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May 11, 2018

Chère Angela, it is time to decide..

Emmanuel Macron no longer spares Angela Merkel. On stage to receive the Charlemagne prize in Aachen he insisted it is time for actions and ambitious visions for Europe. Nationalists and demagogues are clear and have a clear language; Europe must be clear too. To succeed he laid out four commandments for Europe:

"Let’s not be weak, let’s not be divided, let’s not fear, let’s not wait." 

Macron no longer dims down his reform proposals, including the European finance minister and a rainy-day fund - and promotes them confidently to the German press and audience. He wants real reforms: a vision for the next 30 years - small steps are for later. A treaty change should not be excluded. He called on Germany's solidarity, and warned that Germany's fetishism about budget policies and trade surpluses has costs for others. No soft packaging of messages anymore.

Merkel did what she knows best, not budge one bit. She reminded Macron that he was only 13 years old when the cold war ended. Yes, there is a fresh wind since Macron raised to power last year, a magic that is in every new beginning. These comments left no doubt about her message: she is the master and he is the apprentice. And, true to her style, she remained vague in terms of content. A German position on eurozone reforms will come in June, plans for investment in crisis countries may even be presented in Sofia next week. It is not that Macron has it all figured out, he is vague too. But he is so much better and more energetic than Merkel in delivering his message to the public, finds Spiegel Online. The youthful and ambitious Macron and the waning era of Merkel, this is not going to end well.

Timothy Garton Ash tells Handelsblatt that Macron needs a strategic answer from Germany to his strategic vision for Europe. An answer to what France and Germany should want to achieve together in Europe. Germany usually only does the minimum required to rescue the eurozone. This is not about pointing out to existing rules and admonishing everyone to do their homework. Garton Ash warns that there is a lack of empathy in Germany, as the Germans find it difficult to see beyond the horizon of their own prosperity. But France and Germany need each other and to work together, as it is in their best interest. Merkel may not be a visionary, says Garton Ash, but she is a clever strategist. Europe needs a stronger foreign and security policy because of Donald Trump, and both countries could pull together. This is also relevant for immigration and securing the EU's borders. A stronger banking union is an obvious candidate too. 

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May 11, 2018

Those trade sanctions are really serious

The Germans seem to be really shocked that President Donald Trump may after all damage the interests of German companies in a way no other president did before. Part of that surprise is due to the massively complacent reporting by German newspapers, and their fan-boy-style of support for German ordoliberal isolationism in recent years.

FAZ notes that the Iran-related sanctions to be reintroduced by the US government affect almost entirely non-US companies, including many German ones like Siemens and BASF. Any European company that continues to do business with Iran faces secondary sanctions, which would include being cut off from US dollar markets. This is not something for which the EU could easily compensate companies. German business lobbies are now seriously concerned that German trade with Iran might be deeply affected by the threat of sanctions. Iran only constitutes 0.2% of German exports, but has been a fast-growing market. Last year, German companies exported goods worth €3bn to Iran, a 16% increase from 2016. The political consequences of a cut in trade are much worse. Iran is unlikely to stick to the nuclear agreement if it has no economic benefit.

Another secondary effect would be through the domestic banking system. Not only would companies risk being cut off from dollar funding if they trade with Iran. They might not even get domestic funding, as the US sanctions specifically apply to European banks, too. They would also be cut from the US markets if they provide trade finance or loans for investments in Iran.

Since European companies and banks risk being cut off from the US markets and the US financial system, it is not immediately clear what the EU could do in terms of compensation. 

Liberal commentators are urging the EU to stand up to Trump. This is fine in principle, but we are not sure they have thought this through on a purely technical level.

Steven Simon notes in the New York Times that the EU opposed the Vietnam War, but could not break with the US during the Cold War.

"The Iran case is different. Europe is at odds with the United States on an agreement to which it is a party, concerning a matter of wide-ranging strategic and regional importance. If this doesn’t end the European Union’s doormat foreign policy, we might as well start referring to it as the 28 colonies ruled from across the ocean. This is not an outcome the United States should welcome. As Britain learned in 1939, it’s a lot better to have allies than colonies."

Klaus-Dieter Frankenberger writes in FAZ that Germany in particular should resist the temptation to bet on Trump failing to be reelected in 2020. Europe has to become far more assertive to make its voice heard. You don’t become a superpower by expressing your indignation. Waiting is also not a strategy to deal with the other monumental challenge facing Europe - the political and economic rise of China.

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May 11, 2018

Why Labour will not turn on Brexit

We normally do not go in depth into local politics, but we take note of an analysis of the recent local election results in The Times which goes some way to explaining why Labour is not embracing a more overt anti-Brexit position.

The overall results were mixed, both for Labour and the Tories, but Labour support seems to be weakening in the pro-Brexit constituencies outside London. The study noted that the pattern at the last election of Labour doing well in London, but less well in the marginal constituencies outside London, seems to continue. And Labour needs the latter in order to win elections.

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