The impact of Brexit on the economies of selected Euro area member states

By Stefan Griller, Florian Huber, Michael Pfarrhofer and Sonja Puntscher Riekmann

Salzburg Centre of European Union Studies (SCEUS)

12 March 2019

In this blog post, we look at the international spillover effects of a Brexit shock to the economies of the UK and selected Euro area member states, in particular Austria, Gemrany, France, Spain and Italy. Our method is based on a large-scale dynamic macroeconomic model that is estimated using cutting edge Bayesian techniques and allows for analyzing how a Brexit shock impacts the model economy. The Brexit-uncertainty shock is constructed using the magnitude of prediction errors when forecasting economic variables as an indicator of uncertainty. We scale this quantity to quantitatively reflect scenarios of a hard and a soft Brexit as calculated by the Bank of England (BoE).


Macroeconomic reactions to a Brexit shock

Figure 1 shows the dynamic responses of year-on-year growth in industrial production for the UK and selected euro area countries to the Brexit uncertainty shock over a time horizon of 20 months. The estimated parameters suggest a moderate decrease in industrial production growth of approximately 1.3 percentage points over the horizon considered. The plots depict the median response alongside uncertainty surrounding the scenarios (green-shaded).

Industrial production in the United Kingdom and in all selected continental European countries declines, with significant differences in the magnitude and dynamics of the responses. This result is consistent with the fact that increasing uncertainty related to Brexit leads to a decline in private consumption and investment. The estimated effect appears to be permanent and suggests persistent negative effects of Brexit uncertainty on the economic performance of the countries studied. The effect on Austria is substantial. This can be explained by the degree of openness of the Austrian economy and the strong dependence on the Southeastern European (CESEE) neighboring states. The CESEE countries, which are not explicitly analyzed here, also react with a slump in economic activity due to the generally higher volatility of their macroeconomic fundamentals, which has a negative impact on the demand for Austrian goods. 



Figure 1: Dynamic responses of growth in industrial production to a Brexit-shock (in percentage points).


Expected inflation dynamics for the UK and the euro area countries following the Brexit shock are highly relevant for policy makers in the Bank of England and the European Central Bank, who typically intend to offset possible negative outcomes of the Brexit by enacting expansionary monetary policies. Figure 2 suggests that disinflationary pressures emerge in the UK and across Europe (except for Austria and France) of around 0.1 percentage points year-on-year. This decline in prices can be attributed to companies lowering prices in face of decreasing demand.

Figure 2: Dynamic responses of inflation to a Brexit-shock (in percentage points).


If short-term interest rates, the conventional modern monetary policy instrument, are close to zero – a ubiquitous phenomenon in the aftermath of the Global Financial Crisis and the subsequent European Debt Crisis – central banks need to adopt unconventional monetary policy measures. These measures target long-term interest rates. To adequately capture such unconventional policies, Figure 3 depicts the responses of 10-year government bond yields. Responses for the UK, Austria, Germany, and France are negative for the impulse response horizon considered (with decreases of approximately 0.1 percentage points), confirming our view that both the ECB and the BoE engage in unconventional monetary policy by buying long-term securities. For Spain and Italy, however, effects are negligible and insignificant. Besides central banks targeting long-term yields, this may reflect increased demand for comparatively safe assets such as German treasuries.

Figure 3: Dynamic responses of long-term interest rates to a Brexit-shock (in percentage points).


Equity price responses, captured through the dynamic reactions of the largest stock market indices across countries, are shown in Figure 4. With the exception of Austrian and German stock markets that exhibit insignificant reactions, equity prices in the UK and the remaining countries decline over the forecast horizon considered (with magnitudes ranging from minus four to minus two percent). This drop in the stock market provides a further rationale on why output declines, namely that the decline in asset prices culminates with a decrease in the value of collaterals used to borrow money. This, in turn, depresses investment and consumption activities.


Figure 4: Dynamic responses of stock markets to a Brexit-shock (in percent – 0.01 reflects 1%).


Figure 5 presents the responses of real effective exchange rates across countries. The responses of the continental European countries are very similar, reflecting them being tied together by the euro. Specifically, the euro appears to slightly appreciate vis-á-vis its main trading partners in real terms across the economies under consideration (approximately by around 0.2 percent). By contrast, the British pound depreciates sharply on impact of the uncertainty shock (by roughly 1.3 percent), indicating lower levels of confidence in the British economy after the Brexit and money flowing into relatively safe havens such as Germany or Switzerland. Changes in international exchange rate dynamics are crucial for private and public debt, especially considering the high debt levels across most developed countries.

Figure 5: Dynamic responses of real effective exchange rates to a Brexit-shock (in percent – 0.01 reflects 1%).


Analyzing the effects of a soft and hard Brexit

The effects discussed above refer to a soft Brexit scenario with moderate effects on output growth for the UK of roughly negative 1.3 percentage points at the peak, assuming the UK and EU to remain in some kind of economic partnership.

To provide a grasp of what to expect in the case of a hard Brexit, that is, a disruptive or disorderly no-deal Brexit, we use the conservative estimates by the Bank of England (2018) and rescale our responses accordingly. This results in a peak output response for the UK of approximately negative 7.5 percentage points on a year-to-year basis.


