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May 30, 2017

Beer tent politics - Merkel edition

The commentariat was quick to declare the end of the post-war order, and to elevate Angela Merkel to the role of leader of the western world as they did on previous occasions. We are cautious on both issues. Do not forget that Merkel is in the middle of an election campaign. She made her comment in a beer tent. If she had not made the comment on the need to break away from the US, Martin Schulz surely would have. By saying what she did, she closed a potentially viable avenue for Schulz. At the very least, we should suspend our judgement about her intentions until after the elections. 

Furthermore, Germany is wholly unprepared for such a shift - and that goes especially for the jubilant commentariat. For the EU to be self-reliant would require a military budget not of 2% of GDP, but closer to 3 or 4%. It would require an end the perma-euro crisis, which will only happen if Germany abandons its ordo-liberal dogma. If the EU wanted to become a global power, it cannot afford a mercantilism that expresses itself as permanent current account surpluses. And it will need a lot more than a common European finance minister and a common budget. Hardly any of the German commentators, who over the last few days have been calling for a European self-reliance, even considered this. They are simply not prepared for what is going to hit them if they were to progress down that path. 

One exception among German commentators is Klaus-Dieter Frankenberger who noted in his FAZ editorial this morning that Germany would have to abandon what he calls the “culture of restraint”. The separation of the US would be a massive step. Germany will recognise very quickly how dependent it is, for example, on US intelligence. The truth is that the partnership with the US remains essential for European security.

We disagreed with the recent assessment by Ulrich Speck that German-US relations are on the mind, but we agree with him now when he writes that it would be a mistake to demonise Donald Trump. 

“For Europeans, working with the Trump White House is of existential importance. On security, there is simply no alternative to the transatlantic relationship, only American presence is holding Russia at bay. On global politics (China, Middle East), the US remains the most important player and Europeans can only try to convince Washington to take their views into account. On the soft issues of global governance, nothing can be achieved without the US. Against the US, Europe cannot achieve anything. There is no alternative to engagement. And we can see that engagement works, even with the Trump White House. Transatlantic relations are good today, if we look at the substance and don’t jump on every outrageous quote.”

Gideon Rachman argues on similar lines. Merkel’s speech was a blunder, he said, and gives five reasons. It is too early to make a final judgement about Trump. Second, Trump is right in substance on the military spending commitments. Third, by implying that the Transatlantic Alliance is dead, Merkel has effectively corroborated Trump’s refusal to endorse Article 5. Fourth, it is wrong for Merkel to extend her anti-Trump position to the UK. The UK has side with Germany on both Nato and climate change. And this is his final reasons:

“...it is baffling that a German leader could stand in a beer-tent in Bavaria and announce a separation from Britain and the US while bracketing those two countries with Russia. The historical resonances should be chilling.”

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May 30, 2017

Brexit arrives in UK elections

When we read this comment by Matthew Parris over the weekend complaining that nobody is talking about Brexit in the UK elections, our immediate thought was: be careful what you wish for. Parris is right, of course, that Brexit is the most important political issue in a generation. But there is a reason why the campaign stayed clear of the subject: the decision is taken, the government already set out the broad framework - no membership of single market and customs union - and the rest is subject to negotiation. All a Brexit campaign would do is add new red lines. 

And this seems to be happening. As the Times reports, the Tories are now realising that the uncertainty over Brexit and the extreme negotiating position adopted by the EU is their electoral trump card, as the polls tigthen. The Times has a new poll, by Survation, which confirms the recent surge in support for Labour, with the Tories at 43% and Labour at 37%. Theresa May will today go on the offensive over Brexit by tearing apart the two position papers by the European Commission, one on citizen rights, and one on the financial settlement.

The position papers contain no new elements, but constitute a succinct summmary of what has been reported in previous weeks. The paper on EU citizens includes the right to bring non-European family members into the UK after Brexit; the export of welfare and pension benefits to relatives outside the UK; and a no-discrimination rule on public services and employment. The biggest issue is the EU’s instance on the ECJ as the final arbiter in legal disputes, which would be a deal breaker. The paper on finances sets out in detail the method to calculate the UK’s liabilities, but without mentioning assets.

May and Jeremy Corbyn faced separate town-hall style interviews yesterday, both by the veteran TV broadcaster Jeremy Paxman. As the Independent notes, Jeremy Corbyn was the winner of this confrontation - he has learned the hard way how to handle difficult questions. But still, the audience seemed to trust May on Brexit - and is this what probably matters the most.

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May 30, 2017

Rajoy clears budget hurdle

At the latest Spanish general election eleven months ago the PP got 137 seats and the PSOE 85. However, this was not entirely accurate. In the Canary Islands the PSOE contested the election allied with the Nueva Canarias party, which then preferred not to caucus with the PSOE but to stay in the non-aligned parliamentary group to preserve its political independence. The PP did similarly in the regions of Navarra and Asturias, so it has only 134 MPs in its group, though the other three MPs voted consistently with the PP. Nueva Canarias has now committed the last vote Mariano Rajoy needed to pass the 2017 budget. Another MP from the Canary Islands, this time from conservative party CC, also consistently votes with the PP.

In recent weeks we have followed how the PP negotiated with minor parties to garner the 176 votes it needed for this. Liberal party Ciudadanos was perhaps the easiest as they have an actual agrement with the PP in exchange for their support for Rajoy's appointment back in October. Then came the right-liberal Basque Nationalist Party, which reportedly extracted some concession from the central government related to the staffing of the Basque regional police. This put Rajoy's tally at 175 out of 350, enough to defeat amendments but not necessarily to pass the budget. The bargain with Nueva Canarias guarantees 176 votes, but the PP also recently secured the abstention of the Catalan liberal party PDECat, which is otherwise opposed to the PP as it leads the separatist Catalan government.

There is no reason to expect this coalition of convenience to break down in the coming years, especially when it comes to the budget. There the central government has bargaining chips it can use relatively cheaply in exchange for the support of MPs from small regions whose demands are important from the region's perspective, but small potatoes nationwide. Mariano Rajoy's second term won't be smooth sailing - and we have seen the parliament inflict a few severe defeats on the government in the past six months - but there is now no reason that Rajoy couldn't last the whole four years.

The next couple of months will be difficult for Rajoy, but they don't threaten his government. After the budget is approved, Rajoy faces a no-confidence motion launched by Podemos on account of the resurgence of PP corruption scandals. This will almost certainly be defeated as Podemos hasn't even been able to get the support of the PSOE for the motion. Rajoy also will have to appear before the parliamentary committee in a corruption inquiry, and testify as a witness in a corruption trial before the National Court. Rajoy will be dragged through the mud like he was in the summer of 2013, and ostensibly for the same reasons, but like then he will emerge unmoved at the other end as nothing seems to stick to him. After all this is done, the first step of the 2018 budget, the spending ceiling for local and regional governments, will have to be negotiated. There is no guarantee that it will be agreed, but the success with this year's budget bodes well for the PP.

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