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January 29, 2019

What comes after plan B fails? Plan C, of course. C for cliff-edge

There is, apparently, now a plan C, to be unrolled if or when plan B fails. We would not usually bother you with the latest strangest Conservative brain waves, but it tells one that the game is not over by tonight, no matter how it ends today. Tonight’s votes matter because they will give us further information about possible future majorities, but Brexit is not going to be settled for a while yet. 

Theresa May yesterday backed the so-called Brady amendment, which would ask the government to revisit the backstop, but crucially allow the government some wiggle-room on how to do this. The reason the amendment might fail regardless is lack of trust. Hardline Conservatives are suspicious about the possibility of being duped by a meaningless assurance in the form of what is known in EU legal jargon as a codicil - a side letter. As the Daily Telegraph reports, the backbenchers doubt that this can be made legally water-tight. Their plan C would consist of a more straight-forward extension of the transitional period with a reworded backstop clause. We doubt plan C will be acceptable to the EU, but we warn readers not to jump to any premature conclusions by listening to statements from Brussels, like yesterday’s reported comments from Sabine Weyand. The views that will matter in the end will be those of the leaders themselves, not their stated views today but the views they will hold in the final days and hours before the deadline. May needs to take this to the brink, and she needs to be willing to jump. It is her only chance to secure meaningful concessions. 

There is a logic in the amendment brought by Yvette Cooper in that it tries to prevent that from happening. But it also a high-risk strategy that might backfire with the electorate, and that might make a hard Brexit more likely in May or June. Even a hard Brexit requires a timetable extension. If you do it, May or June are better months than the holiday seasons of April or July. 

If Plan B and C fail, it is possible but not certain that a cross-party majority would form to ratify the withdrawal treaty as it stands. It might be supported by a codicil stating that both sides have the understanding that the backstop period cannot be infinite. And the political declaration will foresee, but not prejudice, alternative choices for the future relationship.

If this, too, were to fail it would be folly to suggest that no-deal is off the table. If there is no parliamentary majority for a customs union, then there surely is none for outright revocation. We admire the doggedness of the second-referendum campaigners along with their ability to punch above their weight in the media. We believe they are complacent in their strategy to run the down the clock themselves, hoping that a second referendum would remain after a process of elimination. That game would always favour a hard Brexit, which is the legal default position.

The majority of the Labour Party MPs will support the Cooper amendment, which would introduce legislation to allow an extension of Art 50. But the vote is expected to be tight. One Labour frontbencher, Jon Trickett, said it would send a wrong message to voters, that the Labour Party was ready to reopen the referendum. The Guardian writes that it is possible that all amendments fail tonight, leaving the UK with no exit strategy other than a hard Brexit. 

The FT writes that it was May’s strategy to split her opponents first, which tonight’s vote might achieve, even if it does not result in an outright victory. Her decision to support the Brady amendment was not co-ordinated in the cabinet. There will be another meaningful vote - whatever that means - in mid-February, amendable. The idea to make it amendable is intended to persuade wavering Tory MPs not to support the Cooper amendment tonight since they will have the chance to do so mid-February.

We think it is clear that May is running down the clock, which is probably her best strategy. The closer it gets to Brexit day, the smaller the lever of parliament will become. MPs cannot simply call for a delay. Legislation would have to be passed in time for this to happen, and for now the government remains in charge of the legislative timetable.

What May needs tonight is for the Cooper amendment to fail. Ideally, the Brady amendment passes. But if Cooper succeeds and Brady fails, it will be hard for her to rebuild a viable strategy. She will then either comply with Cooper and pass the baton to parliament, or find other ways to frustrate the Cooper amendment.

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January 29, 2019

Gilets jaunes, how to structure a movement in free flow?

The gilets jaunes list for the European elections led by Ingrid Levavasseur suffered its first casualties after only one week, after an avalanche of hostile reactions from other gilets jaunes. One of its ten candidates left the list after being attacked over his past as a supporter of Emmanuel Macron. Being a disappointed Macronista is not enough to get a free pass and a clean gilet from the gilets jaunes. The second casualty is campaign director Hayk Shahinyan, one of the key persons on the list. He announced he would retreat from the scene for a week to reflect about what went wrong and what to do next. So, is this the end for the list?

Since Levavasseur announced the setting-up of the list last week, it has divided the gilets jaunes as to whether entering politics in general and the European elections in particular is a betrayal of the objectives of the gilets jaunes. Their move to step up politically starting with the European elections might soon turn out to have been premature, with the regional elections perhaps a safer bet. 

What about the grand débat national? It has rekindled a more general interest in politics, with many actively contributing on economic and political reform. There are hundreds of thousands of entries in the online forums, and throughout France there are local debating events. Newspapers like Les Échos call for readers to join in and submit their proposals so as not to leave the field to be taken over by intolerance and demagogy, a risk Jean Tirole warned about.

Can the grand débat be channeled? The government's aim is to re-engage with the trade unions when it comes to unemployment insurance reform. But a lot of trust has been lost with the trade unions last year. The gilets jaunes and Emmanuel Macron share a similar conviction that the trade unions are essentially dead and a relic of the past. So, how will the government navigate through the mine field? Will the trade unions help to channel the grand débat or will the grand débat help to re-engage with the trade unions? In the best scenario for Macron, the grand débat can give his government new political support - if, that is, expectations raised are not disappointed. When it comes to the gilets jaunes themselves, the impact is even less predictable. 

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January 29, 2019

European Court of Auditors criticises Juncker’s investment fund

A European fund for strategic investment was one of Jean-Claude Juncker’s big ideas when he became Commission president in 2014. We wrote at the time that it was a dishonest process - a series of accountancy tricks to suggest that the European Commission could unleash an investment boom in the EU. The macroeconomic data are confirming that this did not happen. The European fund for strategic investments was typical of the way EU institutions sought to handle the financial and subsequent economic crisis - through a series of high-profile initiatives to disguise an underlying lack of concrete action. The Commission should have suspended the stability pact in 2014, or applied its rules in a different way. This was the period when the eurozone was heading towards outright deflation, which forced the ECB into an extreme counter-response with only partial success. Our issue with the Efsi is not just the waste or political spin-doctoring, but its role in deflecting from an underlying investment crisis.  

The European Court of Auditors appears to share some of our criticism, though it is using more polite language. Its main criticism is that the EFSI ended up just replacing other pools of EIB and EU funding. Some projects could have used other sources of public or private finance. It also said that estimates of additional investment attracted by EFSI were sometimes overstated, and the flows favoured countries that needed it the least.

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