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January 15, 2020

Philippe's not-so-generous compromise offer

Édouard Philippe made a gesture of goodwill and took the rise in the full pension retirement age off the table, at least for now. This was welcomed by the CFDT union and celebrated as a breakthrough. But this may turn out to be just a temporary concession, writes France24. Philippe asked trade unions to come up with alternative proposals to reach financial balance by 2027 without diminishing pensions or increasing the cost of labour. If trade unions and employers cannot reach an agreement, the government will take the necessary measures to ensure the pension fund will be balanced by 2027, so Philippe. 

Fixing an objective with a constrained set of options sets the trade unions up for failure. The pension reform talks could end up like the ones over the unemployment insurance reform in 2018.  Back then trade unions and employers failed to reach the requested €3bn in savings so the government took charge of the unemployment scheme, a first since 1982, and changed the system’s rules by tightening eligibility requirements and payout conditions. If the script rolls out the same way this time, the government could take back control of the reform at the end of April and order a rise in retirement age, while pointing to a failed negotiation to deliver an alternative. 

Critics warn that this proposal is even worse than the original one. It threatens to introduce the retirement age by government order, reduces the discussion time until April rather than September and prevents upper- and lower-house lawmakers from having their say.

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January 15, 2020

What is Erdogan up to in Libya?

The Guardian has a report that Turkey is sending about 2000 Syrian militias to Libya supporting the government in Tripoli against the advances of general Khalifa Haftar. The deployment could stir up anti-Turkish sentiment among Libyans, play into the hands of Haftar and make ceasefire negotiations even more complicated. Yesterday Recep Tayyip Erdogan could not refrain from threatening to teach Haftar a lesson. Russia's official response to the latter's failure to signing a ceasefire in Moscow was more restrained. We have yet to see the next move from Russia.

Turkey and Libya have repeatedly denied the presence of Syrian fighters, but several deployments happened in December and January according to the British paper, which also has details of how the fighters are paid and cared for by Turkey. By letting Syrians fight in Libya rather than sending the Turkish military Erdogan avoids a direct clash in combat with Russian mercenaries. But will Putin give the green light, or will Russia retreat from the scene in Libya to focus its efforts elsewhere?

Turkey and Russia imposed themselves as big players in Libya by calling for a ceasefire, in a surprise move last week without consultation with other regional players involved in the country. Both have economic and geopolitical interests in Libya, but the unpredictability of events makes a quick fix elusive and has a political cost. The media is currently speculating on how Vladimir Putin will retaliate after Haftar snubbed him by storming out of the negotiations in Moscow without signing the proposed agreement.

The next step will be the peace conference in Berlin this weekend. Whether the Europeans are more skilled or better prepared than the Russians to handle the dynamics of the events and Haftar's temperament is doubtful given their track record. 

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January 15, 2020

When it is noise and not a signal

There are issues where we as analysts are better off admitting that we don’t have a clue. For example, we simply don’t know Boris Johnson’s strategy for a trade agreement with the EU. We are not even sure that he has one. What a US journalist once famously said about Donald Trump applies to Johnson as well: we should take him seriously but not literally. So, when one day he puts the probability of a no-deal end of the transition period at zero and the next day he talks in terms of strong likelihoods, he is not signalling anything. This is pure noise. He has a record of bad forecasts, especially concerning his own actions. What we do know for sure is that he will change his mind when it is expedient to do so. 

We think it is fruitful to think of the pointers ahead that may reveal his strategy. We may find out soon. For starters, there is the issue of Huawei. The expectation is now that he may snub the Americans and accept Huawei’s 5G bid. In that case he will be aligning himself with the rest of the EU on an important issue of security and commercial policy. If he snubs Trump over Huawei, we would assume that Trump’s appetite for a fast-track trade deal with the UK would be correspondingly reduced. And we assume that Johnson knows that.

The next pointer will come in early February when the EU and the UK agree on the framework for the forthcoming trade talks. If the UK insists on a broad trade agreement that encompasses goods and services, that would indicate a willingness to extend the transition deadline. We think the EU and the UK may find it more attractive to explore multi-stop alternatives with selective transitions periods. The reason we think Johnson is unlikely to extend the transition has nothing to do with what he promised. A full-blown trade deal, negotiated on the shared-competence basis, would almost certainly takes us close to or beyond the date of next UK elections. He would risk another Brexit election, potentially with Sir Keir Starmer, Labour’s arch-Remainer, as leader of the opposition. The result of the Labour leadership election will not be known until April 4, though.

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