We use cookies to help improve and maintain our site. More information.
close

August 21, 2017

Soft, getting softer

In the UK, meanwhile, the signs of a soft Brexit are proliferating. We have argued before that the Brexit referendum gives the UK government a political mandate for a departure from the EU - one that cannot and should not be blocked. But it gives no mandate for any specific form of Brexit. Given the closeness of the result, a soft Brexit with a transitional period seems a sensible political compromise. 

We noted a story by Reuters on a policy document by the UK government setting out an arrangement for after the UK's exit from the customs union. This involves electronic tagging of shipments across the border, as opposed to physical border checks. An alternative suggestion is what the document called a "customs partnership", membership of the customs union in all but name, which would remove the need for a customs border. We expect to hear more of the latter. Much of the Brexit debates are about symbols and not content. For example, the dispute about the Brexit bill is not fundamentally about money, but about the notion of a bill itself. If the costs can be hidden in some other way, for example through continued payments to the EU during a transitional agreement, much of the political problem will disappear.

The Times, meanwhile, reports that Carl Baudenbacher, president of the court of the European Free Trade Association, is proposing what appears to us as the only sensible compromise on the intractable question of the role of the ECJ after Brexit: let the Efta court act as adjudicator. Under this proposal, the UK would accept the jurisdiction of the Efta court. Baudenbacher had already met with Brexit secretary David Davis, and with the first ministers of Scotland and Wales. Without such an arrangement, it would be impossible for the EU and the UK to negotiate any form of bespoke arrangement. We consider this another face-saving compromise. The Tory eurosceptics are right, of course, that the Efta court is not really independent and operates in close tandem with the ECJ. But if the debate is more about appearance than substance, this is a potential way forward.

The hard Brexiteers, however, have not given up yet. Patrick Minford, one of the leading pro-Brexit economists, is about to launch a report in the autumn in which he will claim some £120bn in annual savings resulting from a hard Brexit. This results from lower tariffs and benefits from deregulation. But there is an implicit assumption in his calculations: that the EU would offer the UK a free trade deal, as it stands to lose more than the UK (given the EU's trade surplus with the UK). While we think the economics of a hard Brexit is, and will remain, an interesting intellectual debate, no government will risk that outcome in practice if it can be avoided. But a managed hard Brexit constitutes a plausible plan B, in case the Brexit negotiations fail. We don't think this is likely, but the chances of failure are clearly not zero.

Show Comments Write a Comment

August 21, 2017

Tsipras' chances of a boost

As the summer pause slowly comes to an end, Alexis Tsipras is considering his options to bounce back after difficult months of negotiations with the creditors and painful compromises. His prospects are grim.

Some of his advisers are now pressing for a cabinet reshuffle, preferably already in September. Their argument is that he government became more and more incoherent, and that some ministers appear to be running out of steam. But Tsipras has little leeway here, due to the power politics at play and the lack of capable candidates within Syriza. Tsipras' main objective is to get past the trough until the elections in 2019, long after the bailout programme is finished. But Tsipras also asked his staff to prepare for early elections, just in case things go wrong. And there are is indeed some potential for things to go wrong.

The next 2018 budget already looks tricky, especially after July data suggests that tax revenues are running behind the target. The government plans 11 new measures to ensure that the primary surplus target is met. The result is that the taxpayers will have to pay more than €1.15bn additional indirect and direct taxes next year, despite public expenditure being cut by about €1.4bn, according to Kathimerini. Among the measures are a reduction in tax benefits (limiting tax-deductibility of medical expenses, tougher criteria for heating allowances, and abolishing deductions from VAT taxes and the special VAT status for Aegean islands), changing eligibility criteria for pensioners, and new basis for the calculation of social insurance for the self-employed and entrepreneurs.

