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December 13, 2017

Danish government might fall over taxes and refugees

Denmark is another European country with a fragmented parliament, and a minority goverment supported by a fragile four-party agreement. Lars Lokke Rasmussen, whose conservative-liberal party Venstre came third at the 2015 election, presides over a minority cabinet including the Liberal Alliance and the Conservative People's party. The far-right Danish People's Party (DF) - which actually came second ahead of Venstre - provides outside support, while the Social Democrats are in opposition despite being the largest party. As often in the last 15 years, the DF holds sway over a centre-right government, and right now it is locked in a tug-of-war with the liberal government over taxes and refugees. The leader of the DF, Kristian Thuelsen Dahl, is suggesting that the government might fall before Christmas if his demands are not met.

To make a long story short, the 2018 budget includes big tax cuts to please especially the Liberal Alliance, but the DF wants two things in exchange for supporting this budget. One is a guarantee that spending on the welfare state is secured despite the tax cuts. And the other is to tighten the legal regime for refugees under temporary protection. International conventions foresee a right to family reunification after at most three years, but the DF wants this to be delayed for at least five years. In addition, they want to be able to send back refugees whose countries are deemed to have become safe again. The DF's own expert on refugees Martin Henriksen admits that they go against international law.

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December 13, 2017

End-of-an-era mood in Germany

The leaders of the CDU, CSU, and SPD, and the respective group leaders in the Bundestag, will meet this afternoon for a first round of talks. There will be no press conference, and even the place where they agreed to meet has been kept secret. 

We detect a shift in the mood of some commentators. Günter Bannas, one of the seasoned German political commentators, is departing from the overwhelming consensus that the grand coalition is now both inevitable and desirable on the grounds that it is the responsible thing to do. This is still the majority view in the media, because Germans fear political instability more than anything else - even more than strengthening radical parties.

But Bannas is no longer sure that the grand coalition is the ultimate outcome of this process. It may, or it may not, he writes. But he makes a point we have not yet seen any of the German commentators express so openly: showing responsibility can also mean forgoing a role in government. He said all three leaders were wounded by the elections. Horst Seehofer is no longer the strongman in his party, and both Angela Merkel and Martin Schulz had to apologise to their parties for the dismal election results. 

He writes that it will not be possible this time to square the different positions between the parties by fudging a compromise. The two biggest issues will be the SPD's proposal for the abolition of private health care, and the CDU/CSU insistence on an upper limit on the number of refugees and their families. On both of these issues there is not only disagreement between the parties, and in some cases within the parties. There is also mistrust. Bannas' overall conclusion is that these will be the most difficult coalition talks ever - and it may be well the last political act of all three participants.

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December 13, 2017

And now for the hard part

The European Council will declare that sufficient progress has been made, but both sides are returning to old form in preparation for phase two. We discount the loose talk by David Davis over the weekend, and the furious reaction to it. The British strategy is now very clear to see: do everything to get past the March 29, 2019 point of Brexit. Donald Tusk was talking yesterday about a furious race against time. And, while these negotiations could still turn sour and end up failing, we don't think there is a lot to negotiate once you realise that the serious trade negotiations are not going to start until after Brexit. Davis' idea that the UK and the EU could sign a trade deal a second after Brexit is ludicrous.

The main issue to be decided in the next few months is the transition. Alberto Nardelli (@AlbertoNardelli) reports that the EU has tightened the draft guidelines, by making specific references that the ECJ remains in charge, saying that the UK have to continue to comply with EU trade policy, and spelling out that the talks about the future relation will only start in March 2018. 

And no, there will be no trade deal before March 2019. 

Manfred Weber has an article in which he effectively threatens to withhold a transitional deal. We think this tone is extremely unhelpful at this stage, as the transitional deal is in both sides' interest. He is right, of course, when he points out that both sides will need to have an understanding about their future relationship before they sign a transitional deal. But this is what the British side has been arguing all along: that the EU's sequencing does not make a lot of sense beyond a certain point, because many of the issues - including the future of Northern Ireland - will require some concrete agreement on the future trading relationship. Weber said his preferred deal would be a broad association agreement with a Canada-style trade agreement inside. That will, of course, only affect the flow of goods. We were interested to read that the EU is willing draw up a separate agreement on services and capital. 

