Library picture: Gregor Schusterschitz, the Austrian ambassador to Luxembourg, said that the EU cannot yet work on common positions because the UK was too vague in its proposals. Maison Moderne

Library picture: Gregor Schusterschitz, the Austrian ambassador to Luxembourg, said that the EU cannot yet work on common positions because the UK was too vague in its proposals. Maison Moderne

The Austrian delegate for the Brexit negotiations in the European Council working group and ambassador to Luxembourg, Gregor Schusterschitz, said that the UK may technically get a veto over financial services regulation after it leaves the EU, if the path proposed by some were followed.

The UK has so far rejected a Norway or Switzerland model, and would leave the customs union. Last year Jeremy Browne, a representative of the City of London, had suggested the principle of mutual recognition, which would effectively give the UK a veto in financial services.

Schusterschitz explained in an interview with Delano on 7 February:

“If we had a common market and common rule-setting, the following could occur: We have certain rules on transparency on financial instruments, in the prospectus directive for example, and we want to change it. We can’t do it because we have the common market with the UK on that, so we need to have the same rules. As international treaty partners of an international agreement, both sides have to agree on changing the rules. Two treaty partners can only change the rules of the treaty together; it’s a basic rule of international law. No side can force the other to accept something. If we want this, but the UK says no, then we can’t change anything because we have a common market.”

If the agreement includes access to financial services on both sides and common rule-setting, which would also include passporting rights, then the UK would be in a better position than if it was a member state. Financial services are decided within the EU mostly under qualified majority voting, which means any state can be overruled. By leaving the EU and re-entering the common market as a third country, the UK would have to agree on any changes the EU proposes, thus leaving the UK stronger than a member state.

The Austrian ambassador explained:

“Retaining passporting rights requires certain pre-conditions, because it’s basically internal market in that area, with [European Court of Justice] competence, etc… there are all these things that come with it. They may also want to change our rules. This is the difficulty if you have another state that is participating and that could have a veto on the rules that we internally set. If we change transparency rules on financial instruments or these things--if we 27 want to change them, we want to be in a position to be able to do that. We don’t want another country having a veto on that.”

He suggested that the solution could be unilateral equivalence decisions by the EU which can be revoked, once the regulations differ too much.  Mutual recognition however, "is never done with third countries."

Big fancy words

The member of the Brexit group in the European Council added that they missed concrete proposals from the British government on how the future relationship should look like.

The British ambassador to Luxembourg, John Marshall, recently reiterated that “trade should be as frictionless as possible” and that the UK was a special case because it already had total regulatory convergence with EU norms, rules and regulations.

The Austrian ambassador told Delano this week:

“They said they want market access, but given their red lines, this is not a market access as we know it. The ideas that the British have publicly voiced so far are not easy to implement. Too much is unclear on what they really want.”

Discussions within the EU had little meaning, because they could only discuss hypotheses.

He said:

“The British are fantastic in using big fancy words: they are very good at that. If they came up with clear ideas on how to achieve that, that is just what we want! Come up with specific ideas, specific proposals on how the bespoke, special dynamic whatever thing looks like, then we can discuss it internally if we need an open mind.”

Warning that if the UK did not come with more concrete ideas soon, Schusterschitz said that the March European Council meeting conclusions would inevitably be vague and unspecific.

EU commission transition phase paper

On Wednesday 7 February, the European Commission published its position paper on transitional arrangements. The commission proposed that EU law would continue to apply in the UK, including any changes which will take effect during the transition period. On the other hand, the UK would be excluded from any decision-making processes in the European Council, the European Parliament and other bodies and institutions. This caused outrage in the British media and from certain politicians, who argued that the UK would be a “vassal state” of the EU during those two years.

Schusterschitz explained in his interview with Delano that some directives would only have to be transposed after the transition phase, so those would not apply to the UK.

In a, by now famous, footnote of the paper, the European Commission proposes that the agreement:

“should provide for a mechanism allowing the Union to suspend certain benefits deriving for the United Kingdom from participation in the internal market where it considers that referring the matter to the Court of Justice of the European Union would not bring in appropriate time the necessary remedies.”

British media, again, hurled accusations of the EU wanting to “punish” the UK.

Schusterschitz rejected these claims and said this was a normal, basic rule of international law:

“The British media said that, or some politicians, but international lawyers would be much more relaxed about it. Another question is whether it needs to be there or not. Does it need to be unilateral? As it is worded now, it is unilateral. The Brits would have the same rights, of course. They could suspend if we infringe on the agreement. This whole fuss and lust for sensation, based on that footnote, is exaggerated.”

Balancing level-playing field and market access

Recent leaked European Commission slides on the level-playing field after Brexit showed that the commission was worried about the UK lowering its environmental and labour standards, taxation, competition and rules on state aid after the transition phase.

The member of the Brexit working group said that the EU council could not work on specific guidelines because they could only discuss options,

“because we don’t know which kind of market access the UK wants. If we have a clearer picture on that, then we can discuss internally what this means for the level-playing field and for market access and how we can balance that.”

The EU did not yet have a clear position, “other than we want the best possible level-playing field.”

Schusterschitz explained that:

“there are mechanisms in various forms. Even in free trade agreements, you have some provisions on state aid, for example. This could be built upon if we have a free trade agreement. The wish of many states was clear, in particular in relation to state aid, that we would like to have a common understanding on both sides.”

Luxembourg as Britain’s little helper?

The Luxembourg finance minister Pierre Gramegna and prime minister Xavier Bettel have repeatedly stressed to de-dramatise the situation, saying that “no one wants to punish London”. When asked whether Luxembourg was trying to influence internal EU negotiations to be more accommodating on the issue of financial services, Schusterschitz said:

“It’s natural that every state has national interests and wants to be successful in defending the national interests. This is completely understandable. We are at the very beginning of the discussions. Any government that would throw away its national interests at the first instance would have problems with its own populations, and rightly so.”

The Austrian ambassador added that this was the core of European law-making, but that he had “never seen Luxembourg threaten with unreasonable vetoes on these issues.”

Foreign policy

On the other hand, the EU is still willing to have a close relationship with the UK, according to Schusterschitz. One area where the EU has extended a hand is in the area of common foreign and security policy (CFSP) and defence policy (CSDP), where the EU commission paper proposes that an agreement could enter into force during the transition period.

Schusterschitz explained that this was because it’s a more intergovernmental area of cooperation and it was an “indication that we want to remain strong and very close partners in the future when it comes to CFSP and CSDP.”