Black holes and other strange phenomena – will Entrepreneur’s Relief survive?

Don’t worry: a legal blog hasn’t morphed into something that Professor Brian Cox might write (although, if they re-run it, I do recommend the Astrophysics of Light evening class run by St Andrews University). No: it is financial black holes that interest me here.

There was a good article in the April 27th edition of the Economist (A Form 10-K for America’s government) which in turn talked about Steve Ballmer’s USAFacts website. One of the themes is to treat the US government as a company and see what the results looked like. And if it works in the US….

In Britain, there are increasing and vociferous calls and claims on the income that Britain Inc has. The cash out includes both revenue items (such as pension payments, NHS costs and so on) and capital items (such as infrastructure spending and debt repayments). The cash in comes from taxation in all of its forms. But one major (and really rather worrying) difference between UK Inc and your business is the lack of any real accruals. The major example relates to pensions: a 35 year old pays taxes now with the promise of a pension some time after they are 65 (whatever the rules then are). But, today’s income is being used to pay today’s pensioners – not put to one side for the 35 year olds. Their pensions will depend on the people who are now babies paying enough tax to fund those pensions. Put another way, those pensions are completely unfunded: black hole # 1.

Less worrying but more imminent is black hole # 2. Assuming that the Conservatives are re-elected next month (and even I might put some money on that) then they will attempt to balance the current books of UK Inc (including some debt repayment).That’s going to be tough, and at its simplest they will have to (a) cut more (and that will be hard); (b) tax more (and that will be unpopular – but do watch the manifestos); and/or (c) not repay debt (and what does that do to credit ratings?). It’s (b) that I am most interested in here: the potential tax black hole.

We saw in the budget and subsequent about-turn that the Chancellor was trying to raise some of the less obvious taxes in order to plug gaps. The National Insurance paid by the self-employed and tax free dividend income were two targets before “her next door” called the election. But after the election, the new manifesto will be in place; the government will have five years (I assume) to get over any problems caused by changes now; and the black hole still needs filled. And, from the point of view of our clients, the tax – more properly a relief – that worries me most is Entrepreneur’s Relief.

Many of you will know that, subject to meeting qualification requirements, you can sell your business and pay CGT of 10% on the next proceeds. Short of dying, that’s the lowest tax rate in the UK. It encourages people to build up value in their business, keep it in the business and then realise the benefit on sale. But – is that 10% rate tempting? What if it were raised to, say, 15%? The business community would complain, but at 15% it would still be a low rate; it would help the “just about managing” families (who seem to have dropped off the radar); and if a “rich” business person sold their business for £1M and ended up with £850K and not £900K – who are they to complain?

So – where am I going with all of this? Entrepreneur’s Relief results in a low CGT rate and that has been the case for some time. It may be just too tempting a target for the Chancellor. Therefore, there must be a real risk of an increase in the effective rate in the next budget, whenever that is. We would never recommend disposing of a business for purely taxation reasons, but it is part of the mix: what will be your net proceeds of sale now compared with next year? If you are thinking about selling in the near future, have a good think – now.

Back to the real black holes. As I understand it (and my understanding is sketchy despite trying really hard) at time zero, everything in the universe – matter, energy, the whole damn lot – was in a super-concentrated small ball. At least, that’s how I imagined it. The big bang happened and, after an infinitesimally small gap, the universe started expanding broadly in terms of the rules about gravity and so on that we now know about. Today’s question is this: if the universe only started with the big bang, where was the black hole before the big bang? Answers, on a postcard……

Office and meeting rooms

We are re-arranging our space within our Dunfermline office at Crescent House from 15 May 2017. What does this mean for you?

  • our address, phone numbers, etc will remain unchanged, but
  • all future meetings will take place on the ground floor rather than the first floor, so
  • you’ll be directed to turn right at reception next time you visit us!

We look forward to welcoming you in our new meetings rooms soon.

Data Protection and Brexit – Are you ready for the General Data Protection Regulation?

 

As of 25 May 2018, the UK Data Protection Act 1998 (DPA) will be replaced by new legislation which will apply across the EU, primarily comprising the General Data Protection Regulation (GDPR).

