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July 27, 2018

Be careful what you wish for - trade edition

We can offer two vastly different interpretations of the US/EU trade deal. The first is the optimistic one. The deal may just be good enough for Donald Trump to get US farmers behind him in the mid-term elections, and to demonstrate that he is looking after the interests of US farmers and firms. After the elections, his hyperactive mind will turn to domestic politics, and especially his campaign to get re-elected in 2020. 

The second interpretation is that the issue will soon return when the EU realises that, by importing more US soy beans, it may be importing genetically modified organisms. It is possible that Juncker may have just agreed to that. There is a possibility that France could block this deal. The deal could break down when Trump realises that he misunderstood Jean-Claude Juncker about the soy beans and the liquid natural gas. The EU is not going to buy any or much of this stuff. In this case, the situation could end being worse for the EU because the trade war would still happen, with a short delay, except that the EU would now be blamed for it.

The working group to prepare the ground for the negotiations will work for 120 days. This will be followed by several months of detailed negotiations. The timetable will take us well past the Congressional elections, and possibly well into 2019. It is hard to imagine the EU agreeing a trade deal with Trump in a European election year. So this will invariably get bogged down, and we can’t be confident that Trump will simply go along with this.

The pessimistic take is the more rational analysis, but what makes us cautious is that Trump is not a rational player. The danger for the EU is that, even if Trump were inclined to drop his threats, lack of action on behalf of the Europeans on both trade and defence could quickly bring us back to the same point. 

In Europe, the agreement was met with apprehension by France, which was still seeking clarification on what was actually agreed, for example in relation to soy beans. The German coalition cares about car exports, not about soy beans. The French do not want the soy bean concession to open the door to a wider deal on agriculture. Bruno Le Maire said yesterday that the EU would not compromise on food and environmental standards. The last thing the French want is another TTIP - which would not have stood a chance of ratification in the EU. Even Germany might have blocked it. 

We liked the comment by Bruno Maçães (@MacaesBruno), a former Portuguese European affairs minister, who tweeted:

“Today the fate of the West hangs on the soybean.” 

The problem with the transatlantic policy right now is that it defies commentary and analysis of all kinds - because that is based on some degree of rationality. Klaus-Dieter Frankenberger, the foreign policy commentator of FAZ, despairs about how fast you can change from foe to friend in Washington, and back again. 

In this world, perceived reality changes faster than the time the likes of us take to write our columns and essays.

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July 27, 2018

A test of Pedro Sánchez' majority

The Spanish government faces two votes in the parliament today in which the fragile majority that ousted Mariano Rajoy and installed Pedro Sánchez will be tested. These are on the 2019 spending ceiling for the public administrations, and on the relatively unimportant but still politically significant matter of interim appointments to the board of the national broadcaster RTVE, including its president. If the votes - especially on the budget - fail, the likelihood of early general elections would rise substantially.

The spending ceiling is a prerequisite for local and regional governments to start their own budget processes for next year, so a failure to pass it would be a major setback. In its stability and convergence programme the previous government had foreseen an increase of the spending ceiling by 0.1% of GDP, but Sánchez' government has negotiated an increase to 0.3% with the European Commission. The government faces the opposition of PP and Ciudadanos, but also or some of the allies that helped topple Rajoy. 

In the case of Podemos, the disagreement is ideological. Even the looser spending ceiling is still part of a deficit-reduction trajectory. PDeCat, the leading Catalan separatist party, is linking its support in both the budget and the RTVE votes to political conditions. One sticking point is the fact that a number of Catalan separatist politicians and civic leaders remain in prison pending trial over the events of last autumn. On the budget, PDeCat is also lobbying for a looser spending ceiling for the Catalan region.

Even if the spending ceiling passes the lower house, it can be stopped by the PP majority in the Senate. Pablo Casado, the new PP leader, has already made it known the PP will reject the spending ceiling. The government is reportedly exploring constitutional ways to get around a PP obstruction in the Senate. This might involve an appeal to the general provision that the lower house can overrule a Senate veto with an absolute majority vote. Or the government might legislate the spending ceiling by decree. It is possible that whatever happens the PP would challenge it before the constitutional court, but by the time this is decided the 2019 budget would be in force. In any case, if today's vote fails in the lower house, all this is moot.

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