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December 14, 2018

Running down the clock

The UK's kommentariat is hyperventilating, making all sorts of long-range predictions based one or two topical data points like last night's European Council. No breakthrough was expected, none happened. On the contrary, the European Council even weakened the language on Brexit from earlier drafts, dropping the previous offer to explore the possibility of further assurances and the wording that the backstop was not a desirable outcome. This is a very typical and successful negotiating strategy - to harden your position when you feel you are coming under pressure. 

The European leaders certainly rejected the demand to put a one-year time limit on the backstop. 

So what is Theresa May's game now? We believe her strategy is what is referred to in the House of Commons as running down the clock. This means to go right to the edge and confront both her domestic critics and the EU with a binary choice. It is not clear what the nature of that choice will be - deal versus no deal, or deal versus referendum. That will depend in part on how MPs have lined up by then.

But we conclude that there cannot be any agreement for so long as some members of the European Council, including Leo Varadkar, are betting on a second referendum and for so long as there are five Brexit positions in the House of Commons: support for May's deal, a softer version of the deal, a customs union, a second referendum and a hard Brexit. As any political strategist knows full well, you need to narrow the choices to a binary selection between your objective and an unpalatable alternative. We believe that, in the end, the choice will be deal-vs-no-deal, as there are more supporters for a moderate Brexit to be picked up than there are hard Brexiteers. But she may decide to play a different strategy. The process could well extend all the way into February or even March. 

The real difficulty for May's plan A strategy will be to get reassurances on the backstop that are acceptable to both the EU and the DUP. That may or may not (no pun intended) be possible. Yesterday she tried and failed with her proposal for a one-year limit. She also raised the possibility of a commitment to an end date for the trade talks. The EU is wondering whether May is really seeking assurance on what was agreed, or seeks to change what was agreed. The FT quotes Michel Barnier as saying that May appeared to be going back on an issue they thought was settled in the negotiations. 

As we are entering the endgame, Brexit remains an extraordinary difficult process, but we don't think that the chances of a deal are as bad as published opinion would suggest. There are a series of strategies that might lead to the goal, the first and obvious one is the one she pursues - to get a legally binding statement from the European Council to provide further details on the Irish backstop. If this is not possible, she could run the following alternative strategies. Here is a list of our plan B options.

  • change her red lines and cut a deal with Labour: keep the withdrawal agreement as it is, but change the political declaration to accommodate a customs union or Norway model. Would deepen Tory divisions, and could lead to new elections. DUP might support shift in red lines, as Norway or customs union would be less offensive from their point of view than a Canada-type deal;
  • Run down the clock and confront the EU and Ireland with the choice to weaken the backstop or no deal. Big risk of miscalculation on both sides, but hard to see that EU and Ireland will maintain its current position all the way to the finishing line.
  • run down the clock in the UK: either threaten her party with elections or a second referendum, or threaten moderate Labour MPs with no-deal Brexit. 
  • Call elections: If the Commons reject the deal, she may seek the required two-thirds majority for an election. She would fight these elections as Tory leader. Our expectation is that she stands a reasonable chance to improve on the Conservatives' share of MPs.

One of the few British commentators who see this situation very similar to the way we do is Allie Renison (@AllieRenison) from the Institute of Directors. She wrote yesterday:

"I truly think PM feels she has a duty to stick out trying to get the withdrawal agreement through for an orderly Brexit, but if it fails, I also truly think she feels she has a duty to have UK leave EU next March. And I think some people underestimate the latter of those feelings."

We think that May's chosen strategy will be either to call elections, or to run down the clock. We don't think that the UK parliament will have the majorities to stop her. We noted a rather amusing calculation yesterday by someone who added the number of MPs who supported her deal, and the number of hard Brexiteers, and who concluded that the remaining 305 MPs would support a second referendum - as opposed to the 130 or so who are openly committed to it now. Even if that number were true, it would not secure a majority.

