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January 11, 2017

Macron's European agenda

Emmanuel Macron is the most pro-European among the presidential candidates, though will he really be ready to confront the Germans and change the course of the eurozone? We have our doubts, but he is the only candidate with at least an explicit eurozone agenda. In his speech at Humboldt University in Berlin yesterday he promised that, if elected, he would propose a common eurozone budget for investment and financial assistance in case of shocks. At the EU council in December 2017 he would propose democratic conventions in all EU countries for 6-10 months. EU countries should have "a debate on the content of the EU’s actions, its policies and the priorities it should have," and the result should be "a roadmap for Europe" with a list of actions that states want to implement in the areas of defence, security and fiscal convergence. We need more sovereignty, more European sovereignty, he said.

He also set himself the target to increase the number of young French taking part in the Erasmus programme to 200,000 per year by 2022, and to re-establish bilingual classes in France. He argued for common policies on cyber-defence and managing refugees and migrants. He advocated a reenforced Schengen, starting with 5,000 more Frontex personnel. All worthy points, but not a big-bang proposal for European integration either. 

Macron acknowledged that rebuilding trust between France and Germany is key and that, if the economic imbalances inside the eurozone are not addressed, the euro won’t last for another 10 years. 

One interesting point we picked up is that he said in Berlin there will be candidates from his movement "En Marche!" at the legislative elections in June. 

We note that his Berlin speech did not make headlines in the French press. They were more interested in comparing Macron with the Socialist candidates or to François Fillon, or in the question whether Macron exaggerated his arguments. There is a clear national bias in reporting, as we have observed so many times in the past.

The Front National took the chance to pick up on the point that Macron gave his speech in English rather than French. Pauvre France, tweeted Marine Le Pen. Florian Philippot writes it only shows Macron's disrespect for the French language, and that he does not believe in France.

The latest Ifop poll for Paris Match shows Marine Le Pen (26%) advancing to the pole position for the first round, overtaking Francois Fillon (24%).  Macron comes third (17%), far ahead of the Manuel Valls (10.5%). Le Pen is still expected to lose in the second round against Fillon (64% to 36%) or Macron (65% to 35%). We agree with François Heisbourg, who tweet that this is a wildly unpredictable election.

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January 11, 2017

Back to Nigel

We were asking the question yesterday: what are the long-term implications of the rejection of the Five Star Movement by the Liberal Alde group in the European Parliament? Would it radicalise the party? The answer to that question came yesterday already. Luigi di Maio, the Five Star Movement's most senior legislator, and its presumptive candidate for prime minister, doubled down on the euro referendum pledge, and said that he would vote in favour of leaving the eurozone. We know many Italian commentators - and friends of ours - are dismissive of these threats, but our experience shows that such commitments matter at a time when people are discussing the future of the euro itself (see below our separate story on the investment strategies). Di Maio is not irrational when he says that the euro lost Italy a cumulative 25% of Italian GDP. While one can quibble with the specific number, the truth is that Italian productivity first stopped growing, and then started to decline, immediately after the introduction of the euro. The gap with the rest of the eurozone is extreme. We have long passed the point where we can say that Italy should not have adopted the euro in the first place. That does not logically equate to the statement that Italy should leave it now, but once there is a consensus that the euro has been a mistake, it will be hard to revert the political dynamics. 

After the rejection by Alde, the Five Star Movement decided to crawl back to Nigel Fararge, who is extracting a price: a greater say on the politics of the European parliament group, especially a firmer line on immigration. Three Five Star MEPs said they would not return to the EFDD group, but at least the party's return to Farage would ensure continued funding. So here, too, the Five Star Movements will end up in a more radical position than before - essentially aligned with a policy of departing from the EU. None of this implies a criticism of the stance taken by Alde. Those in favour of the Italian party's accession to the group may have hoped that this would have tamed them. We don't think this would have succeeded. But the net effect of this entire affair is that it makes Italy's euro exit more likely.

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January 11, 2017

Operation talking past each other

In the design of his second cabinet, Mariano Rajoy left the Catalan problem in the hands of his trusted deputy Soraya Sáenz de Santamaría, who has added to her ministerial portfolio a territorial administrations brief. Commentators notes that Sáenz de Santamaría enjoys good personal relations with leading Catalan separatist politicians, in particular the Catalan deputy premier Oriol Junqueras, who is also the leader of the Catalan republican left party ERC. The new stance of the Spanish government was dubbed "operation dialogue", though Catalan separatists quickly dismissed this as PR because the Spanish government is still waging a judicial war.

