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August 22, 2016

Gold for Brexit

We were wondering whether we would have the chance to mention the Olympics in our newsbriefing without going off topic. The opportunity has miraculously presented itself as the UK government now wants to capitalise on the performance of the UK team, which came second overall in Rio, and harness the same spirit in the forthcoming Brexit preparations, The Times reports. The article is complete and utter nonsense, of course. But the Olympics are important in one respect. For now, at least, they have strengthened the illusion that the UK could succeed on its own, and that is a message the British government will peddle in the tough negotiations that lie ahead. In particular, it may tilt the British approach towards Brexit towards a further distance from the EU, and it takes the wind of the sail of embittered Remainers, who had hoped that the country will soon collectively regret the Brexit vote, and clamour for another referendum.

We very much agree with Charles Grant's comments, as reported in the Guardian, that government ministers are hopelessly unprepared for what lies ahead - even now two months after the vote (something that, we suppose, distinguishes them from the gold medal winners in Rio). Brexit will happen of course, Grant said, but it is going to be extremely difficult, and will take a long time. The Times also mentions that Theresa May will use her speech at the Conservative Party conference in October to reflect on the successes of the Olympics as a backdrop to her new industrial strategy, which is based on picking winners in certain high-tech industries based around university towns, such as Bristol.

Of the many Brexit comments, one we noted was by Simon Wren-Lewis, an Oxford economist who used to make a very strong case for Remain during the campaign, and who is now bitterly complaining about reactions from journalists who are criticising him and other colleagues for overstating the Remain case. We believe that some of the criticisms of the economics profession are justified - up to a point, since we will not know the long-term impact which may well be negative - a possibility we, too, would acknowledge. However, we believe that economists, as a profession, will need a thicker skin especially if they engage in public debates as they did during the Brexit campaign. When they do so, they should not be surprised that the outside world examines their record, and tests their forecasts against reality. The outside world, too, has noted that the standard macroeconomic models that have been in use for the last 15-20 years have not only famously failed to predict the financial crisis, they misjudged much of what has been going on since. 

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August 22, 2016

EU and Turkey talking past each other

Kadri Gursel predicts that it is now a matter of time for the EU-Turkey relationship to break down. He writes that Recep Tayyip Erdogan's warnings about the refugee deal have become a more than weekly occurrence. But Gursel also notes that the reform of anti-terror legislation is not the only one of the requirements that Erdogan is dragging his feet on. Two other outstanding requirements relate to data protection, and to fighting corruption. And the threats to scupper the refugee deal didn't start before the July 15 coup attempt. Before then it was the recently stepped up fight against the PKK that was used as an argument for strong anti-terror legislation. But the post-coup crackdown has made it even more necessary for the EU to insist on respect for human rights, as a result of which the bilateral relation is in real danger.

The tension between the EU and Turkey shows no sign of abating. This weekend Jean Claude Juncker reiterated that visa-free travel for Turks depends on Turkey reforming its anti-terror laws to bring them in line with European human rights standards. This is something Turkey's government is reluctant to do, especially given the ongoing crackdown after the failed coup attempt on July 15th. For the time being, Juncker is sticking to the date of October 1st for a start of visa-free travel. 

Also last week, Turkish government spokesman Ibrahim Kalin articulated Turkey's position in a Politico-EU op-ed. Kalin reasserts Turkey's ultimate goal of EU membership, but complains that the EU is giving Turkey the cold shoulder. The lukewarm response of EU leaders to the failed coup, including the lask of any state visits in the weeks since, is seen as a sign of lack of solidarity. The only mention of terrorism in the piece is to argue that Turkey is fighting three organisations that it considers terrorist: the Kurdish PKK, the Islamic State, and now the Gülen organisation, and that the EU should be assisting Turkey in this fight. The refugee deal is not mentioned.

 

 

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August 22, 2016

Switzerland is the next migrant transit country

In the first half of the year we saw a chain reaction of border closures in response to the refugee flow to the east of the Alps, and now we're seeing it to the West. With the Balkan route to Northern Europe closed, it was only a matter of time before refugees turned back to Italy. And last week it was reported that Italy is being forced to set up a refugee camp at Lake Como, as migrants send back from Switzerland are starting to accumulate. This weekend, the news was that Germany is stepping up its own controls on the Swiss border, which has the Swiss press concerned that they are becoming a transit country.

If the trends don't change, the refugee camp at Lake Como could well become another Idomeni. Last week the Italian authorities were planning to build a camp for 300 people, but Switzerland has already turned back over 4,000 just in the last month, and over 22000 this year so far. There is controversy over whether Swiss border guards are sending back asylum seekers, or other migrants, but the Swiss interior ministry openly admits the migrants are en route to Germany.

 

 

 

 

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August 22, 2016

On the death of neoliberal economics

For today, we are picking on three essays reflecting on the failure and demise of the neoliberal economic blueprint that has dominated western thinking since the 1980s. Abhijit V. Banerjee and Esther Duflo, both economists at MIT, write in Le Monde that it was their own profession that "provided the simplistic messages that have dominated the political discourse since 1950." Europe should abandon the quest for more economic efficiency and focus on a renewal of the social contract. They are scathing about the policies of the EU that sought painful multi-annual budget consolidation in the hope that this would increase GDP in 100 years' time. The French government, too, wasted political capital on reforms with a payoff that it is too uncertain and too long-term. They write that reforms can only succeed if the changes are presented not as sacrifices for more economic efficiency and future gains, but as prerequisites for a better society here and now.

Martin Sandbu writes that the EU should cease to obsess about competitiveness, and instead focus on reforms to increase demand - especially product market reforms. For the eurozone this would mean readiness to raise deficits during a recession, debt restructuring, and banking policies to restore credit flow to damaged economies.

Martin Jacques makes the observation in the Guardian that both in the UK and the US class is reemerging as a factor in politics, and has the potential to reshape them. Brexit was primarily a working-class revolt - though not one that benefits the Labour Party.

"The neoliberal era is being undermined from two directions. First, if its record of economic growth has never been particularly strong, it is now dismal. Europe is barely larger than it was on the eve of the financial crisis in 2007...  Worse, because the recovery has been so weak and fragile, there is a widespread belief that another financial crisis may well beckon. In other words, the neoliberal era has delivered the west back into the kind of crisis-ridden world that we last experienced in the 1930s."

Jacques believes that Donald Trump may well lose the US elections, but he and Bernie Sanders have managed to tilt the US political debate againt TTP and TTIP, and what he calls hyper-globalisation.

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