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September 23, 2016

The moral treason of Europe's elites

The appearance of Neelie Kroes in the Bahamas leaks would be bad enough by itself but, together with the controversy over José Manuel Durão Barroso's job at Goldman Sachs, it is causing the European Commission massive reputational damage. So far, Jean-Claude Juncker retains a modicum of public support, but that might change very quickly. The situation is highly accident-prone.

In a strongly worded editorial, Le Monde speaks of the moral treason of the elites, who have had a sickly attraction to money for twenty years. The paper writes 

"The Commission cannot spend its time demanding of the people of Europe a probity and ethics inspired by Montequieu and Max Weber, which some of its members happily flaunt."

Le Monde then launches into a defence of Juncker, who it writes is subject to "a denigrating campaign" in Brussels because he fights with the zeal of the convert - against Apple and tax dodging, for a European redistribution of refugees, and for a less strict fiscal policy.

From the tone of public pronouncements on the case, we would expect the Commission to give Kroes at least the treatment meted out to José Manuel Durão Barroso, who should then be satisfied he isn't being discriminated against. Commission spokesman Margaritis Schinas told reporters

"There are certain things that even the strictest rules, like ours, cannot fix. This was the case of our former president who made the choice to go to work for a certain bank and this is now the case of a former commissioner, who apparently did not respect the rules, and apparently did not inform the Commission."

The Commission is not hiding its displeasure at the personal choices made by former commissioners, over which the Commission has no control. But they do control how they react to them. The EU ombudsman, Emily O'Reilly said the Kroes case raises concerns about the ability of the Commission's code of conduct to restrain commissioners, and reiterated her call - made on the Barroso case - to strenghten the code of conduct. O'Reilly played a leading part in the process leading to Barroso losing his "red carpet" treatment as a former commission president in reaction to his Goldman Sachs directorship.

Kroes could face the loss of her Commission pension, were it not for the fact that she isn't drawing it. She could also lose the three-year "transitional allowance" intended to smooth out Commissioners' incomes after they leave their post, given the 18-month cooling-off period during which they must seek authorisation to work in the private sector. Kroes, who holds positions at three major corporations, might be drawing the allowance minimally, if at all. Transparency International's European director Carl Dolan, mindful of the meagre impact of economic sanctions, is hoping for "social sanctions." In addition to being treated as a lobbyist, he suggests she should even not be welcome as one.

It should come as no surprise that Jean Claude Juncker yesterday sent a letter to Neelie Kroes asking her for "clarification" regarding her failure to disclose ties with the Bahamas company Mint Holdings, uncovered by the ICIJ from the so-called "Bahamas leaks." What is a bit shocking is that Kroes' lawyers had written to Juncker about this last Friday - after being contacted by journalists - but the email remained unnoticed until the story broke in the press on Wednesday, reports the Guardian.

Le Monde's "zeal of the convert" is a peculiarly à propos turn of phrase to describe Juncker, who just two years ago in his first months in office was fighting the Luxleaks PR disaster. On this, we have found a quite extraordinary recent video interview with Juncker reported by Le Point, in which - asked how he can credibly fight tax evasion, having for 18 years been the finance minister of "Europe's biggest tax haven" - he answers with a straight face "poachers make the best gamekeepers." He then turns the question around on his French interviewer, asking whether she's sure France hasn't been engaging in the maligned practice of tax rulings, and warning her that if she investigates her own country she "may not like what she finds."

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September 23, 2016

Sánchez's plan

As we have explained before, the formal process to form a government in Spain has been on hold for most of the month due to the political parties focusing on the regional elections in Galicia and the Basque country - along with Catalonia and Andalusia, the only regions with the ability to control their own election calendar and call early elections. The regional votes are upon us, and the question of the central government will be back in centre stage after the weekend.

