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March 16, 2017

A Polish horror story

We have been asking whether the antics of the Polish government last week were merely a political miscalculation, or whether there is some sort of a strategic objective behind it, however warped it may be. Radoslav Sikorski tweeted in response that it was confusion, nothing else. This morning, however, we noted a comment by Slawomir Sierakowski, no fan of the Kakzynski crowd either, who argues that there is a strategic objective after all. His essay reads like a crime novel.

“One possible manoeuvre is arresting Tusk, which would force the EU to negotiate with Kaczynski for his release. The Financial Times reports that Kaczynski told German Chancellor Angela Merkel that Poland will seek an arrest warrant. That may sound absurd. But it is no more absurd than proposing Jacek Saryusz-Wolski’s candidacy to replace Tusk. And it is certainly no more absurd than the rationale for issuing an arrest warrant: Kaczynski’s belief that Tusk conspired with Russian President Vladimir Putin in the 2010 plane crash that killed his brother, then-Polish President Lech Kaczynski... Kaczynski will not rest until he puts Tusk in prison. This obviously poses a problem for the EU, because the purported criminal is the President of the European Council.”

The polls are telling us that a large majority of Poles wants to remain in the EU. But such a stand-off could shift political sentiment quickly. He noted that Kaczynski’s wars never end with compromise. Sierakowski expects Poland to pursue a policy of vetoing European Council resolutions from now on, while the European Council in turn will rely on QMV procedures - where applicable - to formally overrule Poland. Sierakowski’s overall conclusion is that the EU will ultimately prevail, because the Polish electorate will chose the EU and Nato if confronted with the stark choice its government is leading the country towards.

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March 16, 2017

On the return of industrial policy

Paola Subacchi takes a look at the future of industrial policy, which has made a bit of a comeback of late as political leaders regard it as a possible tool to ward off the rise of populism. We think this would be a poor motivation in its own right, though an industrial policy might have potentially positive side effects. The case for or against an industrial policy should be based primarily on its economic effectiveness. The revival of industrial policy is happening on both sides of the Atlantic, but shows a more fruitful approach in Europe, where some attempts are under way to embed it into an institutional framework. She highlights the example of the UK, where the government is seeking 

“targeted interventions designed to create positive incentives, correct market failures, and address social, geographical, and sectoral imbalances.”

While the goal is right in principle, she writes, governments are underestimating the scale of the task. The UK, for example, has not yet even defined the specific sets of goals. Is it designed to strengthen GDP at a time of loss of single market access? Or is it to increase the economy’s potential output? They are not the same.

One way forward for governments is a focus on large-scale infrastructure investments with positive externalities - say shorter commuting times - the kind of investments the private cannot conceivably undertake. She makes a number of specific additional points, and concludes that the overriding tasks are strategic and co-operative - qualities that are no longer in abundant supply in Europe.

EU leaders have a strategic goal cut for them, as the EU is badly lagging behind the investment targets in its roadmap to a low-carbon economy by 2050. Making industrial policy about incentives to correct market failure is a failure of the imagination.

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March 16, 2017

The limits of the multi-speed Europe

Hans Kundnani has responded to Wolfgang Munchau’s assertion, earlier this week, that the future of the EU lies in variable geometry. Kundnani’s point is that, while closer core integration is desirable, the idea of multiple speeds is unlikely to work in practice. This is the core of his argument:

“This is because differentiated integration makes it even more difficult to reach the kind of grand bargain in the core that is needed. In effect, member states would able to pick and choose the areas in which they want to integrate and the areas in which they wanted to retain national sovereignty on a case-by-case basis. France might choose to integrate economic policy but not refugee policy – in other words to “mutualize” debt but not refugees. Conversely, Germany might want to integrate refugee policy but not economic policy – in other words to mutualize refugees but not debt.”

He says the only way to break the stalemate is through a grand bargain, which is how European integration always worked in the past. The idea is not to allow countries to opt-out, but to give them something so that the benefits outweigh the costs.

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