We use cookies to help improve and maintain our site. More information.
close

March 27, 2018

The IMF's proposals for eurozone reform

There are, broadly speaking, four schools of though for eurozone reforms:

  1. The liquidationist view - help in return for automatic debt restructuring, and the possibility of a euro exit;
  2. re-nationalisation of fiscal policy;
  3. a single safe asset - real, not securitised;
  4. a central fiscal capacity and further development of existing infrastructure;

Then there is a lot of muddled thinking - like securitised safe assets - and various cross-sections between the four schools of thought above. We favour the single asset approach - number three. The direction most likely to be pursued is some compromise between numbers 1 and 4. The IMF is clearly in the camp of those, like Emmanuel Macron, who is seeking a fiscal union as the main pillar of reform. Christine Lagarde noted that fiscal policy during the eurozone crisis was highly pro-cyclical and produced a double-dip recession. A central fiscal capacity would mitigate, though not eliminate, the effects of a crisis. The IMF proposes a rainy-day fund, with borrowing capacity but with an obligation to repay all debt. With a contribution of 0.35% of GDP it would be possible to reduce the negative effect of a hypothetical severe crisis by some 0.5pp, as outlined in a specific case study. This is intended as a compromise. Lagarde said this is not going to solve the next crisis, but it will help. She said there are legitimate fears that this could lead to a transfer union - she was speaking in Berlin - but the fund could be constructed in such a way as to avoid this problem. The principle of eurozone reform should be not to make the good the enemy of the best.

In its coverage of the story, FAZ immediately calculated that Germany would have to pay some €11.4bn into this fund, which is about the same as the financial room for manoeuvre for the entire four-year term of the grand coalition. It is no surprise that this proposal did not meet with much enthusiasm from various German politicians and economists quoted in the article.

Show Comments Write a Comment

March 27, 2018

No concessions from Erdogan

Recep Tayyip Erdogan travelled to Varna in Bulgaria yesterday to meet Donald Tusk and Jean Claude Juncker. The tense meeting produced no concrete results, but a record of mutual grievances and a call from both sides for improvement. Neither side wanted to risk a breakup in relations. We expect both sides to keep this delicate balance.

The EU failed to get any solutions or promises on its list of concerns - release of arrested EU journalists, Turkey's actions in the eastern Mediterranean and the Aegean, the blockage of Cyprus' off-shore drilling, and the detention of Greek soldiers accused of espionage. Tusk raised concerns and Juncker said it was indispensable for Turkey to improve its relationship with Cyprus and Greece, and expressed his hope that the two Greek soldiers will be free by Easter according to Kathimerini. Erdogan responded by saying that the matter of the two Greek soldiers was in the hands of the judges. As for Cyprus, he used the issue to call for Turkish Cypriots to have equal rights when it comes to the exploitation of hydrocarbons in the eastern Mediterranean.

Erdogan did not get what he wanted either. He called for more funds to care for the Syrian refugees as part of the refugee deal with the EU. He complained that the EU had only released €1.8bn of the €3bn tranche for Turkey to care for Syrian refugees and that the EU was dragging its feet over the visa liberalisation for Turkish visitors to the EU. Erdogan also wanted the customs union back on the agenda. According to the FT, there is still some way to go. 

Show Comments Write a Comment

March 27, 2018

Will the UK be shut out of Galileo on Brexit?

The latest Brexit controversy is over the European Space Agency's Galileo system, a not-yet-operational counterpart to the US' GPS, Russian Glonass, and Chinese BeiDou satellite navigation systems. The issue is post-Brexit British access to Galileo, and has two aspects. First, whether the UK should have access to Galileo's private regulated service or PRS, which is the layer of service restricted for government and military use. As a non-EU member state, the UK would in principle not have access to it already after the Brexit date of 29 March 2019, as PRS access has not been included in the negotiations of the transition agreement. Non-EU countries such as Norway (an EEA member) and the US (a Nato ally) have both long been trying to secure access to PRS through negotiations whose outcome is still uncertain.

The second aspect is UK industry access to tenders for the development of the technology post-Brexit. The EU has announced its intention to include break clauses into tenders that would allow contracts to be cancelled in the event that a firm's host state found itself outside the EU. Such a break clause is so onerous for an industry participant that it basically shuts UK firms out of bidding for contracts straddling the Brexit date, even if the UK is currently a full EU member. Naturally, this has led to complaints from industry and from the UK government, with accusations that this is all an underhanded attempt to divert to German, French, or Spanish firms, contracts that would naturally go to the UK aerospace sector. The encryption technology of PRS has been developed mostly by British firms, for instance.

The EU is arguing that allowing non-EU firms to take part in PRS development would fatally compromise its security in the future. Of course, as an aspiring close security partner of the EU, the UK takes exception to this argument. The irony of the situation is that, when Galileo was first conceived at the turn of the century, the UK objected to it on the grounds that as Nato partners EU countries had no need for an alternative to the military layer of the US' GPS. Now, one reaction to the current controversy is the suggestion that the UK should actually develop its own separate satellite navigation system. 

