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October 26, 2016

Renzi threatens to veto EU budget

Matteo Renzi has threatened to veto the EU's 2107 budget unless the member states of central and eastern Europe take on more refugees. He mentioned Hungary, the Czech Republic and Slovakia specifically. Speaking on Italian TV he said Italy was one of the main net contributors to the EU's budgets - with payments of €20bn per year and net receipts of €12bn. What makes the issue particularly sensitive is that the European Commission is currently challenging Renzi's own 2017 budget, which has swollen in part because of the costs for refugees. Renzi said he would only comply with requests to lower spending on refugees if the other member states open their doors.

Expect more confrontation between Renzi and the EU in the run-up to the referendum. Most of his complaints are without substance - the EU has allowed a fiscal overshoot in Italy precisely because of exceptional events like the refugee crisis and the earthquake this summer. Renzi's criticism of the east European leaders' lack of solidarity is, of course, justified in its own right. But EU's multi-annual framework still runs until 2020. Italy will only be able to shift the contributions only from the onwards. This really is a debate for 2018 and 2019, not now.

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October 26, 2016

The politics of a hard Brexit

The Brexit debates are unbelievably noisy. There are still a lot of commentators out there - especially among those who argued in favour of Remain - who are clinging to the hope that it is possible for the UK to leave the EU, impose immigration controls, and remain a member of the single market. Or that a negative vote in the British parliament on the Article 50 procedures would imply that the UK remains a member, whereas in reality the UK would exit without a treaty.

The best political commentary we have read in a while is in the Times, by Anand Menon who, like us, complains about the excessive noise level. In addition, he makes a number of pertinent points relating to the political process in the UK. His main point is that the ultimate choice will not reflect the prime minister's personal preferences, but political procedures, which are pointing towards a hard Brexit. He makes the point that the debate about whether parliament gets a say in the process is largely irrelevant. It will not block Brexit. He noted that 421 of 574 constituencies in England and Wales voted Leave. Even opposition MPs who voted Remain will be sensitive to their constituents' preferences:

"Labour MPs in the party’s traditional heartlands are vulnerable to the immigration-based challenge from UKIP, which came second to Labour in 44 seats in last year’s general election. Taking on public opinion and risking electoral defeat is not something MPs do lightly."

He also notes that, perhaps surprisingly, public opinion remained remarkably receptive to the main messages of the Leave campaign even now. In August a poll noted that 81% of the electorate thought Brexit was incompatible with paying into the EU's budget - an option Theresa May has not explicitly ruled out. But Menon concludes that the only single market membership option the EU will offer is the EEA, and this has already been rejected by May. However much MPs and business leaders may condemn the idea of a hard Brexit, this is where the UK will end up.

We think that the EU would even have agreed a bespoke deal with single-market access had it not been for May's immediate insistence on immigration controls. We never cease to be amazed at the number of people failing to understand the link between the four freedoms. The acceptance of immigration controls - even by former Remainers - has settled the issue. The economic argument that freedom of movement is no logical prerequisite for the other three freedoms is both true and politically illiterate. The four freedoms are the essence of the EU. In our view, the biggest uncertainty about Brexit is not how it will end, but how long it will take, what the intermediate arrangements will be, and how it will impact the rest of the EU.

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October 26, 2016

Hollande at 4%

Two important, but contradictory, statistics for Francois Hollande: unemployment fell strongly in September, yet his popularity reached a new record low of just 4%. Hollande always insisted that a failure to turn around the unemployment trend was the only benchmark he would accept as a defeat. Now that the number of registered unemployed fell by 66,300, not seen since 1996, and has been down for three months in a row, not seen since 2008, Hollande could argue that this is what counts. Unemployment even fell for the young, and this time not because of publicly-sponsored training. The large drop in unemployment also had some technical reasons. There was a rise in statistical drop-outs due to a no-show by those who failed to update their unemployment status, according to Journal du Dimanche

But since the release of Hollande’s book, the unemployment rate is no longer the yardstick for his political survival. Party heavyweights have distanced themselves from him, as did the Socialist group in the national assembly, according to Le Point. Hollande's frank comments about others did not go down well in the party, and are seen as a betrayal of trust. The press is already preparing for a post-Hollande world, and is looking at which candidate is most likely to succeed him. His approval rating has dropped to only 4%, according to a poll for Le Monde, an all-time low for any French president. The lack of respect for Hollande is alarming for the Socialists, who are trying hard to limit the fallout. Manuel Valls and his troops use the lack of confidence to prepare the ground for their own campaigns though, according to a poll for Le Figaro, the French want neither Hollande nor Valls.

Nicolas Sarkozy, meanwhile, uses Trump tactics to prepare for his eventual defeat in the Republican primaries in November. He preemptively questioned the legitimacy of the election results if voters on the left participate, and warned of a stolen election, according to Politico. Alain Juppé is the favourite in the polls by far, 11 points ahead, and is still gaining ground among Republicans, a constituency Sarkozy claims for himself.

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