The UK Government has confirmed that the UK’s decision to leave the EU will not affect the commencement of the GDPR.

This means that businesses and public bodies across the UK and the EU will have just over a year to make sure they are compliant with the new rules imposed by the GDPR.

The UK Information Commissioner gives the following guidance on the significance of the GDPR:

  • The GDPR applies to ‘controllers’ and ‘processors’. The definitions are broadly the same as under the DPA – i.e. the controller says how and why personal data is processed and the processor acts on the controller’s behalf. If you are currently subject to the DPA, it is likely that you will also be subject to the GDPR.
  • If you are a processor, the GDPR places specific legal obligations on you; for example, you are required to maintain records of personal data and processing activities. You will have significantly more legal liability if you are responsible for a breach. These obligations for processors are a new requirement under the GDPR.
  • If you are a controller, you are not relieved of your obligations where a processor is involved – the GDPR places further obligations on you to ensure your contracts with processors comply with the GDPR.
  • The GDPR applies to processing carried out by organisations operating within the EU. It also applies to organisations outside the EU that offer goods or services to individuals in the EU.

This is particularly important if your business transfers personal data outwith the EU – you will need to confirm that the process of transferring the data is compliant with the new regulations.

  • The GDPR does not apply to certain activities including processing covered by the Law Enforcement Directive, processing for national security purposes and processing carried out by individuals purely for personal/household activities.

What information does the GDPR apply to?

  • Personal Data – this definition is similar to the DPA, which is data that can identify the identity of an individual whether directly or indirectly, for example, their name, date of birth, address etc. The GDPR will expand on this to include online identifiers such as an IP address
  • Sensitive Personal Data –  this is similar to the DPA, and includes, racial or ethnic origin, political opinions, religious and philosophical beliefs, trade union membership, health or sex life and will now include genetic or biometric information which when processed can indentify an individual

So remember to get your systems ready for the GDPR by 25 May 2018.

Corporate and business

Going into business together? Get a Shareholders’ Agreement

Let me tell you a story of two individuals (A and X) who formed a beautiful working relationship and decided to go into business together.

They incorporate the company, appoint themselves as directors and take a 50/50 shareholding each.

All goes well for the next few years, profits are growing and their client base blooms.

Then, over time, cracks begin to form in the working relationship, things aren’t working out anymore and eventually the situation becomes unbearable meaning working together is impossible.  A wants to buy X out of the company, but X refuses to sell, or cooperate.

A seeks advice from a lawyer, and is asked – is there a shareholders’ agreement? The answer is of course no. There is no agreement on the valuation of shares, and A cannot terminate X’s directorship.

After a long-drawn-out dispute, with the business’s future being put in jeopardy, A and X agree a settlement, with vast sums, going on lawyers and court fees.

If you are starting up a new business, you may think a shareholders’ agreement is just an extra expense which you don’t really need – which is understandable when you are juggling other costs for your business. However, after seeing many clients learn the hard way, and waste so much time and money in resolving deadlock disputes, we cannot stress how important it is to get things right at the beginning.

It may be that things are working well for you in the present, but you cannot predict what the future holds. Protecting your position by planning is the best way to avoid a commercial disaster.

Is your trademark a popular word or phrase?

A recent ruling by the Court of Session in Edinburgh highlights the difficulties businesses face registering popular words and phrases as trademarks .

Tartan Army Ltd v Sett GmbH and Others [2017] CSOH 22 concerned a long-running dispute between retailer Tartan Army Limited (“TAL”) and a football magazine publisher, Alba Football Fans Limited (“AFF”).

 

The match

TAL registered EU and UK trademarks for their trademark  ‘Tartan Army’ for their merchandise, clothing and other products in 1996.

TAL accused AFF of passing off, claiming that AFF infringed their rights by publishing ‘The Famous Tartan Army Magazine’ aimed at Scottish football fans.

TAL requested an order prohibiting AFF from infringing its rights – along with destruction of all promotional and printed material bearing the ‘Tartan Army’ trademark.