We would make two points. First, such break clauses are natural, and should become ubiquitous in financial contracts straddling the Brexit date. Second, Norway and the US, while attempting to secure access to PRS, don't attempt to participate in its development.

Show Comments Write a Comment

This is the public section of the Eurointelligence Professional Briefing, which focuses on the geopolitical aspects of our news coverage. It appears daily at 2pm CET. The full briefing, which appears at 9am CET, is only available to subscribers. Please click here for a free trial, and here for the Eurointelligence home page.

 

Recent News

  • July 10, 2017
  • EU in self-destruction mode
  • The EU's fault lines
  • Fake News and Fake views
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • August 20, 2018
  • ... and a subtle shift in EU policies towards both Russia and Turkey
  • Nothing to celebrate about the end of the bailout programme
  • Support for Brexit holding up
  • June 20, 2017
  • How to soften Brexit?
  • The deep roots of Brexit: Thatcher and the Germans
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • July 09, 2018
  • German panic about Target2
  • AfD level with SPD
  • How the EU could fail
  • May 31, 2017
  • Getting real in the debate on the euro's future
  • Russia's growing influence in Italy
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • June 18, 2019
  • Retaliation threats over drilling
  • May 28, 2018
  • A no-confidence motion that could backfire
  • The political repercussions of a historic referendum in Ireland
  • Why the lack of an international role for the euro matters
  • May 10, 2017
  • PSOE primary campaign in full swing
  • Czech government crisis escalates
  • Backroom dealing on electoral reform in Italy
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • April 09, 2019
  • What can go wrong now?
  • April 13, 2018
  • German support for eurozone reform next to zero...
  • ... and no support for France on Syria either
  • A French sermon
  • Why the euro endures
  • April 19, 2017
  • Shadows of money
  • Breppe Grillo vs Eurointelligence
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • January 29, 2019
  • What comes after plan B fails? Plan C, of course. C for cliff-edge
  • Gilets jaunes, how to structure a movement in free flow?
  • European Court of Auditors criticises Juncker’s investment fund
  • February 26, 2018
  • Angela Merkel's cabinet
  • March 27, 2017
  • Governing formation troubles - Northern Ireland edition
  • Did Trump present Merkel with a bill for Nato?
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • November 13, 2018
  • Peak Salvini?
  • Protest uberisation
  • January 05, 2018
  • Catalonia's government by Skype
  • The case for EEA membership
  • February 28, 2017
  • Is Hamon losing the right wing of his party?
  • Something we just don’t understand
  • Solve the problem
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • June 10, 2019
  • How to create Brexit facts
  • The new Alde is already in trouble
  • August 28, 2018
  • Urban politics and national crisis - the Irish case
  • How anti-semitism became one of the main issues in British politics
  • November 13, 2017
  • A pro-European list: Wauquiez' nightmare
  • Catalan separatism isn't going away
  • Why oh why does Germany behave the way it does?
  • Why the four freedoms matter
  • February 01, 2017
  • Do Republicans have a plan B if Fillon falls?
  • Unforgiven
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • February 11, 2019
  • SPD dumps Hartz IV
  • Macron's revival
  • May 31, 2018
  • Hans Werner Sinn demands German euro exit
  • The politics of the SPD’s links to Russia
  • September 18, 2017
  • Why Germany cannot lead Europe, let alone the free world
  • Will Macron help to build up Mélenchon?
  • Boris' Coup
  • January 05, 2017
  • French Socialist primaries - old wine in new bottles
  • Le Pen's hard ecu
  • Will Tusk get a second mandate?
  • Themes of 2017
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • May 01, 2019
  • Labour votes against obligatory second referendum
  • On the link between output gap measures and the rise of political extremism
  • Berlin's inconclusive Kosovo conference
  • September 21, 2018
  • SPD ministers want to continue grand coalition
  • February 12, 2018
  • What the euro debate is really about
  • How Brexit can still falter
  • July 05, 2017
  • Europe’s next migration crisis
  • Philippe: French need to kick spending addiction
  • November 28, 2016
  • And now what Monsieur Fillion?
  • The inescapable logic of an interim agreement
  • On Germany's foreign policy post-Trump
  • How to lose against the populists
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • April 08, 2019
  • Welcome to the new Brexit grand coalition
  • Waiting for Macron's next move
  • October 08, 2018
  • A renewed willingness on both sides to cut a Brexit deal
  • Latvian politics in turmoil after huge populist gains
  • April 09, 2018
  • Orbán gets his supermajority
  • Riding the wave of resistance
  • The EU’s self-defeating strategy
  • October 09, 2017
  • UK is starting to prepare for a no-deal Brexit
