Boris Johnson warned last year that a no-deal Brexit would represent “a failure of statecraft for which we would all be responsible”. On Wednesday, over dinner in Brussels, that statecraft will be put to the ultimate test.
Mr Johnson’s dinner meeting with Ursula von der Leyen, European Commission president, is seen as a last chance to salvage trade talks and put the UK’s post-Brexit relationship with the EU on a solid footing. The political and economic stakes could hardly be higher.
Ahead of the talks, both sides circled the wagons. Mr Johnson’s cabinet was said by Downing Street to be “united” behind the prime minister and his threat, if necessary, to take Britain out of its post-Brexit transition period without a trade deal on January 1.
Meanwhile, Germany, a massive exporter of goods to the UK, put on a show of unity with France, whose president Emmanuel Macron is resuming his familiar role as the tough man of Brexit.
Detlef Seif, chief Brexit spokesman of Angela Merkel’s CDU party, said: “It’s certainly true that France is more affected by the fisheries issue than Germany, so obviously they have a different view.
“But the idea that there are differences between Merkel and Macron on this is just a figment of the Brits’ imagination.”
The German and French leaders have agreed not to speak individually to Mr Johnson — an idea discussed in Downing Street — but to leave the endgame to Michel Barnier, EU chief negotiator, and Ms von der Leyen.
British attempts to drive a wedge into the unity of the EU27 have been a consistent but unsuccessful feature of the Brexit saga.
Katja Leikert, chief CDU spokeswoman on Europe, said: “We have to show the UK the red card whenever they try to bilateralise the talks.” A senior French official said: “There is a negotiating team. Full stop.”
Mr Johnson on Tuesday night met David Frost, his chief negotiator, in London to see whether a “landing zone” for a deal could be identified — if both sides are prepared to move.
Mr Frost spent Tuesday morning with Mr Barnier identifying the outstanding areas of disagreement before they are finally elevated to the political level with Mr Johnson and Ms von der Leyen on Wednesday.
British officials insisted that the talks in Brussels over dinner would be a “real negotiation”, while EU diplomats said they were intended to unblock the talks with details to be hammered out later by Mr Barnier and Lord Frost.
Downing Street insisted that the detailed negotiations could not drag into 2021, although EU officials maintained that substance rather than timing was key.
While the question of fisheries remains unresolved, both sides agree that a deal over access and quotas is possible. It is the question of the fair competition “level playing field” — and its enforcement — that remains the biggest problem.
Brussels wants to make sure it will be able to react to any large gap in ambition between the EU and UK’s environmental or labour standards by reducing market access for British goods.
It has proposed an “evolution mechanism” under which the two sides would hold consultations if one side was worried that its businesses were being put at a competitive disadvantage.
What would a no-deal mean?
Tariffs on UK exports to the EU of as much as 40 per cent. Agriculture and fisheries would be hit especially hard: (EU duties on UK scallops would be 20 per cent for example, and 15 per cent on sausages).
Disruption to co-operation in the fight against terrorism and organised crime because existing arrangements for information sharing would lapse.
The EU would lose fishing rights in UK waters, with future access hinging on annual negotiations with the UK under the United Nations Convention on the Law of the Sea.
Trade would be hit by the full force of new customs and veterinary checks at the border and at company premises.
Cross-border workers would face increased bureaucracy in securing access to benefits and pension rights.
Disruption to trade in civil nuclear materials and to the cross-border energy market.
Lost opportunities for UK scientific researchers to work together with European counterparts.
Should it be established that there is a real problem but talks fail, the disadvantaged party could impose tariffs or other measures to re-level the playing field.
The UK insists that, while it is ready to agree not to weaken existing regulatory standards — a principle known as non-regression — the EU plans go far beyond this.
“What the EU has proposed is not non-regression but de facto alignment,” said a UK official.
Linked to this are EU demands — also resisted by the UK — for either side to be able to punish the other if it violates its commitments. Under such a system, the EU could hit imports from one sector to counterbalance British rule-breaking that affects another.