AFF counterclaimed that TAL’s trademarks were ‘invalid’, as the phrase ‘Tartan Army’ had widely been used as a collective noun for Scottish football fans since the 1970s. AFF claimed that TAL were attempting to “commandeer and monopolise well‑known words or phrases which they did not invent and which had a very well‑known and widespread meaning which was not distinctive of trade origin”. AFF’s supporting witness statements included a number of well-known football personalities in Scotland, including former Scotland national team manager Craig Brown, commentator Archie MacPherson and journalist Chic Young.

 

The result

Lord Glennie, IP judge in the Court of Session rejected:-

  • AFF’s challenge that TAL’s trade marks were invalid.

He said: “The fact that the term is often used as a badge of allegiance, in this case to the Scotland football team and its fans, does not prevent it being registered as a trademark”.

  • TAL’s claims that AFF was liable for trademark infringement and passing off.

He said the title of AFF’s publication was not identical to the ‘The Tartan Army’ mark and that, despite being similar, TAL had failed to show there was a “likelihood of confusion on the part of the public” between AFF’s use of the mark and its own. “The evidence does not suggest that anyone becoming aware of the Magazine would associate it with TAL or any of TAL’s products bearing the words Tartan Army.  Nor does it seem to me to be likely that there would be any such confusion.”

  • TAL’s argument that AFF had been “free-riding” on the reputation of its mark.

TAL failed to show that their trademark had a reputation in the UK which had been taken unfair advantage of by AFF. Lord Glennie said: “Certainly TAL’s trademark is distinctive otherwise it would not be validly registered but I do not accept that it has a particularly strong distinctive character.  There was no substantial body of evidence to suggest that it was widely known amongst the mass of the Scotland football supporters.  Even if it were more widely known than it is, the lack of confusion is a factor of some importance. Unless there were a possibility of confusion, or perhaps more accurately association, between the two marks, there would be little risk of diversion, tarnishment or freeriding.”

Lord Glennie ruled that AFF’s popular magazine did not infringe the trade mark of retailer Tartan Army as football supporters and consumers would be unlikely to “associate” AFF’s magazine with the merchandise sold by TAL:

I consider that most potential customers or consumers, being Scotland fans or, to put it another way, members of the tartan army, would understand the name of the Magazine to refer to them (and the Magazine to be for them) rather than as a reference to TAL or its products….In those circumstances the claim in passing off fails“.

Lord Glennie found that there was no infringement nor passing off and ruled to reduce the scope of TAL’s trademark rights after determining that there had been no “genuine use” of the trademarks for some classes of goods, including flags, bunting and banners, and wall hangings.


What does this mean for your business?

The ruling shows that well-known words and phrases can be registered as trademarks. However, businesses wishing to make use of those marks cannot assume that those common terms are in the public domain and free to exploit.

Businesses need to be able to show that the public link the use of their mark with their brand. However, there is an inherent challenge in doing so where the words concerned are in common use and have broader associations than to just the goods or services for which the trademark is registered. Without that link being established, businesses are unlikely to be able to show that there is a reputation in their trademark which has been sullied by others’ use, or that they have sufficient goodwill built-up to sustain claims of passing off.

Reclaiming Song Copyrights

The US Copyright Act 1976 (“the Act”) gives artists the right to reclaim ownership of the copyright in works assigned by them prior to 1978.

The Act states that an artist may terminate all agreements for the grant, licence or transfer of US copyright entered into before 1978 by serving notice upon the assignee or licensee 56 to 61 years after the date on which the copyright was originally secured.

Although many well known artists have successfully taken back ownership of their rights in the US by relying on this statutory provision, Duran Duran were sadly denied this opportunity when they attempted to reclaim the rights to 37 of their songs from Sony/ATV Music Publishing LLC (“Sony”) at the High Court of Justice in England. The claim failed due to a lack of evidence that the Act would override the terms of their publishing agreement with Sony which was governed by English law.

The case confuses the position for British songwriters as it creates a situation where a US court could decide that US rights revert to the artist under the provisions of the Act, but an English court could find that this reversion constituted a breach of the publishing agreement, giving rise to a claim for damages for breach of contract against the artist.

