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November 25, 2016

Unstoppable Fillon

Francois Fillon seems unstoppable after a good performance in the televised debate last night. 57% of viewers found him more convincing than Alain Juppé, while 41% thought otherwise. The lead among centre right supporters reflects Fillon's appeal especially to that group: 71% favoured him, and only 28% came out in support of Juppé.

Juppé tried all angles of attack (abortion, civil service layoffs, Putin...) without being seen as too aggressive. It certainly helped to bring to light Fillon’s conservative programme, which many of the viewers did not know yet. But did it harm him? On the contrary, it provided a platform for Fillon to show his tenacity, to show that he is really a candidate of the right. While Fillon exuded confidence, the aura of defeat was noticeable in Juppé’s gestures and discourse.

Le Point digs deeper to find out whether Fillon’s promise to cut 500,000 posts in five years is feasible. They found that if every one who retires is not replaced, he could achieve 600,000. But even Fillon would not want this. He says every one in two retires will not be replaced, which brings the figure up to 300,000. The rest is to come from not renewing short-term contracts. There are 100,000 ending every year. It is thus feasible on paper, but is it realistic? Sarkozy had a similar project, but the total number of civil servants actually increased. If Fillon wants to increase the pension age, this will not help him either. Nor is it easy to end short-term contracts that have been renewed for so many times. 

The emergence of Fillon also impacts the left. François Hollande considers Fillon's victory a ‘divine surprise’, according to Marianne. As an eternal optimist, Hollande sees his chances increasing. On reason is the now persistent drop in latest unemployment data. Another is that Fillon’s stellar ascent shows that polls can get it wrong and that traditional politics can still mobilise the people. His team's reading is that Fillon, with his ultra-liberal programme, will find it harder that Sarkozy to get Front National voters and also voters from the centre. The article warns, however, that the forces that destroyed Sarkozy could also destroy him, if the electorate wants to get rid of its former leaders. 

This is exactly what Arnaud Montebourg has in mind when he calls centre right voters to participate in the left primaries next year. He wants to mobilise those voters to get rid of Hollande, as left voters helped to get rid of Nicolas Sarkozy. Naturally, he also hopes that this increases his chances against other left adversaries.

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November 25, 2016

To disengage or not from Turkey

It should come as no surprise that the European Parliament concluded its debate on Turkey with an overwhelming vote to ask the Commission to freeze Turkey's accession negotiations temporarily. In part this is because the parliament's resolution is not binding, so it allows the Parliament to score political points without immediate consequences. But also because the substance of the debate last Tuesday has been known for a while and is not too controversial: the EU has an interest in maintaining a partnership with Turkey, but the turn that Turkey is taking as it reacts to the failed coup attempt is disturbing to European sensitivities. The resolution says the repressive measures taken by the Turkish government are disproportionate, and violate basic rights and freedoms. Even the reintroduction of the death penalty is being considered, which would lead to the formal suspension of accession negotiations. A temporary freeze would just prevent the Commission from opening new negotiating chapters, or taking new initiatives in relation with Turkey's accession.

The view from Turkey, as seen for instance in Daily Sabah, is that the EU has been indifferent to the coup attempt and to recent terrorist activity in Turkey, and has stalled on granting Turkey visa-free travel. The paper glosses over the fact that visa liberalisation was in exchange for legal reforms in the area of human rights, which are in fact going in the opposite direction as demanded by the EU. As this is justified because of the coup and the terrorist threat, this seems like a fundamental disagreement highlighted by the European parliament's vote. The Turkish government, however, has dismissed the vote saying it is non-binding and most European member states have an interest in continuing the negotiations. Federica Mogherini called a freeze of the negotiations a "lose-lose" proposition during Tuesday's debate. The refugee deal between Turkey and the EU hangs in the balance.

In a policy brief for the European Council on Foreign Relations, Asli Aydintasbas explores what the EU can do to avoid a "train wreck" in EU-Turkey relations. He writes it is unacceptable that no European leader has visited Turkey since the coup attempt, and that the EU institutions and the member states need to find a unified position and establish communication channels, also addressing the Turkish public directly. The EU can achieve leverage through engagement, he writes. Although Recep Tayyip Erdogan supports the reintroduction of the death penalty, Aydintasbas writes that this is not the case for several members of his cabinet, so that lobbying efforts by the EU might succeed. At stake is much more than the refugee deal, as Cyprus reunification negotiations are progressing and Erdogan has signalled his willingness to withdraw Turkish troops under a new security arrangement. Aydintasbas proposes to upgrade the customs union, to improve anti-terrorism cooperation, and to create a new team to engage diplomatically with Turkey.

