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December 10, 2018

ECJ says UK free to revoke Article 50, even inside extension period

The European Court of Justice agreed with the advocate generate and went further by allowing revocation to happen even inside any extension period. This was one of the open questions. Readers should focus on this because it will constrain the policy options go forward. It is best quote the ruling itself:

"That possibility exists for as long as a withdrawal agreement concluded between the EU and that Member State has not entered into force or, if no such agreement has been concluded, for as long as the two-year period from the date of the notification of the intention to withdraw from the EU, and any possible extension, has not expired."

This ruling is a clear victory for those who have campaigned for a Brexit revocation, but it is not clear that it will make much political difference. We now know that it is possible, and that a second referendum would have a legal basis in European law. One important obstacle to this process has been removed.

What does the ruling say about the option of revoke and relaunch Article 50? The press release does not go into the subject of good faith - as the advocate general did in his reasoning. We simply do not know at this stage how to interpret the ruling in this respect - revoke and re-trigger Article 50 is unlikely in our view, in any case.

Tomorrow's scheduled vote in the House of Commons is giving rise to the biggest political uncertainty in UK politics since the mid-1970s. Theresa May's political demise could be close, but it is also possible that the EU may throw her a lifeline. Wolfgang Munchau writes in the Financial Times that the EU could offer three specific actions. The first and least controversial would be to open up the political declaration and to allow alternative future relationships, like the Norway option. But he argues that the heavy lifting will have to come from two other measures. One is a re-negotiation of the Irish backstop to protect both sides against foot-dragging by the other side, and to provide a more credible procedure to avoid the prospect of a permanent lock. This is a genuine concern, politically as well as legally. And finally, the EU will need at one point to rule out any readiness to extend Article 50. For so long as Remainers believe that they can get a second referendum if they reject the deal, there can be no majority in a favour of a deal. 

Will this be enough to save May? The weekend has been full of speculation that she could postpone tomorrow's vote, as the Daily Telegraph reports, and of an imminent leadership challenge if she loses, as the Times writes. 

The Times writes that the previously elusive 48 letters are likely to come in this week. We argued before that the lack of a successful challenge in the past should not be read as a sign of the rebels' weakness. They retreated tactically because they were not in a position to defeat May four weeks ago. 

It is unusually hard to predict the course of events given the large number of possible scenarios. It is also possible that the PM might resign; or that she calls elections in the event of a big defeat. Or that she goes back to Brussels to renegotiate the deal, with a demand for the Irish backstop to be dropped or amended, which would drag the process out well into the new year. 

Alternatively, she could put her weight behind a second referendum. But we don't see the maths for it. If she did, there would be an imminent leadership challenge, which she may lose. If tomorrow's vote goes strongly against her, Labour might bring a confidence motion against her government. One theoretically possible scenario would be a government of national unity, or what the Italians call a governo tecnico. But we struggle to see why Jeremy Corbyn would support it. He made it clear over the weekend that he first wants to get into power, then re-negotiate Brexit from a position of power. This makes sense to us.

As ever, it is best to assess uncertain situations like these in terms of the protagonists' best interests. May cannot conceivably retreat from a deal that has been the one and only achievement during her two years in office. She could re-open the negotiations and take the issue to the brink, and maybe she could survive a no-deal Brexit. We struggle to see her interest in a second referendum as this would split the party and raise the risk of a leadership challenge beforehand. There is also not much support in the public for her deal. Corbyn has an interest either in immediate elections, or in the threat of a chaotic no-deal Brexit that would drive moderate Tories to the Labour Party. 

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December 10, 2018

A turning point in Macron's presidency

Two days after the fourth wave of gilets jaunes protests, Emmanuel Macron is to propose a new social contract and a change of his governance method on television today. Less technocratic, more empathetic and with concrete, bold and immediate measures: this is how Macron intends to appear tonight. What about the European fiscal deficit limits? Richard Ferrand, president of the national assembly, told the house that those are important but restoring civil peace takes precedence. 

What sort of measures can one expect? Making work pay cutting taxes on additional working hours is back on the table, as well as the acceleration of the calendar to abolish the housing tax, according to Les Échos. For a new social contract there will probably some more measures in the pot. Macron is also signalling that he is in listening mode. Before his intervention he will consult with trade unions and elected officials from the regions as well as leaders from the assembly and the senate. This should give him some breathing space.

