Brexit day zero
The forseeable crisis?
Peter Dolamore, head of Crisis Preparation at S-RM, explores the implications of a no-deal Brexit on corporate crisis management planning.
‘Disruptive’, ‘drastic’ and ‘expensive’ – all words used to describe the prospect of a no-deal Brexit in the covering report of a CBI survey carried out at the end of 2017. More recently, in August 2018, the UK International Trade Sectary, Liam Fox, described the no-deal scenario as more likely than not. A ’60-40’ likelihood, to be precise.
But as unsettling as all of this sounds, those of us who make crisis preparation and contingency planning our business find ourselves in the unusual position of encouraging our clients to be relatively optimistic. Not about the prospect of a no-deal Brexit itself, but for having the rare luxury of knowing what the crisis is, what it might look like and what its impacts are likely to be. We even know what day it’s going to start (that’s 29 March 2019, by the way).
This isn’t to say that the outcomes are certain – far from it. There is a great deal about the no-deal scenario that is uncertain. Bank of England Governor, Mark Carney assessed that the UK faced the possibility of returning to a recession as serious as that of 2008. However, these eventualities are by no means certain – merely attempts to foresee possible outcomes in a worst-case scenario. With time on our side and the ability to observe developments over the coming months, we can already start helping our clients think through how they might cope with a no-deal Brexit, and what measures they should put in place to ensure they are optimally prepared.
Some of the key conversations we are beginning to have with our clients around a no-deal preparation plan include:
Significant uncertainty exists regarding the likelihood and extent of operational disruption arising from labour relations difficulties or, in the worst case, large-scale redundancies that result from a no-deal Brexit crash-out. While industrial activism is very unlikely indeed to reach the extremes of that seen in Europe in recent years (witness Air France’s experience in 2015), sentiments are likely to be running high come March 2019 and they’ll be stoked by political passions on all sides of the debate. Thus, when it comes to preparing for labour-related disruptions post-Brexit, we are assisting our clients in analysing the worst, best and most likely scenarios pertinent to their operations and interests between now and then.
THE MOVEMENT OF GOODS
The movement of goods presents one of the most newsworthy operational impacts for businesses staring down the barrel of a no-deal Brexit next year. Local UK Police forces have announced the readiness of Operation Brock – a strategy designed to tackle the potential for miles of lorries queued on roads leading to the Port of Dover and the Channel Tunnel, two of the UK’s major export points for goods destined to mainland Europe. This is for good reason, as day zero may very likely see disruption on the pinch-point goods routes in southeast England and northern France with the potential to cause severe congestion. While fast-moving consumer goods and logistical sectors will have thought long and hard about maintaining the integrity of their supply chains, they may not have thought about the potential consequences for thousands of vehicles waiting for days in parts of France where desperate migrant communities might seek opportunities to conceal themselves in vehicles travelling to England. Having a plan in place in terms of alternative supply routes, inventory management, a diversified supply base and relevant security protocols are some of the themes coming up in discussions with clients around their preparation for supply chain disruptions come Brexit.
Another remark worth considering is one from the Chief Executive of British Airways, Alex Cruz, in early August. He described as ‘farcical’ the two-hour wait which has become the norm for non-EU passengers arriving at Heathrow’s passport control. With the date fast approaching when all passengers arriving at Heathrow might be subjected to these delays, there are significant considerations – both short-term disruption and long-term readjustment – for businesses relying on smooth international travel for their staff, suppliers and clients.
TURMOIL AT THE TOP
Finally, should 29 March arrive without a comprehensive deal on trade, movement and cooperation, it is almost inevitable that there will be resignations at the highest levels of the UK Government. This will have knock-on effects worthy of consideration for all businesses and perhaps one or two that might need their own contingency plans.
The political climate being what it is, doomsday predictions about a no-deal Brexit day will continue to roll out on the front pages in the months ahead. Whether some of the more dramatic premonitions materialise or not, the benefits of planning and preparation are obvious.
Ensuring that your business has a comprehensive, efficient Crisis Management Plan in place is vital, enabling an effective, timely response to the impacts of a no-deal scenario.
However, it’s one thing to have a plan, it’s another knowing that it works and that your staff know and understand their responsibilities. Conducting simulated or table-top exercises allows companies to effectively test their existing crisis procedures, identifying and remedying weaknesses before Brexit Day Zero. It also enables individuals to familiarise themselves with their roles and duties and to focus on improving efficiencies for when the actual day comes. Importantly, if you and your business are unsure of any aspects of Brexit and what it could mean for your operations, seek external advice from professionals that can help you better develop your readiness.
What does a ‘no deal Brexit mean?
- The UK sits outside the customs union;
- No transition from the single market;
- No agreement on EU citizens’ rights in the UK and vice versa;
- No deal on security cooperation;
- No settlement on financial liabilities;
- No agreement on free trade means that the World Trade Organisation (WTO) takes over trade rules between the UK and EU.
