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August 30, 2016

Brexit facts on the ground

The debate about the future relationship between the UK and the rest of Europe is now starting in earnest. Yet, some Brexit facts continue to be created on the ground. We noted a story by Reuters that London financial firms have given up hope of single-market access and are already preparing for a hard Brexit. It cites the share trading platform Bats, which benefits from the single passport, and which is now looking for a second location - in Dublin - unless it receives assurances of single market membership.

In this context, we noted a significant proposal by Jean Pisani-Ferry, Norbert Rottgen, Andrew Sapir, Paul Tucker and Guntram Wolff, who favour a system allowing the UK to impose quotas on migration while maintaining full access to the single market. It sounds too good to be true from a UK perspective, so we need to ask whether such a deal can fly politically - we think not - and whether there is a catch - our answer is yes. The proposal is, nevertheless, worth discussing because it is worked out in some detail, not just as a list of demands and red lines. The authors are seeking a new deal between core EU members and ante-room group. They call it the "continental partnership", a form of associated member status.

When people discuss the future of the EU, the first question a reader should always ask is: does it require treaty change. In this case the answer is surely yes. This is not a simple Art 50 agreement, but a major institutional reform of the EU, as it affects fundamental rights and sets up new institutions. 

The authors' starting point is the correct observation that none of the existing models is suitable for the future relationship between the EU and the UK. What they are proposing, in essence, is a deal within which the UK imposes immigration quotas, has full access to the single market, has no co-decision over rule-making but the right of deep consultations, and contributes to the EU's budget.

The most controversial part of this paper is the observation that, from an economic point view, the freedom of movement of labour is of a different quality than the freedom of movements of goods, services and capital. They are connected, up to a point, but not completely inter-dependent. It is possible to freely exchange goods and services in a deeply integrated market without freedom of movement of workers, the authors argue.

But, surely, from an economic point of view, capital and labour are factor inputs, while goods and service are outputs. The EU's four freedoms were not a random collection of rights - but there was some purpose behind them. It is, also, technically possible to exclude capital from the list. But does it make sense?

There are also important political reasons why the four are not easily separable. Many EU countries are net importers of capital services from the UK, but net "exporters" of labour. Why should they agree to this? The authors concede that some form of labour mobility is essential - to allow companies to transfer workers for temporary periods. So these proposals benefit large companies, but not individuals. It also needs to be mentioned that the UK would need to mirror all EU single market legislation without any formal say in the process. This is unlikely to be politically sustainable.

We thought the single most interesting sentence of the entire paper was a small footnote, which is worth quoting in full. It tells us how complicated it will be able for the EU to agree such a system.

"We assume that the EU will define a joint migration policy. We would reject a quota system by which the UK would impose quotas on individual EU countries."

A joint migration policy is unlikely. And we don't think that a points-based immigration control system, based on educational levels, is consistent with EU's stipulations of non-discrimination. The UK is thus in some danger of ending up with the wrong type of immigration.

The Brexit commentary in the UK, meanwhile, focuses on a second referendum. We would recommend William Hague's well argued article in the Daily Telegraph in which he dismisses any likelihood of a second election, or some procedural ruse to boycott the result. He said he himself voted Remain, but says a second-best course is to not frustrate the result, but leave the EU with clarity, certainty and purpose. He says Theresa May will almost certainly, from a legal perspective, not need to consult parliament for the Article 50 trigger, but she would be wise to get parliament to ratify the referendum outcome, to forestall any future plots. He said the real threat is not from civil servants frustrating the result, but from the likes of Owen Smith, the Labour leadership contender, who is campaigning for a second referendum. A parliamentary vote could forestall that.

Wolfgang Munchau writes that freedom of movement was the DNA of the EU - like the holy ghost to the Catholic Church - not something you can easily dispense with. So, if the UK government prioritises immigration control, it will have to look for a different arrangement. He says there is a possibility of an EEA-type interim agreement. But it is absurd to think that Britain can export financial services to the EU from London, while restricting the movement of plumbers into London. He also criticises the erstwhile Remainers for going  on a tangent by pushing for a second referendum. Not only will this not happen but, more importantly, they are leaving the entire debate to the Leavers.

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August 30, 2016

Burkinis and Republican primaries

The controversy about burkinis in French costal towns is normally outside our reservation, but it looks like this controversy has legs beyond the summer as France enters the campaign for Presidential primaries. 

Last week the country’s highest administrative court ruled that the burkini ban in Villeneuve-Loubet is illegal, setting a precedent for other cases. This might have been the end of the story, but no. A majority of mayors (20 out of 30) who have banned burkinis from their beaches, are refusing to lift the restrictions. And Nicolas Sarkozy is calling for a national ban on burkinis and is ready to even change the constitution if needed. He said on RTL the question is whether society adapts to the law or the law to society, according to Journal du Dimanche. Alan Juppé on the other hand came out against a nationwide law calling it illegal and unconstitutional. He said politicians should refrain from inflammatory rhetoric. He instead advocates an accord between the state and Muslim leaders to lay out clear rules respecting French secularism.

Manuel Valls warns against Sarkozy's populist response, saying he is a menace giving substance to a joint programme of the right and the extreme right. He announced on facebook that the debate about the burkinis must continue. His government will have to decide whether to force the mayors to withdraw the bans. François Hollande has so far refrained from taking a position. 

In this electrified atmosphere there was also a gloves-off attack from François Fillon, suggesting that Sarkozy lacks the moral integrity to lead the country, according to Politico. And we hear rumours that Emmanuel Macron might finally depart from the Socialist government to build up his own political movement. This is not about preparing a candidacy for the primaries, but to get ready in case Hollande does not run after all, writes Cecile Cornudet.

We also note that Manuel Valls wants to soften the stability pact, once again. He told Socialists at a party meeting that the European left, the Social Democrats, should do more to relaunch the economy, soften the rules of the stability pact, and act against social dumping. After Brexit, there is a new chance to rebuild Europe, so Valls. At this point we don’t expect any real proposal to back this up, just an attempt to play the melody of some disenchanted Socialists.

A TNS Sofres poll, meanwhile, showed that Sarkozy caught up with Juppé, rising in the polls by 4 percentage points just days after Sarkozy declared his candidacy.

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August 30, 2016

The SPD and TTIP

Sigmar Gabriel has stepped up his criticisms of TTIP and said it is effectively dead. We agree with him - which does not happen often these days. This is a statement you are not allowed to make in polite company, so we have taken the outraged reactions by the European Commission and the CDU with a grain of salt. Gabriel said there was no agreement on a single chapter and, with only four months to go until the end of Obama's administration, there is no realistic chance of the deal being completed and ratified. The European Commission criticised Gabriel for uttering an opinion fit for the silly season.

Frankfurter Allgemeine offers outraged comments from the CDU and German business representatives. Klaus Dieter Frankenberger writes that there is a lot of political posturing in Gabriel's claims. The SPD obviously needs a degree of anti-Americanism one year ahead of the elections. See also Frank Walter Steinmeier's comments on Nato sabre-rattling in eastern Europe. Frankenberger said there is now a clear conflict of interest between Gabriel's positions as SPD chairman and economy minister. Germany needs closer trade integration with the US, and the EU would be mad if it failed to grasp the opportunity to influence the path of globalisation in close cooperation with the Americans.

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