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December 09, 2016

Why Five Star will gain

President Sergio Matterella of Italy is on Monday due to make a decision about the future government - now with only two options on the table - a grand coalition, or a new government. The Five Star Movement has made a proposal to keep Renzi as a caretaker until the decision of the constitutional court in January, which could then be followed by new elections. Whatever option Matterella choose now, there is now an overwhelming clamour in favour of new elections in the spring or summer.

Corriere della Serra writes that Silvio Berlusconi is reconsidering his strategy - in favour of new elections and against a grand coalition with Renzi because he, too, realised that everybody wants elections. Berlusconi has a personal interest in waiting until 2018 because he cannot hold office before then. But that is no longer a political option, and the paper writes that he is now resigned to accepting elections in 2017. Under no circumstance will they give their vote of confidence to Renzi, so this would exclude a grand coalition. There is also concern among Forza Italia that the Lega Nord, its traditional ally, may be aligning itself with the Five Star Movement. 

Angelo Panebianco, writing in Corriere, made a comparison with the year 1993 when Giuliano Amato and later Carlo Azeglio Ciampi were technical prime ministers, and when everybody thought the PDS would win the elections in the following year. But the dynamics of the events led to the victory of Berlusconi. Today, there are some similarities. The PD and its leader are discredited. Forza Italia is deflated. Matteo Salvini, leader of the Lega, has also suffered following his alliance with Marine Le Pen. It is hard to avoid the conclusion that the Five Star Movement will be the main beneficiary at the next election. They are unspoiled. But Panebiancho also notes that there are differences between today and then. The Five Star Movement is a party with a head but not with a body. 

We would like to point to two important comments about the future of Italy in the euro, and the future of liberalism in general.

Phillipe Legrain notes: 

“Renzi was the pro-EU establishment’s best – and perhaps last – hope for delivering the growth-enhancing reforms needed to secure Italy’s long-term future in the eurozone. Muddling through with a weak technocratic-led government amounts to waiting for an accident to happen... In the longer term, Italy’s eurozone membership could be at risk. Unless Italy enacts radical reforms to address its sclerotic growth, it is hard to see how it could ever have a viable future in a dysfunctional monetary union dominated by a mercantilist, deflationary Germany.”

And Matt O’Brien argues in the Washington Post that the liberal centre is losing the battle. He notes that we are celebrating the defeat of Norbert Hofer in the Austrian presidential elections as a victory, when in fact it is frightening that a party that still uses Nazi symbols got 0.5% more votes than Donald Trump did in the US. The real problem, he notes, is that our ability to cover up the structural fall in economic growth - through increasing the number of women in the working population, and through credit bubbles - is ending. And, while the opinion polls do not suggest that a populist could win an outright majority in the next elections, it just takes one upset for a country to pull out of the eurozone and cause a massive global financial crisis.

We see the world similarly to Panebianco. In our view Renzi massively overestimates his chances of winning the elections. We think that his main battle will be to maintain the leadership of his party - which we doubt. A change of leader - there is now much talk about Dario Francheschini, the culture minister - might change the PD’s fortunes, but the PD is divided into many competing factions.

The idea that you can foil the rise of the Five Star Movement through some clever tricks in the electoral law is naive because all parties will adjust to the law, and gerrymandering can easily backfire on those, like Renzi, with a habitual tendency to overestimate their potential. If the system is proportional, it well possible that the next government will be a coalition of anti-euro parties. If it is less proportional - similar to the new Italicum law under which the chamber of deputies will be elected next time - Five Star may gain an absolute majority with a winner’s premium. Heads you lose. Tails they win.

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December 09, 2016

Ukip to target pro-Remain MPs in Brexit constituencies

We get frequent letters from readers asking why the overwhelmingly pro-Remain House of Commons does not simply overrule the Brexit vote. It was, after all, only a consultative referendum. The answer to this question is: MPs are afraid of being targeted for deselection if they do. The Daily Telegraph has the news that Ukip will target the seats of six MPs who voted the day before yesterday against the trigger of Article 50. Note that this, too, was only a non-binding vote, but it served as a useful indicator of who might rebel against Brexit. The six MPs targeted by Ukip are from constituencies that voted overwhelmingly in favour of leaving, and it is not hard to imagine an election campaign where these six MPs will be accused of being traitors, with the full force of the British tabloid press against them. The Telegraph quotes Ukip’s Brexit spokesman as saying that these MPs had just written their political epitaphs. 

“Their action is a clear invitation to Ukip to remove them at the earliest possible opportunity”.

An action such as this is designed to intimate other MPs into not following the rebels when it comes to the real Brexit vote. The vote this week was a non-binding declaration. If the Supreme Court, which ended its Brexit hearings yesterday, rules that the government will have to table legislation, the House of Commons will get a formal vote. We expect a pro-Brexit victory with a similar margin as the vote this week. About two-thirds of all UK constituencies voted in favour of Brexit.

The FT has the story that British ministers have opened up communication channels with members of the EPP group in the European Parliament, in what the paper describes as a charm offensive. The ministers who are leading the initiative are Greg Hands, the trade minister, and Mark Field, the Tory party vice-chairman. Their main interlocutors in Brussels are members of the CDU, the Républicains, and the PP. Theresa May also wants to exploit her good personal relations with Bernard Cazeneuve, the new French prime minister - they know each other from when they were both interior ministers. The talks are not intended to serve as a pre-negotiation, but to build bridges to the European Parliament, where MEPs will have a chance to vote on the final Article 50 deal. We don’t think the European Parliament would vote No if a deal were reached. Getting rid of the likes of Nigel Farage MEP is simply too tempting.

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December 09, 2016

Rutte plays tough on Ukraine

The European Parliament has finalised an agreement on the conditions for suspending visa-free travel with Ukraine and Georgia, for security reasons or in case of a spike in asylum applications, reports Politico. This paves the way for visa-free travel with the two countries. 

But Ukraine may have little reason to celebrate. The Financial Times writes that Mark Rutte has threatened non-ratification of the Ukraine association agreement unless next week's European Council provides a written guarantee that the association agreement does not entail a "defence guarantee" of Ukraine, or a promise of future membership. This was the plan agreed by Rutte with the Dutch parliament a month ago in exchange for more time to negotiate a position allowing the EU/Ukraine association agreement to be ratified. The only shocking thing is the bluntness of Rutte's statement that he'd table a motion against ratifying the association agreement the next day in the Dutch parliament if he doesn't get the statement he wants. 

Domestically, the debate looks quite different. The Dutch government's advisory council on international affairs is recommending that the association agreement be ratified regardless of the referendum result. The council does not object to a security guarantee, but to associating with a country with known problems of corruption and legal protection of its citizens. Rutte's forceful objection to the security component of the association agreement contrasts with his own domestic message that the agreement has geopolitical importance and non-ratification would be a victory for Vladimir Putin. René Cuperus writes in Volkskrant that it is hypocritical for the Dutch establishment to "suddenly go geopolitical" when they did not at the time of the referendum, letting the arguments about Ukraine's corrupt political economy dominate the referendum campaign. 

In another Volkskrant opinion piece, Frank van Dooren argues for reforming the Dutch law on consultative referenda, to make it necessary for a majority of eligible voters to vote to repeal a law. On the other hand, he advocates making referenda binding and not consultative if this higher threshold is introduced. Currently there is just a 30% participation threshold for the result of the advisory referendum to be valid.

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