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November 23, 2016

AfD to become Germany's main opposition party

These are alarming polling data from two east German states where the AfD is surging. In Saxony, the AfD now has the support of 25% of the population, a 15pp increase from the 2014 state elections. In the state of Thuringia the AfD's share is over 20%. If these polls translated into state elections, neither of the current coalitions in those two states would be viable - the grand coalition in Saxony; and the coalition of the Left Party, SPD, and Greens in Thuringia. To us, this looks like a harbinger of things to come at the federal level. In both states the sum of CDU and SPD has fallen below 50%. The AfD gains come mostly at the expense of the CDU and the Left Party (note the SPD is quite weak in those states). The survey, by Infratest Dimap, produced another interesting result. The age group where the AfD is most successful is with 35-49 year-olds, of whom 31% support the AfD. Demography thus favours the AfD. These results have not yet translated into the federal level, although the AfD remains strong at 15% according to the latest poll by Insa. Insa has the AfD at higher levels than other polling organisations, which we think is a fair assessment given the traditional tendency to underestimate support for populist parties. In state elections the AfD has consistently outperformed the polls. Here are the latest national polls from Insa. The grand coalition of CDU/CSU and SPD still has a narrow majority of 53.5% at the national level, but this compares with a current majority of 80% in the Bundestag.

Insa22/11/2016
CDU/CSU31.5
SPD22
Greens10.5
FDP5.5
Left Party10.5
AfD15
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November 23, 2016

A somber EU/Ukraine summit

The mood is not good ahead of tomorrow's EU/Ukraine summit tomorrow, which will address the EU's support for administrative reform in Ukraine, visa-free travel for Ukrainians and the implementation of the Minsk agreements. Given Trump's statements about recognising Russia's annexation of the Crimea and lifting sanctions on Russia, the EU expects to have to take greater responsibility for Ukraine. At the same time, the EU member states are far from unanimous in their willingness to continue the policy of economic sanctions on Russia. The adoption of visa-free travel has been delayed, as the European council negotiated a mechanism to suspend it to address German and French concerns for the possibility of excessive immigration. The summit is also expected to discuss Ukraine's association agreement with the EU, which is held up by the Dutch referendum result against its ratification. Mark Rutte hopes to be able to win the assent of the Dutch parliament by attaching a declaration to the agreement, precluding Ukraine's EU accession, free movement or workers, or enhanced military cooperation with the EU.

 

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November 23, 2016

Catalan separatists in the courts

We have noted before that the Spanish government's strategy to deal with the Catalan separatist movement has so far been centred on using the judicial system to block Catalan initiatives seen to undermine Spain's constitutional order. With the new government the rhetoric has changed somewhat in the direction of offering dialogue within the constitution, but the judicial strategy begins to have political consequences.

The speaker of the Catalan parliament Carme Forcadell, indicted for disobedience of a constitutional court injunction, has been called to appear before the high court of the Catalan region on December 16, reports El Periódico. The Catalan high court had previously dismissed Forcadell's appeal against her indictment, where she cited the right of a parliament to debate freely. After the Catalan parliament issued a separatist declaration last November, the Spanish constitutional court quickly issued an injunction specifically preventing the board of the Catalan parliament from acting on it. The decision to hold debates on so-called "disconnection laws" on a Catalan treasury, on social security, and on a transitional legal regime puts Forcadell in contempt of the constitutional court. In parallel, the Spanish parliament has voted to authorise the prosecution of MP Francesc Homs for his role in organising a mock independence referendum two years ago when he was part of the Catalan regional government. Homs is protected by parliamentary immunity unless lifted by a vote of the parliament. Though the session was held behind closed doors, PP, PSOE and Ciudadanos had previously announced they would vote to lift Homs' immunity while Podemos and its allies would vote against. The case will now proceed in the Spanish Supreme Court. 

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November 23, 2016

Fog across the channel - and noise

There is a lot of noise in the Brexit process, and we expect to hear a lot more. As long term observers – and former colleagues – of Boris Johnson we have grown used to his flamboyant diction, but for your average CDU MEP with little exposure to British politics the combination of Boris Johnson and Nigel Farage is a bit too much. So when Manfred Weber, Angela Merkel’s most senior MEP, says about one of Johnson’s numerable assertions: “It is unbelievable, frankly speaking. It is a provocation,” then we have to tell him there is a reason why the UK is leaving, and Johnson’s diplomacy is a rather fitting symbol of why we are where we are. Looking back to the pre-referendum years, the idea of Britain as a member of the EU now seems quite pathetic.