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November 25, 2016

Spain's opposition scores minimum wage victory in parliament

For most of the past year one of the narratives on offer during the period of interim government in Spain was that there would be a "government by the parliament", meaning that majorities could be assembled to legislate against the wishes of Mariano Rajoy's government, and in some cases roll back his past policies. This came to nothing because the Spanish parliament's rules of procedure foresee the participation of the government in the drafting of laws, for instance by issuing opinions, but the caretaker government was unable to do this. Now that the government is back on full powers, however, the left-wing opposition is trying its hand at the "government by the parliament", with some success. This is still limited due to a government's ability to block the introduction of legislation with an impact on the current budget, which Rajoy's government has already made use of.

However, the government lost a number of votes again this week, including a defeat of a non-binding resolution introduced by Ciudadanos and supported by the PP on the reform of the judiciary. Notably, however, the opposition has also voted to allow the introduction of legislation to raise the minimum wage to 60% of the median wage, in accordance with the European social charter. The government was able to pass only a non-binding declaration on preserving the public pension system. In a small victory, the judicial affairs committee rejected a motion by Unidos Podemos to subject to a vote the appointment of the new state prosecutor, which will now presumably be approved by assent. 

The proposal by Unidos Podemos on the minimum wage, supported by PSOE and the regional nationalist parties with the sole opposition of the PP as Ciudadanos abstained, entails an increase from the current €655 (paid fourteen times a year) to about €800 by 2018 and €950 by the end of the parliament's term in 2020. Though its final approval is far from assured given that the various parties that supported it will introduce competing amendments. It must go through the senate where the PP has a majority, although the government admits it can't block the legislation because it would only affect the 2018 budget which hasn't yet been drafted. 

If things go on like this, new elections next year cannot be excluded. Last week, after the parliament voted to freeze the roll-out of the education reform passes by the previous Rajoy cabinet, El Mundo reported that the Spanish government had promised the European Commission to call new elections if it is unable to pass a new budget with the required budget adjustment. Rajoy is barred from calling elections before a year has passed since the previous ones, but he could dissolve the parliament in early May. The PP will be ready, having decided to hold a party congress in February, but the PSOE might be caught wrong-footed without a candidate, as the interim steering committee delays in hopes of killing the chances of a comeback by Pedro Sánchez.

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November 25, 2016

Can Tony Blair succeed to undo Brexit?

We have been wondering about the complacency in the UK among Brexiteers about the potential impact of the campaign launched by Tony Blair to stop Brexit. This is not about EEA membership. There is a body of influential people in the UK who actually want to reverse the result through a combination of delaying tactics and political mobilisation. The Daily Telegraph picks up on Blair’s campaign and urges the government to respond firmly, or even respond at all. It notes:

“We appear now to be moving from a position in which politicians accepted the referendum result and were arguing only over the means, to one where the prospect of forestalling the outcome is seriously being countenanced. Part of the problem is the absence of any sense of direction from the Government, something apparent in this week’s Autumn Statement.”

The editorial concludes that the pessimistic forecasts in the chancellor’s autumn statement will provide the anti-Brexiteers with ammunition. The government should watch out.

John Springford notes that Brexiteers had been critical of doom-mongers like Mark Carney at the Bank of England. They will now focus their attention on the Office for Budget Responsibility, which projects a slowdown in economic growth from 2.2% this year to about 1.4% next year. This is still more optimistic than the market consensus. The OBR forecasts that growth will bounce back to 2.1% in 2019, which Springford describes as optimistic.

And finally, we noted a comment by Catherine Colebrook  on the British government's strategy to raise productivity. She argues that the announced move into high technology sectors is not going to work for the UK as well as it did for Germany or France. The specific problem of the UK is the large economic contribution from the low-skills sector. 

“we have to work with the economy we have – not the one we would like. That means recognising that our economy is 79% services: innovation looks very different in a service sector context, and the majority of service sector firms will be takers, rather than makers, of new innovations.”

The focus should there be on helping the service sector to use new technologies and to raise skills - rather than to invest into new high-tech industries.

Upgrading the low wage sector may be most efficient in the short-term, but we believe that investing in high tech industries still promises to be the best strategy in the long run for an advanced economy. There is no reason not to pursue both strategies simultaneously.

 

Regarding the OMB. We believe that economists deserve the full brunt of public scrutiny of their forecasts, which have proved to be very poor over the last ten years. If the economics profession engages in politics by making massively exaggerated forecasts, as happened both in the UK and the US, they should not be surprised that people will question their motives. We expect to see a similar reaction in the US, when the gloomy predictions of 370 economists, who have written a letter warning about the economic impact of Donald Trump, will be tested against reality. The best strategy for the economics profession would be to stop pretending that there are right or wrong economic answers in the political choices we are facing today.

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