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November 07, 2016

Why UK elections are becoming more likely

The Brexit debates have reached their highest noise levels since the referendum, following the High Court's ruling and the vicious media response to it the next day. The British government decided not to interfere.

None of this probably matters as the Labour Party has now accepted that it, too, will support Article 50. After some confusion, the Labour leadership clarified its position on this matter, asking only for transparency in the process - which if true would be a reasonable request. There is still the possibility of a hold-up in the House of Lords, but the Labour leadership in the House of Lords also said it only wants to scrutinise, not block. May can probably afford a short procedural delay as otherwise Brexit would then interfere with the electoral timetable. There are ways to get around the problem of a stitch-up in the House of Lords. As Jacob Ress-Mogg argued in the Telegraph over the weekend, it is apparently possible for the government would be to flood the House of Lords with 1,000 pro-Brexit peers.

We still find it hard to see a way that which Brexit itself could be stopped. If parliament were to procrastinate, May would find a way to bring about an election - either through a fake confidence vote, or more likely, with the support of parliament itself. It is not probable that an opposition party would vote against elections if offered one. Unless the Conservatives' polling lead collapsed, we would expect them to win a big majority. So, whichever way the Supreme Court rules, Brexit will happen. The difference is that Brexit will get nastier and more hostile the longer the uncertainty lasts.

We see some parallels between the legal debates in the UK in respect of Brexit, and the German constitutional court's arguments about monetary union. If the Constitutional Court had upheld legal principles only, without any political sensitivities, it would have had to pass rulings that would have made it impossible for Germany to stay a member of the eurozone. Mario Draghi's OMT clearly violates important principles of the German constitution. The ESM bailouts are not consistent with the No-bailout rule. The judges accept them only on the grounds that the eurozone would have otherwise collapsed - a pragmatic view, but not one based on legal principles. In the end the court took into account the overriding political support for euro membership in its rulings.

The UK's Supreme Court will be in a similar dilemma after it hears the case from December 5-8. From a legal perspective, the High Court's ruling may be watertight. But the Supreme Court will need to consider that a confirmation of the High Court ruling could well lead to riots and violence because it will be seen - rightly, in our view - as a desperate attempt to hold up the process. This is a point where we side with the Brexiteers. Why did the judiciary not make that point before the referendum? The Cameron administration did not believe that it was necessary to consult the parliament ahead of the referendum. Nor did the Remain campaign highlight that point. We think the wisest decision would be one that allows the government to obtain the consent of the parliament, but without having to table a full-blown bill. In any case, what is there to put into this bill? A negotiating position?

We also picked a discussion on Twitter (see @ShippersUnbound) on whether the government could eliminate the possibility of parliamentary amendment by formulate the long title of the bill in a specific way that makes amendments impossible, as the long title sets the scope outside which amendments cannot go.

George Eaton writes that elections are becoming increasingly probable. The point is not so much that parliament will prevent Brexit, but that it will soften it. The lure of new elections will prove very tempting for Theresa May, especially since both Ukip and the LibDems have failed to gain support since the referendum. The LibDems in particular hope to win the Richmond by-election, triggered by the resignation of Tory MP Zac Goldsmith in protest over the expansion of Heathrow airport. Goldsmith, who is pro-Brexit, is now running as an independent, and enjoys a 23-point lead, despite the fact that Richmond itself voted predominately Remain.

On other Brexit-related news, we noted two articles, both of which are suggesting that the EU is firming up its negotiating position ahead of the Art 50 negotiations. The Financial Times reports that the EU is about to toughen up the rules for regulatory equivalence for third-country financial firms - which allow to them access to the EU's financial market if their domestic regulatory regime is deemed equivalent to that of the EU. The UK hopes to use regulatory equivalence to regain a quasi-single-passport status post-Brexit. The article points out that any move to tighten the rules should be seen as part of the EU's negotiating strategy. They want to yield as little as possible.

Equivalence rules are a somewhat ad-hoc procedure, brought in under Michel Barnier, and they apply only to a small subsection of financial services, notably trading and fund management. One big problem with equivalence, from a UK perspective, is the lack of legal guarantees. The rights gained through regulatory equivalence might be withdrawn at any moment, which makes this an unsuitable regime for London-based international banks. 

In addition, Handelsblatt reports that Jean-Claude Juncker is warning EU companies not to do bilateral Brexit deals with the UK government, because otherwise he would get in their way, he said, but without explaining how he would do this.

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November 07, 2016

The EU's moral bankruptcy on Turkey

The EU-Turkey agreement has turned out to be a catastrophic event for the EU's foreign policy action. Even today, as president Racep Tayyip Erdogan is about to grab absolutely power and to introduce the death penalty, we are hearing senior EU politicians like Martin Schulz pressing the case for continued dialogue. And we keep on hearing from unnamed EU sources that the liberalisation of the visa regime is still a possibility.

