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July 31, 2017

Russia sanctions bill becomes US law

There is a quaint story in FAZ this morning that Sigmar Gabriel will not accept the extraterritorial aspects of the Russia sanctions bill, but the story fails to explain how he can stop US legislation that has now passed both houses of Congress with near unanimity, and which President Donald Trump has now confirmed he will sign into law. Trump was unhappy with the bill - not because he shared European sensibilities but because it curtails his freedom of manoeuvre to lift the sanctions on Russia. The US will soon have a law in place that will force the extension of sanctions to third-country companies that co-operate with Russia on large infrastructure projects, notably in the energy sector.

The only concession gained by the Europeans in their backdoor diplomacy is a 30-day consultation period. The EU has so far not reacted to the bill, although the Commission must surely be getting ready to draw up a list of counter-measures should the US target EU energy companies. Moscow has expelled 200 US diplomats in response to this legislation in protest at what it calls unlawful sanctions. The EU’s position is also that the extraterritorial aspects of the legislation violate international law. And the really big trade dispute is yet to come, if or when Trump imposes tariffs on steel imports.

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July 31, 2017

Spain's Guardia Civil in the eye of the Catalan storm

Spain's Guardia Civil is a paramilitary police in charge mostly of law enforcement outside municipalities that have no police force of their own. But it also acts as judiciary police. It is in this latter capacity that Guardia civil officers carried out searches and interviews at the Catalan parliament and the offices of the regional government, the Generalitat. Catalan nationalists see this as a violation of the sites of Catalan sovereignty, and so the radical left separatist party CUP, which provides outside support for the Catalan coalition government, has called a demonstration today in front of the Guardia Civil headquarters in Barcelona. The demonstration is to defend the October 1st independence referendum and will be met by a counterdemonstration by unionists. vowing to "stand with the Guardia Civil".

The Guardia Civil has been busy with Catalonia lately. The first round of searches and interrogations occured two weeks ago. This was over a case of alleged illegal party finance affecting CDC, the party that dominated Catalan politics for the past 40 years before this kickbacks case forced its re-foundation as the European Democratic Party of Catalonia (PDECat) which is the main party in the Catalan government. But, in the meantime, The Guardia Civil has also been investigating the preparations for the October 1st referendum, in particular the procurement of ballot boxes and, later, ballot papers. At least one Catalan government official was indicted for sedition last week. The Guardia Civil has acted in the context of a case being investigated by a Catalan court. The Catalan government has responded by filing a lawsuit against the Guardia Civil and the judge in charge of the case for breach of fundamental rights.

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July 31, 2017

A grand bargain between France and Germany

We have late been getting more sceptical about Emmanuel Macron, and specifically about his ability to forge a grand bargain for the eurozone, partly because German politics is currently turning in a different direction. Pierpaolo Barberini and Shahin Vallée, by contrast, have a more optimistic take of how Macron could forge a useful compromise for a viable deal on the future of the eurozone. The authors make the observation that successful federations reject risk-sharing and political intrusion into each other's business, but have a joint centre. The eurozone’s construction is the exact opposite.

The authors are calling for a Hamiltonian grand bargain with the creation of a central powers that transcend finance and economics: on border security, defence, and migration. France would extend its military support to the EU, while Germany would concede important changes in the governance of the monetary union, and both of them would agree a common migration policy with Italy.

The eurozone would become a fiscal union with the following tasks: upgraded crisis management, whereby the ESM provides a fiscal backstop to the financial system; macroeconomic stabilisation in the form of unemployment re-insurance; and a convergence fund to reduce imbalances. The authors note that a monetary union, thus constructed, would have some similarities with the devolved Swiss system.

Germany has rejected all three proposals, and is not even keen on a proper defence union because this would invariably imply an increase in defence spending, which is politically unpopular. We agree with the authors that this list would constitute a sufficient set to guarantee the eurozone’s sustainability. But we see no chance of it being agreed, not even in a crisis because the Germans (and the Dutch and other northern Europeans) have now developed and firmed up their own rather different narrative of what the eurozone needs to do to survive: more fiscal rules, and the strengthening of no-bailout rules.

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