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July 17, 2019

The dreaded scenario

We are now in the dreaded scenario. Ursula von der Leyen has been elected with the help of the Polish PiS, Viktor Orban’s Fidesz and Beppe Grillo’s Five Star Movement. If any one of those had voted No, she would have missed the target of 374 seats. The first consequence of this came last night, when Poland’s prime minister Mateusz Morawiecki demanded special consideration for Poland in the forthcoming EU budget. The price of von der Leyen's election will be revealed only over time. Our overall assessment is that the EU is headed for a long period of gridlock in matters that involve the European Parliament. As the FT’s EU correspondent Mehreen Kahn (@MehreenKhn) put it last night:

"The European Parliament has confirmed a new president of the European Commission without knowing her positions on US/China, enlargement, industrial policy, and the MFF among other things."

Before we discuss the policy implications, it is worth reflecting on the size of von der Leyen's majority. The numbers of pledges and the actual numbers don’t add up. The three centrist parties that purported to support her have a nominal seat count of 444. If you add the PiS and Five Star to that, you would have ended up with a nominal majority of about 100, instead of 9. 

The first important consequence is that von der Leyen will not be able to rely on a majority of the three centrist parties for her agenda. There is nothing new about shifting majorities in the European Parliament, but the numbers have changed with the latest elections. We expect more gridlock. And the position of the populists will be strengthened much beyond what the numerical representation of the groups would suggest. Expect no more Art. 7 proceedings against countries that breach the EU’s core values. The PiS came out of this as one of the EU’s new power brokers. One question to ask is whether von der Leyen and her behind-the-scenes handlers have made conflicting promises yesterday. We also wonder whether France shifting to support the Romanian Laura Codruta Kovesi for the job of the EU top prosecutor may have been part of the deal. 

On the issues that interest us the most - the eurozone, Brexit, transatlantic relations - the EP is not the main player. But it has co-decision rights in many areas of increasing relevance, like climate targets and industrial policy. We have a separate story on the issues facing the new commission president below. We normally like to keep a distance from the inter-institutional rivalries of Brussels. The European Parliament gained formal powers with each Treaty change revision. It gained informal powers through the spitzenkandidaten process in 2014. The latter is gone now. The formal powers remain unchanged. One of the issues to watch out for is whether the 2019 European elections will have led to a weakening of its actual powers relative to the European Council.

In its 2009 Lisbon Treaty ruling the German constitutional court argued, controversially, that the EP does not constitute a proper parliament because members vote on national lines and sometimes on the instruction of their national governments. Yesterday’s events would have reinforced those views.

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July 17, 2019

Meet the Labour no-dealers

We are not sure we agree with the consensus according to which the risk of a no-deal Brexit has gone up in the last few days. Most commentators underestimated that risk in the past because they bought into the complacent view that the UK parliament would somehow stop it. We always said the risk was high. But we also think there is still a good chance of a deal. The two are causally related. Once people realise that the deal - as opposed to some unicorns - is the only way to stop no-deal, the deal suddenly becomes much more attractive. Playing Brexit as a three-way game was Theresa May’s fatal political error.

Another contributing factor behind that realisation is the position taken by some Labour MPs. A Labour MP, Sarah Champion, shocked a lot of people yesterday with her comments on TV that she would rather have a no-deal Brexit than no Brexit. The Huffington Post UK reported last night that there were 8-10 Labour MPs in that camp. We think this is probably enough to frustrate any Tory rebellion. Since Labour’s latest election manifesto included a commitment to deliver Brexit, it will not be smooth to shift from that position to the exact opposite. A large majority of Labour voters are pro-Remain, but many of those are concentrated around London and the south-east. The contrasting statistic is that two-thirds of Labour MPs are from Leave-supporting constituencies. The views in the country on Brexit have not shifted much - except that the views among Brexiters have hardened a lot. Those Labour MPs fear for their seats - and we believe that the true number may well exceed 8 or 10.

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