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May 22, 2018

A €60bn ESM credit line - is this what they call a backstop?

The FT has seen a draft proposal by the euro working group for a fiscal backstop to the single resolution fund (SRF). It consists of a measly credit line of up to €60bn. What this tells us is that this is not a fiscal backstop at all - just another under-funded facility. This sum would not cover the failure of a large European bank. And even that limited facility would come with a quid-pro-quo ,in the form of phased risk-reduction measures in the banking system. We wonder: is that a good deal, for example, for Italy?

France and Germany are still insisting that they are on target to find a compromise on eurozone governance reform ahead of the June European Council. The European deposit insurance scheme is already dead and buried, however. 

The eurozone governance reform is to a large extent now sidelined by events in Italy. The new Italian government will almost certainly not accept the Franco-German blueprint without interjecting its own rather different reform ideas. There may be a small intersection in the positions of France and Germany. But that intersection does not meet Italy's position. 

A group of 154 conservative German economists, meanwhile, want to harden the German position even further. They published a letter in FAZ in which they rejected the fiscal backstop to the SRF; the change in the legal basis of the ESM; deposit insurance; a European investment fund; a fund to support structural reforms; or a eurozone finance minister and budget. In short, the entire agenda of Emmanuel Macron is rejected. We wonder why they even bother, as hardly any of it will survive anyway. The bigger fights are yet to come.

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May 22, 2018

Will Nato survive Trump?

With diplomatic and trade relations between the EU and the US at their lowest point since the 2003 invasion of Iraq, Azita Raji, a former US ambassador to Sweden, wonders whether Nato cooperation will suffer lasting damage. Raji notes that Nato benefits from several lines of defence from a deterioration of transatlantic relations, but that all these lines are vulnerable. The first line of defence is US secretary of defence Jim Mattis' personal commitment to Nato. However, this most important line of defence is also the most vulnerable given the high turnover in Trump's cabinet and the US president's seemingly impulsive personnel decisions. A second line of defence is European willingness to grit their teeth and endure rough patches in relations with US presidents. But Raji wonders whether there is a limit to the level of humiliation that European leaders will tolerate. Her use of the word humiliation illustrates just how much more difficult the European relation with Trump is than it was with George W Bush. Raji wonders whether the EU will decide at some point it is better off organising its own defence, something that may be facilitated by Brexit. What may end up saving Nato and transatlantic cooperation is the inertia of the US security and defence apparatus, as well as Nato's own bureaucratic inertia. It is notoriously difficult to dissolve existing organisations. Raji sees Europeans having played the appeasement card on both the Paris accord and now on the Iran deal, but she wonders whether the policy of appeasement can continue.

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May 22, 2018

Northern Ireland's Brexit disillusion

Irish commentators follow the Brexit debate in London with utter incomprehension. Why is it so complicated when the basic dilemma is clear, and has been clear since the start? 

A comprehensive survey conducted by researchers from Queen's university in Belfast now shows that people in Northern Ireland are also quite clear about their preferences. The study finds a consensus among catholics and protestants for the UK as a whole to stay in the customs union and the single market. This is the only option that would prevent border controls with the Republic of Ireland or the UK.

Protestants (62%) and catholics (61%) don't want any physical border infrastructure between Northern Ireland and the Republic. They expect a physical border to be highly disruptive to daily commuters, detrimental to both economies, and politically destabilising. If borders were to happen they expect protests at them that could easily turn violent. They would be seen as a step back into the past. CCTV might be a better idea, but the poll respondents expected cameras to be vandalised eventually.

A sea border between Northern Ireland and the UK is also opposed, though it is seen as less disruptive than the land border. Protestants are, not surprisingly, more concerned about this option and in particular about its effects on NI's British identity and constitutional status. 

All participants are frustrated with how Brexit talks evolved over the last two years, and how the UK government as well as the DUP handled the negotiations. Support for Brexit has fallen considerably, from 44% at the referendum two years ago to 31% today. The majority for Remain has widened from 54% two years ago to 69% today. This adds more pressure on the DUP, and for a final vote over the eventual deal.

If the UK were not to stay in the customs union and the single market, catholics are more ready than protestants for Northern Ireland to stay in EU programmes and institutions. And a referendum about uniting NI and the Republic may become possible some time after Brexit takes effect, though this is clearly more preferred by catholics. 

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May 22, 2018

Would Corbyn become prime minister if he accepted the single market?

Rachel Sylvester puts forward an interesting argument - the last hope of the Remainers. If Jeremy Corbyn were to change his mind on the single market, he would have a chance to trigger a general election, and win it. 

If not, Sylvester predicts, the single market amendment of the House of Lords will not survive a vote in the House of Commons, which has the final say. Labour MPs will be forced to abstain on the amendment, which would produce a sufficient majority for the government to win the vote. 

But that would be a grave choice to make for Mr Corbyn. He would alienate a lot of his supporters in the Labour Party and the trade unions. This is a moment of truth for him. All this nonsense about a close relation with the single market will have to end. If Labour MPs are forced to vote against the amendment, he will out himself as a true eurosceptic. If not, Corbyn would have the entire political space on the left and the centre of British politics to himself, as the Tories keep shifting to the right. But what about the pro-Brexit constituencies in the north of the country? She discounts the argument by pointing to recent research showing that Labour can pick up more votes in Tory marginal pro-Remain seats, than the votes it could risk losing in pro-Brexit seats. 

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