Table 1: Peak responses for a soft and hard Brexit.


Soft Brexit


Hard Brexit






















































































Notes: industrial production (IP, in percentage points), inflation (Infl., in percentage points), ten-year government bond rates (IR, in percentage points), equity prices (stocks, in percent – 1 refers to 1%), real effective exchange rates (XR, in percent – in percent – 1 refers to 1%).


Table 1 contains the results for the soft and hard Brexit scenario. It is worth noting the pronounced macroeconomic reactions across countries, with a decline of industrial production in Austria of approximately 4.5 and in the case of Germany, of 4.2 percentage points. The impact on inflation is much stronger than for the soft Brexit, with responses in France (-0.41 percentage points) and Spain (-0.59 percentage points) being the largest. Long-term interest rates and equity prices also show pronounced declines, with substantial effects for Italian stock markets. This finding, however, is driven by the current discussion about public debt and strong international linkages of Italian banks. The British pound depreciates against its main trading partners by approximately 7.5 percent.

It follows from this discussion, that the adverse scenario of a hard Brexit yields major disruptions in financial markets and macroeconomic fundamentals in the Euro area and the UK.



This post provided some evidence of the international economic consequences of a Brexit induced uncertainty shock. In line with established findings, such a shock depresses hiring and investment in the UK, thereby affecting productivity growth and real activity. Interestingly, however, pronounced negative effects are also evident in the remaining euro area countries. Challenges for top level policy makers will include offsetting the negative output effects, while battling disinflationary pressures. Disruptions also occur in terms of financial markets, where the Brexit shock depresses equity prices in the UK and the continental European countries. International currency relationships shift as well, with the British pound depreciating against the US dollar, and an appreciation of the selected euro area countries in real terms.




BAKER SR, BLOOM N, AND DAVIS SJ (2016), “Measuring economic policy uncertainty,” The Quarterly Journal of Economics 131(4), 1593–1636.

BANK OF ENGLAND (2018), “EU withdrawal scenarios and monetary and financial stability: A response to the House of Commons Treasury Committee”.

BLOOM N, CHEN S, AND MIZEN P (2018), “Rising Brexit uncertainty has reduced investment and employment”.

BORN B, MÜLLER G, SCHULARICK M, AND SEDLÁCEK P (2018), “£350 million a week: The output cost of the Brexit vote”.

CARRIERO A, CLARK TE, AND MARCELLINO M (2018), “Measuring uncertainty and its impact on the economy,” Review of Economics and Statistics 100(5), 799–815.

FERNÁNDEZ-VILLAVERDE J, GUERRÓN-QUINTANA P, KUESTER K, AND RUBIO-RAMÍREZ J (2015), “Fiscal volatility shocks and economic activity,” American Economic Review 105(11), 3352–84.


Brexit and the EP: What rights for the European citizens? Brexit and the EP: What rights for the European citizens?

By Nathalie Brack, Assistant Professor at the Department of Political Science of the Université libre de Bruxelles (Belgium) and Visiting Professor at the College of Europe

EP and Brexit

As the UK leaves the EU, a new immigration system and status are being crafted. Indeed, as the country has been part of the European project for more than 40 years, citizens have enjoyed the right to move freely across the EU: according to the UN, 1.3 million of UK citizens currently live in the EU27 while around 3.7 million citizens live in the UK. But their situation will change once the UK is no longer part of the EU. Without an agreement, UK nationals working or residing in the EU will lose the rights attached to their EU citizenship and EU citizens will become third country nationals in the UK. Basically, they could see their resident status, employment relations or financial and economic activities affected.

Immigration and free movement of people have been one of the main concerns in the debates around Brexit. Brexiteers campaigned to take back control, amongst others of the country’s borders. And the current debates around the Windrush cases highlight how important the issue is. It is therefore not surprising that the rights of citizens and their future status have been one of the key points of the negotiation for the withdrawal agreement.

The European Parliament in particular, as the only directly elected institutions of the EU, has claimed to be the voice of the citizens. It sees its role in the Brexit process as defender of the rights of (EU) citizens and emphasized this issue as one of the three main separation topics to be settled before a deal can be reached.

What matters to the European Parliament is that Brexit changes as little as possible (or even nothing) for citizens: people working, studying or enjoying their retirement should retain their rights for their lifetime after Brexit. The current rights attached to the EU citizenship should thus remain protected after Brexit, i.e. the freedom of movement, of residence, equal access to public services, social protection, including health care, and the right to vote in local elections in the country of permanent residence. The EP asks for an agreement based on reciprocity, with provisions to be detailed, precise and broad enough to be relied upon directly by EU citizens in British courts.

After more than a year of negotiation, an agreement seems to have been found on citizens’ rights, as evidenced by the draft withdrawal agreement published by the European Commission in March. Part two of the draft agreement deals with the rights of UK and EU27 citizens after Brexit and is colored in green, meaning there is an agreement between the EU and the UK. An overall assessment of the agreement shows that the UK agreed to most EU/EP demands.

