Please see below for a roundup of today’s Brexit news compiled by our London, Brussels and Berlin offices, and reviewed here in New York for items of interest in the United States. Please let us know if you’d like to talk about any of this in further detail.

Key Developments

  • Theresa May to replace David Cameron as PM; Andrea Leadsom withdraws candidacy
  • May to support UK departure from EU despite having campaigned to “Remain”
  • Italian government announces equity injection in country’s banks
  • Post-Brexit “road shows” announced by UK, US and France

UK

  • Theresa May will become the UK’s next Prime Minister on Wednesday evening (almost two months ahead of September 9th date the previously announced). That sudden acceleration of the leadership contest followed Andrea Leadsom’s withdrawal from the race in the face of controversy over certain remarks she made and questions about her experience and judgment.
  • Current Prime Minister David Cameron is expected to tender his resignation to the Queen on Wednesday afternoon. Following Cameron’s resignation, May will have an audience with the Queen at which she will be asked by the Queen to form a new Government.
  • May campaigned to remain in the EU prior to the referendum but has since stated that “Brexit means Brexit” and that there will be no attempts to remain in the EU and no second referendum. Among the other positions May set out in a platform announced prior to Leadsom’s withdrawal:
    • a general “get tough” attitude toward “irresponsible behavior in big business”;
    • making shareholder votes on corporate pay binding (not just advisory);
    • using and reforming competition law to make “markets work better for people”;
    • cracking down on individual and corporate tax avoidance and evasion;
    • increased representation for employees and consumers on company boards; and
    • a more sceptical view toward takeovers of UK businesses by foreign investors.
  • Leadsom’s withdrawal will avoid the need for an extended leadership campaign that would have preceded a Conservative Party vote. Leadsom’s decision brings to four the total of prominent “Leave” campaigners who have either resigned from leadership roles or been eliminated from leadership processes (Johnson, Gove, Farage and Leadsom). The next scheduled general election in the UK is set for May 2020 (calling an election earlier would require a vote of “no confidence” or a vote of 2/3 of the MPs).
  • Debate continued regarding the need for an act of Parliament authorizing an Article 50 notice.
    • A group of more than 1,000 attorneys submitted a letter to Prime Minister Cameron stating that the recent referendum was not legally binding and that an act of Parliament was needed to authorize such a notice. The letter also noted “evidence that the referendum was influenced by misrepresentations of fact and promises that could not be delivered” and asked for the establishment of a Royal Commission or other independent body to report on the benefits, costs and risks of departing the EU before a vote by Parliament.
    • The Government has taken the position that giving Article 50 notice is a royal prerogative that can be exercised by the Prime Minister without a vote by Parliament.
    • The Government has also formally responded to the signatories of the public petition for a second referendum (now over 4.13m). The response, also posted online, reiterated that the referendum was one of the biggest democratic exercises in the UK and that the decision “must be respected.” It said that the Government must now prepare for the exit process and that it was committed to ensuring the best possible outcome for the British people in the negotiations. Parliament is considering whether to hold a debate on the petition.
  • If an Act were to be proposed in Parliament, it is unclear how the 650 MPs in the House of Commons would vote. Because the results of the referendum were reported by local authorities and not by constituencies (which have different boundaries), MPs will not know for certain the positions of their constituents. A House of Commons Library blog references research that suggests if MPs in England and Wales were to vote in line with estimates of how his or her constituency voted, there would be a majority in favor of leaving the EU.
  • Angela Eagle has announced her bid for the leadership of the Labour Party. Her announcement follows Deputy Labour Leader Tom Watson calling off compromise talks by saying there was “no realistic prospect of reaching a compromise” between current Leader Jeremy Corbyn and those demanding his replacement. It is unclear whether Corbyn will immediately be on the leadership ballot or whether he will need to secure nominations from Labour MPs. Jon Trickett MP, Labour’s Election Co-ordinator, said that the UK needed a “democratically elected Prime Minister” and that he was putting the Labour Party “on a General Election footing” – interpreted by many as a call for a snap general election.
  • Sir Julian King, put forward by Prime Minister Cameron to replace UK Commissioner Lord Jonathan Hill, was approved by Commission President Jean-Claude Juncker, subject to European Parliament and Council endorsement. His proposed responsibilities, which should be less significant than Hill’s financial services portfolio, will be announced “by the end of the month.”

EU

  • Chancellor Merkel said that she was “very convinced” that the UK will trigger Article 50 soon and that she believed the main reason why UK voters supported Brexit was because they rejected free movement.
  • In a recent joint interview, EU Commission President Jean-Claude Junker and European Parliament President Martin Schulz both agreed that:
    • it was important for the UK to trigger Article 50 as quickly as possible to avoid uncertainty;
    • reforms, such as turning the Commission into a formal European government, could not be implemented “due to the mood on the continent”; and
    • the UK bore sole responsibility for the current situation – Junker strongly rejected charges that either he or the Commission were responsible for the UK referendum result and Schulz stated that responsibility lay with “British Conservatives, who took an entire continent hostage.”
  • Belgium’s Prime Minister Charles Michel, one of the strongest supporters of the EU, said that:
    • he was not sure if it would be possible for the financial markets to wait until the end of the year for the UK to trigger Article 50;
    • he rejected the possibility of starting informal talks with a small group of EU Member States, saying that an agreement needs to be found with 27 countries; and
    • the “first important moment” in Brexit negotiations at the EU level will be the Council meeting in Bratislava on September 16 – Michel specifically ruled out any concessions being made to the UK, particularly on the freedom of movement, as this “would set a precedent that would threaten the whole European project.
  • On Monday evening, Economic Affairs Commissioner Pierre Moscovici is expected to present economic impact projections for 2016-17 at a Eurogroup meeting on the UK referendum’s effect on the eurozone economy.
  • Market disruptions in Italian bank stocks led that country’s government to announce a plan to inject up to €40bn in equity. The plan has drawn adverse comments from other European authorities on the grounds that under the EU’s recovery and resolution rules, creditors must be “bailed in” before a capital injection can be authorized. Separately, Deutsche Bank’s chief economist called for a broader bailout of European banks, stating that an injection of €150bn was needed to help save those institutions.

Next steps

  • Leaders and officials from France, the UK and the United States will be traveling over the next few weeks to discuss post-Brexit Europe and the post-Brexit global economy.
    • UK Chancellor George Osborne has started a “world tour” of talks, saying he will create a “more outward-looking, global-facing Britain.” He visited New York on Wednesday, and will travel to Asia in the coming weeks.
    • US Treasury Secretary Jack Lew will visit business leaders and market participants in London, Paris, Berlin and Brussels from July 11 to 14 to discuss the UK, Europe, and global economic stability and growth following the UK referendum.
    • French President Francois Hollande is expected to launch a European tour next week, visiting Portugal, the Czech Republic, Austria, Slovakia and Ireland, to “give Europe a new impulse.”
  • Theresa May to take office as UK Prime Minister on July 13, 2016.
  • European Council meeting on new EU priorities and Brexit negotiations on September 16, 2016.