a business perspective, the news is good. Macron ran a campaign built on pro-business reforms. France is well known for its intricate web of rules and regulations that, according to investors, has been a major
cause for its less than impressive economic growth rates. With the mandate that he has now secured, Macron is well positioned to reduce government red tape, change labour laws, cut corporation tax and implement other campaign promises.

Positively pro-EU

The proposals made during his campaign clearly point towards a less paternalistic market economy. Macron is strongly pro-EU and has raised a number of ideas how to deepen EU integration, particularly in respect to the Eurozone. Although EU officials have already downplayed the probability of any major changes in the Eurozone, Macron’s passion for the EU project should have a very positive impact on a number of ongoing negotiations on aviation-related agreements. Both the wet-lease agreement with the US and the multiple air service agreements currently being discussed should now flow smoothly. With a flair for freer markets under Macron, France may also be instrumental in pushing through the recently-presented revision of the regulation on measures to address unfair practices (Regulation 868). Considering France’s clout, which is set to grow given the rapid re-ignition of the French–German axis post-election, and the departure of the UK from the EU, the political process should experience fewer roadblocks.

UK General Election

For the UK, however, the situation is much less positive. The expectation that Conservatives would increase their presence in the House of Commons has been dashed. The party fell eight seats short of winning a majority, resulting in a hung Parliament. This has lead to a deal between the Conservatives and the Democratic Unionist Party (DUP), with the Conservatives needing the support of the 10 DUP MPs. The agreement between the Conservatives and the DUP, struck on 26 June, will apply for the lifetime of the Parliament, scheduled to last five years, but would also be reviewed at the end of the current session in two years' time.

Brexit goals

From a political perspective, this has significantly weakened Theresa May’s hand. The initial goal of quelling the ‘hard’ Brexit supporters in her party is now unattainable. Finding common ground on Brexit will be even harder, particularly now because the DUP will also have a say in the matter. For business, this means further uncertainty. The power to achieve the Brexit goals set out in the Conservative party manifesto and spelt out in public speeches is nearly gone. However, while major
concessions are unlikely, partly because of the hardliners present in the party and partly because going easy in the negotiations would be political suicide for the Conservatives on a national level, the electoral result makes a lengthy post-Brexit transitional deal a very likely outcome. While this would not be a permanent state of affairs, a transitional deal would allow the aviation sector to perform its business as usual while the fine print is discussed behind closed doors. Some even speculate that the Conservatives have lost enough to consider remaining in the Single European Market. One thing is clear, however. The two-year clock to negotiate Britain’s exit and, possibly, a post-Brexit relationship deal has been ticking away. The political turmoil and the need to build a functioning government will shave off additional days, perhaps weeks, until agreements have been finalised and order is returned.There will likely be further ongoing disagreements internally and in relation to EU exit negotiations. While markets may be fearful of such developments, this may be the exact shock therapy needed, ironically, to achieve more stability via a transitional deal.

 

* updated to reflect the outcome of the agreement between the Conservatives and the DUP

Darius_Mikulenas_EU_Policy_Analyst
Darius Mikulenas
EU Policy Analyst

Darius Mikulenas leads on the Transport, Security and Defence portfolio for the DeHavilland EU team. Darius has experience working with an industry association representing the Waste-to-Energy sector in Brussels.