  • Why Germany will resist meaningful eurozone reform
  • April 13, 2017
  • Did Russia influence the Brexit vote?
  • All good between Germany and the US now?
  • October 18, 2016
  • The self-destruction of Francois Hollande
  • Brexit psychotherapy
  • At least three candidates for the PvdA leadership
  • The unbelievable hypocrisy of Mario Monti
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • June 19, 2019
  • What the US-Iran standoff tells us about the EU
  • Is Germany withholding information on right-wing extremism?
  • February 08, 2019
  • Macron turns stand-off with Italy into a game changer
  • Is there a strategic intent behind Macron's decision?
  • October 01, 2018
  • After the referendum, more turmoil in Macedonia
  • What will happen if the UK parliament votes No?
  • Barnier's no-thanks works much better than a yes-please
  • 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
  • January 17, 2018
  • Labour smashes No Brexit dreams
  • A new political bargain in Portugal?
  • September 13, 2017
  • Why the Turkey negotiations will continue
  • May 10, 2017
  • PSOE primary campaign in full swing
  • Czech government crisis escalates
  • Backroom dealing on electoral reform in Italy
  • January 05, 2017
  • French Socialist primaries - old wine in new bottles
  • Le Pen's hard ecu
  • Will Tusk get a second mandate?
  • Themes of 2017
  • August 25, 2016
  • The costs of Brexit
  • Redefining corruption
  • Greek government shocked, shocked...
  • The costs of Brexit
  • Redefining corruption
  • Greek government shocked, shocked...
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • June 19, 2019
  • What the US-Iran standoff tells us about the EU
  • Is Germany withholding information on right-wing extremism?
  • May 22, 2019
  • Better start those no-deal preparations right now
  • Europe's real transfer union is from east to west
  • April 24, 2019
  • May's final and biggest gamble
  • Will the EP be Brexit's great parliamentary beneficiary?
  • Can Loiseau fight the far right given her past?
  • March 26, 2019
  • No, the UK parliament has not taken control
  • Barnier for president?
  • March 01, 2019
  • Stars seem to align in favour of the Brexit deal
  • The hidden traps of the UK rebate
  • Orbán coming dangerously close to EPP expulsion
  • February 04, 2019
  • Watch out for the resurgence in Tory unity
  • The gilets-jaunes' effect on the European elections
  • What did he possibly mean by that?
  • January 09, 2019
  • Trump downgrades EU's diplomatic status, threatens trade war
  • December 18, 2018
  • The secret plots behind the no-confidence motions
  • November 26, 2018
  • Two German plus two Dutch makes four spitzenkandidaten
  • Yellow vest protests - radicalisation and new political alliances
  • November 05, 2018
  • Macron trails behind Le Pen in European elections poll
  • How the CDU will organise leadership campaign
  • October 15, 2018
  • Black Brexit smoke
  • Bettel can relax and stay in office
  • Solving the crime vs solving the problem
  • September 25, 2018
  • Be careful what you wish for - second referendum edition
  • September 05, 2018
  • May’s gamble
  • The ultimate migrant
  • August 20, 2018
  • ... and a subtle shift in EU policies towards both Russia and Turkey
  • Nothing to celebrate about the end of the bailout programme
  • Support for Brexit holding up
  • July 24, 2018
  • A constitutional referendum in Poland?
  • On the future of the euro
  • July 09, 2018
  • German panic about Target2
  • AfD level with SPD
  • How the EU could fail
  • June 25, 2018
  • Trump's car tariff to come early
  • On the lack of a sharp focus in the eurozone debate
  • June 12, 2018
  • The new Italian battle lines
  • A Brexit rebellion squashed, for now
  • Wauquiez - a party leader without followers
  • May 31, 2018
  • Hans Werner Sinn demands German euro exit
  • The politics of the SPD’s links to Russia
  • May 21, 2018
  • Another snap election in the UK? Tories are preparing
  • Merkel and Putin - the beginning of a beautiful friendship?
  • May 10, 2018
  • Time for some clear thinking on Trump and Iran
  • Will Corbyn accept the EEA? Brexiteers can relax. He won't.
  • What next for the DUP?
  • May 02, 2018
  • Galileo row escalates
  • May Day in Paris - violence and dissonance
  • A homeopathic eurozone budget
  • April 25, 2018
  • Macron's pitch to Trump
  • Montoro in Schleswig-Holstein
  • The old world and the new
  • April 18, 2018
  • What Macron did not say in Strasbourg
  • Should we worry about Selmayrgate?
  • April 13, 2018
  • German support for eurozone reform next to zero...
  • ... and no support for France on Syria either
  • A French sermon
  • Why the euro endures
  • April 09, 2018
  • Orbán gets his supermajority
  • Riding the wave of resistance
  • The EU’s self-defeating strategy
  • April 03, 2018
  • Is the time for Brexit revocation running out?
  • March 29, 2018
  • Macron's fight against the Islamic Hydra
  • A small-country mindset in a trade war
  • March 28, 2018
  • The real reason for the sanctions against Russia
  • Wishful thinking: Brexit edition
  • Wishful thinking: Future of euro edition
  • Wishful thinking: Italy edition