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January 10, 2017

Only losers

It is hard to make up a story of political confrontation where every single party ends up a loser. After the members of the Five Star Movement voted overwhelmingly to accept the proposal that its MEPs join the liberal Alde group in the European Parliament, Alde itself backed out as half its members opposed the accession. Stephano Folli, La Repubblica's veteran political commentator, talks about the Waterloo of the Five Star Movement. After the serial mismanagement of the Five Star administration in Rome's city council, the party has goofed up again on a large scale, and is now facing the loss of European funds as it will no longer be in a recognised political group of the EP. 

But there is also the question of what this means for the future of Guy Verhofstadt, the leader of Alde. He staged a graceful retreat yesterday, but it is clear that he is not leading his group. Corriere della Sera has an interview with Fredrick Federley MEP, of the Swedish liberal party, who said that most of the opposition had come from Sweden and Finland. We also noted yesterday that Sylvie Goulard MEP, from France, opposed the Five Star Movement and was quoted all over the Italian press. This was a warning that it would be no smooth process.

One of the attractions for Alde would have been the addition of Italians - there are none right now. Federley said this benefit did not outweigh the challenge posed by the Five Star Movement to the group's liberal and pro-European values. Federley noted that the discussion in the group - if you want to call it that - lasted only 15 minutes, and Verhofstadt was the main speaker. The vote was 50-50, and Verhofstadt concluded that he did not want to risk the cohesion of his group by pressing this issue. The accession of the Five Star Movement can be discussed again in the next pariamentary term, Federley said.

For the Five Star Movement, adhesion to the Alde group would have given them some establishment credentials, which they are now lacking. On the other hand, they would have lost some of their populist appeal. Their threat of a referendum on eurozone membership would have rung hollow if they were members of a group in favour of further integration of the eurozone.

Corriere reports that the Five Star Movement had consulted six economists before it made the decision to apply to accede to Alde, and all six of them had given a negative response. The rejection by Alde leaves the Five Star MEPs without an allegiance in the EP.

In his comment Folli notes that Grillo has learned that the antics he uses in Italian politics all the time are not working at European level. And Verhofstadt should have known better, and should not have allowed himself to get been carried away by opportunism. The previous alliance was perfect for the Five Star Movement - anti-European, pro-Trump, in alliance with Nigel Farage. For Folli this cataclysmic event symbolises the beginning of the decline of the Five Star Movement.

We would caution against drawing any quick conclusions from this disaster. There have been previous peak-Grillo forecasts before. Populist parties fail when they cease to be populist, not through political accidents like these. The question for us is whether the rejection by Alde will radicalise the Five Star Movement further. No longer having a power base in Brussels, its anti-Europeanism might become less constrained. It is also possible that Forza Italia and the Lega might exploit the situation, and harden their anti-Europeanism - though it has to be said that Forza Italia is also embedded in a deeply pro-European group in the EP, the EPP.

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January 10, 2017

The next stage in the German car emission scandal

The German diesel emissions crisis appears to be of a minor scale relative to the macro crises of our time, but it is important as it constitutes a monumental challenge to the largest and strongest economy in the eurozone. Germany is extremely dependent on the car industry which constitutes, directly and indirectly, a much higher percentage of GDP than in any other country of the world, with the possible exception of South Korea. 

This morning two stories have hit the headlines, that are both hugely damaging to the industry. A senior VW manager has been arrested in the US, where the criminal aspects of the case are now being pursued after the recent out-of-court civil settlement. And, in Germany, a scandal has broken out in which a senior manager of Mercedes-Benz, formerly a senior aide to Angela Merkel, tried to influence government policy writing to the private email account of a senior official in the transport department. The papers are talking about the German Hillary Clinton emails affair. It is also the first time that the government itself is implicated in the emissions scandal. They have so far managed to keep their fingerprints hidden.

The FT has a solid account of the VW story. A Senior manager, Oliver Schmidt, a former VW head of compliance in the US, is scheduled to be arraigned on Monday amid evidence that VW's management had knowledge of the cheating devices. This is what the criminal complaint alleges:

“VW employees knew that if they had told the truth and disclosed the existence of the defeat device, VW could not have sold any of its diesel vehicles in the United States...VW employees determined not to disclose to US regulators that the tested vehicle models operated with a defeat device.”

Speficially, the senior management of VW was briefed on the cheating software in July 2015 - shortly before the crisis broke out, and it ordered its continued concealment. The FT article goes into a lot more detail than what we can relay here, but an important question to be raised is how these criminal charges will impact the out-of-court civil settlement, or whether other charges will flow from this. 

Beyond the immediate pecuniary impact, the real damage is reputational. The scandal threatens to do to the German car industry what the addition of glycol did to the Austrian wine industry in the 1980s. A criminal conspiracy by some wine makers killed off large parts of the industry at the time. 

The other crisis, surrounding Daimler, is on some levels even more damaging because it involves the German government. There is no evidence that the German government has been complicit in the software cheating scandal. But the German government appears to have lobbied on behalf of car companies to ensure that emissions tests in Europe had no teeth. The Green Party in the Bundestag has been alleging that the German government has been complicit in the emissions scandal for ten years, in the full knowledge that German car companies failed to meet standards. This affected not only VW but the entire industry. There has been no hard evidence to support this claim so far - but some disturbing stuff is now emerging.

FAZ reports that an investigating committee of the Bundestag found an email, dated in the autumn of 2015, in which a former minister in Merkel's chancellery, Eckart von Klaeden, who had become a Daimler lobbyist, has pressed a senior official in the transportation department to accept the industry's demands for more generous emissions rules.  The committee looked at over 1,000 files, and file number 1,001 contained the private email contacts of the senior official, which include three emails of von Klaeden and several others. The committee is now wondering whether there have been systematic contacts, outside official channels, between the car industry and the government. The senior minister acknowledged to have received an email to a private account, but denied that there were hidden contacts. He said his mobile phone could not connect to his government email server - a claim that will now be investigated.

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January 10, 2017

And what if Socialists rally behind Macron?

What if the Socialists rally behind Emmanuel Macron? This scenario is no longer as absurd as it seemed only a month ago. If he is the only one with chances to get into the second round, he could be the hope that none of the other candidates can offer. 

Last weekend Macron demonstrated again his capacity to rally the masses. His intervention attracted about 2,500 with people queuing outside. Manuel Valls on the other hand hardly filled a hall with a few hundred. Worse still, the Kantar Sofres-OnePoint poll for Le Figaro and RTL now suggests that, while Valls may be leading in the first round of the primaries, he will lose the second round to Arnaud Montebourg (53% against 47%). Sure, those primary polls are even more unreliable than usual as voters' participation is unpredictable. In the polling sample of 8,011 people 73% said they would not go to vote. But polls can have an effect on election politics and this is why we continue to look at them.

If Montebourg were to get the Socialist nomination, there will be parts of the Socialist party that will switch to Macron's camp. There are indeed two irreconcilable strands inside the party, and Montebourg's success would just cement this.

If Valls gets the nomination, and if Macron continues to rally the masses and to advance in the polls suggesting that he could indeed make it into the second round, he would be the best hope for the Socialists against Marine Le Pen and François Fillon. Cécile Cornudet cites a Valls supporter saying that without question Valls would under these circumstances step aside to allow the Socialists to rally behind a single candidate. Jean-Christophe Cambadélis, the Socialist party leader, said already on radio that there is one progressive candidate too many. This new scenario not only emerges from the polls but also from the Socialist MPs, who are anxious not to be wiped out in the legislative elections in June.

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