What was agreed upon? A new procedure will be put in place and all EU citizens and their family members residing in the UK will be required to obtain the settled status under UK law as the legal basis for their continued residence in the UK. But as the EU wanted, the settled status is based on citizens’ rights according to EU law and will hence entail the continuation of their current rights, for themselves and their family members, for a lifetime. In other words, EU citizens who have completed five years of continuous residence in the UK (including pre- and post-Brexit) will be able to apply for a new permanent status in the UK if they are workers or self-employed or have sufficient resources and sickness insurance or are family members of some other EU citizen who meets these conditions. They will then continue to enjoy the full set of rights as established in EU law, including all social security rights. The UK has also conceded that this agreement will cover core family members and children born in the future, even outside the UK. And the UK has also accepted that these rights will be incorporated into a British legal act with direct effect. Finally, the EU Court of Justice, although much contested by the Brexiteers, will still play a role for citizens’ rights even after the UK leaves the EU. Indeed, the Court can be referred to for preliminary rulings on citizenship issues up to 8 years after Brexit. Moreover, the direct effect of the withdrawal agreement, its precedence over (potentially incompatible) national measures and the fact that UK courts must take into account jurisprudence of the Court of Justice are not limited in time.

But even though there seems to be an agreement on most points, there are still some unresolved or disputed issues:

  • The cutoff date has been much discussed. For long, the UK has insisted that the situation would be different for people who arrive during the transition period (between 2019 and 2021) in comparison to the people who are in the UK before Brexit. The EU, and especially the European Parliament, insisted that EU citizens coming to the UK during the transition should not be discriminated against and will enjoy the same rights as those having arrived before the start of the transition period: as stated by G. Verhofstadt, Parliament´s chief Brexit coordinator, “the maintenance of EU citizens’ rights during the transition are not negotiable. We will not accept that there are two sets of rights for EU citizens. For the transition to work, it must mean a continuation of the existing acquis with no exceptions.” To date, it seems that the UK had to concede on that point.
  • The rights of UK citizens in the EU27: the first version of the withdrawal agreement seemed to depart from the principle of reciprocity when it mentioned the situation of the UK citizens in the EU. Indeed, it stated that these citizens, established in one Member state (for instance Germany), would lose their rights to reside or provide services in another Member state (for example Belgium) once the UK exits the EU.  The European Parliament was deeply against this discrimination and this provision was deleted in the latest version. But it remains to be seen whether UK citizens in the EU27 will continue to enjoy the same rights after Brexit. Or whether they will be treated as third country migrants.
  • The administrative procedure for the application for the settled status is still discussed. The European Parliament has made it clear that it should be light-touch, free and declaratory in nature, to avoid administrative burden for EU citizens. But since it’s completely new, there is no way of knowing what this procedure will entail at the time being (except maybe for the promise of former Home Secretary Rudd that it will be “as easy as shopping at LK Bennett”).
  • The rights of future partners of EU citizens in the UK: that point is still being negotiated. The EU wants future spouses and partners to be covered by the agreement, which the UK does not agree with in this proposal.

The EP has claimed to be the main voice for citizens in the whole Brexit process and insisted it is ready to veto any deal which does not respect its red lines. One of the main objectives of the first phase of the negotiation was to provide clarity, continuity but mostly legal certainty to citizens for the post-Brexit era.

One can wonder whether its veto power is an idle threat. It seems the EP mostly follows the Commission’s approach to ensure the unity of the EU’s position. As such, it is not that bad since no deal on citizens’ rights is worse than any deal, as no deal means no rights after the UK leaves. But the issue of citizens’ rights has not been fully solved. The UK has accepted the Commission’s withdrawal agreement draft as a basis for discussion, and as explained, some important issues are still pending. And yet, the EP has given the green light to proceed with the second step of the negotiations. Citizens’ groups are worried that their rights will now be seen as a secondary issue, with the new trade deal and the question of Northern Ireland still to be solved. The current legal limbo of the Windrush cases seems to prove them right: it is crucial for citizens to have clarity and security about their future status as soon as possible and to avoid being a bargaining ship between the EU and the UK.

The Hungarian parliamentary elections The Hungarian parliamentary elections

... and what they could mean for the Brexit negotiations

By Robert Csehi, lecturer and post-doc researcher at the Bavarian School of Public Policy at the Technical University in Munich

Orban election 2018

Viktor Orbán and his party, Fidesz, has won the 8 April parliamentary elections in Hungary. Orbán’s third consecutive electoral victory came hardly as a surprise. Nevertheless, the yet another two-third majority of the incumbent government still stunned commentators, politicians and publics alike. The question addressed here is what impact (if any) could the Hungarian parliamentarian elections have on the ongoing Brexit negotiations and the post-Brexit EU integration?

