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May 01, 2018

What Germany wants to reform, and what not

The FT has a story from the last weekend's informal Ecofin meeting in Sofia, in which Olaf Scholz appeared to have signalled readiness to compromise on a fiscal backstop for the single resolution fund, but not on deposit insurance. We are not entirely sure from the story what concrete action Germany supports. Scholz seems to be clearer on what he does not support. He definitely ruled out any discussion on deposit insurance before the June deadline, calling it a long-term goal. For June, he prefers a narrower agenda. 

Scholz told ministers that the strengthening of the banking union constituted a priority, which can only mean that he is ready to discuss the fiscal backstop idea. What the story has not addressed is how it is possible for a bailout fund to act as a fiscal backstop to the banking system if each programme is subject to a vote by the Bundestag and several other parliaments - as is currently the case, and as it is mandated by the German constitutional court. The ESM's current governance system is simply not compatible with a credible backstop function. We fear that there is giant fudge in the making: a press release to say that the EU now has a banking backstop when in fact it doesn't.

The article makes a reference to the fact that officials expect the small print in any backstop compromise to be a politically sensitive issue. Some governments were concerned that Germany will try to attach conditions to the release of any money. We agree. This will be Germany's negotiating strategy. 

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May 01, 2018

How effective is Macron?

Dominique Moisi and Gideon Rachman commented separately on how Emmanuel Macron fares on the international scene, and they both come to quite a sober conclusion. It is one thing to use flattery to appeal to Donald Trump's vanity, quite another to win real concessions on Iran and trade, writes Moisi in Project Syndicate. So far macron's impact is none in substance. Posing next to an unpredictable Trump may even bear risks for Macron, if Trump ends up making catastrophic strategic decisions or winds up in the claws of the US justice system. Macron is aiming to establish himself as an agent of real change on the world scene, and as the first number to call in Europe for the US. So far we have yet to see that he has a real impact.

Macron may have many admirers but he has no allies, Rachman notes in the FT. Neither in the US nor in Europe. His frank talk may give him standing ovations in the US congress or the European Parliament, but he has no allies when it comes to forging international coalitions. He cannot count on Germany. And, without Germany and with the UK occupied with Brexit, there are not many alternatives in Europe. Macron does not want to become a herald of southern Europe, as the Netherlands and other northern countries are even more suspicious of Macron's reform plan than the Germans. And there are no friends in Eastern Europe either after he dismissed authoritarian democracies in Strasbourg. The big risk for Macron is that he is out of tune with the times, so Rachman: a liberal reformer at home when neoliberalism has become unfashionable; a pro-European in times of rising euroscepticism; and a defender of the international order when protectionism and nationalism are thriving. 

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