If you would like to discuss how S-RM’s Crisis Preparation services can help your organisation contact Pete Dolamore.
The pendulum swings
The Far-Right Returns to Germany
A series of anti-immigrant protests in eastern Germany over the past two months has once again raised concerns about the emergence of far-right politics in the country. A street brawl between immigrants of Middle Eastern descent and German nationals was the trigger for the most recent series of protests, but other factors such as political disillusionment and worsening economic conditions are contributing factors. In this article, we assess the underlying drivers of far-right sentiment in Germany.
On 26 August, two immigrants of Middle Eastern descent were taken into custody for fatally stabbing a German national during an altercation in Chemnitz, a town in eastern Germany. The incident reinforced a perception among far-right groups that rising levels of immigration have resulted in a spike in violent crime in Germany, despite the most recent statistics indicating that crime levels are at the lowest in the country since 1992. Nevertheless, incidents such as this have stoked the flames of far-right ideology and sentiment among the German public, and have even permeated mainstream German politics.
The far-right had already achieved a level of legitimacy in Germany’s federal election in September 2017, when the far-right Alternative für Deutschland (Alternative for Germany, AfD) received 12.6 percent of the national vote, a significant increase from its 4.7 percent share in 2013. More recently, the brazen – albeit illegal – use of Nazi salutes and insignia during anti-immigration protests in eastern Germany have highlighted an increasing “normalisation” of this radical ideology. Such sentiment has also translated into violent action: during demonstrations in Chemnitz on 27 August, for example, far-right protesters verbally and physically attacked immigrants, or individuals appearing to be of Middle Eastern descent.
Although this latest resurgence in far-right sentiment has likely been spurred by the influx of migrants to the country in recent years, the foundations of this ideology, and its appeal, can be traced back to Germany’s unique national history, resulting in an ongoing economic divide, and growing disillusionment with the governing coalition.
A Divided Economy
Research has shown that far-right and populist parties gain particular traction in Europe during times of economic and financial crisis. This was indeed the case following the 2008 financial crisis when far-right and right-wing parties more than doubled their share of the vote amongst several of Europe’s most advanced democracies. In Germany, the crisis triggered an economic recession that resulted in almost -5.0 percent GDP growth in 2009, negatively impacting employment, wages and the price of imports.
Beyond the enduring impact of this most recent crisis, eastern Germany’s long history of economic underdevelopment has likely driven the allure of the far-right in the region. During Soviet rule, the German Democratic Republic (East Germany) underwent comparatively lower levels of economic growth versus Federal Republic of Germany (West Germany). Following reunification in 1989, Germany’s eastern region also suffered a significant “brain drain” as many educated and qualified workers moved to the west in search of better opportunities. Despite extensive efforts by successive governments to correct it, an economic inequality between the two regions persists today.
These historical factors have meant that the impact of the 2009 recession was felt unevenly in Germany, with the east bearing the brunt of job losses, for example. The economic vulnerability of eastern German communities has provided fertile ground for far right ideology to flourish. These circumstances are likely behind the fact that the overwhelming majority of far-right demonstrations have occurred in the east of the country, even though the west has received by far the highest number of immigrants.
The economic vulnerability of eastern German communities has provided fertile ground for far right ideology to flourish.
A Crisis of Government
Another significant factor contributing to the rise of far-right ideology in Germany is rising disillusionment with Chancellor Angela Merkel’s governing coalition. Merkel’s government was deemed responsible for the impact of the financial crisis, and her administration was also heavily criticised by opponents for its open-door policy in response to the European migrant crisis. Ongoing political uncertainty ultimately resulted in a political crisis in 2017 when, in federal elections held in September of that year, Merkel’s Christlich Demokratische Union Deutschlands (Christian Democratic Union, CDU) failed to form a government with the Sozialdemokratische Partei Deutschlands (Social Democratic Party, SPD). The SPD’s radical youth wing impeded the formation of a government, until an agreement was finally reached in March 2018.
Although the impasse was resolved, the coalition was still seen by many as a continuation of the previous government, and therefore still to blame for their socio-economic grievances. Furthermore, months of uncertainty over whether or not a coalition would be successfully formed likely reinforced existing levels of disillusionment with the government, stimulating anti-establishment sentiment in the country, and accelerated the shirt toward the right.
The Pendulum Swings
Right-wing populism needs an external threat to function, and requires a sense of urgency to justify radical policies. Feelings of economic insecurity, particularly in eastern Germany, have been brewing for years. Add to this the influx of immigrant communities, and mounting rhetoric from German right-wing populists who purport that these present a threat to national security and to German national identities, and the scene is set for the kind of far-right resurgence witnessed in recent weeks. Indeed, the recent outbreak of lawlessness in Chemnitz during far-right demonstrations, which included the targeting of foreign nationals in the city, has become of increasing concern to educational institutions, international companies, foreign investors and tourists to the region. In response, Barbara Ludwig, the Mayor of Chemnitz, made a statement on 31 August to reassure foreign students and foreign investors that they “do indeed have their place in this city and will be safe here”.