Peter Foster notes that the EU has showed an impressive degree of unity in the first phase of the negotiations, but suggests this unity may break down in the second phase as the interests of the member states are no longer aligned. He says the Netherlands and Belgium will be pushing for a more relaxed approach on customs and on the Common Transit Convention. On financial services there are differences between those countries that rely heavily on the City of London and those that want to attract business away from it. He quotes a senior official, who had previously complained about the chaos on the British sides, saying that everybody involved knows that divisions among EU member states will become a factor in the next round of negotiations.

Last week's agreement calmed the nerves of Britain's hyperventilating commentators a little bit. As Sebastian Payne pointed out, the probabilities of a no-deal Brexit as well as of a Brexit revocation have both receded as a result of last week's agreement. He referred to a recent analysis by Ipsos Mori the divisions between Brexiteers and Remainers in the UK are hard and are not moving. Brexit has become a form of identity politics. There are signs of growing doubts among Leavers, but this has not reached a point where they are ready to shift sides.

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December 13, 2017

Property auctions - a ticking time bomb for Syriza?

Property auctions continue to be a major challenge for the Greek government. The notaries cancelled court house auctions scheduled for today amid concerns about violent protests. On the list of online auctions there appeared also properties with values below €100,000, despite the government's insurance that first residencies below €300,000 would be protected. Even if there is an explanation for their appearance on the list (small properties bought with business loans), it is very likely to stir up the protests further. And the time line suggests that auctions will increase in range and number over the next months. The threshold of €300,000 for the protection of primary residences expires at the end of the year, and as of 2018 it will fall to €200,000. The SSM expects Greece to conduct at least 3000 auctions until March. The heat is on.

According to Macropolis, the justice ministry is now preparing legislation for all property auctions to be conducted online via the new electronic platform to calm down the fears of the notaries. It is unclear, though, whether this will be enough to satisfy Syriza MPs, especially the faction of the “53,” who believe that the government should be drafting legislation to provide clear protection for working class households from auctions. The government will also have to rush to get all those 70 prior actions under the belt before Christmas, as there are not many days left for parliamentary sessions before the holiday break.

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  • Don’t hold your breath about the EU-Japan trade deal
  • June 29, 2018
  • On the EU's red lines in the Brexit negotiations
  • As bad as Nafta
  • June 11, 2018
  • The end of the G7 - good riddance
  • Macron needs allies for his European agenda
  • Who is going to be the next director-general of the Italian treasury?
  • May 25, 2018
  • Rejected by US, Germany is turning towards China...
  • ...and France is turning to Russia
  • UK ties Galileo to security partnership
  • Germans are discovering miniBoTs
  • May 09, 2018
  • A moment of truth in the Brexit talks
  • A leap of faith, Mr Kierkegaard?
  • April 23, 2018
  • More bad news for the SPD
  • Will Theresa May accept a customs union? The Times says yes. We think so too.
  • A comeback for Marine Le Pen?
  • April 09, 2018
  • Orbán gets his supermajority
  • Riding the wave of resistance
  • The EU’s self-defeating strategy
  • March 26, 2018
  • On the run no more
  • Terrorist attack will challenge Macron
  • A double-whammy of geopolitical and financial uncertainty
  • March 12, 2018
  • German industry is starting to panic about Brexit
  • February 26, 2018
  • Angela Merkel's cabinet
  • February 14, 2018
  • SPD nominates Nahles
  • Why the CEPR proposal won’t work for Italy in particular
  • Why cryptocurrencies are pointless
  • February 05, 2018
  • How big is Germany's external surplus, really?
  • Macron's first election test
  • Coeure's endorsement of a fiscal union
  • January 25, 2018
  • About political leadership in the 20th century
  • Progress in name dispute talks and new opposition at home
  • About 40% probabilities
  • January 17, 2018
  • Labour smashes No Brexit dreams
  • A new political bargain in Portugal?
  • January 10, 2018
  • Yes, the choice is between Canada and Norway
  • Who is resisting Macron and his government?
  • Greece and Macedonia to solve name dispute
  • January 05, 2018
  • Catalonia's government by Skype
  • The case for EEA membership
  • December 21, 2017
  • Catalonia votes
  • A deputy prime minister resigns
  • Will Gibraltar result in another Irish fudge?
  • Blood, sweat and tears
  • December 18, 2017
  • SPD regional party preemptively rejects grand coalition
  • Future of eurozone to be decided by March - we can hardly wait
  • December 15, 2017
  • Amendment 9 conundrum
  • The negligible GDP impact of the single market
  • December 14, 2017
  • Macron gives up on Euro reform... for now?
  • Refugee quota controversy hides disagreement over ultimate policy goal
  • Can't pay, won't pay