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December 19, 2017

German pre-coalition talks to conclude mid-January

There won't be any hard news from Germany until about mid-January. The talks-about-talks will start in early January and last until the middle of the month. An SPD party congress will then decide whether to move ahead with formal coalition talks. If a coalition agreement is reached, it will have to be approved by SPD party members in a referendum. At the moment, the party is more hostile than ever about a grand coalition. Angela Merkel said she will only talk about grand coalitions, and about nothing else. Her statement yesterday makes Schulz' protestations of open-ended talks sound rather hollow. It is very clear that the SPD leadership now wants to engage with Merkel in coalition talks. But they have agreed not to call it and to hide behind the expression of "open-ended". We are not sure that this goes down well with party members.

Martin Schulz will need to pull something magical out of a hat in order to get the party to embrace a grand coalition for a third time in twelve years. We think the chance of success are lower than 50%, but events might intrude.

The rather silly intervention by Sigmar Gabriel, who wants to reposition the SPD as a ultra-nationalist party, is not really helpful for Schulz. It is probably not helpful for Gabriel either, who has let to be known that he wants to become finance minister. Handelsblatt has an article, which recalls Gabriel's fateful decision in 2013 not to go after the finance minister job when he had the opportunity. He listened to Gerhard Schroder and went for the economics ministry, in the mistaken calculation that the power in German politics has shifted towards finance. The SPD does not want to repeat this mistake, but the CDU is going to fight hard to keep this portfolio, especially now that Peter Altmeier seems to be enjoying himself in his new role. Schulz himself is considered to be the top candidate for that job, also given his own European experience, with Gabriel and Olaf Scholz, the major of Hamburg, as possible alternative candidates. 

On the substance of the upcoming talks, Merkel gave a strong hint at where the two parties would reach a compromise. Subjects would be health insurance - especially the SPD's request to abolish private health care - the CDU/CSU's tougher policy on refugees, and the future of the EU. We have no doubt that the leaders of the two parties could easily agree an agenda for another four years of government. The best hope for the SPD is that the prospect of a unified healthcare system might galvanise SPD voters to support a grand coalition, perhaps for a last time.

We remain doubtful.

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December 19, 2017

Shall we talk about Brexit?

Today is the day when the British cabinet will discuss the Brexit end-game for the first time ever. A sub-cabinet meeting already took place yesterday, according to the Daily Telegraph, which reports that Boris Johnson and Michael Gove are winning the battle in favour of an eventual regulatory divergence between the UK and the EU. 

The position is incoherent, of course. The FT has a wonderful headline that says that the British wants the cake back on the Brexit menu. The real-world choices remain as depressingly simple as they always were. There will be no bespoke trade agreement. The choice is between Canada and Norway, a somewhat simplified statement of the two available alternatives - associate membership of the single market and customs unions, which would not allow regulatory divergence - or a goods-only trade agreement, which would leave the UK service industry out of the single market. While we would have preferred the Norway option -  as a long interim regime - it now appears that the UK and the EU are heading for a less integrated future. This also means that the Irish question is far from settled. Reguatory divergence is inconsistent with the absence of a hard border, either inside Ireland, or the Irish Sea. Some promises that were made, will not be kept.

The newspaper reports May is telling her cabinet that the UK should aim high in the upcoming negotiations, and not accept what the EU is currently prepared to offer. There were differences in tone between the hard Brexiteers, and those favouring closer alignment with the EU, notably Amber Rudd and Philip Hammond. But there was a clear majority in favour of gradual divergence. 

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