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20 October 2020

Spain to forego recovery loan money

Our main story today is about Spain's decision to forego the loan component of the EU recovery fund. We think this makes sense, and is indicative of the glut in EU lending programmes; we also have stories on how France plans to take on political Islam; on the French extension of credit support for investment; on a possible Italian U-turn on belt-and-road; on EU plans to crack down on internet gatekeepers; on Turkey's latest set of provocations, and on the UK's refusal to reopen talks with the EU.

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Today's free story

Barnier's overtures rejected

Michel Barnier tried to undo some of the damage done last week by the European Council, by offering a genuine concession: the EU is now willing to discuss legal texts. This is exactly what the UK had been demanding for some time now. But that concession was not enough. A UK government spokesman noted politely that Barnier's offer to intensify the talks was welcome, but that there is no basis for discussions unless there is a fundamental shift in the EU's approach. In other words, the UK is expecting nothing less than a reversal of the council declaration, which boldly stated that all movement in the negotiations would have to come from the UK side. We think the declaration last week was an unnecessary provocation that has actually weakened the EU's position.

The Guardian concludes that the standoff continues with only four weeks until the next European Council. The diplomatic activity going on in the background now is to find a face-saving way out of the mess. This means we are in a talks-about-talks phase of negotiations, as opposed to talking directly. Angela Merkel's overtures on Friday were not deemed to be sufficient. Unanimously agreed Council conclusions weigh heavier than a politician's later emollient words. We think the European Council made its third tactical error during these negotiations. The first was to bet on an extension, and the second to insist on sequencing. The combined result of all of these mistakes is that the deal will ultimately require more concessions in a shorter period of time than would have been necessary otherwise.

The EU relented also on another UK request. Instead of a permanent office in Belfast, it is now happy with a team of border officials in Northern Ireland.

The probability of a deal remains impossible to calculate because it will depend on whether Boris Johnson wants one or not, and whether he is ready is to compromise on the level playing field. He would need to do this. Another necessary condition is for Emmanuel Macron to drop his extremism on fisheries. Our hunch remains that this will happen, but we can't be sure. We are hearing reports that Johnson is dithering, changing his mind from one day to the next. The big danger we see is that Macron will make it easy for Johnson to pull the plug. The process will not survive another accident of the kind we had last week.

19 October 2020

Where now for liberté, égalité, fraternité?

The savage murder of Samuel Paty may be a decisive moment for France. After Islamist terrorists targeted journalists, cartoonists, young concert goers, Jews and the police, the decapitation of a teacher who taught his students the freedom to think, speak and draw hit a central nerve of the French nation. This was an attack against its republican values, culture and identity.

Teachers are the backbone of a society. Who would risk their life to show what freedom of speech means in a democratic and secular system? How will they stand up in their class this morning and talk about freedom if they have to fear that some of their pupils or families might agree with the assassin? This is a reminder that freedom cannot be taken for granted and that, for some teachers, it may become a daily battle against fear. The murder comes as the perpetrators of the Charlie Hebdo attack five years ago and their accomplices stand trial, and shortly after a meat-cleaver attack by an Islamist radical outside the former headquarters of the magazine. Freedom is a fragile value and needs to be protected, writes Le Monde in an editorial

France has the largest Muslim population in Western Europe, with about 5m people, and Islam is the country’s second largest religion. Of the young people who consider themselves Muslims, one in two prioritise the laws of Islam over those of the Republic according to Michaël Prazan. For decades, certain subjects have become taboo in multi-religious classrooms. How far will this go? How can one teach a young person to make his or her own choices free of influence, in line with Republican values? If teachers cannot talk about the Charlie Hebdo caricatures in school, it suppresses a brewing conflict that calls for political intervention and change.

Emmanuel Macron addressed the nation and called on citizens to stay united against fear. He led a first government meeting on the response yesterday, setting priorities for more measures to combat radical Islam, protect teachers and monitor social networks. 

The immediate danger has been identified.The Élysée is considering police security for at-risk teachers, the education minister created a free call number, harassing parents will be identified and punished, and the national education curriculum on freedom of expression will come back in full force after the autumn holidays.

But what about the medium to long term? Cécile Cornudet wonders whether these policies will be enough to change course given that some families are living in a parallel society outside the values of the French Republic. They are making war against the values taught by schools, and ideology is winning over part of the educational machine. Will Macron's call to stand united still resonate with people who are becoming less and less willing to join him? The thousands of people gathering this weekend may be comforting, but what about the days after? Macron provides a sense of purpose and resolve in this crisis for the French Republic. If he fails to foster unity, he could splinter French society even more and give Marine Le Pen a boost. 

16 October 2020

How Erdogan plays the EU

While EU leaders drag their feet on whether to impose sanctions on Turkey, President Recep Tayyip Erdogan is creating a new Turkish empire using proxies, and tapping into the Turkish and Islamist communities at home and abroad. The EU fails to see the bigger picture. This is not about drilling ships entering Greek waters, but about facing up to the biggest threat in our immediate neighbourhood. Erdogan inspires Turks and Muslims with a vision of a modern empire stretching from Africa through Europe to Asia. You may not see New Turkey on the map, but it is becoming a reality.