Show Comments Write a Comment

August 21, 2017

On the fallacy of a middle-ground option for the eurozone

We noted a comment by Agnes Benassy-Quere, Michael Huther, Phillipe Martin and Guntram Wolff, who argue that the election of Emmanuel Macron has given an impetus for rebooting the eurozone and the EU in the three areas - the further development of the eurozone, an EU foreign and security policy, and an inclusive single market. We are probably more cautious than they are about the impact of Macron himself, but the more important issue raised by the article is the scope for eurozone governance reforms. We agree with the authors that the Maastricht construct has been unstable. We are not so optimistic about the feasibility of a third, middle way, between the status quo and full political union. The authors are calling for the completion of the banking union, a European Monetary Fund, and capital market integration - while sidestepping the question of a eurobond. The point we would like to raise is whether a middle ground of coordinated macroeconomic policies is any more realistic than a full political union. In a monetary union of fiscally sovereign states, it is not sufficient to coordinate between governments, but coordination between legislatures and electorates is also needed. In Italy, for example, there is no mainstream party that supports sticking to the fiscal compact. And, in Germany, neither SPD nor CDU/CSU favour eurobonds or pan-European bank deposit insurance. A removal of the German current account surplus is inconsistent with the German constitution's balanced-budget rule, which in itself goes way beyond the fiscal compact. The middle ground sounds like a sensible compromise, but in a monetary union the middle ground is not an easy place. The fundamental problem with the middle-ground option is political legitimacy. In the absence of a political union, where are the checks and balances in a deeply integrated economic union? An inter-governmental emergency support system like the ESM is fine, but a monetary union requires a political union for all the other stuff.

Show Comments Write a Comment

This is the public section of the Eurointelligence Professional Briefing, which focuses on the geopolitical aspects of our news coverage. It appears daily at 2pm CET. The full briefing, which appears at 9am CET, is only available to subscribers. Please click here for a free trial, and here for the Eurointelligence home page.

 