On 18th January 2017, Sir Paul McCartney filed a claim in the US against Sony for a declaratory judgement in order to clarify whether his publishing rights will revert to him in accordance with the Act. Mr McCartney is asking the court to declare that in invoking the provisions of the Act and reclaiming the copyright in the Beatles songs, he will not be in breach of the terms of his publishing agreement. If successful, he will be able to reclaim his US copyright in a number of songs he wrote and co-wrote with John Lennon between 1962 and 1971.

What does this mean for UK artists and publishers?

Publishing agreements need to be properly drafted and sufficiently detailed in order to provide for the effect of various copyright laws around the world.

Artists, bands and songwriters should ensure that they receive specialist legal advice on the terms of their publishing agreements as they may contain long term implications.

Sex, lies and videotapes

Just when you thought things couldn’t get any stranger…..!

Politicians: who voted for them? Well we did actually, so whether or not we like them and what they are (or aren’t) doing, we are stuck with them. Therefore, from a business perspective, I think we should view all the stuff in both the US and Europe (including the UK) as a spectator sport – unless of course it will or may impact on business. In other words, ignore and (largely) get on with life.

So, what’s new on a cold January day at the start of 2017? UK unemployment is at or close to the rate that economists call “full employment” (albeit that many of the jobs are at or about the living wage); the results of Sainsbury’s, Tesco, M & S and others have lifted some of the High Street gloom; and while the recent fall in Sterling doesn’t help importers, it does help exporters; and so on. But, are we confident enough to make business decisions: employee more people, make capital investments, open new locations, decide to sell – whatever?

There’s a real risk attached to waiting and seeing because we never know what tomorrow, next year or the next election will bring. Yes, we are trying to forecast/guess in a time of unusual uncertainty, but most (or at least many) of us were in business during the financial crisis in 2008 – and survived that chaos. So, I think that – to the extent we can – we should ignore all the political chaos around us and get back to focussing on our businesses and what we really can influence.

Therefore, what are your business resolutions for 2017?

  • Get the changes made to your employment contracts that you had always meant to do?
  • Stop relying on the terms of business that you copied from somewhere years ago, and get ones that work?
  • Start planning your exit from your business and do the housekeeping needed to make it ready for sale?

They all seem worthwhile that spending ages reading who said or did what with whom (entertaining though that is!).

And of course, my colleagues and I would be happy to help with your shopping list of to-do’s – but a starting point has to be to make that list. What’s holding you back?

Standard Resolutions for Disapplication of Pre-emption Rights

Pre-emption rights give existing shareholders in a company the right to subscribe for their pro rata share of any new shares in that company issued for cash, providing them with protection against inappropriate dilution of their investments.

Pre-emption rights are enshrined in law and, under the Companies Act 2006, may be disapplied only by a special resolution of shareholders at a general meeting of the company. Whilst not undermining the importance of pre-emption rights, a degree of flexibility is appropriate in circumstances where issuance of equity securities on a non-pre-emptive basis would be in the interests of companies and their owners. The Pre-Emption Group assist in this process.

The Pre-Emption Group publish guidance on the disapplication of pre-emption rights and monitor and report on how this guidance is applied.

Following a recent review of market practice, the Financial Reporting Council published a template resolution proposing two separate resolutions for the disapplication of pre-emption rights, each permitting issues of up to five per cent of a company’s issued share capital on a non-pre-emptive basis.

The template resolutions represent good practice and are drafted for companies incorporated in the UK but companies with premium listings incorporated outside the UK should adopt resolutions in an appropriate form.

Companies are encouraged and expected to use the template resolutions for meetings held after 1 August 2016.

The template consists of two separate resolutions to disapply pre-emption rights:

* for up to five per cent of the issued share capital; and

* for an additional five per cent for transactions which the board determines to be an acquisition or other capital investment as defined by the Pre-Emption Group’s Statement of Principles.

