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March 02, 2017

Juncker's scenarios for Europe

The history of the EU has shown that white papers matter - not because of the detailed prescriptions or proposals they contain, but because they steer the direction of debate. Not all white papers were helpful. Jacques Delors’ famous 1993 white paper on growth, competitiveness and employment laid the foundation for the policy approach of the newly created monetary union with a strong emphasis on competitiveness. That approach ultimately did a lot of damage because it detracted from the steps that are necessary for a monetary union to be sustainable. The exaggerated focus on competitiveness in particular was one of the main causes of the subsequent imbalances.

Yesterday’s white paper by Jean-Claude Juncker, written ahead of the informal summit to celebrate the 60th anniversary of the Treaty of Rome on March 25, offers a similarly long-term perspective but is less prescriptive. Its focus is to generate and accelerate a debate on the future of Europe. With this White Paper Juncker puts himself into the position of a moderator, rather than that of a keynote speaker. 

It sets out five ways the EU could develop: 

  1. muddle through: stick to the reform programme and the Bratislava declaration;
  2. reduce EU to single market: border control will be repatriated, citizens rights in other countries will be weakened (pretty much the UK position pre-Brexit);
  3. focus on enhanced co-operation through coalitions of the willing: those who want to do more shall do more - 15 member states could set up joint police or magistrates corps;
  4. focus on fewer policy areas, but deepen them: example are a joint telecoms authority with central powers, or an EU counter-terrorism agency;
  5. the full-Monty: do more, and deepen at the same time - the Federalist vision. 

We agree that these five scenarios constitute a complete and mutually exclusive list of options. It is hard to think of a sixth scenario that does not overlap, except of course the total abandonment of the EU, which Juncker rightly does not list as a scenario.

The white paper is the European’s Commission contribution to the Rome Summit, which will discuss the future of the EU. On top of the White Paper, the Commission will issue a number of low-profile reflection papers on 

  • European social policy;
  • the future of the eurozone, based on the Five President’s report;
  • Europe and globalisation;
  • defence; and
  • the future of EU finances.

Politico notes that Angela Merkel backs option 3 above - further integration on the basis of enhanced co-operation. This is a rare point on which we agree with her. It is the only legal basis we have, and thus the most effective way forward. The article says that Merkel wants to relaunch the idea of a multispeed Europe. For this, she has secured the backing of France and the Benelux countries.

Werner Mussler makes the point in a comment in FAZ that the strength of Juncker’s White Paper consists of its lack of passion. By imagining the unthinkable - scenarios such as the reduction of the EU to a few core competences - he is opening up the debate.

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March 02, 2017

EU minimum wages are rising

In the context of rising inflation, we note an article by Karel Fric on Social Europe Journal documenting the generalised rise of minimum wages in the European Union since 2010. Only Greece, with a 20% minimum wage reduction implemented in 2012, bucks the trend.

Despite the rising minimum wage, the European trade union confederation ETUC recently launched a campaign for higher wages in Europe, arguing that wage growth has not kept up with productivity growth. The faster growth in minimum wages would seem to be an attempt at softening the effect of the economic crisis at the lower end of the wage scale. Wage inequality has been growing in Europe on a longer time scale. Some MEPs have been calling on the EU to require all member states to have a minimum wage, including proposals to set it at 60% of median income to at least statistically stamp out in-work poverty. Austria, Cyprus, Denmark, Finland, Italy and Sweden are the only ones that don't have a minimum wage (they are not the ones to be known for their wage inequality though). Introducing one in Germany was one of the major concessions won by the SPD as Merkel's junior coalition partner.

With eurozone core inflation stuck below 1%, and unemployment on a downward trend, rising wages - especially at the bottom of the scale - still cannot be argued to be a bad thing.

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March 02, 2017

No, the Lords didn’t stop Brexit

If you read some of the continental European media reports, you get the impression that the House of Lords yesterday stopped Brexit. The truth is that they voted in favour of an amendment to secure the rights of EU citizens in the UK, but this amendment faces a probable defeat in the House of Commons, as the Telegraph and the Guardian report. Either way, it will not stop the triggering of Article 50, though it will delay the parliamentary process by about one week.

The Labour Party has a majority in the Lords, which voted by 358 to 256 in favour of the amendment. The amendment itself was only a modest request to ask the government to lay out its position on EU citizens’ rights within three month of the trigger of Article 50. The amendment now goes back to the Commons, which can override it. Jeremy Corbyn announced he would support the amendment - a position around which a large majority of Labour Party MPs can re-unite. The combination of pro-Brexit Labour MPs and the lack of any insurrection among Tory rebels beyond Kenneth Clarke, the former chancellor, mean that the government will probably win this vote in the Commons, albeit by a much smaller margin than the main vote on the Brexit bill.

The debate is not fundamentally about the rights of EU citizens, which is subject to the Art 50 negotiations in any case, but about whether to give iron-clad assurances to EU citizens early on. The government said it would seek a deal to secure the rights of EU citizens in the UK and UK citizens in the EU. We also think that such a deal is very likely, and uncontroversial, though the devil may lie in the details. For example: does the right of residency also apply to EU citizens who are not employed or self-employed? There has been nervousness among EU citizens in the UK, as evidenced by the rush towards applications for permanent residency. The FT has an article on the difficulties people face when they apply, with an application form that runs to 85 pages.

Aleks Szczerbiak considers the likely position of the Polish government in the upcoming Brexit negotiations, which he believes will be generally supportive of the UK. Poland wants to position itself as a leader among the countries opposing "punitive" EU action against the UK. Poland has substantial trade ties with Britain, and would also like to see continued security cooperation. However, the issue of migration complicates the Polish government's position. The Polish government is likely not to oppose UK efforts to curb further migration, as the massive outflow has caused labour shortages in some sectors in Poland. On the other hand, the Polish government has no choice but to try and protect the rights of current Polish residents in the UK. With between 800,000 and 900,000 Poles in the UK, the issue touches most Poles in Poland, through family or friends. This gives the Polish government little room for manoeuvre in the negotiations over migration.

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