Galicia, Mariano Rajoy's home region and a traditional PP stronghold, is likely to allow the premier Alberto Núñez Feijóo to renew his mandate with a thin absolute majority. Kiko Llaneras' poll aggregation gives the left-wing opposition a 1-in-9 chance of a majority. This would be a three-party alliance of En Marea (a grass-roots movement including Podemos but where, as in Catalonia, Podemos has accepted to have its brand eclipsed by a local one), the socialist PSdG, and the radical left nationalist BNG. This would be easiest if the PSdG got second place (one-third chance) to En Marea. Otherwise, the socialists might be tempted to allow Feijóo to govern. 

In the Basque country, the race is between the christian-democratic Basque nationalist PNV and a possible alliance of Podemos and EH Bildu, radical left separatists with ties to the now dormant ETA terrorist group. It is very unlikely that the socialist PSE will support an alliance including Bildu, so the PNV will get its majority from an alliance with the PSE or the PP and keep the regional government. This may have national implications - if the PNV deals with the basque PP, the quid-pro-quo would be supporting Rajoy's bid for PM which would then have 175 of 350 seats in the national parliament. Ciudadanos, incidentally, might not make it into either of the two regional parliaments, underscoring its character as a Spanish centralist party with a focus on the Catalan question.

And so we come to the issue of whether Pedro Sánchez will be able to muster a majority to become PM and avoid repeat elections. The PSOE is likely to drop to fourth place in the Basque country and to third place in Galicia, which would be a blow to Sánchez after poor general election results last December and in June. The Socialist party will hold a meeting of its federal executive committee the following weekend, and there Sánchez is expected to propose to attempt a government while his internal opponents might want to remove him. El Periódico writes that Sánchez might consider a snap leadership contest, which would be concluded in three weeks leaving about a week to form a government before the parliament is dissolved for elections on Christmas day. Whoever wins the leadership contest would have a fresh mandate to either abstain to wave Rajoy through, or to attempt a government with Podemos and the Basque and Catalan right-wing nationalists. PSE support to give the PNV the Basque regional government would help. To make such an alliance possible, Huffington Post writes that Sánchez has sidelined the liberal-leaning team that negotiated the PSOE's deal with Ciudadanos last February. A deal with Podemos is ruled out by Ciudadanos, which agrees with the PP that the only sensible option is a PP government. 

El País, in an editorial, is fully on board with the PP narrative that repeat elections on Christmas day would be the fault of Pedro Sánchez and not of Rajoy and his loyal speaker of the parliament who set the actual date. The paper also sides with the "realist" internal opposition to Sánchez, who argue that with just 85 seats to the PP's 137 the PSOE should be content to lead the opposition to a minority PP government. In these narratives Sánchez is subordinating the interests of both country and party to his own strategy for survival as party leader.

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September 23, 2016

Why soft Brexit solutions are unrealistic

If you think through Brexit, you come to the conclusion that single market access is not feasible in the long run. The reason, as Simon Nixon rightly points out, is not only immigration but also regulation. He goes into some detail explaining Switzerland's horrendously complex relationship with the EU - something nobody wants to replicate. He quotes a lawyer warning that a single-market deal, which would invariably hinge on regulatory equivalence, could not be relied upon as a sound basis for a cross-border banking system other than for the short term. What starts out as an equivalent regulatory regime will end up diverging very quickly in a system of highly dynamic regulation such as banking. The UK would have to immediately shadow everything the EU does, forever. This is why single market access is at most suitable as an interim regime.

Robert Peston makes an additional point we had not considered before. Theresa May would find it hard to argue that she wants the UK to remain in the customs union, having just set up a new - and very expensive - foreign trade department. If May opted in favour of membership of the customs union, she would have to admit that "[Liam] Fox, [the foreign trade secretary] is as much use as a fish on a bicycle." Quite.

All this goes to show that the options are narrowing. The ultimate Brexit deal is going to be hard. The question is: what is the nature of the transitional agreement, and how long will the transition last?

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