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October 12, 2017

Panicking in London

The Brexit debate in the UK is going through predictable motions. We are now at the stage where people inside and outside the government are panicking over the possibility of a no-deal scenario. Some commentators are needlessly hyperventilating over Theresa May's refusal to say how she would vote in a Brexit referendum today, and over Philip Hammond's statement that he is not budgeting for the possibility of a no-deal scenario. There is a row inside the cabinet, as Robert Peston tells us, but this is more about tactics. Some Brexiteers feel that the looming possibility of a no-deal scenario might create panic as the Brexit date nears. Peston argues that much of this dispute is hot air. Crunch time for the Brexit talks is December. By then we will have a good idea whether there will be a deal or not. And, if not, then Hammond will have no choice but to start funding the additional infrastructure a hard Brexit will require.

Ambrose Evans Pritchard notes that the EU's hard negotiation position will confront the UK with a traumatic decision very soon. He cites the Bank of England saying that the banks and finance houses will activate their contingency plans by Christmas unless they know where Brexit is heading. He quotes David Owen as saying that the time is approaching for a "unilateral declaration" stating how the country will proceed.

We acknowledge that there is the possibility of an accident at some point in December, but we should also note that the French and Germans must be aware that a continued refusal to discuss the trade relationship could easily trigger a no-deal Brexit. It is possible that they want to wait until companies relocate, so that they garner the fruits of a hard Brexit, but the quid-pro-quo would be a sudden loss of UK contributions to the EU budget from March 2019 - if not earlier. The biggest danger is a political miscalculation - which is entirely possible given the persistent lack of good judgement about UK politics on the continent, and vice versa.

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October 12, 2017

Gabriel's unbearable hypocrisy on the eurozone

We have often remarked that the SPD has great policies when in opposition, and turns cynical and opportunistic when in government. Sigmar Gabriel is the outgoing foreign minister, and before we report the details of his criticism of Wolfgang Schäuble non-paper one should bear in mind that the SPD has supported the German government's line during the eurozone crisis. Earlier the SPD supported the unilateral adoption of a balanced-budget constitutional law, which goes way beyond what is required under the stability and growth pact and has contributed to the imbalances. The party has supported the government's tough line on Greece, including the persistent refusal to grant debt relief. And, during the last election campaign, Martin Schulz explicitly rejected eurobonds on the grounds that they are not needed. The difference between the SPD and the FDP is that the latter does not hide its dogmatic position on the euro. 

This is the context of Gabriel's criticism of the non-paper, which is little more than an explicit exposition of Germany's long-time policy on eurozone reform. As the ARD notes, Gabriel has written his own paper in which he supports the plans of Emmanuel Macron. We would be curious to know what these plans are. He has a plan for the EU, but not really for the eurozone. Where we agree with Gabriel is in his observation that the non-paper by the finance ministry - we presume it is written by Ludger Schuknecht - should not be regarded as Schäuble's parting shot, but as an indication of the policies of the new government. Instead of moving towards the French position, and finding a common position, Germany is now proposing to get even tougher. Gabriel's substantive criticism of the finance ministry non-paper very much reflects our own, but leaves us wondering where he has been all these years. For most of the outgoing government's term he was economics minister and SPD chairman - hardly positions without influence on policy. We can see the SPD is now becoming more critical as it prepares for opposition, but this is sheer hypocrisy. The truth is that the SPD decided not to make a fuss over the eurozone before because it judged it to be electorally disadvantageous.

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