There are still surprisingly many people out there are arguing the case against Brexit – like Tony Blair, who is openly campaigning for a second referendum, and is bankrolled by his own wealth and by Richard Branson. Twitter is full of embittered ex-Remainers, who are still shouting their heads off. But their tale is still fundamentally a version of Project Fear – a little fine-tuned given that the predicted recession failed to happen. As we are 100% certain that Brexit will happen (not a probability we attach to many future events), we are confident in our decision to ignore this rather large body of discourse.

Where ex-Remainers are right is in their assertion that the British government has made a number of unnecessary mistakes – like Theresa May’s Tory party conference speech, and the early insistence on immigrations controls as a red line. That basically reduces to Brexit options to one: a hard Brexit, feathered at most by a transitional regime. This is also how Charles Grant sees it, noting that the position of the EU-27 has hardened in the last couple of months.  We agree, and would like to add that the thinking is fluid, that there are two years still ahead of us, and that some people's hard position is informed by what they read in some continental newspapers, German in particular, which keep on writing that the UK might ruefully return. If that is what you believe, then clearly your negotiating position is the one that Donald Tusk summarised as: Hard Brexit or no Brexit. Once it becomes clear that the latter is not happening, they will get more serious about negotiating.

But the Grant article makes a number of important points that are likely to stand the test of time. One is that the inseparability of free movement of labour and of goods will also apply to the transitional regime. We agree. The transitional regime is an EEA-like construction, where the UK remains a de-facto member of the EU with all its rights and obligations. The purpose is not to smooth the transition to the final regime, but to give time for preparation. Grants notes that that the EU wants to have a transitional period of two or three years, which seems rather short to us. The reason is to speed up the FTA on the British side, Grant writes. We find that puzzling. Is it more reasonable to think that the UK will drag out the FTA negotiations, or that the EU will take its time to ratify it? We think it is nonsensical to impose a time limit unless the EU can commit to it. It can only do this if the FTA is not classified as a mixed agreement. All of these conditions are as yet uncertain.

We agree with Grant that May’s statement about a non-binary version of the EU’s customs union is pure nonsense. You are in or out. It is that simple. He is also right that there is no hope for the City of London. There will be no passporting, and no, regulatory equivalence does not amount to much especially since the EU will tighten the regime. Getting rid of the City of London is one of the few big attractions of Brexit for the EU-27. Where we part company with the consensus is that we believe that it is also a good thing for the British economy to become less reliant on finance.

We also thought it was interesting that the EU wants the UK to produce a Brexit request with only a simple mandate, rather than a detailed list of demands, which would be shot down. There also seems to be disagreement among EU officials as to whether the Article 50 negotiations should focus primarily on the exit modalities and the transitional arrangement, or whether the contours of an FTA should also be drawn up. There is also some confusion about whether the election of Donald Trump will help or hinder the British position.

Grant believes that the UK is headed for a hard Brexit, unless the proponents of a soft Brexit get louder, if the Treasury were to face down the other ministers, and if the economy were to fall into recession. Two years is a long time.

His colleague Simon Tilford has a counter-intuitive suggestion. The election of Trump will be to the disadvantage of any country that is reliant on the global free trading system, as the US will become more protectionistic. It would therefore be in the UK’s best interest to stay in a strong customs union. A bilateral trade deal between the UK and the US is possible, but the US would drive a hard bargain: it would force the NHS to buy more expensive US pharmaceuticals; the UK would also come under pressure to open its market to US agricultural imports, which might make a trade deal unacceptable to British voters. Tilford warns:

“Trump’s allegiance to Britain seems to rest more on emotion than on a clear-sighted assessment of US interests, and as such might not survive any disagreement between the US and the UK.”

The lack of preparedness for Brexit by the British government is matched only by the lack of preparedness by the EU-27. This is why we think it is almost irrelevant to discuss what Donald Tusk or Angela Merkel may think at this time - and Tusk and several other current leaders may not even be there when the final deal is agreed. We would expect the EU to remain firm in its assertion on the indivisibility of freedom of movement of people and goods, and to insist on this also during a transition period. We expect to see a long transition agreement - of five years or more - followed by a co-operation agreement, maybe an association agreement, which may allow more flexible forms of co-operation than the various in-or-out options that are currently available. May's strategy will be to make Brexit happen in 2019, but to soften the blow afterwards. And we believe that the EU would want to support that because it is in its best interest, too.

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