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June 19, 2018

Why no deal will be good enough to satisfy Seehofer

It is interesting that German commentators who have appealed to the national interest are now getting very scared. Berthold Kohler, one of the editors of FAZ, discovers that the future of the EU is at stake, not just that of the German government. Those who negotiate bilateral deals with Angela Merkel should bear this in mind. 

That statement would have been a lot more credible if Germany had acted differently during the eurozone crisis. There is a sense in some quarters in Germany that the EU owes Merkel a favour for her relentless support during the eurozone crisis. An astonishing parallel universe of perceptions has opened up.

Aside from this commentator’s rather narrow views, the paper’s assessment of the situation in the EU is spot-on. It has a very useful survey of political opinion in the countries with which Merkel is likely to negotiate. The first is Italy. Giuseppe Conte was over at Merkel’s office for a visit. He is under clear instructions from his two coalition partners, in particular Matteo Salvini, Italy’s interior minister, who supports Horst Seehofer. The Italian position is that they are open to a deal with Germany, but they want to see a reform of the Dublin regulation first. Salvini has ordered the Italian coast guard and navy to patrol closer to the Italian border, leaving France, Spain and Portugal to pick up refugees in the Mediterranean. No foreign-registered ship with refugees on board will from now on be allowed access to Italian ports. What’s more, one opinion poll has the Lega surpassing Five Star for the first time. Salvini is getting stronger. 

FAZ notes there is no chance of a bilateral German-Italian deal simply because Italy insists on a fair sharing of immigrants throughout the EU. This is blocked not by Germany but by the Visegrad countries. The paper notes that Italy already has a bilateral deal going with France, agreed in 1996 between Romano Prodi and President Jacques Chirac. But this deal is not working well as both countries are shipping asylum seekers to each other across the border. Corriere della Sera notes that Conte told Merkel that the current system is dysfunctional and needs to be reformed. Merkel agrees with him, but it is not in her powers to deliver the reform. 

It should come as no surprise that bilateral deals are not well-suited to the Schengen area. We agree with Merkel’s position that the best solution would be EU-wide, or at least Schengen-wide. The alternative, however, cannot be a series of bilateral deals, but a suspension of Schengen. Merkel is open to Italian suggestions to help fund refugee camps in Northern Africa, but there is no way Italy will voluntarily accept refugees back once they have crossed the German border.

FAZ also notes that Bulgaria, a transit country, is unlikely to be co-operative. It quotes a former spokeswoman of the foreign ministry as saying that the government could not conceivably afford to accept taking back asylum seekers from Germany - not even for money. The money-for-refugee paradigm, so popular in Germany, misjudges Bulgaria’s political interests. What Bulgaria might demand instead is a strong political counter-deal - membership of Schengen and the eurozone spring to mind. 

That thought alone shows that the bilateral talks will be full of demands that are unrelated to refugees. Italy will demand some fiscal reprieve, Bulgaria wants German support for euro membership, and Greece may demand debt relief. It is not as though the CSU would happily agree to that either.

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June 19, 2018

Sánchez' game plan

Pedro Sánchez appears to have finally found his bearing after becoming PM overnight barely two weeks ago. Yesterday he gave his first TV interview as PM, where he confirmed his intention to serve until the end of the parliament's term in June 2020. This is a change from previous expectations that his tenure would last only a few months. Sánchez' legislative programme will be centered on ensuring a whole raft of legislative proposals introduced by the opposition, and which Rajoy's government vetoed pre-emptively, have a chance to be voted in the parliament. His own governing agenda includes raising the revenue of the social security to improve the sustainability of public pensions; defusing the tension with the separatist Catalan regional government; and a limited reform of labour laws short of full repeal of the PP's 2012 reform, for which there is no parliamentary majority. 

Sánchez clearly hopes to improve the PSOE's election chances by being in government. But Juan Rodríguez Teruel noted in an analysis for Agenda Pública that no Spanish government managed to increase its vote share in the last 40 years of Spanish democracy. Granted, the situation is anomalous, but Sánchez' plan hinges on him successfully reversing expectations. Teruel argues that governments usually lose votes because any decision they take causes some voters to become disappointed. This is an even stronger risk for Sánchez. He rose to power on the back a heterogeneous coalition whose only common interest was to get rid of Mariano Rajoy. Therefore, to be successful, Sánchez will need to not act to disappoint voters' expectations, but to create expectations of what he could do if he had a more solid majority in the parliament.  

Not surprisingly, Sánchez reiterated the message coming from his labour minister that the social security system needs additional resources. But he gave a little more detail of how his government plans to balance the social security's accounts. The measures that Sánchez pre-announced include eliminating a cap to social security contributions that kicks in at €45,000 base salary; cutting subsidies to social security contributions for new hires, a key tool used by Rajoy's government to raise employment; and unspecified new taxes. Sánchez also spoke of eliminating co-payments for public health care, and also ensuring universal access to health care which previous governments also curtailed, especially for immigrants.

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June 19, 2018

What the incarceration of the Audi chief implies

The jailing without bail of Rupert Stadler, Audi's chief, constitutes an astonishing escalation of the emissions scandal. It has now become clear that Audi was the centre of the diesel emissions scandal within the VW group, though the scandal was clearly not confined to that company. What has turned a damaging scandal into a industry-wide calamity is not the original act, bad as it was, but the way the protagonists have subsequently acted. The VW board behaves like an old-fashioned corporatist clique under attack. The strategy has been to obfuscate, to deny, to keep the dirt under the carpet. The German car industry is now tarnished with the reputation of a criminal racket. That would not have been an inevitable consequences of the crisis, if it had been professionally handled. But this should not be a surprise. If you are over-reliant on one industry, and on one company in particular, you are prone to becoming defensive when under attack. 

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