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September 20, 2016

The Berlin aftermath

These are important days in German politics because they will shape the next German government, and of course, of Angela Merkel's future as well. Her lukewarm mea culpa yesterday did not really cut it - she blamed herself for not communicating her policies better, which is the exact opposite of what her critics want to hear. Horst Seehofer, CSU chief, said it was not sufficient to tell the people that we have done everything right, we only have to explain it better. He said the CDU and the CSU have a few weeks to find an agreement. Otherwise he would not be in a position to support Merkel.

Merkel spoke at the CDU executive meeting, in which she also criticised herself for not preparing the country adequately for the stream of refugees. But she was also just as adamant that she is not going to change her policies. FAZ quotes one of the participants of the meeting as saying that her comments had cleared the air, but it is not clear to us how that is possible. 

While Merkel was trying to extricate herself from her refugee policies Sigmar Gabriel, the SPD chief and her coalition partner, scored an important victory at a party congress which approved the Ceta trade deal with Canada by a majority of two thirds. This was a big personal victory for Gabriel, who is also economics minister and who sold his party a deal to approve a modified Ceta in exchange for blocking TTIP if it was ever proposed. 

There are hopes among the left for a three-party coalition of the left at the federal level, following the Berlin elections which are likely to lead to a such a coalition at state level. At the moment the three parties - SPD, Left and Green - score between 42% and 44% in the polls, well short of a majority. The three parties would, however, have a theoretical majority in the current Bundestag. The most likely coalition constellations are currently either another CDU/CSU/SPD coalition, or a three-party coalition, always with the CDU/CSU. It is only if the CDU/CSU were to fall below 30% that an alternative option becomes more realistic. That would be the moment when Merkel would lose the support of her own party. That has not happened yet - and we don't think that it will.

In this context we noted two comments. Berthold Kohler notes that until recently Merkel used to benefit her party - she pulled the numbers up. She has now become an electoral liability. Her party has tolerated that for as long as she was able to take the SPD down with her. That has now changed. The more Gabriel distances himself from her, the more nervous the CDU becomes. Kohler notes that Merkel's self-criticism only relates to her over-reliance on the Dublin system. She does not really understand the political reaction in Germany against mass immigration. He notes that Merkel's promises to explain her policies better constitute the ultimate threat to her party. If she succeeds, the party would be in real trouble.

And finally, we have a comment by Heribert Prantl of Suddeutsche, one of the few German commentators who is not particularly worried about the AfD which he dismisses as a three-year phenomenon. The AfD is the anti-party, anti-everthing: EU, euro, Nato, refugees. One of the effects of the current political constellation is that the CDU will move to the right and the SPD will move to the left. This is not a bad thing for German democracy, he writes.

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September 20, 2016

Tensions mounting at hotspots

While Alexis Tsipras was in New York telling the UN General Assembly that the global community must undertake joint action to deal with refugee and migrant crises, or else face dire social and political consequences, events at one the hotspots back home show how easily things can get out of control. Tensions among migrants at Moria ended destroying the camp in a fire and leaving 4,000 refugees without accommodation. It all began shortly after a group of around 300 residents of the camp returned with a police escort from a rally organised by locals calling on the government to reduce the number of migrants and refugees staying there. At the rally, there are reports of some 15 Golden Dawn supporters attacking four students, one of them a volunteer, and a local attacking four Syrian women. KT Greece quotes sources saying Golden Dawn has been on the island in the last days zealously trying to incite residents against refugees and migrants. The ultra-nationalists, part of a group calling itself the “Patriotic Movement of Lesvos,” shouted to throw migrants into the sea before verbally attacking the mayor, who addressed the protesters. The municipality of Lesvos decided to request that all NGOs to leave the refugee camp of Kara Tepe.

The events on Lesvos mirror similar violence last week on the island of Chios by ultra-nationalists who crashed a protest rally calling for more action from Athens to manage more than 13,500 refugees and migrants who are trapped on just five islands in the eastern Aegean, Kathimerini reports.

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September 20, 2016

Why a hard Brexit looks likely

John Springford offers an intelligent analysis of why a hard Brexit is now becoming more likely. His main point is that the lack of a recession now, and a delayed trickle-down economic impact in the long run, will make a hard Brexit deliverable in the short term.

"...if there is no recession, it means that Remainers’ arguments on the economics will be more easily dismissed by the government and pro-Brexit media. And Brexiters will deploy other arguments to explain the slower rate of growth – an ageing population and a generalised slowdown in the rate of productivity growth across the OECD – or they will say that the British economy is growing faster than country X or country Y, so what is all the fuss about?"

We agree, but this only goes to show how ill-judged it was trying to win the referendum on the basis of an economic campaign. There is uncertainty about any economic forecast, to put it mildly, and you can always twist anything through more or less plausible counter-factual scenarios. With their dire economic warnings the Remain campaign lost credibility in the entire economic debate. Their more subtle message about a negative long-term impact does not get heard now.

Springford then goes into what kind of trade deal the EU is likely to offer Britain, and concludes that it is unlikely to be based on equivalence as this would constitute a much bigger concession by the EU relative to the UK. In return, the EU would want the sole right to determine what equivalence means, plus free movement of labour. But these are precisely the two issues the people voted against - they want immigration and national sovereignty. That constellation, plus the lack of a recession, makes a hard Brexit very probable.

We cannot rule out a negative long-term economic impact, but the long-term economic argument depends critically on the assumption that all other things remain mostly equal. Brexit will no doubt create considerable frictional costs, but it is conceivable that the economy will find different forms of specialisation that are easier to trade in the future (compared to financial services). Ideally such a transition would take place over a period of 10-20 years. And there is plenty of potential for policy to go wrong. Our point is that a negative long-term impact is possible, perhaps even likely, but not logically inevitable. Which raises the question why the ex-Remainers still give the impression of fighting the referendum campaign, rather than making proposals to mitigate the long-term economic costs of Brexit.

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September 20, 2016

Macron's godfather

We picked up on an interview in Le Figaro with 92-year-old Henry Hermand, a millionaire now openly and 'unconditionally' backing Emmanuel Macron. Unlike Jacques Attali, another Macron fan, Hermand is someone hardly known in the public sphere, and thus his open and forceful support of Macron comes as a bit of a surprise. Since he met Macron in 2002, Hermand helped to prop him up, and he even was one of the witnesses at Macron’s wedding. Hermand supported him with a bit of money, contacts and some history lessons - being an old ally of Mendes and Rocard. He now openly promotes Macron among his friends as a new presidential hopeful, if Macron gets the support of the public, that is. We were intrigued to read what he had to say about Macron’s character. When commenting on the 'regrettable' interview with Paris Match, he said that Macron wastes his time by trying too hard to convince and shake hands with everyone. 

Hermand co-financed Francois Hollande’s campaign in 2012, but was disappointed by his performance. He now puts all his weight behind Macron. We wonder, with such a strong and outspoken patron behind him, does Macron now have to prove publicly that he can make his own decisions, too?

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