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August 31, 2018

How Macron uses the new European divisions at home

Matteo Salvini and Victor Orban declared Emmanuel Macron as their enemy, a golden opportunity for Macron to construct his European campaign based on a clear alternative between nationalists and progressives. This new political game provides Macron a much needed new opportunity, after his initial offensive launched with the Sorbonne speech failed to raise enthusiasm amongs other member states. Now he bets on defending European values against populists, which he argues requires strong measures including treaty change.

The polarisation also has an interesting domestic angle, writes Cécile Cornudet. Marine Le Pen immediately aligned herself with Salvini, and this also fits perfectly into Macron's plan. The populist against the moderate, a rerun of the second round of the presidential elections last year. With this Macron also hopes to eclipse out of the debate Jean-Luc Mélenchon from the left, and also Laurent Wauquiez from the Republicans who is reluctant to dismiss Salvini.

To succeed, Macron will have to present a unified European Parliament list including moderate Republicans. And they need to come first in France, which is not a given in a country where pro-Europeans are far from being in the majority. Using Salvini to build his European campaign is not an oxymoron but quite a risky bet, concludes Cornudet.

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August 31, 2018

Macron's eurozone budget is probably a no-go

One of the reasons the EU set itself the goal to agree eurozone reforms at last June's summit is that everyone knew other briefs would intrude in the second half of the year. For instance, the negotiations for the EU budget itself - the 2021-27 multiannual financial framework. And indeed, in an interview with the Financial Times Jörg Kukies, the German deputy finance minister, says explicitly that the EU budget is the more pressing issue, and that it would be weakened by setting up a parallel structure such as a eurozone budget. So, having postponed the eurozone budget to the December summit, it is now being put on the back burner.

Nevertheless, the Austrian EU presidency will host a meeting of the eurogroup next week where eurozone reform is on the agenda. Another issue to be discussed there will be how to introduce the possibility of government debt restructurings within the eurozone. Germany and France want to make progress on the idea of introducing collective action clauses into eurozone government bonds, as agreed by Merkel and Macron at Meseberg. 

The FT notes that Macron's idea for a eurozone budget involved several percentage points of eurozone GDP. But already at Meseberg all he was able to extract from Merkel was an agreement to a eurozone line item in the multiannual financial framework, which altogether amounts to just 1% of the EU budget. Such a line item would indeed compete with other items on the EU budget as Kukies argues.

Most of the energy that France would otherwise have spent on pushing for a eurozone budget is likely to be spent defending the size of the EU's budget instead. The departure of the UK would, all other things being equal, reduce the net revenue of the EU by about one seventh. The European Commission wants to preserve the size of its budget in nominal terms, which would result in a proportionate increase relative to GDP. Member states would thus have to increase their contributions to the EU budget. But the Netherlands has assembled a coalition of twelve small-to-medium-sized member states opposed to an increase of the budget in relative terms above the current 1% of GDP. This will be the main budget battle.

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August 31, 2018

EU edging closer to a Brexit deal

We are somewhat cautious about the story in The Times that Emmanuel Macron wants to throw Theresa May a lifeline in the European Council, by proposing a European Union of concentric circles. He is quoted as saying that the EU and the UK confronted a choice between pragmatic proposals or no deal, and that they should go for the deal. 

The story is right in one important sense - the EU, including Macron and Angela Merkel, will be pushing for a Brexit deal. They will not allow the Brexit talks to collapse over the wording of a political declaration on the future relationship, which in any case has no legally-binding force. What makes us sceptical about this story, however, is the idea of concentric circles. This may raise some unrealistic hopes in the UK. It is unlikely to be realisable without treaty change. The EU already has instruments for closer co-operation among subsets of member states, it has some operational opt-outs and exit procedures. But it does not allow à-la-carte membership, and this will not change with the Salzburg EU summit next month. A fudge is always possible, but the EU is not exactly going to raise the white flag.

We do find, however, that the recent talk about a no-deal Brexit was useful in the sense that it confronted both sides with the abyss of such a scenario. It is in nobody’s interest, not only because of the transitional logistics but the broader geopolitical impact. It would weaken both the EU and the UK. We have argued consistently that the trade-offs are much more symmetrical than some of the scare-mongering commentators in the UK suggested. As the Brexit deadline draws nearer, pressure will grow. We should not forget that deal-making is what the European Commission and the European Council do for a living. Our criticism of EU policy has never been about lack of deals. It was always about the nature of the deals.

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