Additionally, a number of corporations, particularly in the automotive sector, have had to deal with the rising popularity of far right unions. BMW, Porsche, Opel and Mercedes-Benz factories ranging from Leipzig to Frankfurt have seen far-right union Zentrum Automobil (ZA) gain significant traction amongst it workforce. According to local media reports, a number of ZA representatives, elected to the works council of a Daimler factory in Stuttgart, maintain close ties to the AfD, PEGIDA and other neo-Nazi organisations. Daimler has since stated that it stands opposed to far-right activity at its operating sites and will continue to monitor the situation.
Given that the underlying drivers pushing segments of German society towards the right are set to persist, particularly amongst the working and middle-income classes, we have likely not heard the last from the once taboo far-right in Germany. The pendulum swing has already begun to impact not only Germany’s migrant communities, but also foreign travelers, and both local and international operators, given the security and reputational implications this sentiment shift presents to their in-country interests.
Tensions rise as Orbán remains defiant
On 12 September, the European Parliament voted to adopt the findings from a recent report into the breakdown of the rule of law in Hungary as its official position on this matter. The vote means that EU members will now deliberate on whether or not to trigger disciplinary procedures against Hungary and how serious those should be. Hungary’s Prime Minister, Viktor Orbán, has strongly refuted the report’s findings, and deems the threat of these procedures an insult to Hungary.
The Sargentini report, named after lead researcher and Dutch MEP Judith Sargentini from GreenLeft, part of the European Green Party, found a ‘clear risk of a serious breach of EU values’ as outlined in Article 2 of the Lisbon Treaty. The vote passed with 448 in favour, 197 against and 48 abstentions. The result functions as a proposal for Article 7 of the EU Treaty to be triggered, meaning that the European Council, comprised of the leaders of member states, will now conduct a first vote on whether to uphold the Sargentini report’s assessment. Should that pass with a four-fifths majority, the Council will issue formal recommendations to Hungary and look to monitor reforms there. If Hungary failed to implement those recommendations, a second phase to Article 7 procedures would then be implemented, escalating the previous assessment of the rule of law in Hungary to a ‘serious and persistent breach of EU values’. This requires a second, unanimous vote from the Council. Finally, the Council must then vote a third time, on whether to impose sanctions on Hungary, requiring a consensus of 72 percent. The political sanctions contained within Article 7, which include suspension of a member’s voting rights in the European Council, are sometimes referred to as the EU’s ‘nuclear option’. Article 7 does not include provisions for targeted financial sanctions on member states, unlike those provided for non-EU actors in the EU’s Common Foreign and Security Policy, the basis of the EU’s current sanctions on Russian entities.
Article 7 procedures could falter with the first Council vote if at least six countries dissent and side with Hungary, preventing the four-fifths majority required. There is no specific timeline for this first vote. Moreover, the unlikelihood of unanimity being achieved in the second Council vote, underpins Orbán’s resolve in the face of EU criticism, as much as his staunch ideology. Poland, which is the subject of its own Article 7 proceedings, has already pledged to veto the vote. A significant proportion of MEPs from the Czech Republic, Slovakia, Romania, Bulgaria and Croatia voted against the Sargentini report, and dissent from these countries in the Council remains a more remote possibility.
While much of the EU’s recent attention has focused on Hungary’s immigration reforms and low intake of asylum seekers, Sargentini’s report focuses on the broader undermining of the rule of law for which Orbán’s government is allegedly responsible. Hungary’s ambient corruption risks remain high, especially in public works industries where competition around procurement tenders is low. The proportion of public tenders in Hungary receiving only one bid stood at 36 percent in 2016. This is the second highest number in the EU after Poland and Croatia at 45 percent. Moreover, the misappropriation of public funds in Hungary is concerning, with Transparency International reporting that ‘EU projects are regularly overpriced in a centralised manner’, adding stock to the concerns that cronyism regulates interactions between central government and public works industries. Tax funded, pro-government media is increasingly the norm. Under Orbán’s regime judicial independence has been undermined. The president of the national judicial office (OBH), Tünde Handó, an old friend appointed by Orbán, is alleged to be appointing Orbán allies into senior positions within the legal system.
With Article 7 procedures against Hungary only just beginning, the outcome is too early to call. Questions remain over whether Budapest would soften its position following formal recommendations from the Council. In December 2017, the European Commission proposed Article 7 proceedings against Poland over its judicial reforms, the first such instance of the Article’s invocation. Political sanctions against Poland would seem more unlikely still, given there has been no European parliamentary vote on the significance of its reforms, resulting only in formal rule of law recommendations by the Commission to Poland thus far. Sympathetic allies within the European Council and a weak precedent, therefore, explain Orbán’s bellicose address to European parliament last month. Budapest’s policy will more likely feature continuity than change over the coming months.