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October 03, 2017

A short note about UK politics

Maybe this has to do with the need by the UK's Sunday newspapers to generate stories, but we note a clear calendar effect when it comes to expectations of an imminent coup against Theresa May. Those expectations peak over the weekend. We maintain our view that Theresa May is going to last at least until the end of the Article 50 negotiations, for the very simple reason that any other outcome would trigger an election, which Jeremy Corbyn might well win. Conservative MPs may be mad at May for calling an election that turned many safe seats into marginals. But, if they replace her with Boris Johnson, they run the risk of losing their seats. We are not appealing to peoples' rationality, but to their self-interest. 

The BBC had a story yesterday quoting Lord Ashcroft, one of the Conservative Party's largest donors, as saying that Johnson's antics may in the end help May get her deal because it signals to the EU that she is the only partner with whom a Brexit deal is possible. Ashcroft says that everybody has an interest in a deal, that the issues are complex, that the final deal will happen late in the process, and that it is normal to expect political grandstanding in the meantime. That's pretty much how we see this, too.

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October 03, 2017

The impact of the German elections on the euro debate

Wolfgang Munchau and Hans Kundnani had similar comments on the impact of the German elections on euro debate. Munchau's argument is that eurozone reform will happen, but it will be Germany's version of it, with only minimal cosmetic concessions to France. The details have yet to be agreed, not between Germany and France but between the CDU and the FDP. People are wrong to think that Germany does not want eurozone reform. But it wants a different set of reforms. It wants more fiscal discipline and, most important, a link between future ESM funds and the ability by the ESM to force a haircut on investors. In other words, Germany is doubling down on its approach to eurozone crisis management. Those who criticised it, like us, will hate the new regime - if it is ever agreed - even more. 

Kundnani goes in a different direction. He had previously written that the mandate Merkel was seeking was to say No to Emmanuel Macron. By electing a coalition of the right, the Germans confirmed Merkel's eurozone policies and rejected the alternative approach of the SPD, which would have been more open to Macron. He noted that his prediction turned out to be even truer than anticipated. The losses of both the SPD and the CDU, and the strengthening of the FDP and AfD, have significantly strengthened the forces in the new parliament who are outwardly anti-euro. In this political environment, the chances of a breakthrough on eurozone economic governance are close to nil. As for Macron, Kundnani notes, he now has the choice to make ambitious demands which Germany will reject, or to support Germany's demands and claim victory. Either way, the prospects for a real breakthrough are slim.

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October 03, 2017

The decline and fall of Martin Schulz and the SPD

The big talk in Germany is not about the coalition - those talks won't start until after the state election in Lower Saxony in mid-month. The big talk is about a 20,000-word story in Der Spiegel by a reporter who accompanied Martin Schulz for his entire campaign, and who tells a revealing story of how Martin Schulz flunked it. This is not a hatchet job, at least not by German standards, although the story leaves no doubt that Schulz was ill-prepared for the job - both in terms of policies and emotionally. 

There is no way we can summarise this novella but what we learned is that the disaster was in part due to the fact that the SPD as a whole has lost all traces of a political killer instinct. It has confirmed our view - as we related it here during the campaign - that Schulz underestimated the snake-pit nature of German politics, especially in the beginning when he was riding high. There was a rather glib quote from him where he proudly defended his decision not to talk about any political content. He explained his popularity at the time - this was March - with the observation that he is seen as a more emotional person than Merkel. 

In March and May, the SPD lost three state elections. The fall in the SPD's poll rating continued until July. And, as the fall happened, Schulz collapsed emotionally - a process that started relatively early on. This is from July:

"We are in free fall. Perhaps I am the wrong candidate. The people are nice to me, but perhaps they just take pity. I have been sensing this for some time."

Another revealing scene is the preparations for his one and only TV duel with Angela Merkel in early September. During the rehearsal he was too aggressive, and his aides told him to tone it down a bit - which he did in the actual interview. That was a disastrous decision - and set in motion a decline in the polling for the SPD, but also for the CDU and the CSU, as the voters became increasingly disillusioned with the grand coalition's lack of political ambition.

This was the first time that a German politician allowed a journalist to accompany him or her throughout an entire campaign - the tradition started in the US during the 1992 elections, when Bill Clinton had a film team following his every step. Many people admire Schulz for this decision, but we should note that he took it at a time when he thought he could win the elections. In the case of Clinton, Barack Obama, and Emmanuel Macron, the live coverage of the campaign helped to strengthen the aura of a winner. In the case of Schulz, it has destroyed him. We expect him not to last as SPD chairman. The SPD needs a complete reboot for which the entire leadership, including the new SPD Bundestag leader Andrea Nahles, is not suited. The SPD's decline is not the work of Schulz. After his departure it will continue.

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