When the additional five per cent disapplication authority is used, companies should disclose, in the announcement regarding the issue, the circumstances that have led to its use and describe the consultation process undertaken. In addition, the Statement of Principles provides that companies are expected, where they have undertaken a placing using the disapplication of pre-emption rights, to publish in the next annual report:

* the actual level of discount achieved;

* the net proceeds raised;

* how those net proceeds were used; and

* the percentage increase in issued share capital due to non-pre-emptive assurance for cash over the three-year period preceding the issue.

The template is designed to provide additional certainty that the relevant share issue has been properly authorised.

The template requires the board of a company to determine that the additional authority will be used in the appropriate way. A board minute evidencing the directors’ determination will therefore be required and worded correctly should suffice for these purposes (assuming the directors are acting in good faith and in furtherance of their statutory duties).

As the majority of companies will have held their AGM by 1 August 2016, these new resolutions are unlikely to be tested until 2017 at the earliest.

17 common corporate law phrases demystified

As corporate lawyers, we often use common corporate law terms without thinking and have to remind ourselves from time to time that not everyone (even experienced business owners) is as comfortable with these terms as we are. Here is a quick guide to some of these terms as a handy “cheat sheet” for anyone keen to have more understanding of the jargon of the corporate world.

Share capital

A general term to refer to all kinds of share capital together. Under the current law, this will usually be intended to mean “issued share capital”.

Issued share capital

These are shares that the company has created, a shareholder has applied for and which have been registered in the register of members.

Allotted share capital

Although allotted and issued are often used interchangeably, they are technically not the same. A share is allotted when it has been applied for and the applicant has the unconditional right to have those share registered against his name. However, it is not issued until it is actually registered.

Authorised share capital

This is now a more or less historical term. Until the 2006 Companies Act, each company would have both an authorised share capital and an issued share capital. The authorised share capital would be the number of shares the company was permitted to issue (including those in issue), while the issued share capital was as defined above. A resolution of members was required to increase the authorised share capital. Nowadays, a company may or may not have an upper limit on the number of shares the directors are authorised to issue without further shareholder consent. However, it would more typically be referred to as a limit on the directors’ authority rather than the authorised share capital.

Nominal value, share premium and paid up value

Shares each have a value attached to them, but this will not always be the amount which has been paid for them. The most common nominal value for shares is £1. This means that for a company with 100 shares of £1, the shareholders have paid (or are due to pay) at least £100 into the company which is at risk if the company fails. If a shareholder has been issued shares and has paid more than the nominal value for those shares, the additional amount is known as the “share premium” and the aggregate of both is the “paid up value”.

Denomination of shares

Shares can have a nominal value of any amount and in any currency. This can be changed by ordinary resolution of the members. Therefore, although most companies may only have ordinary shares of £1 each, some companies might have shares worth £0.10 or €2 each. Subdividing shares, for example, from £1 shares to £0.01 shares can be useful when shares are to be divided among a number of parties and the arithmetic causes problems. Shares can also be consolidated into larger nominal values, and can also be redenominated into different currencies.

Transfer of shares

Shares can be transferred between different people and entities. The transfer will not be fully complete until the transfer document (where required) has been stamped by the stamp office and registered in the company’s register of members. Where the transfer is for a greater or lesser amount than the share was issued for, it makes no difference to the share’s nominal value or premium.

Buyback of shares

A company can, in certain circumstances, buy its own shares from a shareholder. This is often referred to as a “buyback”. Once bought back, the company can either cancel the shares, so they cease to exist, or can hold them as treasury shares.

Treasury shares

Shares a company holds in itself. After a buyback of shares, a company may choose to hold the bought back shares in treasury for a number of reasons. It may be simpler to transfer them out of treasury than to cancel and re-issue shares (such as for employee share schemes). It can help restore a company’s distributable profits after a buyback.

Private and public companies

In very simple terms, a public company offers its shares to the public often on a stock exchange, while private companies cannot offer their shares to the public. The company law regimes are different in certain areas between the two types of companies, and public companies are typically subject to stricter regulations and reporting standards. Public companies’ names will end in “plc” and private companies’ names will usually end in “Limited” or “Ltd”.