The UK sees the cross-retaliation idea as disproportionate, arguing that it would lead to an unstable and unpredictable trading relationship.
The two sides are also at loggerheads over attempts by Brussels to exclude EU-level spending from joint commitments on state aid. EU negotiators argue that, within the union, EU level funds such as its regional aid money are exempt from state-aid restrictions.
The level playing field issue cuts to the heart of Mr Johnson’s dilemma — the one he used to claim Britain would never have to face — that full sovereignty over UK rules means less access to the EU single market.
The economic risks of failing to compromise were laid bare last month by the independent Office for Budget Responsibility, which estimated that there would be a 2 per cent hit to the British economy next year if no free trade deal was signed, equivalent to £40bn, on top of earlier Brexit and coronavirus-related losses.
Businesses have become increasingly alarmed as the days ticked by without a deal, causing a panic among companies that still lacked the necessary details to plan for UK-EU border controls.
The British Chambers of Commerce said that businesses still had insufficient official information available in 24 critical areas, which has undermined their ability to prepare for January 1.
James Sibley, head of international affairs of the Federation of Small Businesses, said that it was “deeply concerning that, more than four years on from the referendum, small firms still have so little clarity around what our trading relationship with the EU will look like when the transition period ends in 25 days’ time”.
Reporting team: George Parker, Daniel Thomas and Chris Giles in London; Jim Brunsden and Sam Fleming in Brussels; Guy Chazan in Berlin and Victor Mallet in Paris
Ransomware attacks rise despite US call for clampdown on cybercriminals
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In mid-June, US president Joe Biden held talks with his Russian counterpart Vladimir Putin to discuss a recent scourge of cyber attacks against the US, including by Russian-based criminal ransomware hackers.
Biden has said he told Putin in no uncertain terms that “certain critical infrastructure should be off limits to cyber attack — period”. Nevertheless, data show that ransomware attacks continue apace, including in sectors such as healthcare and education. It is unclear whether Biden will take further action in light of this.
Ransomware, which usually involves hackers seizing an organisation’s data or computer systems and only releasing access if a ransom is paid, has long plagued businesses large and small. The first known ransomware virus, PC Cyborg, was recorded in 1989, with victims infected via floppy disk and told to send a $189 cheque to an address in Panama.
Today, these financially motivated hacks are far more sophisticated — and are proliferating fast. Attacks have quadrupled during the pandemic, SonicWall data show, partly because the shift to remote working has left staff more vulnerable than if they were connecting to more secure corporate networks.
Additionally, hackers have swapped demanding cheques for requesting hard-to-track cryptocurrencies, meaning that as the price of bitcoin has risen during the past year, the business of ransomware has become all the more lucrative. It is also easier to launch attacks with little to no technical knowhow, given the growing market for “ransomware-as-a-service”, where hackers maintain their ransomware code but rent it out to others and take a cut of any extortion payouts.
While known attacks have reached unprecedented levels, the story of what we do not know — given that there are few rules around disclosure — may be far worse. Earlier this week, Bryan Vorndran, assistant director of the FBI Cyber Division and other cyber agency officials called for mandatory reporting rules around attacks, so that accurate data can be gathered and analysed by the US government.
Small businesses with little spare resources have tended to be the hardest hit by ransomware attackers. But the matter was thrust into the spotlight earlier this year after several audacious attacks on critical infrastructure such as the Colonial Pipeline, which led to fuel shortages for several days on the US east coast, the Irish health system and Brazilian meat supplier JBS. All of these attacks were believed to originate from Russia-based ransomware hackers, although the US government has accused Chinese state-backed groups of also orchestrating attacks.
The number of ransomware gangs stretches into the dozens and continues to proliferate as the economics remain so profitable. Vorndran said the FBI tracked 100 gangs, using an algorithm to rank them and the effect that each has on the economy. The largest one rakes in an estimated $200m a year in revenues, he said.
