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November 08, 2016

Estonia's government falls

The Estonian governing coalition of the right-liberal Reform party, Social Democrats, and conservative Pro Patria and Res Publica, has broken down. The opposition, left-liberal Centre party, centre-right Free party, and right-wing Conservative People's party, which together have the minimum necessary 41 seats out of 101 in the national parliament the Riigikogu, have introduced a motion of no-confidence in PM Taavi Röivas. The motion of no confidence will be voted tomorrow, and is expected to succeed. What is less clear is what kind of government coalition will emerge, as the new chairman of the Centre Party, Jüri Ratas, said they had been contacted by each of the three parties in the governing coalition. The immediate cause of the government crisis is a controversy over the appointment of MPs to the supervisory boards of state-owned companies. Under pressure from the junior coalition parties, Reform party appointees resigned on Monday, as PM Röivas started exploring an alternative coalition with the new Centre Party leadership. This led to the junior coalition parties declaring the coalition broken. Should the Reform party end up in opposition this would end an 11-year run in government. One factor to watch is the relations that a new government would have with the Russian minority in Estonia. The Centre party is overwhelmingly popular among ethnic non-Estonians, which make up 30% of the population.

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November 08, 2016

EU discussions on tax shelters stuck

EU-level talks on the fight against tax shelters have hit a snag because a number of countries, not limited to the UK, are blocking progress. Given the extreme sensitivity of several members states to any intrusion into tax policies, this story revealed by the German broadcaster NDR, should come as no surprise. Nor should it come as any surprise that the UK is highly uncooperative in any legislation that requires unanimity - which is another reason why we believe that the EU and the UK will end up making a non-punitive Brexit deal. But this is not fundamentally Brexit-related. NDR was able to take a look at the protocols of the talks, from a working group which the EU set up in the spring in order to identify tax havens. The German representative in the group is quoted as saying that there has been no agreement on any single agenda point.

One of the questions is whether countries with a tax rate of zero should have their tax practices automatically investigated. That means countries like Bahamas and Bermuda should be classified as tax havens, which is resisted by several member states. There was also no agreement on transparency rules. The coalition lines are the usual ones: Germany and France want stricter rules, while the UK, the Netherlands, Luxembourg, and Malta, do not. The conclusion is that the EU's ambitions once again exceed its ability to deliver. It is illusory to think that the EU-28 could reach an agreement on this.

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November 08, 2016

Macron - the undeclared candidate

Emmanuel Macron acts like a presidential candidate though he has not yet declared himself. Last week’s interview with Mediapart and the rally of supporters over the weekend were clear signs of this. Some of what he said sounded like a hostile takeover of Socialist party support. It also has the potential to stir up the Republican primaries. As for the timing, Macron is still hestitating to step forward soon. There are some parallels with his long departure from government. He resigned as industry minister only on August 30 even though his position had already become untenable in June. Some advise him to come out before the first round of the Republican primaries on November 20, others recommend that he should wait and get the support of Ségolène Royal. She would most likely not want to come out in support of him for as long as François Hollande, the father of her four children, has not declared himself. Royal’s endorsement would give Macron an advantage over Manuel Valls, writes the weekly magazine Marianne. For a picture of how Socialists view these two against each other, we found this description of one of Marianne’s sources useful, describing Macron as the Christian Socialist and Valls as the Freemason Socialist. Others see Macron as the anti-establishment adversary of Jean-Luc Mélenchon, dividing the left into a “progressive” and a “traditional” faction. Macron’s liberal ideas, in particular about the labour market, are unlikely to rally enthusiasm among traditional Socialist supporters, and even if he were to win the elections, these ideas may never see the light of day as he would need the votes from the likes of Mélenchon.

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November 08, 2016

On the politics of insurrection

Wolfgang Münchau argues that the key in the fight against the anti-establishment insurrection lies with the parties of the centre-left. If they continue to play the role of junior partner in centre-right coalitions, and to embrace austerity and financial deregulation, liberal democracy will lose the battle against autocratic populism - as it did in the 1930s. Münchau goes through the long list of failings of the centre-left in Germany (support for a balanced budget amend), in Italy (support for austerity), in France (support for austerity without reforms), and wonders: 

"What led the centre-left on to such a self-destructive path? The answer is a combination of the following: a false belief that elections are won from the centre; the lure of ministerial limousines; an inferiority complex about not being able to run 'responsible fiscal policies'; and a belief that voters of the left have nowhere else to go."

He says the first - symbolic - thing the centre-left needs to do is to distance itself from the new breed of trade agreement that protect foreign investors against domestic law courts. The second will be to return to their Keynesian roots: more investment spending and lower taxes, possibly as a trade off for a moderate tightening in monetary policies.

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