Yesterday in Barcelona, Sáenz de Santamaría and Junqueras held their first official meeting, which ended up being more of an "operation talking past each other". Junqueras came to the meeting ready to discuss the Catalan government's proposal to negotiate holding an independence referendum in Catalonia by September this year. Sáenz de Santamaría replied that the Spanish government cannot negotiate what it cannot legally give - on the argument that a referendum can only involve the entire Spanish electorate. And Junqueras asserted the separatist government's intention to fulfil its commitment to hold a referendum, unilaterally if it need be. In addition to staking their well-known positions on the referendum, the two deputies also discussed some bread-and-butter matters such as an upcoming legislative decree to tackle energy poverty. As well as fiscal matters as Junqueras is also the finance minister of the Catalan government.

The meeting was also overshadowed by the conference of regional premiers that the Spanish government will host next week, and which Catalan premier Carles Puigdemont said last November he would not attend. Sáenz de Santamaría reportedly tried to convince Junqueras that it would be helpful for Puigdemont to attend as the Catalan government has a list of 46 policy demands which would have a natural venue for discussion in the conference of premiers. In an editorial, La Vanguardia argues that the Spanish government should arrange the agenda of the meeting to give Puigdemont a venue to present his proposals, rather than relegating them to "any other business". One should bear in mind that an explicit motivation for Puigdemont to skip the meeting is to underscore the narrative that Catalonia has moved on from the current territorial organisation of Spain. As La Vanguardia notes, the Basque premier Íñigo Urkullu will also miss the meeting. He says the Basque country deserves a bilateral relation with the Spanish government, not on an equal footing with the other regions. The conference will be much devalued by the absence of two of the most important regional premiers, and Mariano Rajoy bears much of the responsibility for not having convened it even once since he took office at the end of 2011.

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January 11, 2017

Brexit realpolitik

There is no shortage of Brexit commentary in the British and international press - and most merely adds to the noise. But there are two comments out in British media today that are important. Janan Ganesh said there is little ambiguity about the kind of exit Theresa May wants - whether she gets what she wants is another question. She wants to leave the single market, and the jurisdiction of the ECJ. And she is prepared to sacrifice economic growth. The following seems to us the most crucial observation in his article:

"For the first time in my life, Britain has a prime minister who would forgo some economic growth for some social order. She has not done a business-facing job in politics. As home secretary, she discouraged even skilled newcomers to this country in pursuit of a fool’s errand of a migration target that was set — through no fault of her own — by Downing Street. Ask a cabinet colleague whether she and her advisers are somehow ignorant of the material cost and paltry political gain that flows from curbs on foreign students, and the response is disturbingly crisp. 'It’s not that they don’t know, it’s that they don’t care.'"

He casts doubt on whether her strategy will succeed, but he argues it would be a mistake to misread her strategy as indecision.

Rafael Behr offers a good rendition of the frustration and anger felt by the ex-Remainers, many of whom were still quite confident not until too long ago that events would stop Brexit. He notes that Jeremy Corbyn has not only accepted the Brexit vote, but essentially also the Brexit arguments, especially on immigration. So, expect no real opposition from Labour on Brexit. And Behr notes that May and Corbyn have a lot in common. 

"They are instinctive Eurosceptics, albeit coming at it from opposite ends of the ideological spectrum. But Euroscepticism was not a passion for either of them. They half-heartedly campaigned to remain in the EU, more from tactical calculation than conviction: Corbyn because his party demanded it, May because she thought she was backing the winning side. They are now forced to make Brexit their defining purpose, having spent decades in politics with other motives and goals in mind. They both feel that the referendum result was the manifestation of some other discontent, which they interpret – as most people do – as proof of things they had believed long before last year’s vote."

Behr concludes that they both know that they "must walk the walkout of the EU". On Brexit, they are allies.

There are still hard-Brexit scare stories - such as the one about 250,000 employees leaving the City of London. This is nonsense for a number of reasons. One of the most immediate is that the eurozone literally does not have the space to accommodate them. We noted a Bloomberg story quoting an Irish property owner as saying that the number of companies seeking offices in Dublin was overstated, as many of those who expressed an interest had done so before the Brexit vote. To the extent that there is a shift, it involves the growth of existing Irish operations.

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January 11, 2017

AfD says FN is too leftist for them

If you plan to attend a meeting with Marine Le Pen, and your friends say this is not a good idea, then one would presume that your friends do not want you to be associated with a politician of the extreme right. When AfD leader Frauke Petry said she was about to meet Le Pen, Geert Wilders, Matteo Salvini, and Harld Vilimsky of the Austrian FPÖ, her own party also issued a protest, but for a different reason. FAZ quotes two senior AfD politicians, Georg Pazderski and Alexander Gauland, as saying that the Front National was totally unlike the AfD. While there was common ground on Europe, the FN was a Socialist party, Pazderski is quoted. There is not much the two have in common.

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