To help victims fight the gangs, a cottage industry for “ransomware negotiators” has emerged. These middlemen are tasked by victims with haggling down the ransom payments. As go-betweens, they also collect data on attacks, learning the playbooks of various groups in order to best know how to speak to them.
According to data from Coveware, the average ransom payment has fallen in the second quarter to $136,576, from more than $200,000 in the first quarter, amid an emergence of smaller ransomware groups. But in the majority of attacks — about 80 per cent — hackers are using the newer tactic of threatening to leak data as extra leverage in extorting victims. About half of these “leak threat” victims paid out in the second quarter, Coveware said.
Unfortunately, the negotiators’ services continue to be in high demand. According to data on reported attacks collated by Recorded Future, in the US there have been 10 attacks on healthcare, nine on schools and 10 on public state and local government groups during June and July this year. Despite Biden urging Putin last month to crack down on the criminal groups and warning against attacks on 16 critical entities, attacks on many of these key sectors have continued.
“The volume of targeted attacks on government organisations and enterprises that impact civilians, countries and the global economy will not end without a change in approach,” said Bill Conner, the chief executive of SonicWall.
France delays EDF reforms after failure to agree terms with Brussels
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France has been forced to delay the restructuring of state-owned utility EDF after it failed to agree the terms with the EU, a setback to a major economic reform promised by President Emmanuel Macron.
“Significant progress has been made in our discussions with the European Commission, but to date we have not reached an overall agreement,” said a government official. “Therefore it is not possible to submit a draft law to parliament if the principle points of the reform have not been agreed to in advance.”
Jean-Bernard Lévy, EDF chief executive, on Thursday declined to provide a specific timetable for when the reform could be completed, but analysts said it would likely prove difficult at least until after the French presidential elections next April.
“I regret that this reform that is indispensable to EDF cannot happen now,” said Levy. “Our short term [prospects] are guaranteed, but our medium and long term are not if we want to play in the big leagues, which is what is expected of EDF.”
Dubbed Project Hercules, the planned overhaul of EDF was meant to give it the financial firepower to invest in both nuclear and renewable energy in the coming decades.
An important element would be changing the mechanism and regulated prices at which EDF sells nuclear power, which provides 70 per cent of France’s electricity. France wanted to push through higher regulated prices for nuclear power, so EDF could pay down heavy debts and absorb the high costs of maintaining its nuclear reactors.
But Brussels would have to approve such a change because of its remit to ensure free competition in the energy sector and to prevent member states from unfairly bailing out companies.
The plan would effectively split up EDF by creating a government-owned mother company, EDF Bleu, containing the nuclear assets as well as a hydroelectric subsidiary. Another subsidiary, EDF Vert, would house renewable assets, the networks and services businesses, and would be publicly listed with about a third sold to raise funds to boost EDF’s green energy investments.
Macron has argued that the changes are vital for EDF to flourish and keep up with rivals. Given that France owns almost 84 per cent of the group, the government had also hoped the reforms would lighten the state’s financial burden.
But the overhaul has been caught in wrangling with the commission. Le Monde reported that the key sticking point was how the relationship between the newly created entities would work and whether cash could freely flow between them as if the company were still fully integrated.
The French finance ministry, which has piloted the talks, and the Elysée Palace declined to comment further on the details.
EDF’s powerful labour unions had opposed the plan as a prelude to the group being broken up or privatised, and have also raised concerns that it would pave the way for nuclear energy to be marginalised.
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“We celebrate the knockout punch delivered to Hercules,” the far-left CGT union said. “The only aim of these manoeuvres is to pull off juicy financial transactions at the expense of consumers and EDF employees.”
EDF shares fell as much as 4 per cent on Thursday as the reform’s failure overshadowed strong second-quarter financial results that showed the utility rebounding as economic activity picked up despite the Covid-19 pandemic.
