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May 30, 2019

US threatens Instex

Instex was the EU's knee-jerk reaction to the decision by the US to impose secondary sanctions against companies and banks that do business with Iran. It is not operative yet, and it is becoming clearer by the day that this is a doomed venture. Bloomberg has the story that US the Treasury Department’s undersecretary for terrorism has written a letter to the president of Instex that he and his institution would be subjected to US sanctions if Instex were to start operating. The latter came after US officials realised that the Europeans were more serious about Instex than they had let on in bilateral conversations. The latter was intended to serve as a maximum-impact threat against Instex itself, its staff and anyone associated with it - i.e. the governments of Germany, France and the UK - and all financial institutions that may be directly or indirectly fund it. It is unsurprising that this would happen.

We liked the comment of Mathieu von Rohr of Der Spiegel, who noted dryly that the US was threatening penalties against an inoperative entity. We can only assume that the whole purpose is to make sure that Instex will forever remain an empty shell. European governments did not think this through. The EU has no effective instruments at its disposal right now to defend itself against US financial unilateralism, a point Wolfgang Munchau expanded upon his last FT column. But it has the option to develop one: to cement the euro's international role with a unified capital market and a single European safe asset. This would allow the EU to share at least some of what is currently the dollar's exorbitant and sole privilege, the deep reason why the US has the power to impose secondary sanctions and why others do not. This exorbitant privilege was the direct result of the post-WWII economic order. But its persistence until today is a sin of omission - a European omission. 

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May 30, 2019

Alliance - surfing on the Remain vote in Northern Ireland

The EU election results in Northern Ireland saw an extraordinary rise of the pro-Remain Alliance party, a break with the traditional voting patterns and building on Alliance's previous successes in local elections earlier this month. As the Alliance party entered the European Parliament, the pro-Brexit Ulster Unionist party (UUP) lost their seat for the first time in 40 years. Northern Ireland has always sent two unionists and one nationalist to the EP. This time the parameters have changed and the classic divide lost traction among voters. The campaign was all about Brexit, resulting two of their three MEPs being clearly opposed to Brexit. 

The Alliance party is likely to ride its momentum forward, seeing itself already as the third-largest party in Northern Ireland and targeting the 56% who voted Remain in the referendum. As the risk of a no-deal Brexit is rising, so is the concern in Northern Ireland about its future. Business and farming leaders as well as civil servants have warned that a no-deal Brexit could devastate Northern Ireland’s economy.

The ruling DUP, on which Theresa May relies upon for her majority in Westminster, will come under pressure to take the voters' verdict into account when moving forward in Brexit negotiations with any of the hard line successors to May. The election results also suggest that DUP was only speaking for a minority in its continued opposition to the reasonable compromise negotiated by Theresa May, concluded the Irish Times in its election coverage. Whether we see a surge of the Alliance party will be linked to the question of whether voters would be ready to put Remain above unionism on their priority list or not. 

The success of the Alliance party also sends a signal that the people want the devolved parliament in Stormont restored. Tensions between the DUP and Sinn Féin have left Northern Ireland without a regional government since 2017. Once installed the Alliance Party and the Social Democrats (SDLP) could work together to form a moderate bloc in Northern Irish politics, as some commentators like to see it. But the two parties are disadvantaged when it comes to exerting influence in Stormont, writes Newton Emerson. Under the 1998 Belfast Agreement, Assembly members must self-designate as unionist or nationalist, or be classed as other. Unionists and nationalists have extra weight in the assembly’s important veto mechanism, with each side able to block anything on their own. The others are powerless by comparison, as they only get a similar veto if they represent half of the assembly. The assembly is thus set up for a polarised system, which suits the DUP and Sinn Féin well. 

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