France will try to use the situation following the result of the British referendum on exiting the EU to deepen integration in the sphere of EU Common Security and Defence Policy. The French government is also trying to attract international companies to move from London to Paris. In the process of shaping new relations between the EU and the UK as the latter drops its membership, France will be in favour of limiting the UK’s impact within the internal market, namely in the sphere of financial services.
France perceives the perspective of the UK leaving the EU as negatively impacting its interests. If, however, Brexit materialises, the French government would like to use the situation to increase its political and economic influence in the Union. Before the upcoming EU summit in Bratislava, France aims to have a common position with Germany and Italy on questions related to EU reform. French President François Hollande also visited Ireland and Portugal to gain them as allies. The foreign ministers of France and Germany, Jean-Marc Ayrault and Frank-Walter Steinmeier, respectively, presented a proposal in June to deepen EU integration in terms of foreign, security and migration policy as well as the economic and monetary union. In addition, France’s position was boosted by the nomination of Michel Barnier, a former French minister, for the post of the European Commission’s negotiator on the UK’s exit.
While France has not presented a detailed position on its preferred model of post-Brexit UK–EU’s relations, it has already rejected the option of granting the UK special status in its relations with the EU. The French government has clearly highlighted the option that Britain may retain access to the single market only by complying with the EU principles of the free movement of goods, capital, services and people.
France’s objectives in the negotiations
Because there is a meaningful level of mutual investment and trade between France and the UK (the trade surplus in the former’s favour was €12.1 billion in 2015), the French authorities are likely to be interested in retaining UK participation in the EU internal market, at least at the level of the comprehensive free trade area.
However, France will aim to restrict the UK’s access to the financial services sector. It argues that British opposition towards respecting the free movement of people makes it impossible for it to be a part of the European Economic Area (EEA), which ensures access to the Union’s financial market. According to France, the UK should lose its “passporting” right, which allows the operation of banking services without a license in the EU and other benefits. Passporting has led many foreign banks to conduct activities in London through British subsidiaries in order to sell their services in the EU. Moreover, France wants euro-clearing operations to be conducted outside London, as it represents competition for financial institutions in the eurozone. Important for France, the introduction of such restrictions on the UK would be a chance to attract financial sector players to re-locate from London to Paris. The French government is trying to improve the business-friendliness of the capital by offering tax cuts for businesses and facilitating administrative duties.
France also is likely to make the UK contribute to the EU budget if it gains complete or even partial access to the internal market, similar to the situation with Norway or Switzerland. France is a net payer and is concerned that any increase in its contributions would negatively impact the country, given its difficult economic situation. For France, the aim probably will be to abolish the “British rebate” and the “rebate to the rebate,” which is a discount on EU budget contributions granted to Germany, Austria, the Netherlands and Sweden. According to a French Senate Finance Committee report, if the country manages to have these rebates ended, it would pay proportionally less than other net payers. It based figures on several assumed models for UK participation. The first, the EEA model, would see the French payment decrease by 1% (€219.7 million) while Germany’s would increase by 3.6% (€959.4 million). In the Swiss model, the French contribution would increase by 2.3% (€489.1 million) and Germany’s by 7.3% (about €1.9 billion). France has no interest in completely cutting off Britain from the internal market, which would force its contribution to increase by 5.6% (about €1.2 billion).
For France, the UK’s exit from the Union is a chance to deepen EU integration when it comes to security policy as well as the economic and monetary union. Deeper integration has been the regular position of the French government since the Socialist Party came to power in 2012, but which have been blocked by the UK and others in recent years.
President Hollande’s priority is reform of the EU’s Common Security and Defence Policy (CSDP), which gained importance after the terrorist attacks in his country and the dominance of security issues in the public discourse. He proposes a boost in EU missions and improvement of their management, as well as increased EU activity in Africa and the Middle East. Of note is that France is involved in military interventions against jihadists in the Sahel and against the Islamic State in Syria and Iraq. On deepening eurozone integration, he calls for the establishment of a eurozone parliament and government as well as a eurozone budget operating on the basis of fund transfers in order to support common policies and investment in strategic sectors (such as digital technologies, energy transition). This should go hand in hand with harmonisation of social standards, such as the establishment of a common floor for the minimum wage and common taxes on corporations and others). Such changes should be made outside the EU treaties based on the intergovernmental method in which governments agree to the changes between themselves.
The French proposals should be seen primarily in the light of the campaign for president in 2017, which is a major factor impacting the government’s position. President Hollande aims for proactive European policy, as Brexit has become a reference point for the opposition to criticise the EU and the government’s policies. The centre-right party, the Republicans, have not yet nominated an official candidate for the elections but have called for strengthening border controls and the eurozone. Among their proposals, however, are some more radical ones such as stopping the enlargement process, holding a referendum in France on the future of the Union, or even seeking new European treaties and reducing the role of the EC. More importantly, Marine Le Pen, the official candidate of the ultra-right wing and populist National Front, declared that if she wins the election in 2017, she will grant a referendum on the exit of France from the EU.
However, a “Frexit” seems improbable. First, contrary to popular media opinions, Le Pen’s chance of passing to the second round of the elections may be a challenge. According to regular opinion polls conducted by TNS Sofres, in the first half of 2016 her popularity was 19–24% while many politicians from other parties had higher poll numbers, including Emanuelle Macron, François Fillon, Manuel Valls, and—the most popular—the Republicans’ Alain Juppé, who polled at 35–45%. What’s more, she has little support outside the National Front electorate and lacks the ability to attract centrist voters, greatly reducing her chances of winning the elections. Second, although French society is sceptical of the Union—only 38% of respondents to a Pew Research Center survey had a positive opinion—the overwhelming majority of French citizens do not want to exit the Union. According to various surveys conducted after the British referendum (TNS Sofres, Odoxa), 45–64% of French are in favour of staying in the EU while 33-35% would opt for “Frexit.”
France probably will find it important to involve the UK in a comprehensive free trade zone and in sectoral cooperation, but to a lesser extent to allow access to the internal market, similar to Norway. The EEA model would mean, though, not only maintaining British access in the financial services sector but also limiting French promotion of protectionist economic measures, which have been regularly blocked by the UK. However, an option of some sort of EEA model and one acceptable to France might involve derogations on the free movement of people in exchange for the loss of the UK’s passporting right and euro-clearing operations. Given the relatively comparable level of migration between the UK and France, it is possible that they might be equally interested in regulating the rights of movement, perhaps through a bilateral arrangement.
In light of the likely French preferences for the UK-EU relationship, an issue in common with Poland may be the British contribution to the EU budget, as Poland also does not receive a “rebate to the rebate” and may be interested in ending this practice.
Poland should have no fear of deeper eurozone integration in the short term, as the French demands are limited by Germany and others. The French vision of stimulating growth by increasing public spending and the use of a eurozone budget in this respect is at odds with Germany’s austerity policy for the eurozone. The lack of specific ideas in the proposals for eurozone reform presented by the German and French Ministries of Foreign Affairs in June clearly shows this gap. Moreover, it is doubtful that a serious debate on EU reform might occur in the near future due to planned elections in both countries in 2017.
However, it is probable that France might manage to launch a debate on strengthening CSDP. One should not expect radical changes, though. The Franco-German proposals from June assume, among others, establishing a permanent EU operational headquarters, increasing joint financing of EU operations and reviewing the defence plans of the Member States. They do not provide for the creation of joint military capabilities, or a so-called European army. Poland should support such reform but seek for it to further strengthen NATO and the security of Central and Eastern Europe.
By Elżbieta Kaca
This article was originally published by the Polish Institute of International Affairs on 12 September. It is republished with permission.