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May 17, 2018

The EU's pathetically weak response to Donald Trump

It is really quite sad to see the lack of gumption by EU leaders when confronted with Donald Trump's threats. Germany has most to lose because of its extreme trade surpluses, and predictably wants dialogue. As Angela Merkel made clear in a speech yesterday, the fundamental tenet of German policy will be to protect the interests of industry in general, and of the car industry specifically. That clearly sets limits to the EU's ability to stand up to Donald Trump, and risks a major trade conflict. Yesterday's EU summit in Sofia agreed a broad strategy of the neither-here-nor-there kind to deal with Trump. The leaders managed to agree that they will not enter into a trade talks if the US applies tariffs to steel and aluminium from June 1, when the current and final exemption expires. But they did agree to offer talks on liquid gas imports, WTO reform, and on tariffs on European car imports, if the exemption remains beyond June 1.

The leaders also agreed the implausible strategy to prepare protection for European companies against secondary US sanctions to be slapped on EU companies dealing with Iran. But they gave no details on how this can be done. As we have explained before, this will not be sufficient as European companies and their banks will clearly not want to cut themselves off from the US markets and, in the case of the banks, from access to the dollar markets. As FAZ recently pointed out, the only companies willing and able to resist US pressure will be European importers of Persian carpets. Jean-Claude Juncker even mentioned the possibility of invoking the blocking statute. This is the ultimate bluff. The statute would allow the EU to impose sanctions on European companies that comply with US sanctions. In other words, it would give EU companies a choice between pest and cholera. Needless to say, this has not been agreed. Nor will it be. It is a sign of the helplessness and panic of EU leaders that they even talk about it.

The European Commission yesterday decided to inform the WTO about possible counter-sanctions in case the US ends the EU's exemption from the steel and aluminium tariffs. The formal notification is due on Friday.

The WTO, meanwhile, passed an important ruling declaring the Airbus subsidies by Germany, France, UK, and Spain, illegal. The US immediately reacted with a threat of sanctions unless the subsidies are removed immediately. The stage for the next trade conflict is set.

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May 17, 2018

Might the court case against the Catalan separatists collapse?

The strategy of the Spanish government to contain the Catalan separatism challenge was to use the constitution to stonewall any political negotiation, and hit the separatist leaders with the law book. Once the matter was in the hands of the courts, the inexorable logic of the legal system would do the rest. But this strategy of letting the courts do the work is at risk of unravelling on two fronts: domestic and international.

Domestically, we have already noted the controversy between Pablo Llarena, the supreme court judge, and Cristóbal Montoro, finance minister, over whether there was demonstrable misuse of public funds. The finance minister has officially responded to the judge that there is no evidence of misuse of public funds in the finance ministry's records. This is important for two reasons. Courts in Spain usually appeal to the finance ministry to clear any doubts in cases like these. And the finance ministry had actually been in control of the execution of the Catalan budget through the powers given to it by the budget stability law passed during the crisis years. The ministry has attempted to tone down its denial by claiming that its control of spending was not perfect. But the fact remains that there is no hard evidence of misuse of public funds.

The Belgian courts, meanwhile, have refused to order the extradition of three former members of the Catalan government under the European arrest warrant, arguing formal defects in the Spanish request. The Spanish supreme court has reacted by accusing it of lack of commitment to judicial cooperation in Europe. But the Spanish court itself had been using the arrest warrant strategically, withdrawing it when it looked like it might fail, and then reissuing it when it became expedient to do so.

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May 17, 2018

On the crumbling alliance against Russia

Roger Boyes has a good column in the Times this morning, in which he explains that the EU's unity on Russia is crumbling. The UK managed to secure an admirably united response in the Skripal case, but this might be a last stand. The new Italian government will be more pro-Russian than the previous one. The new Austrian government chose not to expel any Russian diplomats because it did not want to burn bridges with Moscow. Milos Zeman, recently re-elected president of the Czech Republic, is another friend of Vladimir Putin's and also opposes sanctions. Germany becomes ever more dependent on Russian gas, while Greece and Cyprus pursue major Russian investments. He mentioned the unusual act by the UK to dispatch its intellligence chief, Andrew Parker, to speak publiclly for the first time at a conference in Berlin. The UK is fighting a desperate battle to keep the anti-Russian alliance together. Here is Boyes' conclusion:

"Of all Germany’s many foreign policy debates, the one about Russia has the nastiest edge. It is a little reminiscent of the Cambridge Union motion in 1932: 'This house sees more hope in Moscow than Detroit.'"

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