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September 13, 2016

Is defence going to be the next core of EU integration?

Suddeutsche and the FT got their hands on a six-page joint document of France and Germany laying out a moderately ambitious plan of future defence co-operation in the EU. The plan was drafted by Ursula von der Leyen and Jean-Yves Le Drian, the respective defence ministers, and foresees joint headquarters to run joint EU military and civilian missions, such as the Sophia operation to stop the smuggling of migrants into the EU. The two sides also want to share reconnaissance satellites, and create new joint medical and logistics units. 

This constitutes the second joint security proposal this year, after an earlier joint paper on internal security, proposed by the two countries' interior ministers.The paper will be presented to the Bratislava summit this week. The Franco-German plan is to gain general agreement at the summit and then pass the proposal on to the defence council for speedy implementation;

The two sides plan to use the Art 44 TEU as the legal basis for the new cooperation, which has so far not been used. Similar to enhanced co-operation, Art 44 allows a subgroup of countries to forge ahead with integration on common and foreign and security policy:  

"...the Council may entrust the implementation of a task to a group of Member States which are willing and have the necessary capability for such a task. Those Member States, in association with the High Representative of the Union for Foreign Affairs and Security Policy, shall agree among themselves on the management of the task.

Member States participating in the task shall keep the Council regularly informed of its progress on their own initiative or at the request of another Member State. Those States shall inform the Council immediately should the completion of the task entail major consequences or require amendment of the objective, scope and conditions determined for the task in the decisions referred to in paragraph 1. In such cases, the Council shall adopt the necessary decisions."

Suddeutsche notes that the member states have not used Art 44 before because of special consideration for the UK. The FT has the additional information that the joint initiative also includes joint training courses for military personnel to develop a European esprit de corps.

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September 13, 2016

The impact of Brexit on Germany

The fast pace of the Brexit news and commentary over the last couple of months is slowing down, partly also because interest is now shifting to the US elections and its eerie parallels to the Brexit campaign. We noted a story in Der Spiegel over the weekend, according to which Wolfgang Schäuble commissioned a study to find by how much Germany's net contribution to the EU's budget would rise as a direct result of Brexit - it is 30%, up by €4.5bn from the current €15.6bn. This is on the assumption that Britain would cease to make any further budget contributions, something that has not been ruled out by the British government either. Germany's share of EU GDP would increase from 21% to 25%. 

Bloomberg has a story looking at the difficulty banks in the City of London will face if they try to relocate staff to other European financial centres. There is simply is not enough real estate around, as vacancy rates in Paris, Frankfurt and Amsterdam are at their lowest level for a decade. The problem is particularly acute for Wall Street firms, given their strong reliance on London as their European base. The article notes that there is a first-mover advantage, in that first movers can snap up what little office space is left in continental European financial centres. Only Paris and Frankfurt have the capacity to accommodate staff of 5,000 or more, and a tenant would have to commit to a ten-year lease.

And finally, we noted a good analysis by Peter Kellner on the rebellion by electorates, which he refers to as rejectionism. In the UK, the refugee issue is only a superficial lightning rod. The causes go deeper. They are a rejection of elites, of increasing inequality, and of the undermining of social protection systems.

"However, the larger point is this: even if one accepts that new immigration controls are needed, this will do little or nothing to tackle the West’s underlying problems or help marginalise rejectionist politics. The real and much larger challenge is to civilise market forces (without thwarting innovation or deterring genuine wealth creation) and develop a new model for funding and supplying public services, pensions, and welfare benefits."

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September 13, 2016

Austrian election postponed

A well-known Austrian singer once compared the US as the country of unlimited possibilities with Austria as a country of unlimited impossibilities (to non-German speakers: the Austrian use of the word "Unmoeglichkeiten" has the additional connotation of "blunder" or "insult"). That came to mind when we read that the Austrian presidential election will have to be postponed by two months until 4 December because the glue of the envelopes containing the ballot paper is not sufficiently sticky. We have no doubt that this will allow the FPÖ to spin multiple conspiracy theories about an anti-establishment stitch-up - especially since the envelopes related to postal votes, which traditionally favour the other parties. 

The FPÖ will vote against the postponement in the Austrian parliament, but the other parties have a two-thirds majority, and can push this through.

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