Recent News

  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • July 09, 2018
  • German panic about Target2
  • AfD level with SPD
  • How the EU could fail
  • May 31, 2017
  • Getting real in the debate on the euro's future
  • Russia's growing influence in Italy
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • May 28, 2018
  • A no-confidence motion that could backfire
  • The political repercussions of a historic referendum in Ireland
  • Why the lack of an international role for the euro matters
  • May 10, 2017
  • PSOE primary campaign in full swing
  • Czech government crisis escalates
  • Backroom dealing on electoral reform in Italy
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • April 13, 2018
  • German support for eurozone reform next to zero...
  • ... and no support for France on Syria either
  • A French sermon
  • Why the euro endures
  • April 19, 2017
  • Shadows of money
  • Breppe Grillo vs Eurointelligence
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • February 26, 2018
  • Angela Merkel's cabinet
  • March 27, 2017
  • Governing formation troubles - Northern Ireland edition
  • Did Trump present Merkel with a bill for Nato?
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • January 05, 2018
  • Catalonia's government by Skype
  • The case for EEA membership
  • February 28, 2017
  • Is Hamon losing the right wing of his party?
  • Something we just don’t understand
  • Solve the problem
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • August 28, 2018
  • Urban politics and national crisis - the Irish case
  • How anti-semitism became one of the main issues in British politics
  • November 13, 2017
  • A pro-European list: Wauquiez' nightmare
  • Catalan separatism isn't going away
  • Why oh why does Germany behave the way it does?
  • Why the four freedoms matter
  • February 01, 2017
  • Do Republicans have a plan B if Fillon falls?
  • Unforgiven
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • May 31, 2018
  • Hans Werner Sinn demands German euro exit
  • The politics of the SPD’s links to Russia
  • September 18, 2017
  • Why Germany cannot lead Europe, let alone the free world
  • Will Macron help to build up Mélenchon?
  • Boris' Coup
  • January 05, 2017
  • French Socialist primaries - old wine in new bottles
  • Le Pen's hard ecu
  • Will Tusk get a second mandate?
  • Themes of 2017
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • September 21, 2018
  • SPD ministers want to continue grand coalition
  • February 12, 2018
  • What the euro debate is really about
  • How Brexit can still falter
  • July 06, 2017
  • On Merkel’s imperial overreach
  • When the opposition opposes to oppose
  • Everybody wants the medicines agency
  • November 29, 2016
  • On the politics of the Italian referendum
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • October 08, 2018
  • A renewed willingness on both sides to cut a Brexit deal
  • Latvian politics in turmoil after huge populist gains
  • April 10, 2018
  • A mood of radicalisation in France
  • The German far right makes inroads into trade unions
  • On the absurdity of a new centrist party in British politics
  • October 12, 2017
  • Panicking in London
  • Gabriel's unbearable hypocrisy on the eurozone
  • April 15, 2017
  • Happy Easter
  • October 19, 2016
  • Walloons stand firm
  • Juppé and Macron - father and son?
  • J’ai vraiment dit ça?
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • October 04, 2018
  • The Brexit Queen’s new dancing clothes
  • Ceci n’est pas une crise politique
  • May 28, 2018
  • A no-confidence motion that could backfire
  • The political repercussions of a historic referendum in Ireland
  • Why the lack of an international role for the euro matters
  • January 19, 2018
  • On the futility of discussing the German current account surplus
  • The Brexit revocation madness
  • Varadkar, the enfant terrible in the Brexit negotiations
  • September 14, 2017
  • Bravo Mr Juncker
  • ... what he said about the labour market
  • ... and what his speech means for Brexit
  • May 11, 2017
  • Germany rejects IMF’s policy recommendations before they are issued
  • Why Labour is losing
  • January 05, 2017
  • French Socialist primaries - old wine in new bottles
  • Le Pen's hard ecu
  • Will Tusk get a second mandate?
  • Themes of 2017
  • August 26, 2016
  • Will the refugee crisis return?
  • Montebourg en avant
  • Moisi on Sarkozy's chances
  • Binary choices
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • September 25, 2018
  • Be careful what you wish for - second referendum edition
  • August 28, 2018
  • Urban politics and national crisis - the Irish case
  • How anti-semitism became one of the main issues in British politics
  • August 03, 2018
  • What we think about reforming the eurozone
  • July 09, 2018
  • German panic about Target2
  • AfD level with SPD
  • How the EU could fail
  • June 13, 2018
  • Macedonia - a deal hailed internationally and challenged at home
  • Macron - elusive to the left
  • What did Theresa May concede?
  • May 22, 2018
  • A €60bn ESM credit line - is this what they call a backstop?
  • Will Nato survive Trump?
  • Northern Ireland's Brexit disillusion
  • Would Corbyn become prime minister if he accepted the single market?
  • April 30, 2018
  • Looming May protests against Macron
  • France has discovered the Laffer curve
  • An important resignation in the UK
  • April 09, 2018
  • Orbán gets his supermajority
  • Riding the wave of resistance
  • The EU’s self-defeating strategy
  • March 19, 2018
  • Waiting for Germany
  • Russia’s friends
  • Can the Commons force an extension of the Art 50 period?
  • February 26, 2018
  • Angela Merkel's cabinet
  • February 08, 2018
  • Could the Irish question still trigger a hard Brexit?
  • January 22, 2018
  • Carles Puigdemont's flying circus
  • Macedonia and the insurrection of Greek patriotism
  • On the real hurdles for Brexit revocation
  • And the satellites, too
  • January 05, 2018
  • Catalonia's government by Skype
  • The case for EEA membership
  • December 11, 2017
  • A new era for the French right
  • Growing scepticism of a grand coalition
  • November 27, 2017
  • Will Northern Ireland scupper a Brexit deal?
  • Last-ditch effort to prevent Irish elections
  • Pressure on Wauquiez
  • November 15, 2017
  • A Christmas bonus for poor Greeks
  • Dim prospects of negotiated de-escalation on Catalonia
  • Macron's favourite to succeed Juncker - first round
  • On sovereignty
  • Gli Azzurri
  • November 03, 2017
  • Catalan separatism is energised again
  • A prime minister without a party
  • Northern Ireland - handle with care
  • The death of liberalism
  • October 23, 2017
  • Macron's plans for the European Parliament
  • First phase of Brexit negotiations in final stretch
  • Why the left hates Europe
  • October 11, 2017
  • A parliamentary coup in Italy
  • 1.7% UK growth forecast - not great, but hardly a meltdown
  • Could Tsipras' controversial gender bill split the coalition?
  • October 02, 2017
  • Catalonia recalls EU and eurozone instability
  • French trade unions increase pressure over labour reforms
  • Watch out for a political accident in the UK
  • Municipal elections boost Portugal's Socialists
  • September 25, 2017
  • Where does this leave eurozone governance reform?
  • Is Mélenchon losing his momentum?
  • Lost in Florence
  • September 18, 2017
  • Why Germany cannot lead Europe, let alone the free world
  • Will Macron help to build up Mélenchon?
  • Boris' Coup
  • September 11, 2017
  • Turkey issues travel warning for visitors to Germany
  • How nasty is the AfD?
  • September 04, 2017
  • Dutch referendum: never again?
  • Why trade unions stay quiet on French labour reform
  • August 29, 2017
  • The deep significance of Labour's Brexit U-turn
  • The day after the SPD loses
  • August 24, 2017
  • Legislative hyperactivity for Tsipras' new narrative
  • On the deep causes of euroscepticism
  • August 22, 2017
  • French senate elections and chances of constitutional reform
  • Social partners invited to Dutch government talks
  • August 21, 2017
  • Soft, getting softer
  • Tsipras' chances of a boost
  • On the fallacy of a middle-ground option for the eurozone