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December 06, 2019

First strike day with high turnout - what next?

Fight together or suffer alone reads one of the protest banners in Paris yesterday. It sums up a powerful sentiment in French strike culture that brings together different strands in society against the government. This time it is against the pension reform. Similar to the famous pension strikes like in 1995, the turnout was massive on day one. Whether the organisers can keep people on the streets until Christmas or until the government backs down will depend on the yet-to-be-reveled specifics of the reform and on the protest dynamics over the following days. 

The public sector walkout counted over 800,000 protesters nationwide, the biggest turnout since the 1995 strikes and way above what the grassroots gilets jaunes protests ever achieved. Healthcare workers, teachers and railway workers led the strikes. The question is, what now? Some trade unions vowed to continue until the government backs down, others are more divided. Violence was kept at bay so far but the bigger challenge will come this weekend, when the gilets jaunes including black bloc agitators are to join in the protests.

Negotiations with trade unions will conclude on Monday, and strikes are likely to continue at least until then. The executive counts on exploiting the differences among the protesters to dispel the strikes. They stand ready to accommodate some of the grievances, for example the police forces may keep their special status and teachers might see their salaries raised before retiring to make up for the difference. In that sense it is very different from 1995, writes Cecile Cornudet. Back then Alain Juppé stayed firm behind his reform proposal waiting for the protests to wear out by itself, which it did not. The big question now is whether the reform draft emergeing from the negotiations next week will calm down the movement or give rise to another wave of outrage. 

One decisive factor is trust. The public is still confused over the government's vague pension reform plan and backed the strike action yesterday. They made provisions to continue their lives without trains and metros running until the weekend. But will they support another week of protests in the run-up towards Christmas? Can the government convince that it is delivering a fairer pension system, the unique selling point of this reform, after all the arbitrage that has been going on? Will the union strikers believe that their grievances have been heard after using pension simulators online that are so readily available even if they are misleading? Will the government find the right tone to get people on their side? The battle is not won yet.

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December 06, 2019

The arguments in favour of an Italian veto

Shahin Vallée has sent us a paper in which he goes deeper into his criticism of the proposed ESM reports. The paper contains a number of good arguments, which we feel should be part of the discussions, now that Italy will seek a renegotiation. 

The original goals of the ESM reform were to bring the ESM under community law; to allow the ESM to act preemptively; and for the ESM to act as a backstop to the single resolution fund. He writes the reforms are falling short on three important metrics:

  • the ESM remains intergovernmental, and subject to national vetos;
  • the precautionary conditioned credit line includes criteria that would make several countries ineligible from the outset, such as France and Finland;
  • the combination of collective action clauses and the ESM’s enhanced role in debt restructuring could end up destabilising the system;
  • the backstop to the single resolution fund, while welcome in principle, will also remain subject to national parliamentary vetoes. 

Vallée then goes on to propose alternatives, such as a macroeconomic stabilisation function. They are all sensible, but there are clearly no majorities in favour of them. 

The conditional support we expressed for this package rests on the assumption that not much harm is done, in contrast to the eurozone budget which burns political capital for a peanut-sized pork barrel. But we take Vallée’s argument seriously, that the combination of collective action clauses and the ESM’s greater involvement in country programmes could bring about financial instability. 

For us the strongest argument in favour of an Italian veto is a more cynical: to rebalance eurozone power structures, which are heavily tilted in favour of creditor countries. We think it would be a perfectly reasonable proposition for a country to veto eurozone-related reforms that are cosmetic only. Or, to put this more bluntly: if you want to veto this, then do so because you can. Italy is too large to fail in any case. Blackmail potential remains Italy’s single strongest political asset. Why weaken it?

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