Let’s start by stating that interesting links and parallels between the Brexit campaign and the Hungarian government’s electoral campaign and results can be highlighted. An anti-migration position was a common reference point in both Orbán’s electoral, and Nigel Farage’s Brexit campaigns. Interestingly, it wasn’t just the message itself that was similar, they also used the same picture on their billboards to support their rhetoric. In general, stressing the need to take back control was quite prominent in both campaigns, especially in relation to the borders. Furthermore, anti-Soros statements, similar to those made in the European Parliament by Farage, were undoubtedly present in Fidesz’s election campaign as well. As far as the results are concerned, there is a similar geographical division in Hungary as was present during the Brexit referendum: in both cases the results in the capital city were opposite to those in the countryside and that of the final outcome (i.e. the victory of the ‘Leave’, and Orbán’s Fidesz). Nevertheless, beyond the similarities of the campaigns and results, one has to note that Orbán used the Brexit issue itself to advance his EU-critical and sovereigntist narrative already before the electoral fight. The government and Orbán himself claimed previously that the EU is responsible for Brexit as it did not pay enough attention to what the member states and their constituencies wanted.

As far as the Brexit negotiations are concerned, the potential impact the Hungarian parliamentary elections might have on the agreement on the UK’s exit, or withdrawal treaty, is less controversial. There is a common front represented by the European Commission, which according to Hungarian sources plays with surprisingly open hands, meaning there is a strong cooperation between the Commission, the Council (i.e. the member states) and the European Parliament. Much of the package seems to have been settled already, and the remaining points do not represent major worries for Hungary. Even though the Northern-Ireland question does not raise any major economic concerns, and Hungary is not interested in erecting a hard border, the issue is still considered relevant from the perspective of the integrity of the common market. While the peace process must be upheld, one cannot allow an unchecked flow of goods, services, capital and labor across the borders after Brexit. As Hungary is supportive of Northern Ireland, it’s position is in line with the proposed backstop solution that would grant Northern Ireland partial access to the single market. As far as the potential impact of Brexit is concerned, the Hungarian government, along with the Polish administration, already signaled its willingness to contribute more to the EU budget in order to alleviate the tension in the books after the UK’s exit. Nevertheless, the Hungarian government strongly emphasizes that the UK should not go back on its financial commitments to previously decided programs, meaning it should guarantee the payments promised under the 2014-2020 Multiannual Financial Framework (MFF) irrespective of its exit from the EU.

When it comes to the negotiations on the future relationship between the EU and the UK, the process is still in a rather preliminary stage to assess the impact of the Hungarian elections. In fact, the March European Council has just given out the mandate to phrase a political declaration on the potential relations between the EU and the UK. Beyond some of the redlines highlighted by the UK government, little is known. Nevertheless, some educated assumptions about the Hungarian position can be made. First, even though the Hungarian government fears that there is not enough time for a transition given the complexity of relations between the UK and the EU, it is unlikely that they will try to slow the process down. The reason is simple: Hungary’s major economic interest lies in industrial export, an area which is likely to be covered by a customs union agreement. Second, while the agricultural sector carries some political and economic weight in Hungary, and France may exert some opposition to the idea of an overall customs union in this field, this would not pose a serious challenge to Hungarian interests, given its small relevance on the country’s export sheet. Third, although so far there seems to be a great many overlaps among the individual member states with regards to the future relations between the EU and the UK, it is likely that there will be some debate concerning the depth of the new, to be established links. In this regard, Hungary has already put a price tag on Brexit, and expects a trade loss in case it is decided that a free trade agreement shall structure future interactions. Fourth, although the Brexit negotiations are running parallel with other major discussions on the next MFF, the potential reform of the Economic and Monetary Union (EMU), the development of a European migration plan, and risks pertaining the alleged and real backsliding on democratic principles in EU member states, it is unlikely that elements in the Brexit negotiations could be used as bargaining chips either by Hungary or against Hungary by other actors to advance particular interests. As argued before, there is only so much that Hungary can lose in the Brexit negotiations, and its major economic objective (a customs union in the industrial field) seems to be in line with both the EU’s and the UK’s position. While it is expected that the Hungarian government stiffens its stance on the issues of migration, national sovereignty, and democracy, and that it will attempt to push the institutional balance in the intergovernmental direction, it is highly unlikely that any actor would threaten the country’s car-industry to gain concessions in other matters. In other words, Hungary is not likely to pick any fights with the EU on the issue of Brexit, which also means that it seals the negotiations off from other ongoing discussions pertaining the future of the EU integration process.

With Orbán’s third consecutive term in office, the Hungarian position in the Brexit negotiations is expected to reflect continuity. As the topic does not have a direct impact in the domestic political arena, it is unlikely that in this particular case the country will challenge the unity and decision-making capacity of the EU in the near future.

Macron and Brexit: an update Macron and Brexit: an update

By Christian Lequesne, Professor of political science, Sciences Po Paris.


Picture Source: UK in a Changing Europe

Looking at Macron’s European strategy, there is a strong feeling that the French President does not want to lose too much time with Brexit. For the proactive Macron, Brexit is a legacy of past crises that must be solved as quickly as possible, so that attention can switch to the main priority: a new agenda for EU reforms. Macron is not prepared to make special concessions to the UK on the single market issues.

In a recent press conference with the Prime Minister of Norway, Erna Solberg, he insisted that there has been a clear decision by UK to have a less favorable access to the single market than Norway.

