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September 23, 2019

Corbyn’s last big battle

One of the big lessons this decade has brought for political commentators is that you can no longer rely on the hard-and-fast rules of yesteryear. It is surely tempting to dismiss Labour’s promise to abolish private schools as a certain vote loser, but we are not sure that this is the case in a country where only 7% of children enjoy a privileged private education. The measures proposed are unbelievably radical, like the forced nationalisation of the schools’ assets, and strict caps for university admissions. As with Brexit itself, radicalism can prove popular.

One of the few hard-and-fast rules still working is that parties do not win elections if they are split. Last night, Labour’s high command was unable to agree on a unified Brexit motion. Jeremy Corbyn wants the party to commit to a second referendum after a renegotiated deal, but wants to leave it open whether the party supports Remain or the agreed deal. A rival motion to be voted on today would commit Labour to supporting Remain under any circumstances. There is a grassroots uprising against Corbyn on this point, in support of the rival motion. But Labour politics is complicated. The trade unions carry a big vote, and they mostly support Corbyn. The Labour leader further infuriated the Remainers with a suggestion that he might give his MPs a free vote if Boris Johnson were to return with a Brexit deal. 

The Tories will have their conference next week, and appear relatively united after they ditched the 21 rebels. They traded unity for the numerical loss of a majority. The polls have the Tories firmly ahead to varying degrees. We are not sure that Labour is currently in a state to fight and win elections, so it is not clear to us why Labour would be keen to hold elections now. The reasons that led Labour to reject elections in October will not have changed in November.

The main pressure towards elections could come from the European Council and especially from France. We noted a report in FAZ this morning that Amélie de Montchalin, the French state secretary in charge of Brexit, is hardening the French line on an extension. She said an extension would only be granted if accompanied by either elections or a second referendum - adding that the European Council was united on this point.

But we think the most likely first stage in the coming Brexit showdown will be another attempt to forge a deal. We hear a lot of negative press commentary, quoting the usual unnamed EU sources. But we don’t think that this issue is going to be settled by those sources. Jean-Claude Juncker doubled down on last week’s interview with Sophy Ridge when he told El Pais that he believed Boris Johnson was serious in his attempt to negotiate a deal. We are with Juncker on this point.

Our main scenario is that a deal could be agreed or an extension granted until after an election in November or December - or both. We are becoming increasingly doubtful that Johnson is still actively pursuing a no-deal Brexit as his primary goal, but he is still leaving it open as a threat in case parliament both fails to agree both a withdrawal deal and elections.

Wolfgang Munchau writes that a no-deal Brexit does not constitute an intelligent strategic choice unless accompanied by a big change to the UK’s economic model. He writes that it will under no circumstances be followed by a Canada-style trade agreement as the EU will apply different level-playing-field standards to the UK than do Canada. This is to do with the size of the UK economy and the geographical proximity. A no-deal Brexit would only make strategic sense if the UK were to exploit regulatory divergence, in artificial intelligence for example. But this does not appear to be the case. A no-deal Brexit is thus unlikely to be a vote-winning proposition.

This week’s news agenda will be dominated by the party conferences, and the Supreme Court’s ruling on prorogation. We think the latter dispute is to some extent superseded by events. The single biggest loophole in the Benn extension bill is the European Council, an institution poorly understood by the UK’s legal profession and by MPs. For example, Art. 50 makes no mention of a formal letter. The British prime minister could override his written letter with a verbal withdrawal and then state a different position. As a member of the European Council, he could force a formal vote and then cast a veto against his own written proposal. And even without such openly destructive behaviour, it is far from clear that the European Council would extend if the UK has not set a date for elections. Most likely, the European Council will not formally veto an extension, but refuse to grant one until the conditions are met. It would thus ensure that the ball, and the blame, rests with the UK parliament. The Benn bill implicitly assumes the European Council to act as a binary automaton in a conspiracy with the UK parliament. We don’t think this is realistic.

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September 23, 2019

Germany’s CO2 compromise meets all targets - except the climate targets

The grand coalition’s grand climate compromise met the two governing parties’ stated goals - it will maintain the fiscal surplus and it compensates long-distance commuters from any losses incurred. As far as the Paris climate targets are concerned, it is best to listen to Angela Merkel herself: politics is what is possible, she said - a fitting epitaph of her chancellorship. The common thread is that Germany is always in the forefront of those who advocate multilateral targets, but the reality is that these targets never constitute a constraint on domestic policy. This applied to Nato defence spending targets, inflation targets and now climate targets.

The coalition agreed a very gradual transition to CO2 emission certificates - starting at €10 per certificate in 2021, rising to €35 per tonne in 2025. The agreed price cap is €60, which compares to the €90 which already is charged in Switzerland.

One effect of the measures will be higher costs for petrol and diesel, but this will be fully compensated by tax breaks for commuters and for company cars. FAZ quotes a calculation that long-distance commuters with large SUVs are the winners from this package.

Parts of the package will have to be approved by the Bundesrat. The Greens already said that they will use their blocking minority in the upper chamber of the German parliament to force through some changes. The Greens are represented in more than half of the state governments in Germany, and thus have some influence on the legislation. The Greens say it was now impossible to tweak the existing legislation to the extent that Germany could meet the Paris climate goals. At the very least the Greens are planning to block the compensation for commuters on the grounds that this constitutes an incentive to drive long distances. The Greens are also demanding an initial price of €40 for CO2 certificates, with no upper bound. 

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