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September 07, 2016

After VW, now Bosch

We have always treated the VW affair as a broader economic story because it involves so much more than just a single company. We believe that the scandal is indicative of the decline of the European car industry, and also of Germany's economic model at large. The big news yesterday was that Bosch and Audi were both more deeply involved in the fraud than previously assumed. This makes total sense. The idea that Bosch could develop software without knowledge that its customers would actually use it for cheating beggars belief. 

Tagesschau reports on an investigation by its regional affiliates that US prosecutors have prepared a document listing the company's deep involvement. The document sets out the prosecution's case against Bosch. Its information is based on documents relating to VW. According to this document, Bosch was not only aware of what happened but was an active participant. It refers to a letter, written by a Bosch executive in 2008, in which Bosch warned that the use of this software could be illegal in the US, which has strict laws on anti-defeat devices. Bosch has been in control of development of the software and its use by clients, and insisted in 2006 that only 35 people at VW and one supplier company be given access to the inner working of the software. No changes to the software were allowed without the explicit consent of Bosch. On one occasion the company insisted that VW remove a reference to the cheating device from a software manual. 

The document also refers to an Audi manager who encouraged the further development of the software. Another Audi manager had asked for discussions about the software to be held off the record - only in person or by telephone.

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September 07, 2016

Greek government challenged on all fronts

A public opinion study from the university of Macedonia finds that 80% of respondents are disillusioned by the Syriza government. The vast majority of citizens feel betrayed as hopes and expectations have not been confirmed, and any credibility or public confidence lost.

This does not necessarily mean that New Democracy will benefit from it. Kyriakos Mitsotakis is using security policy as a springboard to get ahead in the polls. The latest polls by the Aristotle University in Thessaloniki show that they lead with 27.5% ahead of Syriza with 17.5%. But the transfer towards the centre-right is not yet on firm ground. Respondents in the study seem to prefer to abstain from the next vote, seeing a solution in neither Syriza nor New Democracy. The other centre-left parties also fall short of absorbing those disenchanted voters. As long as this large pool of voters with unmet demands exists there will be no stability in the political system in Greece, which will be prone to populist attitudes and actions on both sides, left and right, so To Vima.

Some of the voters' frustration was vented in protests by pensioners, outraged over the cuts in supplementary pensions which mean they will receive €30 to €150 less this month. In some cases the cuts were up to 54%, according to KT Greece. The labour minister replied that he only implements the law, which he himself wrote under the first review, insisting that the main pensions stays untouched. 

On the policy front the Greek government faces several other challenges. The public revenue widened, with €65m less tax revenues and €30m more in tax return, in addition to the €316m gap in July. This means half of the €900m surplus from the first half of the year has already been used up in just two months. Some are blaming the new property tax for this. 

As for the refugee crisis, the Greek government got concerned after Thomas de Maiziere, the German interior minister, suggested in an interview with Welt am Sonntag  that refugees not eligible for asylum in Germany should be sent back to Greece. Merkel’s defeat in Mecklenburg-Vorpommern could well mean that Berlin will take a much tougher stance in asylum policies, with repercussions for Greece. At the same time the numbers of new arrivals at the Greek shores is up while the rate at which refugees are leaving is too slow, resulting in overcrowded camps which will require an overhaul of the hotspot system.

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September 07, 2016

If the appeal fails, Ireland takes the money

The Irish government conceded that, if the appeal against the Apple ruling is unsuccessful, it will take the money, the Irish Times reports. In a paper prepared by the finance ministry for MPs ahead of today’s parliamentary session, the government says that the revenue department is now obliged to collect the €13bn and that it will be put into an escrow account. If the appeal is successful, the money will be returned to Apple. However, if the commission’s decision is upheld, the money will be paid to the Irish state. One open question is whether or not other states have claims on some of the €13bn. The paper also gave some details about the ruling. The tax formula applied to Apple considered all expenses and profits that could not be attributed to the Irish branches as not taxable under Irish law. Almost all sales profits recorded by the two subsidiaries in Ireland were internally attributed to head offices outside Ireland. The commission assessed that these head offices existed only on paper and could not have generated such profits, and that they were not taxed by any country. 

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September 07, 2016

On the failure of globalisation

We noted two comments in the Financial Times on a similar theme - the failure of globalisation. Martin Wolf has a big column on the sagging contribution of globalisation to global growth, and the possibility of a decline in globalisation. His conclusion is 

"Pushing globalisation forward requires different domestic and external policies from those of the past. Globalisation's future depends on better management. Will that happen? Alas, I am not optimistic."

Alan Beattie offers a similar criticism of the role of government in the increasingly certain demise of TTIP. The US and the EU behave like hegemons in relation to third countries, but cannot find a way to deal with each other. His conclusion is that a better team of politicians is needed.

We happen to disagree with both assertions, specifically the view that better management or different politicians are going to get us out of this mess. A good way to think about globalisation is Dani Rodrik's globalisation trilemma. In the long run, the following three are incompatible: globalisation, democracy, and national sovereignty. What has changed in the last few years is that we have entered the long run. Democracy is kicking in. People are demanding a say. This is not about the quality of national leadership, but the absence of global leadership, or rather global democracy. Those who oppose European integration - let alone similar structures at global level - have to pay the price. The nation state is an economically suboptimal unit. This is now becoming evident.

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September 07, 2016

The insincerity of the Visegrad Four

Judy Dempsey has a good short put-down on the insincerity of the Visegrad Four countries with their demands for a common European army. First of all, it is hypocritical considering that they cannot even mobilise their own battle groups. Her main point is that advocates of a European army seem to want it fight off immigrants and terrorists, which is not really what an army would or should do. There is also no road map on establishing such an army, financing it, avoiding duplicities with national armed forces, coexisting with Nato, or on its command structure.

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