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July 19, 2017

The comeback of the British rebate

The British rebate was bound to make a glorious entry into the Brexit negotiations eventually. It happened yesterday. The EU negotiators made the logical point that the British rebate was linked to agriculture. Britain justified the rebate on the grounds that its vastly more productive agricultural sector depended much less on EU farm subsidies. But surely that argument ends the minute the UK leaves the CAP, which it will do in 2019 under any scenario. So, as a result, if Britain were to seek a transitional agreement followed by some form of association agreement, the rebate has to be taken out of the financial basis of this future relationship.

The FT reports that France in particular was insistent on this issue. Without the rebate, the share of the UK in the EU’s future liabilities would rise from 13% to 15%, for an additional €10bn.

The two sides did not make any headway in the discussion on the Brexit divorce bill - but that was unlikely to happen anyway. At this stage, the emphasis is to set out some of the principles on which the calculations are to be based. The Guardian writes the divorce bill will be presented as a bill to cover the future relationship, because that is easier to sell politically. It also notes this:

"Seasoned Brussels negotiators think a deal is most likely to emerge at a late-night summit of EU leaders in the autumn of 2018."

There will be a further three rounds of Article 50 discussions in the next three months, before a European Council meeting in late October which will decide whether sufficient progress has been made in the Article 50 discussions. If so, that would pave the way for parallel talks on the future trade regime.

European debates, like the one on the rebate, move in cycles. They come up again and again. That’s true even of proposals you would have thought were dead and buried. In this context we read with some surprise a comment by David Allen Green that the UK and the EU should cast Article 50 aside, and negotiate a separate exit agreement or, if this is not possible, at least extend the two-year time period. While that may be technically possible, this proposition totally ignores the EU’s own preference. It wants to do this through Article 50 because this is the only prescribed procedure available. And it wants this completed in two years because it has other, more important business to attend to.

Meanwhile, a report in the house of Lords warned that Brexit is already undermining the political stability of Northern Ireland. According to the Irish Times the report says that Brexit has exacerbated the divisions between the communities in Northern Ireland, and calls on the British government to reassure nationalists following the Conservatives’ confidence-and-supply agreement with the unionist DUP.

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July 19, 2017

Macron wants complete abolition of housing tax

Emmanuel Macron kicked off the conference with the local authorities with a couple of surprise announcements: communes will have to contribute €13bn in savings to the government's budget consolidation efforts over the next five years. This is €3bn more than the initial announcement. The communes had already expressed their misgivings amid the perspective of being squeezed by another round of savings. In return the communes will get more freedom to rationalise and diminish expenses.

Macron also announced his plan to abolish the housing tax not only for 80% of the taxpayers but completely over three years. As an alternative revenue base he offers the communes a fraction of the social charges (CSG). A housing tax reform is an explosive subject, a similar reform caused Margaret Thatcher to resign in 1990. There are, however, several problems with this replacement. One is that, even though the French courts consider the CSG a tax, the European Court of Justice does not. For them the CSG is a social contribution, thus non-residents with properties in France would be exempted, according to l’Opinion. There is a great confusion over the financing, and the fact that the government changed its announcements already three times in the last 15 days does not help.

Another explosive announcement was to reduce the number of local elected officials, and a stronger differentiation according to public functions (state, hospitals, regional and local governments), also when it comes to wage increases.

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