The Guardian reports that Labour would run the entire gamut of parliamentary procedures to make it harder for May to run down clock, but we believe one should not underestimate the powers of a sitting government to control timetables and procedures. We see no chance that a confidence motion by Labour could succeed while May is running down the clock. And she will continue running down the clock until the EU, Ireland, her MPs, and at least some Labour MPs, come off their positions, and if not, be ready to take it over the brink. We would not even rule out a last minute deal on the evening of March 29, followed by a procedural extension.

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December 14, 2018

Macron, Philippe - untouchable no more

Compared to Theresa May's leadership contest, the confidence vote against the French government was a non-event. Brought forward by 62 MPs from the left, the motion only got 70 votes compared with the 289 it would have required for a majority in the assembly. There is also no internal division in the alliance between LREM and MoDem. The majority of 355 out of 577 seats still holds. Historically, censure motions in France rarely achieved their goal. Out of the 100 confidence votes since 1958 only one brought down the government of Georges Pompidou in 1962. Most of the time that is not the goal anyway, the opposition just wants to make its voice heard. 

The one thing considered worth noting by Journal du Dimanche this time is that three left parties - Socialists, Communists and La France Insoumise - came together behind the motion. Whether we will see more of this collaboration is another matter. After all they voted against a government that is just about to increase the minimum wage by €100 per month, something they had all been lobbying for, even if there is disagreement over the method and the financing.

The three stand accused of using the gilets jaunes to reinvent themselves. But the gilets jaunes have changed the game also for Emmanuel Macron and Édouard Philippe, writes Cécile Cornudet. Gone is the aura of untouchability, and Macron's campaign agenda is no longer sacrosanct. LREM MPs are speaking out more openly. Philippe responded to the request by one of the trade unions to take immigration off the agenda for the regional discussions. And he postponed the constitutional reform in order to incorporate the proposals that come out of the citizens' consultation. 

Also the government may not be in a position to deliver what Macron promised on Monday. Nicolas Beytout warns that, while Macron's political message was clear, it will no longer be once the administration gets its hands on it. Raising the minimum wage by a net €100, de-taxation of overtime pay and cancelling a planned tax increase for low income pensioners sounds straightforward. Yet nothing is straightforward once it enters the technocratic machinery. It is the classic Sir Humphrey moment in the all-time classic Yes, Minister!, when the irresistible force hits the immovable object. Yes, the social and fiscal rules in France are complex, and pulling on one end causes ripples throughout the system. The complexity of the system always serves as a pretext for the administration to do nothing in the end. If Macron wants to overhaul the civil service, he should start there.

Will there be another grand rally of gilets jaunes tomorrow? The government, opposition parties on the right and trade unions recommended to stop or at least suspend the protests in the wake of the latest terrorist attack in Strasbourg. Jean-Luc Melenchon and many gilets jaunes want to continue this Saturday. And they seem to be getting reinforcements too: Dock workers joined them yesterday by blocking access to petrol depots. The stakes are high, though we would expect that the combination of the terrorist attack in Strasbourg and Macron's promises will encourage some of the gilets jaunes to stay at home. Those who show up tomorrow might be even more determined, though. 

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December 14, 2018

EP blasts Commission over Babis

The EU really has a huge corruption problem, with former Soviet-bloc countries featuring prominently in it. The EU institutions are often at loggerheads, and the Commission at a loss, about how to deal with it. Yesterday, the European Parliament blasted the European Commission for having dragged its feet concerning Andrej Babis, the Czech Prime Minister, and this despite the urging of the Commission’s own legal service.

Babis is alleged to have raked in millions of euros in a highly problematic way through his ownership of the conglomerate Agrofert, a major beneficiary of EU agricultural funding. To be precise, €3.5m for the first six months of this year alone. Babis seems to have few friends in the EP: a whopping 434 MEPs voted in favour of the resolution, with only 64 against and 47 abstaining. We should add that Babis has so far denied any wrongdoing. The full text of the EP resolution is worth a look. It is not every day that an EP text makes for such juicy reading.

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