Commenting on Jeremy Corbyn’s proposal that UK must remain in the EU customs union for a period of two years after Brexit, Macron said: “Why not? This is the Turkish option”. The comparison is not particularly flattering for London.

Prime Minister May’s speeches on Brexit have convinced Macron, and many French politicians besides, that there is no other option than assuming a clear separation of the UK from the EU. As it is often said in French: “dont acte!” – duly noted! Read more

Gibraltar, UK and Spain: how Brexit could be an opportunity Gibraltar, UK and Spain: how Brexit could be an opportunity

By Salvador Llaudes, analyst at Real Instituto Elcano and Ignacio Molina, senior Analyst at Elcano Royal Institute of International and Strategic Studies.


Picture source: UK in an Changing Europe

It is probably impossible to find a single British family without some summer experience in Spain (more than 18 million visited in 2017 alone), and there are more than half a million British citizens living in Spain full or part-time. The UK is also the favourite destination for the rising wave of Spanish emigration.

This mutual popularity generates more daily air traffic than anywhere else in the world. And it is also reflected in economic activity. UK is where Spanish companies (more than 300) invest the most, while British businesses (almost 700) are the second largest foreign investor in Spain.

Looking at trade flows, both countries tend to fluctuate between the fourth and tenth positions in the import/export indexes, with a surplus now favourable to Spain. There may not be another case of two countries that, without being neighbours or sharing a common language, have a greater interpersonal and business interaction. Read more

Between phase one and two: Brexit and its discontents Between phase one and two: Brexit and its discontents

By Brigid Laffan, Director and Professor at the Robert Schumen Centre.


Picture Source: UK in a Changing Europe

March 2018 is an important month in the Brexit negotiations following the publication, on 28 February, of the draft Withdrawal Agreement. The Commission’s draft was intended to put the December 2017 Joint Report into a legal framework. The latter signalled the willingness of the EU27 to move into Phase Two, and discuss the future relationship with the UK.

The timing of the publication of the draft was significant, as it pre-dated Theresa May’s speech on the future relationship, scheduled for Friday 2 March.  The EU27 had repeatedly called for clarity on what the UK was looking for in its future relationship before beginning Phase Two negotiations.

May’s speech was followed by the publication of President Tusk’s negotiating guidelines on 7 March, and the European Council in March is the next staging post in the Brexit saga. I will concentrate here on two things: the question of the Irish border and the future trajectory of the negotiations. Read more

Brexit and Denmark’s commitment to the single market Brexit and Denmark’s commitment to the single market

By Jesper Dahl Kelstrup, Associate Professor, Department of Social Sciences and Business, Roskilde University and Mads Dagnis Jensen, Associate Professor, Department of Business and Politics, Copenhagen Business School.

Danish flag

Picture source: The UK in a Changing Europe

When the UK and Denmark joined the European Community in 1973, the UK was Denmark’s largest trading partner. Now it occupies a more modest top-five position. Nevertheless, the UK accounts for approximately 6 percent of Danish exports and Brexit will have a significant economic impact on future trade relations.

Trade in areas such as agriculture, design, machines and transportation services stand out. Estimates suggest that Denmark will lose between 0.5-2 percent of its GDP because of Brexit. The scope of the economic impact depends on the future architecture of the UK’s relationship with the EU.

The economic implications of Brexit was key to Denmark from early on. The day after the referendum, Prime Minister Lars Løkke Rasmussen announced the establishment of a cross-ministerial task force. Subsequently, a special Brexit secretariat was created headed by the Ministry of Foreign Affairs. Read more

Italy Votes: Should Europe Worry? Italy Votes: Should Europe Worry?

By Vincent Della Salla, Jean Monnet Chair, Narratives for a New Europe, Department of Sociology and Social Research, University of Trento and member of @NegotBrexit

Palazzio Montecitorio

European Commission President Jean-Claude Juncker set off a mini-storm recently when he said that there was a serious risk of political instability in Italy and economic turbulence for Europe if the elections scheduled for 4 March did not produce a clear winner and government, as seems likely. Whether Juncker should or should not have expressed his views on the Italian election is an open question, but he may have been a bit more sanguine and cool-headed about the results. Italy has had governments that have not emerged from elections since 2011 but this has not prevented it from steering through the euro and banking crisis, keep public finances under control and even carried out major reforms to labour markets. This does not mean that there is no reason to be concerned about the elections but it may not be the results that should be the cause for concern.

The elections are being held with a new electoral law that was, arguably, designed to ensure that the insurgent 5 Star Movement (M5S) would not be able to form a majority. It is a mixed system, with one third of the seats in each chamber assigned by first-past-the-post and the remaining two-thirds by proportional representation. The M5S has consistently polled close to 30% but its refusal to contemplate electoral coalitions will likely mean that it may not translate votes into seats so easily as it is expected to do poorly in the first past the post ballots. The electoral system is the fourth different type used in less than thirty years, exposing both the lack of agreement on the basic rules of the game and a willingness to change them for partisan gain.

