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August 20, 2018

... and a subtle shift in EU policies towards both Russia and Turkey

We don't want to overplay the meeting this weekend between Angela Merkel and Vladimir Putin. They are talking again. There is no progress on some of the most difficult issues in Russian-European relations, most importantly Ukraine, but Merkel recognises that a permanent isolation of Putin is potentially dangerous and not in her best interest. 

The issue that has brought a change in Merkel's position is Syria. Her continued reign in Berlin is critically dependent on the absence of another refugee crisis. As Putin reminded her yesterday at Meseberg, there are now 5m Syrian refugees in Jordan, Lebanon and Turkey - a potentially massive burden for the EU. FAZ puts the costs to rebuild Syria at $400bn, a sum way beyond the financial capacity of Russia. Syria is giving Russia diplomatic leverage.

We broadly agree with the analysis in FAZ this morning by Markus Wehner, who writes that there is no real thawing in the bilateral relations but merely a renewed readiness to talk. The pictures of Merkel and Putin drinking mineral water around a garden table at the spartan Schloss Meseberg near Berlin contrasted with the much warmer reception Putin received in the Austrian province of Styria where he attended the wedding of Karin Kneissl, the foreign minister. Wehner writes there were political reasons for Putin to go to Austria ahead of his meeting with Merkel. One is clearly Austria's rotating presidency of the EU, and the other the country's overt pro-Russian policies. 

There is a shift of views about Russia in Germany as well. The Bundestag is more pro-Russian today than it was a year ago. This is not only related to the AfD. The SPD wants a softening in the policies, and so does the FDP.

We see a similar trend in German relations with Turkey - but with slightly different political dividing lines. This morning, Turkey has allowed Mesale Tolu, a German-Turkish journalist, to leave Turkey where she was held under trumped-up charges. The immediate interpretation in Germany was that Turkey was interested in better relations with the EU and Germany in particular, in view of its bilateral political conflict with the US. German politicians were debating over the weekend the conditions for potential financial aid, given the spillovers an economic meltdown of the country would have on the EU. In terms of politics we see a similar pattern in the position of the SPD in particular. Andrea Nahles, SPD chief, has asked for financial aid for Turkey. We noted an interview by Sigmar Gabriel, now a backbencher, also calling for a change in EU policies towards Turkey, warning against isolation of a country on the brink of developing a nuclear arsenal. The view that it was in the EU's best interest to keep Turkey pinned to the western alliance is also shared by the Greens, though not by the FDP. We noted a comment by Alexander Lambsdorff, MEP, who calls on the EU to push Turkey into an IMF programme - which the Turkish government has already rejected. The position of the CDU is more circumspect. We noted one senior CDU MP accepting the idea of financial aid in principle, but only tied to political conditions that will be hard to fulfil.

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August 20, 2018

Nothing to celebrate about the end of the bailout programme

Today the third Greek bailout programme will come to an end, eight years after the country received its first bailout back in 2010. No one is really in the mood for celebration. Celebrate what? The Greek economy is still shaky, politics polarised the people, the last bailout measures have yet to be implemented and the post-bailout surveillance programme will not let Greece off the hook to do its own thing. It may be a mark on the institutions' checklist but not the turnaround everyone has been hoping for since 2012. Expect everyone involved to tell their own story of what happened and who is to blame for the economic recovery remaining elusive. Klaus Regling already gave his reading to Kathimerini, blaming Syriza for a price tag of €86-€200bn, a bigger than anticipated problem and poor reform implementation.

Nick Makoutzis writes those last eight years have been marked by avoidable pain and unnecessary division. If anything, today should be a moment to reflect rather than celebrate: European politicians never came up with a definite solution for Greece, instead a fig leaf that protected their countries and prevented the worse for Greece. For many experts and commentators Greece became a socioeconomic experiment to verify their theories about austerity or the eurozone. Many inside and outside Greece watched the events unfolding like a soap opera, entertained by the political games of the Greek government against the international creditors and institutions, or of Syriza against the traditional mainstream parties over the bailouts. In this polarised environment nobody could agree on what went wrong and what needed to be done. Instead the Greek economy got worse: public debt kept rising, the economy shrank by nearly a third, unemployment rose to 25%, people got hit with higher taxes and cuts in wages and pensions with further pension cuts yet to come, while young Greeks leave the country to find a job abroad. 

FAZ added its own version of a gloomy forecast. They concluded that nothing much has changed for the Greeks, as even Syriza is no better than the other parties when it comes to clientelism. At least Greece remained a democracy, unlike Turkey. This depressing verdict shows us just how easy it is to move the goalposts if the results that involve European decision-making are disappointing. The article says that it will takes decades to unwind this crisis and many of those who saw the beginning will not see the end in their lifetime. This is a kind of empathy the Greeks could do well without. 

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August 20, 2018

Support for Brexit holding up

Our holiday break has brought no real shifts in British politics except perhaps that the situation feels a little gloomier now than two weeks ago. This has to do with the fast-approaching deadline and perhaps also the realisation that Brexit will actually happen.

We noted a Data Poll survey, which suggests that public opinion on EU membership has hardened since the Brexit referendum two years ago. What is interesting about this survey is that it gives us details about the switchers on both sides. 11% of those who supported Leave at the referendum said they changed their mind on Brexit, but among Remainers the switchers are 15%. 31% want a second referendum - against 15% who want a referendum on the terms only, and 40% who want to leave without a second referendum. This makes 55% who want to leave without a second referendum. When asked whether the UK should leave on 29 March as planned, the response was 47% Yes, and 28% No. 

It is interesting that this poll also shows Labour ahead of the Tories by 3pp - 40% vs 37%. That's still within the margin of error, but it may be telling us that Brexit may not be the main issue behind voting intentions. 

Over the last year we grew a little tired of seasoned UK political commentators predicting the imminent end of Theresa May. We see no reason why the Tories would unseat her before March 2019, for the simple reason that they might lose both power and Brexit if they did that. We are therefore a little cautious about James Forsyth's latest political analysis in the Spectator, when he evokes the possibility of a leadership election before March or a declaration by May that she would be ready to leave after Brexit. The latter is possible if things get tight. May is indeed very unpopular in her own party, although one should not underestimate the effect a negotiated Brexit settlement would have on British political dynamics. We have seen too many failures of long-range political weather forecasts because events intrude. If May gets a deal - still our most probable scenario - her political status may be strengthened. 

We also noted reports of a grassroots recruitment campaign to get hard-Brexiteers to join the Tory party in order to qualify for a vote in any upcoming leadership election. Under party rules, membership for at least three months is required to be eligible to vote.

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  • Tu felix Austria nube