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May 09, 2019

The EU's impossible dilemma

We think of the image of the perfect storm is a tired cliché but on some level it captures the situation after Iran's threat to end compliance with several critical aspects of the nuclear deal.

The announcement by Hassan Rouhani, Iran's president, was followed last night by Donald Trump's decision to extend the sanctions from oil to steel and other metals, Iran's second-largest source of export earnings. The same third-party sanctions will apply in this case. There were exemptions to the previous third-party sanctions regime, but those all ran out at the beginning of this month. The US will confiscate US accounts of Iranians and third-country nationals if they contravene the sanctions. Trump threatened that there may be more to come, unless Iran relents.

Rouhani has given the EU 60 days to resume energy trade, or else Iran will take a number of progressive steps out of the most important aspects of the deal. As of yesterday, Iran already said it would build up stockpiles of enriched uranium and heavy water, which can be used in the construction of nuclear weapons. If the Europeans fail to compensate Iran for the unilateral US sanctions within 60 days, Iran will resume construction of the Arak nuclear reactor. Its dismantling was one of the main components of the nuclear deal. 

We note that this is a well thought-through and calibrated diplomatic manoeuvre by Iran, timed to coincide with the anniversary of Trump's decision to pull out of the nuclear deal. But it nevertheless puts the EU in an impossible position. 

As Klaus-Dieter Frankenberger writes in a comment in the FAZ, the nuclear deal will be effectively dead if and when Iran carries out the threatened measures. And it confronts Germany, France and the UK with an impossible dilemma. If they defy US sanctions, the implications for the transatlantic alliance and relations with Israel would be catastrophic. And, if they don't, they would help bring about instability to the Middle East.

The latter prospect was underlined by the earlier US decision to send an aircraft carrier to the Persian Gulf. It also did not go unnoticed in Berlin that Mike Pompeo cancelled a long-scheduled meeting with Heiko Maas, German foreign minister, in favour of  an impromptu meeting in Iraq. There is now a clear and present danger of a military confrontation in the Middle East. John Bolton, Trump's national security adviser, is also engaging in characteristic verbal sabre-rattling.

China and Russia united yesterday by blaming Washington for the situation. As FAZ reports, the Iranians have been warning European diplomats for some time that they would pull out of the deal. The announcement also did not come as a surprise in Washington. It is also a big problem for Iraq, which finds itself in a similar dilemma to the Europeans. Bagdad can also not afford a sudden cut in relations with its neighbour, which have been improving over the years. 

We also noted a comment from Torsten Teichmann, a German TV journalist in Washington, who said last night that Trump's diplomatic gamble is paying off. He finally managed to get the Europeans where he wanted them - weak, divided, and miles away from supporting Iran. The Guardian journalist Jonathan Freedland noted the EU's failure to set up an effective anti-sanctions response. We, too, have noted on several occasions that the special-purpose vehicle has remained an empty shell. Friedland raises the hope that the EU might now approach the task with more urgency - but we see little chance of that happening. 

Wolfgang Munchau writes: It is no use blaming Donald Trump. The EU's dilemma is to a large extent self-inflicted. Trump has clearly accelerated the US's gradual disengagement from and distance to Europe. But that process started during the reign of George W. Bush. It would be unrealistic to expect the EU to build an independent security infrastructure.

The EU should have made better use of the tools it has, like the euro and trade policy, to pursue global strategic interests. We have been writing about the potential use of the euro as a foreign policy instrument for over a decade. Trump, more than any US president before, is using the exorbitant privilege of the dollar as his main diplomatic tool. The gunboat diplomacy in the Persian Gulf, mercifully, is only a decorative add-on, so far at least. The heavy lifting comes through the imposition of secondary sanctions. For as long as EU refuses to construct a large unified capital market backed by a eurobond, there is no way it can create effective compensation mechanisms for European companies threatened by US sanctions.

Because of this, and because of a crisis-induced over-reliance on current account surpluses, the EU is also not in a position to counter Trump's secondary sanctions with secondary sanctions of its own. What is not understood in European capitals is the importance of the large US current account deficit for the country's geopolitical strength. Running surpluses makes you very dependent on the kindness of strangers. Good luck when the strangers are Trump, Putin and Xi.