Both the centre-left and centre-right are in turmoil and engaged in forms of internal competition if not warfare. The centre-right coalition is composed of at least four different parties: Forza Italia (FI) led by a resurgent and rehabilitated Silvio Berlusconi, the Lega Nord, the far right Fratelli d’Italia (Brothers of Italy) and the centrist Noi con l’Italia (We are with Italy). No one can accuse Italian parties of lacking flair when naming themselves. FI and the Lega are engaged in a struggle to come out as the largest party in the coalition, a distinction that would give them presumably the right to name the head of a government if the centre-right were to emerge with either a majority or a strong plurality (either outcome is a strong possibility).

The parties are far from united on a number of key positions, especially as they related to Europe. Berlusconi has steered his party (and his image) in the direction of a moderate, liberal party committed to the single market, lower taxes and the single currency. The Lega’s position on most European questions is close to France’s National Front, a party it sits with in the European Parliament. The Fratelli d’Italia are even further to the right on almost every economic and European question. Together, the coalition is held together supposedly by an appeal to “sovereignty”. By most accounts and polls, this appeal has had a limited impact on voters’ preferences as a strong majority of Italians express support for the EU and the euro. Not surprisingly, Berlusconi and Forza Italia have abandoned the hostile rhetoric against European institutions and Germany that had characterised the period following the collapse of the Berlusconi government in November 2011.

What does hold the centre-right together is the question of immigration. It is the prism through which all other electoral issues are refracted. Taking a cue from Donald Trump and other European far right parties, the Lega and Fratelli d’Italia have taken intransigent positions on questions related to immigrants, refugees and multiculturalism. They have managed to have immigration and security as the dominant narrative in the campaign, disarming the centre-left’s attempt to talk up economic growth. Berlusconi has tried to get in on the act, claiming that 600 000 illegal immigrants have arrived in Italy in recent years and that his government would ensure that they were deported. How he balances this with his aim to project himself and his party as forces of moderation remains to be seen. More worrying is that immigration has opened space for far-right movements that are moving into the mainstream and also revealing how much the mainstream parties have moved to the right.

The success of the centre-right owes as much the disaster that is the centre-left as it does to any of its policy positions, including immigration. The largest party, the Democratic Party (PD), has been engaged in an internal warfare that broke out into the open after a referendum defeat on constitutional reform in December 2016. Matteo Renzi only partially kept his promise of resigning if the proposed changes were not approved: he gave up his position as head of the government but returned to lead his party after a short hiatus. Old party stalwarts and left-wing factions have broken away to form a new party called Liberty and Equality, polling anywhere between 5 and 7 per cent.

The PD is clearly the most open to the EU and it has centred its campaign on countering the dangers of “sovereignism”. Renzi has tried to fancy himself as an Italian Emmanuel Macron, a fresh-faced reformer committed to the European ideals. But he has changed position on so many issues, including the EU, that he has not been able to convince the electorate that he has anything new to present. What voters seem to perceive is centre-left parties so consumed by internal battles that the siren call of the centre-right, including from neo-Fascists, does not seem to alarming.

Italian electoral laws prohibit the publication of polls in the last two weeks of the campaign so the outcome is still very much a question of speculation. The last polls to be released suggested that the two most likely results were either a centre-right majority or a centre-right plurality but no majority. Although all of the major parties have said that they will not enter into a grand coalition, it does not mean that Italy will be heading quickly back to the polls. The president of the Republic, Sergio Mattarella, will become an important player if no clear majority emerges. All signs indicate that he would not favour an early return to the polls not the least because it is not clear how a new vote with the same electoral rules would provide a different result in a few months’ time. Under his pressure, the parties who are now claiming that they would not enter into a kind of grand coalition might find themselves governing together. It is not impossible to imagine that Mattarella will ask the parties to govern until at least the European Parliament elections in 2019 or perhaps even until new electoral law can be drawn up, one that does make it easier for a majority to emerge.

So, should Europe be worried? Maybe it should, but not for the reasons Juncker pointed out. Italian parties have a long history of cobbling together governing coalitions that are even able to carry out major reforms. Arguably, the M5S should be a cause for concern as an insurgent movement that has taken anti-EU and anti-Euro positions. But it has spent more time campaigning against mandatory vaccination of children than against the EU. Its positions are on most issues are mercurial and fluid. Incompetence and confusion are more a concern than any dogmatic or policy position, if it were somehow to find a majority in Parliament (not very likely).

The greater concern should be the lack of consensus on basic democratic institutions and principles. Italy has been the canary in the coal mine with respect to where liberal democracy might be headed: plutocratic leaders, highly polarised politics, de-legitimation of political opponents and institutions and the list goes on of challenges to liberal democracy in many different settings that have been part of Italian politics for more than two decades. It does raise the question of how long a state hallowed out of its political authority can carry out the necessary measures to deal with a highly complex and increasingly unstable international system.

Finally, Juncker should not be worried about whether an Italian government is formed but who forms it. If the Lega Nord emerges as the dominant party of centre-right, then stormy weather will be in the forecast. Not so much for what positions it will take on Europe. Its major issue is immigration and it is difficult to see what it can do to undermine on the question that has not already been done. The real danger is that it will legitimate many far right movements that will feel emboldened and this is surely to provoke a reaction on the opposite side. In comparison to a major European power embroiled in a polarised political struggle that it thought was confined to its history 100 years ago, cobbling together a majority might seem like a welcome alternative. Maybe even to Juncker. 