Will it work? The good news last Saturday was that the violence did not escalate as feared. About 125,000 protested in different places across France, and over 1380 were arrested and 118 wounded. No one was killed. The damage, however, was worse than last time and spread over several cities.

There was a convergence of different protest movements too. Protesters against climate change were also in Paris, proclaiming openly their solidarity with the gilets jaunes with the slogan: end of the world, end of the month, for us it’s the same battle. High school students showed their outrage over the police's heavy hand last week, announcing new initiatives this week. 

These days of chaos mark a turning point in Macron's presidency. How was it able it come so far? Nathalie Segaunes lists Macron's seven errors behind the gilets jaunes movement: a liberal reform agenda without enough backing in the society; the categorical refusal to work with the intermediaries from civil sociaty like the trade unions; the unwillingness to correct an error, seeing it as a defeat; the postponement of several tax-cutting measures due to budget pressures while tax hikes set in with immediate effect; Macron's loose public comments to people showing his contempt and ignorance; underestimating the gilets jaunes movement from the first moment on; and the strategic decision to not give anything to the protesters in order to mark his difference from his predecessor François Hollande. 

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December 10, 2018

China has added Portugal to the list of its key EU partners

We wrote last week about the European dimension of the question of how to deal with Huawei, and its potential as a conduit for Chinese espionage activities. While stock markets around the world were briefly stunned by the arrest of the daughter of Huawei’s founder in Canada, another event unfolded in Portugal without getting nearly as much international notice.

Xi Jinping used his state visit to Lisbon on Wednesday to sign a number of bilateral deals. China is grooming investment-hungry Portugal as one of its main partners in the EU, with an investment strategy clearly designed to purchase financial returns, economic leverage and a degree of political influence. Estimates of the volume of overall Chinese investment vary between €6bn and €12bn, which have notably flown into the financial sector and electricity providers such as the energy operator EDP, one of the country’s largest business groups. The southern Portuguese port of Sines is to be developed as part of the Belt and Road, China’s grand infrastructure plan.

Responding to critics, Portugal’s Prime Minister said his country did not see foreign investment as a source of anxiety. But with China systematically targeting smaller and poorer EU member states such as Greece and Portugal for its investment activities, and given Beijing’s ability to play a long-term strategic game leveraging economic clout into political power, we believe that the EU’s soon-to-be implemented legal framework for screening FDI on security grounds does not come a day too soon. That said, the EU would not need to be so concerned about Chinese investment if it were itself investing sufficiently in the capital-deprived periphery. 

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December 10, 2018

Belgium's coalition implodes over Marrakesh pact

Belgium will have a minority government as a result of Charles Michel’s decision to bust his coalition with the hard-right NVA rather than refraining from signing the UN Pact on Migration in Marrakesh. Belgium-watchers know this very likely does not matter very much: firstly, because elections are in any case scheduled for May; and secondly, because Belgium has demonstrated earlier in the decade that the country can survive quite well without a government, even for 541 days. Should Michel’s minority government fall ahead of May, early federal elections would have to be scheduled, with regional and European elections following in May. Michel has warned that this might lead to a year of political paralysis, given the time it usually takes to negotiate a government in Belgium’s fragmented political and institutional landscape. But we expect the country to chug along in the meantime, with more lenient policies towards asylum seekers as the most tangible result of the NVA's departure from the government.

What we see as most ominous here is the broader picture. The legally non-binding UN Migration Pact was intended as a first step towards an international framework for the better management of migration. European countries in particular hoped to use it as lever to defuse deeply destabilising political tensions at home, by getting recalcitrant countries of departure to accept the forcible return of their nationals. But hard-right parties in Europe seized on some of the language of the pact to mount a fear-based and largely successful campaign against it, prompting EU governments such as the Austrian one to withdraw their support from the pact even when they had helped to negotiate it. With virtually every expert agreeing that managing migration will be one of the great challenges of the coming decades, the late surge of resistance against the non-binding UN pact puts a big question mark on the international community’s ability to define shared norms and standards in the foreseeable future. And the EU is leading the way in the last-minute show of disarray. 

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