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October 19, 2017

Germany is softening up over Brexit

We recall making a controversial argument after the Brexit referendum that Germany will end up supporting the UK in its quest to seek an article 50 agreement. We know that the standard view among commentators in the UK is now that this is not so. Germany will prioritise the single market. This is indeed the official position but, behind the scenes, there are signs of softening, as Bloomberg and Handelsblatt suggested yesterday in separate reports. 

Bloomberg reports on a document prepared by the German foreign ministry, which outlines a comprehensive free-trade agreement with the UK. The four-page document is dated October 11, and proposes a broad partnership including at a minimum: foreign and security policy; fighting terrorism; cooperation on criminal justice; agriculture and fisheries; energy; transport, especially air transport; research; and digital issues.

This obviously still falls short on banking and finance - we don't think there will be comprehensive deal to allow the City of London to remain the eurozone's financial centre. But, on many other areas, there is scope for co-operation. The article points  out that this does not necessarily represent the position of Angela Merkel, but it nevertheless stakes out an important claim. Continued policy co-operation, especially in the field of foreign and security policy, is a vital German interest. Just recall last week's joint reaction by Germany, France, and the UK, to President Trump's decision not to certify the Iranian nuclear agreement. 

Writing in Handelsblatt, Ruth Berschens notes that the German government seemed to have changed its tone on Brexit. Contrary to the official mantra that the talks are deadlocked, the German government emphasises the good degree of progress that has already been achieved, coupled with optimism that the few remaining problems are solvable. What matters a lot more than money are the joint interests about the future. Berschens calls it a message of peace, and concludes that Germany is as interested in a soft Brexit as the UK itself. She points out that logical disruption at the UK seaports and airports would be damaging to both German and British interests.

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October 19, 2017

The French budget and the wealthy

The wealth tax ISF was predictably the main focus in the French budget debate yesterday. Left parties - Nouvelle France, LFI, and Communists - did their best to frame the budget as a budget for the rich. The government responded by reminding the MPs that François Hollande offered an even bigger present of €1.3bn, the amount it will cost the government this year alone to reimburse enterprises after the Constitutional council ruled a 3% tax on dividends to be unconstitutional. Of this, about €727m go to the 1000 top beneficiaries. Bruno Le Maire points out that, by comparison, the wealth tax reform will only send €400m back to the 1000 biggest tax contributors. An eye for an eye, a tooth for a tooth.

But it is not only the left that has a problem with the ISF reform. Parts of the majority have their doubts, too. François Bayrou’s MoDem wants to preserve a wealth tax on individuals, and keep the parameters of the ISF in place for firms' securities holdings. LREM MPs want to include visible signs of richness, such as yachts, sports cars, and precious metals, in the new property tax that is to replace the ISF. The chief whip of Macron’s LREM party told its deputies that they should withdraw their budget amendments not backed by the government. Not everyone was pleased.

The latest Elabe poll, meanwhile, shows that 7 out of 10 French expect the wealth tax reform to increase income inequality in France. Only 31% believe that the better-off will indeed invest the extra money into the economy. The argument that France is unique in Europe to have such a wealth tax hardly helps to convince the French.

In the assembly the government also laid down its ground rules in case revenues exceed expectations: if economic growth is better than expected, the proceeds should go primarily to reduce the public deficit and debt. If this improvement is structural, as measured by increased investment, half of the proceeds will go either towards lowering taxes or further increasing investment expenditure. This pre-emptive strike is to avoid the error of previous governments, e.g. Lionel Jospin in 2000, who had to battle with his own majority on how to spend extraordinary proceeds as the economy recovered.

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October 19, 2017

Will Borut Pahor win re-election as Slovenian president?

Slovenia holds the first round of its presidential election this Sunday, and the question is whether the incumbent president Borut Pahor will win in the first round, or will need a runoff three weeks later. He has been polling just under 50% consistently. The election can be followed on twitter hashtag #Volitve2017.

Pahor's main contender is Marjan Sarec, the mayor of the town of Kamnic and an independent. As a young and nontraditional politician - he was an actor before becoming mayor and is just under 40 years old - he has anti-establishment appeal. He is polling around 20% in the first round, but as an anti-establishment candidate he could threaten Pahor in what would be an unpredictable runoff. For this reason he has been subject to smear tactics in the last weeks of the election campaign, which appear to have dented his support somewhat. Vying for a distant third place with under 8% of the vote are: Romana Tomc, an MEP with Democratic Party of Slovenia, an European People's Party affiliate; and Ljudmila Novak, leader of the Christian Democratic party New Slovenia; both are in opposition. The candidate of the governing Party of the Modern Centre, Maja Makovec Brencic, is polling around 2%. There are nine candidates altogether, five of which women. 

The Slovenian president is largely ceremonial, despite being directly elected, but can exert strong influence over the political system. One of the key roles of a president is international representation, and the Slovenian Times has a short survey of the various candidates' positions on foreign relations. Pahor wants Slovenia to stay in the EU core, take active part in EU reform, and preserve good relations with its neighbours, as well as with the US and Russia. Sarec is concerned about fighting terrorism and securing the Schengen border, and about improving relations with Croatia. He sees himself as a Slovenian Macron.

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