Commentary on the Baltic-UK partnership Commentary on the Baltic-UK partnership

Commentary on the Baltic-UK partnership post-Brexit prepared on the basis of the talking points at the Baltic centenary event ‘The next 100 years: UK-Baltic cooperation in Euro-Atlantic security’, House of Westminster, January 31, 2018.

By Ramūnas Vilpišauskas, Professor and Director of the Institute of International Relations and Political Science, Vilnius University

Ramūnas Vilpišauskas

When considering the Baltic States’ relations with the UK since the early 1990s, several things can be noted. The UK has been one of the supporters of the EU and NATO enlargement, something that has been appreciated in Lithuania and other Baltic States. The UK also showed a similar assessment of threats arising from foreign policy of Russia since early 2000s, and in particular after the recent aggression against Ukraine. It was not only on Eastern partnership policy that Baltic States’ and the UK’s policies converged. It was also on internal EU issues such as the advancement of the Single market, and initiatives on better regulation bringing together in the informal gatherings Baltic-Nordic countries and the UK (often with Netherlands and sometimes with Germany).

However, one area where national preferences diverged in recent years, in particular since 2016, was the treatment of national sovereignty. The basic assumption of the Baltic States’ policies which prioritised EU and NATO accessions soon after the re-establishment of independence in early 1990s was that the nature of interdependence and geopolitics of the region required alliance building as a crucial method of protecting recently regained sovereignties. Membership in the EU and NATO were seen as important instruments of protecting and strengthening Baltic sovereignties in the face of geopolitical threats and asymmetrical interdependencies with the outside world. Meanwhile, the Brexit debate in the UK regarding ‘taking back control’ exposed a rather different understanding on how regional alliances and clubs like the EU are treated.

This brings up the question of the future Baltic and UK relationship after Brexit, as the Baltic States celebrate and reflect upon the last hundred years of re-established statehood. It seems to be desirable to have as little divergence from the current network of intense cooperative economic, security and societal relations with the UK as possible. However, the ‘red lines’ of the UK and of the EU which have been made public since the start of Brexit negotiations make this close to impossible. The government of the UK has repeatedly stated that it intends to leave the Single market and the customs union of the EU after the end of the Brexit process (though the issue of the Irish border might eventually complicate these plans). The EU’s principle of no ‘cherry picking’ further complicates the search for the least costly cooperative solutions to maintain as close relationship as possible.  

The Brexit process is seen as a ‘loose-loose’ situation in Lithuania and other Baltic States, and the domestic politics definitely has a role in this. It was the key factor beyond the initiation of the Brexit referendum and its outcome, it is also going to dominate the final stages of negotiations. The main question is how the domestic politics will be managed to avoid the excessive costs of Brexit in terms of erecting barriers to the Baltic and UK cooperation, also, in terms of searching for creative solutions to upgrade the UK-EU and UK-Lithuanian and other bilateral relationships in the post-Brexit era. The only certainty is that there is need to re-establish bilateral relations with the UK and to learn how to manage them as in the recent decades most of the matters have been dealt with through such forums as the EU and NATO.

Into Phase II: how the EU27 see the outcome of the Dec EU Council Into Phase II: how the EU27 see the outcome of the Dec EU Council

By Professor Hussein Kassim, research leader and Dr Simon Usherwood, research investigator at The UK in a Changing Europe


Seen from the UK, the reaction to last week’s European Council followed a familiar pattern. In their initial response, ministers, backbenchers and Eurosceptic newspapers welcomed news of the announcement. Heralding it as the latest in a series of victories for the UK over the EU, they showered Prime Minister Theresa May with lavish praise. Within a matter of hours, however, disharmony had broken out again.

As a consequence, the reaction from other European capitals was overlooked. Yet the content of the text is crucial, and how the 27 EU member states approach the negotiations, in particular the terms of the mandate they define for the EU negotiator Michel Barnier for the next phase, will be key to the outcome. They will largely shape the UK’s future relationship with the EU.

We looked at the European Council’s text, and polled opinion from the network of correspondents that our Brexit priority grant, “Negotiating Brexit”, has brought together to monitor progress and to build up a better understanding of how Article 50 has moved towards a final deal. Here is how the results of the European Council were regarded across the EU. Read more

Brexit – invisible but important story of the Oct '17 Czech parliamentary elections Brexit – invisible but important story of the Oct '17 Czech parliamentary elections

By Petr Kaniok, Associate professor of International relations and European Studies at Masaryk University


Picture source: The UK in a Changing Europe

“EU, we will leave in an English way!” That was a message on a billboard promoting the right wing populist Freedom of Direct Democracy (SPD) movement in the campaign preceding the Czech parliamentary elections in October. So is Brexit on the main stage in domestic elections outside the UK?

No, for even though the SPD did well in the elections and the explicit reference to Brexit helped them to get more than 10% of votes, Brexit was not the main or even an important feature of the elections. But this does not mean that Brexit has nothing to say in Czech politics. It has and it may have in a future.

