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April 04, 2019

Juncker seeks to pull the plug on no-deal temptations

At this stage of the Brexit drama in Westminster, the EU is certain to afford the UK a new short extension until the European elections if the Commons pass the withdrawal treaty by the April 12 deadline, and likely to concede a long one coming with tough conditions if the Commons don’t. In a speech before the European Parliament yesterday, Jean-Claude Juncker stressed the risks to the EU elections and the functioning of the EU if the British EU membership remained in a political limbo.

But at the same time, we note that Juncker went out on a limb to make clear that he would fight against any attempt in the European Council emergency Brexit meeting next Wednesday to pull the plug on Westminster’s attempts to avert a no deal scenario. The only beneficiaries of such an outcome would be the populists and nationalists, said the Commission president:

"I will work until the last moment to avoid a “no-deal” outcome…The European Union will not kick any member state out. I will personally do everything I can to prevent a disorderly Brexit and I expect political leaders across the EU27 and in the United Kingdom to do the same."

We read Juncker’s highly unusual choice of words as a direct rebuke to any temptations in Paris and other EU capitals to declare next week that the time for patience with London must be over should Theresa May and the Commons fail once more to produce any reliable roadmap as to the way forward. Emmanuel Macron in particular had used the visit of Leo Varadkar in the Elysée the day before to say that the EU could not allow itself to continue to be consumed by Brexit as it had been in the past years. Given that Angela Merkel is on the same line as Juncker, we expect that the two between them will have sufficient sway in the European Council to ensure that a long extension will be granted provided Theresa May offers even the semblance of a plan to move beyond the current mess. At this stage, neither Macron nor any other EU leader will want to shoulder the responsibility of a no-deal alone.

As Barnier before him, Juncker added that the UK would find the three topics of citizens’ rights, its financial contribution to the EU budget, and the Northern Irish border back on the negotiating table once it returned to it after having left the EU without a deal.

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April 04, 2019

Which campaign promise to break - French edition

Édouard Philippe and several of his ministers evoked a rise in retirement age from 62 to 65 in recent days as part of the pension reform. Out of the question, says the Élysée palace, this touches on a sacred promise Emmanuel Macron gave on the campaign trail. Jean-Paul Delevoye, who leads the pension reform talks with trade unions and employers, threatened to resign if the government were to give up on this. Many from the majority in parliament are criticising the government over this move. 

While the rise in retirement age may never happen under Macron, this episode is revealing nevertheless. The conservative members in Macron's government find themselves in a dilemma: they already had to let go of the target to deliver a zero deficit at the end of his presidency, another promise Macron made on the campaign trail and also towards Brussels. Why forgo one promise to save the other? Raising the retirement age would solve a large part of their quest to reduce public spending, conservatives like Nicolas Beytout argue. It risks to add Macron's presidency to the long standing reputation of the French who find it easier to let got of deficit targets than to tackle social benefit reforms. A tough one for conservatives like Philippe or Bruno Le Maire.

The timing of this debate could not be worse: just a week before the first measures of the grand débat are to be announced, a debate about the rise in retirement age is sure to make waves on social media and in the public discourse. There will be doubts about the government's ability to listen just at the moment when Macron is to reconquer the trust of the people. It may require a stronger response or another token to counter this impression, making it more costly for the government in the end.

Miguel Carrión writes: the Macron presidency is increasingly looking like a case study in how fiscal targets - which contribute little in themselves to the public good - can wreak havoc in an economic reform agenda. And for what gain, if Germany is not responding to Macron's good faith?

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April 04, 2019

The failure of strategic thinking and its consequences

Many of the big events we been analysing here at Eurointelligence for over 12 years have one underlying theme: a lack of strategic resolve. The eurozone crisis has been a series of path-dependent accidents. Geopolitics has been left to others. And as we argued in our lead story, lack of strategic thinking is also evident in the European Council's current approach to Brexit. 

The problem is particularly acute in Germany. We find ourselves in full agreement with Michael Stürmer, who writes this in Die Welt (our translation) on Germany's ongoing determination to drive down its defence budget:

"The Atlantic alliance has fallen victim to its own success. Today's generation no longer understands that the alliance does not produce security, stability and balance on its own. This is true of Germany whose political elites habitually support big decisions at Nato summits, and then, back home, do the opposite. Disloyalty works for a while - until it doesn't."

Consistent with this is a tendency to deflect. Instead of solving the problem, we escape into hyper-activity. Think of Jean-Claude Juncker's investment project - a giant paper tiger of smoke and mirrors. Or a banking union that has ended up strengthening the doom loop between banks and governments. Or the Iran special-purpose vehicle that will make no dent in Europe's ability to defend itself effectively against US third-party sanctions.

Perhaps the most absurd example of all is yesterday's presentation of an alliance of multilateralism by the French and German foreign ministers. The sole purpose of this initiative is to pretend that France and Germany project some soft-power, in order to cover up a fundamental disagreement on defence. 

The EU's failure of strategic action is meeting its nemesis in the way it confronts China. The EU has not even intellectually grasped the nature of the challenge from China. It continues to see the threat in old-fashioned industrial-policy terms, and tries to deal with it mainly in terms of competition policy. We have no issue with the decision by the Germans to lower the threshold at which merger investigations are triggered. But there is no strategic response to the emergence of a country with a clear-headed strategy to achieve industrial monopolies in areas like artificial intelligence, and to divide and rule the EU.

We have some sympathy for a proposal by Mario Holzner and Tilman Mayer, who argue in FAZ for what they call an EU-level geo-economic project. This would be an EU silk-road project for the north-western Eurasian continent - an 11,000km route from Lisbon to the Russian-Kazakh border, split into northern and southern parts, and accompanied by high-speed trains, motorways, and technology centres - a €1tn project. But all geo-strategic discussions bring us back to the fundamental flaws in the design of the EU and the eurozone. In a monetary union with decentralised fiscal policies, no joint fiscal instrument, and a set of fiscal rules that have discouraged investment, there is nobody with the capacity to lead such a project.

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