Barclays analysts wrote in a note that investors were being too pessimistic on the outlook for the reform even if its timing was hard to predict.
“We continue to believe that ultimately there will be an agreement between the EU and France on EDF’s reorganisation.”
Additional reporting by David Keohane
EU economy chief urges end to ‘muddling through’ with budget rules
EU economy updates
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Brussels cannot afford to carry on fudging the application of its own fiscal rules to blunt their negative impact, the EU’s economics chief said as he called for a far-reaching legislative overhaul to help drive stronger public investment and growth.
Paolo Gentiloni said he wanted “renewed and reviewed” EU budget rules that would provide an incentive to public investment in the green and digital transitions, while fostering stability and durable economic growth.
“It is clear we cannot simply go back to normal,” Gentiloni said in an interview with the Financial Times. “You need common rules that are connected to the economic challenges we have. Otherwise, the risk is that the European Commission will spend the next decade finding creative ways to bypass its own rules, which I think is not the best solution we can have.”
The commission is due to restart this autumn a consultation on how to amend the rules surrounding the Stability and Growth Pact (SGP). The budget framework is currently suspended because of the Covid-19 crisis, but the rules are likely to be reimposed in 2023, and there will be a fierce debate ahead of that over how they should be reformed.
Janet Yellen, US Treasury secretary, this month added her voice to those arguing that the SGP restricts governments’ latitude to battle downturns as she called for the EU to reinforce its stimulus efforts. But fiscally conservative northern European member states will chafe against efforts to substantially loosen the rules, reigniting a north-south divide over economic policy.
Gentiloni said he did not see it as the commission’s role to question the EU treaty, which contains the basic goals of keeping public debt at 60 per cent of gross domestic product and deficits to 3 per cent. But he said he wanted the commission to propose reforms to legislation as it seeks to reflect post-pandemic realities, including the surge in average eurozone public debt burdens to 100 per cent of GDP.
He questioned whether the bloc should return to a “‘low for long situation’ — low inflation, low growth, low interest rates? Or should we try to use this crisis . . . to try to have stronger and more sustainable growth?”
He supported several changes, including adjusting the rules governing the mandated path for bringing down public debt ratios, which under the current framework would entail deep and punishing reductions following the debt blowouts over the past year.
The changes would entail a shift to more “simple and observable” criteria to manage fiscal policies, he said, referring to a suggestion from the European Fiscal Board, a commission advisory body, for a budget policy set according to an “expenditure rule” setting a ceiling on the growth rate of nominal public spending.
In addition, the rules would need to be changed to provide an incentive to public investment. This would help avoid repeating the aftermath of the financial crisis, when net investment drifted rapidly lower, stymying growth.
One idea is a “golden rule” excluding some specific growth-enhancing expenditure from the ceiling on spending growth, but Gentiloni stressed he was not wedded to that specific concept. “There are a lot of possible solutions, proposals, if we recognise the need to encourage, to strengthen, public investment in certain sectors.”
To “muddle through” with the budget rules might have previously seemed reasonable, Gentiloni said, but he argued that given the circumstances, legislative changes would be needed. “This is the only way to have real common rules, and not just common rules that are there to be bypassed,” he said.
Gentiloni reiterated the upbeat short-term economic outlook he offered this month when the commission published forecasts predicting the strongest growth in decades, with an expansion of 4.8 per cent this year and 4.5 per cent next.
While the spread of the Delta coronavirus variant presented a “downside risk” to growth, he stressed that the current situation was far more propitious given the rapid rate of Covid vaccinations. The EU, he pointed out, had caught up with the adult vaccination rate of the US.
“We know very well we’re not out of the woods. At the same time we should be very clear we’re in a different situation from the one last summer and the difference is caused by vaccines and vaccination,” Gentiloni said.
Indicators of individual mobility, and the stringency of lockdown measures, continued to point to a recovery “with speed”.
“I think the recovery will proceed. All in all our brighter forecast is still supported by what we see on the ground,” he said.
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