Bonus issues and rights issues of shares

Bonus issues are where existing shareholders are issued new shares in proportion to their current shareholdings, and they are paid up out of the company’s reserves rather than by the shareholders themselves. A rights issue is an offer of new shares to existing shareholders in proportion to their existing shareholdings (which they are free to accept or decline), and is usually offered for a discounted price which the shareholder has to pay.

Put and call options

For various reasons, there are often agreements in place which provide someone the option to buy or sell shares. This can be a right to subscribe for new shares in a company, or to purchase/sell shares to another entity or person. A “put option” is where the seller has the right to sell at his option (usually at a pre-agreed price and during a fixed timeframe). A “call option” is where the buyer can trigger the right to buy the shares (again, usually at an agreed price and during a fixed timeframe).

Redeemable shares

Shares which either the company or the holder (or sometimes both) have the right to redeem at some point in the future or in accordance with certain conditions. They are often treated like a sort of loan to the company and will often have preferential dividend rates and rights upon a return of capital, especially if they are “redeemable preference shares”.

Pre-emption rights

Rights of existing shareholders to have first refusal on the issue of new shares. There is a statutory set of pre-emption rights which apply be default and which can be altered in a company’s articles of association. It is sometimes also used to refer to a right of first refusal given to existing shareholders upon the transfer of existing shares.

Memorandum of association

Historically, this was a document which set out the company’s powers, objects and its authorised share capital (among other things). However, the 2006 Companies Act changed this and the historical contents of the memorandum of association are now contained within a company’s articles of association. The memorandum remains now purely as a declaration made upon a company’s incorporation.

Articles of association

A company’s articles are its constitution which set out the rules by which a company is regulated. It is a public document (available on the Companies House register) and constitutes a contract between the company and each of its members.

Members and shareholders

In most cases, members of a company are simply that company’s shareholders who are registered in the register of members. However, companies limited by guarantee (rather than shares), such as most charities, will have members without shares, so they are members but not shareholders.

Corporate directors no more

The next phase in the recent raft of changes to company law has been postponed yet again but once in force  shall require all directors of a company to be natural persons. This means that, from the commencement date companies shall be prohibited   from having another company as a director..

Companies House confirmed at their forum on Wednesday that the commencement date for the ban on corporate directors shall not be October 2016 as planned.

The change is part of a general plan to create more transparency in corporate structure. In October 2008, the rules were changed to require each company to have at least one natural person as a director (previously a company could have all corporate directors). In April 2016, new registers were introduced to identify people with significant control over a company.

The overall aims are to reduce the ease with which complex tax schemes can be hidden behind layers of corporate veils and to increase accountability of those in control.

Historically, corporate directors have been useful, especially in large groups of companies, to avoid the need to appoint different natural persons when roles change and to provide alternatives when one natural person is unavailable or incapacitated. However, it has also too often been used to help those in roles of responsibility to avoid or mitigate accountability.

Soon, a company will no longer be able to appoint a corporate director. Those who already have corporate directors will have one year to remove and/or replace them before they are automatically removed from the register.

Any companies who currently have corporate directors should therefore prepare for the changes without delay.

international law

Brexit – the German view

From the German media’s reaction, the vote to leave came as a real surprise. It’s a surprise because David Cameron had successfully pushed through even more preferential treatment for the UK – more so than the “the UK rebate” negotiated by Margaret Thatcher.  A particularly strange decision was that of Cornwall: distinctly pro-Brexit; but receiving plenty EU subsidies for agriculture and infrastructure; and (critically) having achieved EU protection of Geographical Indication for Cornish Pasties!

Soon after the result of the referendum, German hopes grew that Frankfurt could attract financial business from the City of London. However, one month later, those hopes are fading a little, due to the fact that only a small part of the business that makes London a global financial centre is connected to EU-related transactions. Against that, the reaction of German Chambers of Commerce and Industry was that the expected growth in German exports to the UK of 5% before the vote turned into a decrease by 1% afterwards and by a further 5% decrease the following year.  Additionally, a quarter to a third of 5600 German companies questioned said they would consider cutting investment and jobs in UK subsidiaries.