This morning, Michael Stabenow, the veteran FAZ correspondent in Brussels, has a good article about the duplicity of the European position, giving more details to what we have heard ourselves. He noted that senior foreign policy officials like German foreign minister Frank Walter Steinmeier, or the EU's High Representative Federica Mogherini, are all criticising Erdogan's power grab increasingly loudly. But they are pragmatic - if you want to call it that - in respect of the refugee deal itself. The policy seems to be to separate the two issues. Stabenow quotes a Commission spokesman as saying that "the agreement [with Turkey] was based on mutual trust and fulfilment. Both sides will stick to that." This is not what you say when you are about to end Turkey accession talks, which is what will need to happen if and when Turkey introduces the death penalty.

And how will the EU get around the main pre-conditions for visa liberalisation - the change in the anti-terrorism law, which is now being abused to incarcerate journalists? Stabenow writes that the Council of Europe may find a compromise solution, a face-saving fudge. 

It is very clear that the EU is ready to turn a blind eye to human rights violations in Turkey. They will do anything so that they don't have to deal with the refugee problem themselves.

But how can they get around the little problem of the death penalty, we wonder? Do they hope for a compromise on that issue too? They would have to end accession negotiations at that point. With the death penalty Turkey would automatically renounce EU membership status - or do we want to apply the principle of subsidiarity on this point as well? What's left of this sordid deal is only the money - which is not all that much. So far only €500m have been cleared, and none of that money goes to Turkey itself.

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November 07, 2016

Merkel's presidential mess

As Gunther Bannas reminds us in Frankfurter Allgemeine, Angela Merkel has had a catastrophic record in her attempts to select candidates for the German presidency. The nomination of Horst Kohler for a second term in 2009 was followed by his resignation a year later. Merkel then managed to bulldoze Christian Wulff through the electoral committee, but Wulff resigned in disgrace over a graft scandal. The SPD nominated Joachim Gauck for the presidency five years ago, a nomination Merkel first opposed and then only agreed to because she had no choice. And now that Gauck is leaving in three months' time, the parties of the grand coalition are incapable of nominating a joint candidate. Only the SPD has nominated its own, foreign minister Frank-Walter Steinmeier, but the CDU/CSU don't want him as their joint candidate. The party leaders had a meeting yesterday, and failed to agree once again. Watch out. This issue has the potential to divide the coalition in an election year.

Presidential elections hold a high degree of political symbolism in Germany. In 1969, the SPD's success to nominate its own candidate ushered in a 13-year period of SPD rule. While the political situation is different today, the presidential elections are a test of potential coalitions. If the Left Party and the Greens support Steinmeier, they could have a majority, and the possibility of a Red-Red-Green coalition would arise. Such a construction would actually have a majority in the parliament right now, as it would have had continuously since 1998. Ironically, the polls now suggest that this may no longer be the case after 2017, with six parties likely to be represented in the parliament, including the populist AfD and the FDP, which failed to meet the five percent threshold last time. 

Merkel had the misfortunate that her favourite candidates all said no. One is Norbert Lammert, the president of the Bundestag, who said he will quit politics after his term is up. Another is Ursula von der Leyen, defence minister, who was stitched up by Merkel last time. She was promised the job, only to be dumped 24-hours late in favour of Gauck. In any case, she has her eyes set on Merkel's job whenever that becomes available.

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November 07, 2016

The case for a No vote in Italy

Altogether five former Italian premiers have now said that they oppose the constitutional reforms. They include Mario Monti, Silvio Berlusconi, Lamberto Dini, Massimo D'Alema and Ciriaco De Mita. Matteo Renzi yesterday said what they all have in common is a hatred for him. He also accused he minority of his party that is campaigning in favour of a No vote of trying to destroy the party and to bring about a technical government. Is he getting paranoid, we wonder?

There are after all a number of rational arguments to reject the constitutional reforms, as persuasively put by Valentino Larcinese. He argues that there is no evidence that the reforms would make the political process more efficient. Nor is lack of efficiency a particular problem of the Italian legislature, at least by European standards. More important, the reforms would relegate the parliament to irrelevancy and concentrate all power in the government. The reform would fast-track any legislation from the executive - five days to have it tabled, and 70 days for approval. The government can thus dictate the parliament's timetable. The MPs would be chosen by the party, not by the voters. And, even more disturbingly, the constitutional reform has been approved by a narrow majority that was elected under an election system that was subsequently deemed unconstitutional. One would normally expect constitutional change to be subject to super-majorities reflecting a broad consensus in society.

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