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May 02, 2018

Galileo row escalates

The UK government continues to pile pressure on the EU to change its stance on participation of British firms in the development of the Galileo satellite navigation programme. In short, the EU aims to exclude firms not based in an EU member state from contracts for Galileo's public regulated service (PRS), a secured layer intended for government and military use. The FT is now reporting that the British government is exploring ways to prevent technology transfer from the UK to the EU if the country's firms are finally excluded from Galileo. This has been precipitated by the EU offering a contract to a key contractor, CGI UK, to transfer its expertise in the Galileo PRS to French firm Thales. The curious thing about this is that CGI UK is a subsidiary of a Canadian firm. it is not clear to us whether the EU would object to CGI setting up a subsidiary in the EU27 to carry on the work, but then the EU's security argument seems to fall flat because the parent company remains a non-EU firm.

A parallel story explains that the row is not so much about the direct investment flowing from Galileo itself, which is of a few billion euros over several years. What this is about is the downstream investment in technologies and products exploiting the satellite navigation technology, which could be in the tens of billions. Also, securing the contracts helps develop expertise and an industrial fabric for other aerospace applications. The UK is actually ahead of the EU in the commercial orientation of its aerospace industry.

At the moment the UK has no legal means to prevent such technology transfer, or to prevent CGI UK from taking the contract offered by the EU. But that may change after Brexit date next year. However, offering contracts to develop the UK 's own satellite navigation system could be one way to induce firms like CGI to not transfer technology to the EU firms working on Galileo.

The FT says Philip Hammond is behind the attempt to prevent technology transfer. Greg Clark, business secretary, is also said to have warned internal market commissioner Elzbieta Bienkowska that the UK withholding technology could set Galileo back by three years. 

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May 02, 2018

May Day in Paris - violence and dissonance

It was not a peaceful May day march in Paris. Events were overtaken by about 1200 hooded demonstrators, who appeared on the sidelines of the protests after the far-left anarchist group known as Black Blocs called on social media to make Tuesday a day of hell. They smashed windows and torched cars. About 275 were arrested while 31 businesses suffered damage. Two of them were set ablaze, according to France 24

A police official told BFMTV that security services had opted to let the protesters smash things rather than engage them, to avoid casualties on either side that could exacerbate tensions. In 2017 six police officers were hurt in Paris on May Day, including one seriously by a Molotov cocktail. 

What about the peaceful protests? With only 20,000 the numbers were relatively small, and they dispersed rather quickly amid the violent clashes. Also, there wasn't the convergence in goals among trade unions that the CGT had called for, writes Les Échos. The newly-elected president of the FO union was not present at the marches, despite signalling last week that he will be more open towards the CGT than his predecessor. And the CFDT, UNSA, and CFTC, celebrated May day away from the CGT with an Italian film about social dialogue.

With the images of violence all over the papers, the question of who to blame will now occupy the public debate. Several on the right already jumped on the bandwagon of accusing the government of not being sufficiently prepared for the violence. Marine Le Pen, far away from Paris herself, denounced the violence on twitter. Jean-Luc Mélenchon, on the other hand, blamed the far right for the violence. Whether there are further consequences for the government will only become apparent in how they handle the aftermath, and on the weekend protests which will be much more focused on Macron himself.

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May 02, 2018

A homeopathic eurozone budget

The European Commission seems to have leaked the details of its 2021-2027 budget to FAZ, which has an astonishing amount of detail ahead of today's official announcement. The main headline number will be a size of 1.13% of GDP, up from 1% in the current period. This is at the lower end of the previously suggested range. Funds for agriculture and cohesion will be cut by 5 and 7% respectively. Together the two constitute 75% of current spending. There will be more money for Erasmus, for research, and for energy. We also noted that, with Brexit and the disappearance of the UK budget rebate, the Commission will also propose to cut similar rebates for Germany, the Netherlands, and Sweden, which were agreed as a compensating measure several decades back. 

There is a eurozone budget - but don't hold your breath. If we apply our usual rounding rules - to three significant digits -the size of the budget would be between 0.00% and 0.01% of GDP. There is obviously no macroeconomic stabilisation component. This is a tiny structural budget to help countries carry out reforms. 

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