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April 25, 2019

May will go, but probably not until September

There is one thing Theresa May and the EU leaders have in common: a tendency to kick the can down the road even if this course of action is manifestly not in anyone's interest other than their own.

After yesterday's narrow vote by the 1922 committee of Tory backbenchers not to change the one-year grace period for party leadership challenges, May has won a little time. But time for what? If she cannot find a majority in the next couple of weeks for either another meaningful vote or the withdrawal agreement bill, the pressure on her to leave with intensify again.

The 1922 committee yesterday formally requested May to set out the plans for her departure in case the withdrawal bill does not pass. Graham Brady, chairman of the committee, said he does not expect her to stay on all the way until December. We have never joined the chorus of UK political commentators with their premature forecasts of May's impending political death. But even we would agree that she cannot stay on until the end of the year. 

We think the critical moment will be the Tory Party conference in Manchester, to be held from September 29 to October 2. We cannot see her addressing the conference as a leader, not having delivered Brexit and without a successor in place. Also consider that this is just two weeks before the October European Council, which could decide on yet another extension request. We don't think the Tories would want May to attend that meeting, and potentially agree to a long delay - as a parting gift - before handing power over to her successor. The possibility of a long extension is not yet on people's radar screens, but it will be after the local and European elections in May.

It is therefore our expectation that the Tories will want to have a successor in place by late September. And that will require May to make an announcement of her decision to step down by June at the latest, deal or no deal. 

Andrew Duff argues that the European Council has now essentially lost control of Brexit, and has allowed itself to be exposed to the vagaries of UK politics. This rhymes with our own observation that the EU has not thought through the consequences of extending into the next UK premiership. We liked Duff's quote of an EU official who said that May could be succeeded by "someone worse"

Duff considers possibilities for the EU to constrain the freedom of manoeuvre of the next UK prime minister. One possibility would be to upgrade the political declaration into a draft mandate for the negotiations on a future association agreement. More likely is the opposite course of action - to downgrade the political declaration and to redraft it during the transition period. 

We agree with his conclusion.

"The European Union, poised to elect new leadership, is being destabilised by Brexit. Anxious to move on to tackle some big legislative and diplomatic issues, the EU is distracted from doing so. Having dealt efficiently with the first phase of Brexit, it now faces the possibility of years of wrangling with the British. The longer the Brexit crisis prevails the greater the cracks in the unity of the 27 member states and in the cohesion among the EU institutions."

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April 25, 2019

Waiting for Macron's wow effect

Emmanuel Macron will finally unveil his catalogue of grand débat measures tonight in one of his rare press conferences. Editorialists and journalists kept filling front pages with speculation ever since Macron cancelled his address to the nation last week due to the fire in Notre Dame. They wonder about whether Macron will revise the measures that leaked through the press, or use the different political climate after the nation came together over Notre Dame to put the agenda on a larger footing. His agenda for the second half of his presidency, perhaps? Expectations are high all around.

Commentators do expect Macron to announce something new just for the sake of the wow effect. The recurring theme in the newspapers this week has been on how to create incentives to work more. Abolishing a holiday or raising the retirement age were the scarier proposals that surfaced, and outraged many people already. Reducing the burden of taxes and social charges on extra working hours or bonus payments met with a better reception. The question here is how to finance it.

Last December, as an immediate reaction to the protests of the gilets jaunes, Emmanuel Macron announced an exceptional tax-free bonus for employees. According to an Ifop survey released yesterday, the scheme benefited 29% of employees who received firm bonuses of up to €1000 free of taxes and social charges. Companies were pressed by Macron to do their part in reinstating social peace. They had until March 31 to issue bonus payments under this regime. 

Les Échos wonders whether Macron could today announce a continuation of those tax-free bonuses. After all, the poll suggests that a majority of recipients spent the money rather than saving it. Economists already expect a positive growth effect from the full €10bn-worth of measures that Macron promised last December. But the tax-free bonus is not without problems, as bonus payments could simply replace wage rises. It only worked as a surprise measure and because of the escalating protest waves of the gilets jaunes. Now that the movement is reduced to its radical fringe, the incentives for companies to act are somewhat reduced.

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