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February 19, 2019

Neither seven dwarfs, nor the magnificent seven. Merely a sad day for Labour

The news of the departure of seven Labour MPs was almost perfectly anticipated, except for the timing. But even perfectly foreseen events can still cause shock and confusion. Does this increase the chances of a second referendum? Or the opposite? 

Probably neither. The chances were low to begin with, and are still low. Chuka Umunna, who is probably the most senior of the lot, resigned because he realised that Jeremy Corbyn would not end up supporting a second referendum. We are less sure about this, but we can see why Umunna is frustrated. 

All the departing MPs favour a second referendum, a fact that defines the appeal of this particular grouping. It is pro-EU and centrist. Because of electoral laws that restrict private funding for parties but not movements, we would not surprised if they were to remain a "group". 

One man to watch is Tom Watson, Labour's deputy leader. In contrast to John McDonnell, the shadow chancellor, he expressed sympathy with the departing MPs and warned that Labour must allow a broader representation of ideas. Is Watson preparing a leadership challenge? Will he himself leave Labour? Who knows? In any case, it will be a discussion that will take place after Brexit. 

The key question is whether more Labour MPs will join the new faction, and whether it will pick up some Tories. We are sceptical of reports of large rebellions - on both sides. We get recurring news of dozens of ministers threatening to resign unless Theresa May follows their advice. But she never does, and they never do. There was an interesting story in the FT this morning on pro-EU backbench Tories complaining that Philip Hammond lacks spine to put up a fight against May. So, even if there are 30 or 40 ministers who want to take a no-deal Brexit off the table (whatever that means), only a minority is determined to risk their ministerial jobs and their parliamentary seats. And Hammond is not one of them. What is happening is that pro-EU Tories are being targeted for deselection by their local constituencies. Many of the challenges will succeed given the strong pro-Brexit bias among party members. It is the hallmark of any parliamentary democracy that MPs are free to vote according to their conscience. But, in a decentralised constituency-based system, they are always at risk of deselection. 

This is also why we are sceptical about Rachel Sylvester's claim in the Times that there are 50 Labour MPs who are considering their position. What she didn't say is that most of those don't want to risk their seats. Would they be able to survive as independents, or as members of a new centrist party or grouping, against an official Labour candidate? If they are well-known and deeply-rooted in their constituencies, then perhaps. In most cases the answer is No. We agree with the observation of Paul Waugh from the Huffington Post UK that the lack of a leader and the lack of a party structure makes the future of this new grouping ominous. We see it as a cry for help by deeply unhappy Labour MPs, rather than a threat to the party.   

What we can conclude from yesterday's political events is that this has weakened the Labour Party's chances of winning an election. This realisation itself increases the probability of an election in case of a Brexit impasse in the House of Commons. This, not the second referendum, is what will happen if the Cooper amendment passes but the meaningful vote does not. In that case, the EU would grant the request of a short delay during which elections would be held. Even if the new grouping does well we doubt that they will be organisationally ready to fight, let alone succeed, in an election.

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February 19, 2019

Will Costa last through the stand-off with the unions?

António Costa is in trouble. With only eight months to go for the general elections his popularity ratings are at the lowest ever, even if his party is still leading in the polls. Challenged by the second-largest and traditionally pro-socialist union, the UCT, Costa faces strike actions in hospitals, schools and garbage collection. The union demands higher wages for around 600,000 public-sector staff, arguing that salaries have been frozen for the last 10 years. But there is simply no money in the budget for this, Costa said bluntly last August. Is this stand-off the undoing of the Costa miracle story? 

When António Costa got himself into government in 2015 he changed the narrative of necessary austerity in Portugal. He overturned painful measures agreed by the centre-right government under the EU and IMF bailout programme, increasing the minimum wage, reversing wage cuts and reducing working hours from 40 to 35. Costa inspired confidence and optimism in Portugal, the economy recovered, and public finance too. He built a minority government with the help of the Communists and the Left Bloc, and delivered a demand-oriented policy agenda together with disciplined fiscal policy. 

Social democrats throughout Europe hailed this as an alternative Socialist way to the austerity-driven bailouts that the EU was prescribing. Economists, though, cautioned that Costa was not the reason behind the recovery. They pointed out that growth was less driven by a rise in demand than by exports and a boom in tourism, and that the state benefited from a lower debt service due to a fall in interest rates. Also Costa's payouts to public workers in the first two years in office have been offset by cuts in investment and higher indirect taxes. 

Is this, then, the end of the party? The miracle story appears to crumble, and the nurses have discovered that they can tarnish the image of Costa's government, writes Camilo Lourenço in Jornal de Negócios. There is an increased risk that Costa, despite his talents, may mismanage this final episode of his legislative mandate.

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