In the broadest of terms, Brexit is not a major issue for Czech politics. This is hardly a surprising finding; very similar conclusions can be reached in the vast majority of continental EU member states. Even though the EU in general is quite a controversial topic for Czech politics, any possible grenade effect of Brexit was downplayed by two factors. Read more

Italy focussed on immigration at December 2017 Euopean Council Italy focussed on immigration at December 2017 Euopean Council

By Vincent Della Sala, Associate Professor of Political Science, Department of Sociology and Social Research, University of Trento

Italian congress

The Italian government, led by Prime Minister Paolo Gentiloni and European Affairs Minister Sandro Gozi, have emerged as one of the strongest supporters of a “bespoke model” Brexit agreement.  Gentiloni, in a series of interviews following the breakthrough deal on 8 December, re-affirmed Italy’s position that the country’s red lines in the negotiations – those adopted by the Council – remained firm. He saw the agreement on financial compensation and rights for EU nationals as important steps that satisfied Italy’s major demands. However, the Italian position has been all along that a hard Brexit was not an attractive option and that all options, not just Norway and Canada+, should be on the table. In a widely cited interview in the Financial Times, Gentiloni pointed out that those options were deals that began with a blank slate while the Brexit deal was about “removing things from a 40 year-old structure of extraordinary relationships.” On the eve of the Council, Gozi stated in a radio interview that Italy saw the 8 December agreement as major step forward and binding. The Italian government’s attention was focused on the immigration question at this week’s Council but it did welcome the decision to move forward to phase II of the negotiations. Both Gentiloni and Gozi, while stressing the need for flexibility to arrive at a deal, re-iterated that they foresaw a difficult period ahead for both the UK and EU27: one with great uncertainty generated by British politics and that would test but ultimately unite EU27.   

The 2017 elections mark a potential turning point in German politics The 2017 elections mark a potential turning point in German politics

By Eva Heidbreder, professor of Multilevel Governance in Europe at the Otto von Guericke University of Magdeburg

GErman elections 2017

Picture source: The UK in a Changing Europe

It seems that observers, especially those outside Germany, are surprised by the time it’s taking Chancellor Merkel to form a government. Just after the elections, the analysis seemed quite easy: Germans are striving for stability, and the entry of the Alternative für Deutschland (AfD) – an openly right-wing party – is a reaction to increasing uncertainty; but Merkel has won, so overall not much will change. But the on-going struggle to form a government indicates how wrong this reading was. The 2017 election marks a break, triggered by structural changes in the democratic landscape, the experiences of the last three coalition governments, and diverging pressures inside the parties. All three dynamics will mark German politics for years to come. Read more

The Irish border bites back The Irish border bites back

By Brigid Laffan, Director of the Robert Schuman Centre for Advanced Studies, European University Institute

Irish border

Picture source: The UK in a Changing Europe

The Brexit negotiations enter an uncertain and tricky phase in the lead-up to the December 2017 European Council (EC). If the EC fails to agree that ‘sufficient progress’ has been made on the three issues in Phase 1, discussion of the UK’s future relationship with the Union will not begin in January. The question of Ireland, and especially the border between Ireland and Northern Ireland, remains one of the most problematic issues on the agenda.

The Irish Government has clearly signalled that from its perspective, ‘sufficient progress’ has not been made on the border to merit a move to Phase 2 of the talks.  This leaves the UK Government with about two weeks to satisfy EU27 – and especially Ireland – that the UK’s commitments concerning the Irish border are credible and are the outcome of serious thinking and problem-solving in London. Read more

Brexit - A French Perspective Brexit - A French Perspective

By Christian Lequesne, Professor of Political Science, Sciences Po, Paris

Brexit - A French Perspective

Picture source: The UK in a Changing Europe

There is little public debate in France about Brexit. Of course, when Michel Barnier opens a new round of negotiations with David Davies in Brussels, articles appear in the media. But generally, French society and even mainstream politicians have little interest. There are many people in France who consider that Brexit has to move forward because it will solve a problem: British governments, whether Labour or Conservative, have never really played the game of political integration. It is not rare to hear French ordinary citizen saying: ‘Well, the UK has never liked Europe and it will be easier in Brussels when it leaves!’ Read more

The future shape of UK-EU relations The future shape of UK-EU relations

By Jean-Claude Piris, former director-general of the Council of the European Union’s Legal Service

The future shape of UK-EU relations

Picture source: The UK in a Changing Europe

Looking back over the past four years, it is possible to see how the poor quality of the political debate about ‘Europe’ in the UK has left the country with a serious problem. Neither in David Cameron’s 2013 Bloomberg speech nor his 2015 announcement that there would be a referendum, the electoral campaigns of 2015 or 2017, nor Theresa May’s declaration that ‘Brexit means Brexit’, her announcement of her intention to trigger the Article 50 process, nor her decision to start the clock on 29 March 2017, was UK public opinion properly informed about the UK’s options or the consequences of the UK’s departure from the EU. This failing has left public opinion unprepared for the effects of Brexit, and hampered the ability of the UK government to negotiate quickly and credibly. Read more