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May 06, 2016

Visegrad countries say No to the Commission

Frankfurter Allgemeine reports this morning that at least three countries - Poland, Hungary, and the Czech Republic - are rejecting the plan by the European Commission for refugee quotas and penalties for countries that refuse to take them. At a conference of the Visegrad countries in Prague, the Hungarian foreign minister accused the Commission of blackmail, while the Polish foreign minister called it anti-European. Their Czech colleague warned the Commission not to make proposals that deepen the splits within Europe. The article also said that a proposal has reached the Czech parliament to allow a referendum about a Czech exit from the EU, Czexit, as it is apparently called. A broad majority of MPs from the government coalition are in favour of allowing the referendum to go ahead. We reported yesterday that the Commission proposed a €250,000 "solidarity charge" for each refugee that a member states refuses to take on as part of the quota. The paper quotes Commissioner Dimitris Avramopoulos as saying that this mechanism constitutes a step towards a fairer system.

The FT reports this morning that the resignation of Ahmet Davutoglu as Turkey's prime minister would endanger the Angela Merkel's refugee deal. Apart from the fact that the pro-European Davutoglu personally negotiated the deal with Merkel, the issue now is whether President Recep Tayyip Erdogan will allow legislation to move ahead that is necessary for Turkey to meet the benchmarks for visa-free travel, which is the main quid-pro-quo for Turkey in this deal apart from the money. This includes revisions to its antiterrorism legislation with more regard for civil liberties, something opposed by Erdogan. EU officials are now reportedly concerned that Ankara could backtrack on its reform commitments. The article quotes a former Turkish diplomat as saying that Erdogan had been categorical in his opposition to the reforms, which were now increasingly unlikely to be passed in time ahead of the June deadline because the governing party is now in disarray. And if Turkey does not change the law, visa-free travel cannot be implemented, and this would then almost surely scupper the entire refugee-swap deal. Indeed the paper says that the deal itself might have contributed, or even triggered, the demise of Davutoglu. The Germans insist that Merkel has a working relationship with both Turkish leaders. 

We also noted that Merkel and Matteo Renzi, at their meeting in Rome yesterday, essentially only agreed on criticising Austria over its decision to erect border controls on the Brenner motorway, the main link between Italy and northern Europe. The statement is entirely meaningless, since Austria is going to go ahead in any case. Crucially, however, Merkel disagrees with Renzi on refugee bonds. She does not want any joint debt security of any kind.

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May 06, 2016

Is Werner Faymann on his way out?

Der Standard leads this morning with the story that the powers-that-be in Austria's SPÖ have essentially decided to withdraw their confidence in chancellor Werner Faymann, following the party's electoral disaster at the recent first round of the presidential elections. The paper based its information on a shift of view by the major of Vienna, Michael Häupl, who is the most important power broker in the party, and who masterminded the transition from the previous Austrian chancellor, Alfred Gusenbauer, to Faymann himself eight years ago. Der Standard says that Häupl's withdrawing his loyalty would almost certainly end Faymann's career.

Faymann's opponents are already demanding that the party congress, scheduled for November, will be brought forward. Their criticism against Faymann is that he failed to develop new ideas in his eight years in office, in areas such as labour markets, housing, education, and health policy. All he did was to administer the party's decline. The party is now headed for third place at the next elections, they fear, behind its old rival the centre-right ÖVP and the much loathed FPÖ, the right-wing populist party, whose candidate won the first round of the presidential elections. The article concludes that Faymann's opponents have one problem, though. They don't have a successor at hand.

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May 06, 2016

Reforming the stability pact

The structural deficit is a contested measure to determine what individual member states need to do under the stability pact, but it still is revealing as a trend. We did not report this particular aspect from the latest spring forecast from the European Commission earlier this week, but would like to highlight this particular aspect today. It shows a deteriorating deficit for the eurozone from 1% in 2015 to 1.4% in 2017. Behind this aggregate number is a predicted fall in the German surplus by 0.4pp and a rise in the structural deficit in Spain and Italy by 0.2 and 0.7pp respectively. Small countries like the Netherlands, Portugal, Finland and Austria also see their structural deficits deteriorating. Is this a sign that the member states are cutting loose from the stability pact?

What is clear is that many are unhappy about the complexity of the stability pact, and with the definition of the potential growth indicators in particular. Jeroen Djisselbloem, in an interview with several newspapers on Monday, called for a reform of the stability pact and its indicators. Djisselbloem suggests the European Commission should rather compare the expenditures among member states relative to their level of activity; also to calculate the potential output over 4 years rather than 2 years. This won’t be enough, says Jean Arthuis as cited by l’Opinion. The problem of poor implementation will not be solved via new rules but with deeper integration towards a eurozone government. A new committee will be nominated soon to come up with suggestions for this and a white book is expected to be published in spring 2017, when France and Germany will be in full election campaign mode.

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