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October 02, 2017

Catalonia recalls EU and eurozone instability

The European reaction to the scenes from Barcelona and elsewhere in Catalonia was one of sheer horror, partly because the vast majority of the badly-informed European public did not see this coming. The Spanish government clearly underestimated the degree of this shock, as public opinion in the rest of the world strongly aligned with the Catalans. One of the many questions we are asking ourselves this morning is which country might become the first to recognise an independent Catalonia. We are not talking about North Korea, but for example whether a recalcitrant post-Brexit UK might be tempted. Could this be Jeremy Corbyn first important foreign policy decision as a prime minister? Other likely bets include Russia or Turkey, as Vladimir Putin of Recep Tayyip Erdogan might be tempted to troll the EU.

The developments in Catalonia are also a reminder that the eurozone is not an area of political stability as some commentators have naïvely assumed after the defeats of Marine Le Pen and Geert Wilders. The conflict between Flanders and Wallonia in Belgium is of a different nature than that between Catalonia and Spain, but the situation there remains fundamentally unresolved. The extreme right in France, and the extreme left, have not disappeared with the election of Emmanuel Macron. 

Italy is facing elections next year, which could produce either gridlock, or a coalition influenced by populist or even extremist sentiment. The next Italian government may not favour euro exit, but at least two of the largest groups, Forza Italia and Five Star, have at one time or another toyed with the idea of a parallel currency. And Matteo Renzi, the former PM and leader of the Partito Democratico, advocates disobedience of the Fiscal Compact even though it is part of Italy's own legal framework. Austria will hold its elections in just under two weeks and, while the far-right Freedom Party may not become the largest party, this is only so because the centre-right ÖVP has stolen much of its programme. Looking beyond the eurozone, there is plenty of scope for political accidents in Poland and Hungary.

People this morning woke up to a reminder that the EU, and the eurozone in particular, remain highly unstable politically. 

Some readers may have wondered about our (relative) optimism about Brexit, in particular about our refusal to buy into the widely-held view that Brexit will lead to a political and economic meltdown. But just compare how the British dealt with the Scottish independence vote in 2015, and how relatively peaceful the Brexit process has been. The Tories are in deep trouble over this (see our separate story below), but the battles are now confined to parliament, where they should be.

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October 02, 2017

French trade unions increase pressure over labour reforms

The French government is faced with multiple challenges, some of its own making. The leaders of the two trade unions FO and CFGT, who so far played along on the labour law reform, have been challenged by their members. Around 124 off the 143 regional leaders from the FO voted for a mobilisation against the labour law reform. The two trade union leaders defended their accommodating position so far, arguing that their political capital should be spend on other areas rather than on a reform they considered as a done deal. But the government's move to present a housing reform with unpopular cuts on housing benefits put them in a difficult position. The unions are thus likely to become more troublesome ahead of the final adoption of the labour law reform in November.

Last week also produced a controversy about how to tax wealth after the draft budget was perceived as predominantly benefiting the rich. LREM deputies now suggest a tax on high-end luxury products, such as yachts and cars with CO2 emission of more than 190g/km, a symbolic gesture at best. But this might be the concession from the government and Bruno Le Maire might have to eat his words after Gérald Darmanin, budget minister, indicated that the government is open to such a move.  

Also this week Édouard Philippe will face Jean-Luc Mélenchon in a live TV debate on Thursday. This duel buttresses Mélenchon's claim to the role of opposition leader, something that other parties in opposition are unlikely to find acceptable. François Bayrou, meanwhile, weighed into the public debate with a lot of good advice for the government, including on hoe to define a social agenda. He is clearly looking for a role to play.

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October 02, 2017

Watch out for a political accident in the UK

There is an air of something big happening in UK politics relatively shortly. The Tory-supporting quality newspapers - The Sunday Times and the Daily Telegraph most of all - is now running a fierce anti-May campaign, culminating in a couple of extraordinary lead stories in yesterday Sunday Times about her emotional fitness to run the country, and about a revolt led by Boris Johnson. But beware: this is not as linear as it may appear. While Johnson remains the darling of the pro-Brexit right-wing of the Tory party, there is also an anti-Boris movement taking shape with even stronger force. Last night, we watched an extraordinary one-hour documentary on Channel 4 on Johnson, which depicts "our unlikely chief diplomat", as the introduction to the series put it, as a buffoon, echoing a recent column by Rachel Sylvester in the Times. 

This morning, the Times reports that May is under pressure to fire Johnson as the party meets for its annual conference in Manchester. It appears that Johnson tries to provoke her into just doing that. As the Sunday Times reported yesterday, Johnson hold told friends that he expected May to be gone within a year, and that he regards this time window as his last chance for a leadership challenge because the party might choose a younger leader if this time window has passed. 

The Sunday Times' other lead story yesterday was an unashamed personal attack on the prime minister that was camouflaged as a story about the Queen's dismay about not being kept up to date with events after the elections. The story purports to show that May is mentally unstable. The article cites Downing Street becoming so concerned about her mental stability that they considered sending in an SAS soldier to give her a pep talk. The article quotes from a forthcoming book, which claims that May repeatedly broke down tears after the elections and the criticism over how she responded to the Grenfell Tower tragedy, quoting one aide as saying that she was not thinking straight. While this is a clear hatchet job, it certainly adds to the revolutionary mood in Westminster. The general consensus among observers and senior Tories is that she must give a convincing performance in her address to the Tory party conference on Wednesday, or otherwise she could be forced out.

Some of the anti-May sentiment is driven by senior former politicians, like Lord Heseltine, who regard a revolt as the only way to undo Brexit. The idea behind this thinking is that a messy leadership battle would give rise to new elections, a dramatic recession, a Labour victory, followed by a second referendum on Brexit. We cannot exclude that this will happen, but at the very least we have to understand that much of the anti-May campaign is a coalition between those who want to frustrate Brexit completely and those who want a cliff-edge Brexit on March 2019. But this is not a majority in the country. A consensus has been building in support of a managed Brexit, and we do not see public opinion as supporting a Brexit reversal even in case of political turmoil.

We are also not sure that Johnson could win a leadership election. If May is forced out, she may well be replaced by a leader who follows a broadly similar line on Brexit. 

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October 02, 2017

Municipal elections boost Portugal's Socialists

Portugal’s socialists got a big boost in the municipal elections last Sunday. The Socialists got 38% with over 99.6% of the district votes counted, according to the government’s website. The number of city councils they won reached 158, up from 150 before, according to Journal di Negocios. The only downside is that they failed to regain an absolute majority in Lisbon, losing 3 councillors to the PSD and the Left Bloc. The conservative CDS had their worst result since 1976, below 100 city councils. Municipal elections are not the same as national elections, and we should not draw early conclusions. But coming two years before the next national elections, this historic victory is clearly good news for the Socialists.

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