The EU's solemn declarations in favour of further unity ring hollow unless the EU starts to strengthen the instruments it has available right now. It should not focus on an independent security infrastructure. This may be a long-term project, but the priority should be to use the economic power tools that lie dormant.

None of this solves the EU's acute dilemma. There is no way out of it other than to kowtow to Trump's demands. But that should encourage European nations to form a coalition of the willing to start solving the problem.

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May 09, 2019

The horsetrading starts in Sibiu

Today’s meeting of EU leaders in Sibiu was initially designed as a reboot of the EU’s integrationist drive after the departure of the UK, the perennial biggest pebble in the federalist shoe. Now that the EU is still very much stuck with the Brexit saga, the meeting has lost most if not all of its initial purpose. There will still be grand language about the challenges the EU must rise to in the coming five years, the next EU Parliament’s lifetime, and it will be interesting to see which topics the leaders choose to highlight in their concluding remarks and which not.

But the main action in Sibiu is likely to happen at the margins, and focus on the package of one nomination and three top appointments that leaders will have to decide once the dust of the European elections has settled after the summer. We are talking about the presidents of the Commission, the Council, and the ECB, as well as the foreign policy high representative. To that list of future EU grandees one should add the President of the European Parliament. With the expected stronger showing of the far right in the upcoming elections, the political profile and visibility of the job is paradoxically likely to be raised. And, even if the EU heads of state and government have no direct say on who Parliament elects for president, the position will certainly weigh in the overall balance of east vs west, north vs south, big vs small, gender and political affiliation.

In a paper looking at the five years ahead, Christopher Bickerton argues that neither of the two initially dominant and conflicting predictions about the post-Brexit EU, progressive disintegration vs a new integrationist drive, is likely to come to pass. Rather, he expects that doomsayers and optimists will both be proved wrong, and that the biggest challenge to the EU – quoting Simon Kuper – will come from what he calls eurosceptic remainers. This means populists on the far right and the far left who will challenge the existing EU framework and policies from within, operating from a far bigger electoral power base. Interestingly, Bickerton writes that the simple reading that populists will seek to weaken the EU wholesale whilst technocrats push for the opposite might miss the mark. Instead, he expects that transnational mobilisation of populist parties and movements will generate new patterns of cooperation within the EU, and possibly even new institutions.

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May 09, 2019

May to bring withdrawal bill to Commons week after next

It is astonishing that the UK newspapers have not made more yesterday and this morning of two of the most sensational football games of all time. The late comebacks of Liverpool on Tuesday and Tottenham last night has given us an all-English European cup final - Brexit versus Brexit. Theresa May yesterday compared herself with Liverpool in the spectacularly clumsy way only she is capable of. Mercifully for her, that did not get much traction either. 

But, beneath the radar of a media suffering from attention deficit, important political developments are taking place. May yesterday appeared to have a cut a private deal with Graham Brady, chairman of the Tory Party's 1922 committee of backbenchers. As part of it she will bring the second reading of the Withdrawal Agreement and Implementation Bill before the House of Commons before the European elections on May 23 - i.e. in less than two weeks. This time we agree with Robert Robert Peston's analysis: either the bill passes, and she resigns; or the bill does not pass, and she resigns. They've got her, finally. Peston believes the Tories will probably initiate leadership proceedings in the beginning of June - a process that would take about two months from start to finish. 

We are less confident than him about the exact timetable, but agree that May's political time is now drawing to a close. Her last chance of a dignified exit would be a deal with Corbyn. Expectations are extremely low. There are media reports that Labour is about to pull the plug on the still-ongoing talks because of a lack of progress. But, as we keep writing, both Corbyn and May are cornered and those who are hell-bent against a compromise are in a minority on both sides. One needs to consider that, by the time the Commons votes on the bill, Brexit and May's future will be disentangled. We will be in a different scenario. Two weeks is a very, very long time in politics.

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