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August 29, 2017

The deep significance of Labour's Brexit U-turn

The big story during the long holiday weekend in the UK has been the formal decision by the Labour Party to shift its position on Brexit - towards membership of the single market and customs union for long but finite transitional period. This is a hugely important development because it shifts the parliamentary majority. There are enough Conservatives to support single-market membership, and in any case the EU will offer nothing else for the transitional period.

The announcement by the party's Brexit spokesman Keir Starmer came in the Observer newspaper, and went into an unusual level of detail leaving no doubt that this is a calculated move. We would caution readers not to confuse this policy shift with support for a second referendum. The Labour Party explicitly supports Brexit, and it rejects the transitional period as a device for continued EU membership. 

"Labour also recognise that this transitional arrangement would – for all its merits – be imperfect and prove unsustainable beyond a limited period. It would not provide a durable or acceptable long-term settlement for Britain or the EU. It would not provide certainty for either party. It leaves unresolved some of the central issues the referendum exposed – in particular the need for more effective management of migration, which Labour recognise must be addressed in the final deal."

We thought that Peter Mandelson gave an apt interpretation of this policy shift, pointing out that it was now possible to maintain the stability of the status quo while negotiating a long-term partnership agreement. But he is right to warn that this does not in itself remove the difficult political choices - that free trade in goods and services comes with a quid-pro-quo.

Meanwhile in Brussels, the third round of the Brexit negotiations started with the usual noise from both sides. One of the best comments on the state of the Brexit talks is by Charles Grant who notes that the main risk to Brexit are hardliners on either side. We all know about the hardliners in the Tory party, but Grant makes the point that there are hardliners in the EU as well. The outline of a deal on finances consists of a transitional period, with annual UK contribution of €10bn, and relegating the issue of contingent liabilities to a panel of experts. Both Michel Barnier and David Davis seem to agree on this procedure.

But knowing the outline of a deal is not the same as getting there. The EU formally requests that Britain makes an offer first, before entering negotiations on a trade deal. But without negotiations on a trade deal the UK is not willing to make an offer. Grant says the sequencing problem can be fixed with some creativity, but there are hardliners on both sides making this more difficult.

"...even if Britain were to make a generous offer in September, there would be no guarantee of a favourable response from Michel Barnier, the commission’s chief negotiator. One faction in the commission says that if the British are ready to pay €30bn towards their outstanding obligations, very good. But then if they want access to the single market during the transition, they must pay extra for that privilege – just like Norway pays for it (almost as much as the UK, per capita). This appeals to a number of governments, including Belgium. Many of them will find it hard to compromise on money: Brexit means that net contributors will have to pay more into the EU budget, and net recipients are likely to receive less."

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August 29, 2017

The day after the SPD loses

Majid Sattar is one of the best-informed political journalists in Germany. His story in FAZ on the SPD's scenario planning for the day after the elections tells us that the SPD is preparing for two elections outcomes - a defeat, or a bad defeat. The first would be a result similar to Peer Steinbrück's 26% in 2013, which is above the level the party is polling at now. The second would be a result closer to that of Frank-Walter Steinmeier in 2009, who got only 22%. Sattar looks at how the party will behave in either scenario.

The first important point he notes is that, even under the better scenario, the SPD will not immediately negotiate a grand coalition. It will wait at least until mid-October when there are elections in Lower Saxony. That tells us that forming the next German government is likely to take a long time.

If a coalition of CDU/CSU and FDP is technically feasible, it will happen. This is also the only scenario that promises forming a new goverment will be relatively fast and smooth. All the other options would take months. 

If CDU/CSU and FDP fall short of a majority, there will be two theoretical options: another grand coalition or a three-party coalition between the CDU/CSU, FDP, and Greens - also known as Jamaica (because of the party colours match the country's flag). The mood inside the SPD is firmly against another grand coalition, but the party's leadership intends clinging on to whatever power they have left. This situation could give rise to an intense internal battle - whose outer representation will be the election of the SPD's parliamentary leader. Schulz may claim that position on an interim basis, but in case of a grand coalition he may enter the government and hand over the position to someone else. One candidate mentioned in Sattar's article is Andrea Nahles, currently labour minister.

Sattar is also holding out the possibility of new elections. It is possible that talks for a Jamaica coalition would fail, or that the SPD would refuse to enter into a grand coalition. In the case of a very bad result, the SPD would have little to lose from a second election.

Meanwhile, the polls seem to be confirming that the AfD has managed to pull back from its earlier low poll ratings. The latest ARD/Deutschlandtrend survey has the AfD up from 8% to 10%, CDU at 38%, and SPD at 22%. The AfD would be the third largest party. If this were the result, a CDU/CSU/FDP coalition would not be possible and the SPD could refuse to enter into a grand coalition. This is the scenario in which repeat elections could happen.

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