On 28 June 2016, Chancellor Angela Merkel told the German parliament (Bundestag) that:

  • She recognized that this is a unique situation in the 60 years of the EU – and it may result in discussions about giving more sovereign rights from Member States to the EU or conversely the EU giving more power back to Member States.
  • A further division of the EU would have to be prevented from happening by all means. To achieve this, 6 points were stressed:
    • Decisions would have to be made by all 27 member states together.
    • It is solely the UK’s task to explain what the future relationship with the EU should look like. No negotiations (formal or informal), though, will take place before article 50 is triggered. Until the end of the 2-year period, the UK remains an EU member with full rights and obligations.
    • To Angela Merkel, the UK’s own interest seems to be to aim for a close partnership which would also benefit Germany. During the negotiations, the German government will take care of the interests of German citizens living in the UK.
    • Germany will assure that negotiations won’t turn into cherry picking. There has to be and will be a noticeable difference between being a member of the EU and not being a member. The UK will not get to keep the privileges without the obligations that go with them. Free access to the single market requires the acceptance of the Four Freedoms (which includes the movement of workers), for the UK as for anyone else.
    • A successful EU has to noticeably improve the lives of its citizens, and bridge the gap between winners and losers of globalization.
    • The EU is a project to create and maintain peace. Crises in its neighbourhood, refugee movements, climate change, hunger and terrorism can’t be addressed nationally but have to be treated on an EU level.
  • The EU is strong enough to cope with the UK leaving while still promoting its interests throughout the world.

The resignations of Nigel Farage and Boris Johnson and, more, the appointment of BoJo as Foreign Secretary were received by some with amazement (“I wouldn’t be surprised at the UK appointing Dracula as Health Secretary next” – speaker on foreign affairs of the smaller coalition partner SPD) and by others with understanding for the political need to integrate Leave-campaigners into the government.

A poll in Germany in early July then showed that recent events seemed to have acted as a wake-up call for Germans: 52% (up from 39%) had a favourable view of EU membership, while only 11% (down from 21%) saw disadvantages. And, significantly, support for the anti-EU, anti-migration party AfD, dropped to 12% from 15%. So, the UK decision seems to have made Germans value the EU more, not less.

Before Theresa May’s meeting with Angela Merkel, German President Joachim Gauck had called on European politicians to avoid being too harsh toward the UK; and to take a breath and negotiate calmly, to produce better results. More, he is less in favour of referenda. But, in relation to the Merkel/May meeting the consensus seems to be that it promised a matter-of-fact approach in future negotiations – a relief after a public dialogue dominated so far by prejudice and emotion.

The fact that Teresa May’s first foreign visit was to Germany is less seen as sign of German hegemony in Europe (which hardly any German would see as a goal of German politics) but more as meeting with one of the important partners in negotiations due to the size of the German population. However, German commentators do realise that Brexit means more (though generally undesired) power for Germany within the EU: a thought already exploited by Polish national-conservative party leader Kaczynski to argue against further integration.

Scotland’s position on Brexit has also received significant media coverage and generated overall sympathies.

One month after the result, news about Brexit features prominently in German newspapers, e.g. reports on Markit/CIPS UK Manufacturing PMI survey decreasing significantly, representing a negative effect on British economy even after positive effects of a weaker pound on exports have been taken into account, or reports on decreasing demand in the housing market. This is being illustrated by reports on EU migrants that had wanted to buy a house but are now hesitating due to their uncertain status in post-Brexit UK. In addition to that, the increase in reported hate crime following the referendum has not gone unnoticed.

It has also been said that Brexit would make TTIP less attractive for the USA, the UK receiving 25% of US exports to the EU. With significant opposition to TTIP amongst Germans (but not their government) problems with TTIP ratification might be seen positively.

Looking at Switzerland, by February 2017, the Swiss will have to pass a law based on a binding referendum to cut immigration (including from the EU). That must mean that the EU will not allow special treatment for the Swiss because of the repercussions on Brexit negotiations. Switzerland has already accepted the free movement of people in a bilateral agreement with the EU: failure to comply in the future (which their referendum seems to require) would also endanger other bilateral agreements determining the Swiss-EU relations.