In pursuit of this geopolitical masterpiece Erdogan uses all means to keep Europe disunited and morally compromised. It is not difficult to imagine the EU responding in the same way it did to Slobodan Milosevic: unable to act while a humanitarian crisis is unfolding at its doorstep.

Turkey already has a presence in Africa, the Middle East, Europe and Asia. It has military bases in Libya, Azerbaijan, Iraq, Qatar, Syria, Sudan, Somalia, Northern Cyprus and Albania. It is militarily engaged in civil wars in Libya and Syria, and now in Azerbaijan against Armenia. This way Turkey is extending its reach into the Caucasus. Once the Turkish military puts its foot down, it creates realities on the ground. The buffer zone in northern Syria has turned de facto into a Turkish administration zone, with Turkish lira and products circulating. There is no need to change border lines, as unity with Turkey is an everyday experience. From Africa to Asia, Erdogan is mobilising his supporters.  

Erdogan knows how to engage the large Turkish communities abroad. The biggest Turkish diaspora is in Germany. Traditionally voting for the SPD, though increasingly also for the CDU and the Greens, the majority supports Erdogan. Over the past months he has played a diplomatic game with Angela Merkel. In the end Erdogan got what he wanted: no sanctions from the European Council, but instead a carrot and the threat of a stick that may or may not be decided in December. This way he showed the Turkish diaspora what he is capable of doing. 

Erdogan is a master of manipulation and turning arguments upside down. He sent refugees towards the Greek border to remind the EU what they could expect if they crossed his red lines. Turkey has crossed Europe's red lines many times, but there were no consequences. He sends out drilling ships into Greek waters, calls them back just in time for the EU summit, and sends them out again, blaming Greece for not having kept its promises. Who is holding Erdogan accountable for his aggressive acts? Europeans still do not seem to want to see through his tactics.

Only Egypt has so far had the guts to set out red lines in Libya. And Turkey abided. This is the way forward. If Europe cannot get its act together and decide on what those red lines are, there will be no stopping Erdogan. Refugees are hostages to his games. They are used as a threat or bargaining chip with the EU. And the men are being trained and sent into his proxy wars in Libya or Azerbaijan. Erdogan might present himself as a protector, but in reality he is using them. 

The EU plays its part by allowing him to do just this. Compromised by the deal they struck in 2016, which we called then and now the EU's pact with the devil, Europe is at risk of selling its soul once more. 

In Turkey, economic favouritism and an increasingly nationalist agenda are polarising society. Since the failed coup in 2016, Erdogan has been purging the military, media and schools of all those who could turn against him. Oppression, intimidation and violence have become normal. This week alone, the Turkish government detained or forced out of office 59 of the 65 elected Kurdish mayors. 

Turning orthodox churches into mosques he also wins support from popular Islamists and nationalistic conservatives. He peppers his speeches with words like survival or native and national, to foster unity in his constituency at home and abroad. Where there is no Turkish community, he uses the Muslim Brotherhood to shore up support. Many of their leaders are living in Turkey or Qatar. The Islamic group already calls him khalifa, the leader of the Islamic world. Accordingly, he portrays himself as the spiritual counterpoint against Israel.

So Europe may end up with a wave of refugees either way, be it Syrians or young Turks who do not share Erdogan's vision for 2071, the 1000th anniversary of the Battle of Manzikert which marked the beginning of the end of the Byzantine Empire in Anatolia and the start of the Turkification era. Once again, Europe's foreign policy appears weak, compromised and unprincipled. 

15 October 2020

Why Macron fights for fish

We wouldn’t usually write so much on fish politics, but the issue has somehow become one of the biggest obstacles to a EU-UK trade deal, as well as a potential source of EU disunity.

We’ve already noted that France’s hard-line stance on fish is putting it at odds with Germany. Mujtaba Rahman argues that France's aggressive negotiating position stems from a desire to become the EU’s foreign and security hegemon, as well as from domestic political pressures. As a result, Macron has been unwilling to sell out French fishing communities. But this is a strange hill to die on.

As in the UK, the industry’s economic contribution is small in France. Total sales were around €2bn in 2016, and OECD statistics show that less than 14,000 people were employed in the fishing sector in 2018. Employment in fishing has fallen by 8% since 2011. But the fishing industry, like agriculture, is symbolically important in France. And northern French fishermen take the majority of their catch from British waters.

Macron might be worried about Xavier Bertrand, a high-profile former member of Les Républicains and potential 2022 candidate who is close with the industry. Bertrand is president of the Hauts-de-France region. He served as health minister under Jacques Chirac and labour minister under Nicolas Sarkozy. Last month he attended the general assembly of the Coopérative Maritime Etaploise, where he called for arm-wrestling with the UK in fisheries negotiations.

More good optics for him. Bertrand has recently been spotted in meetings with a string of senior right-wing political figures, including LR president Christian Jacob. Rachida Dati supports his candidacy, and Le Journal du Dimanche reports that he will meet with Nicolas Sarkozy next month. With the help of LR deputy Julien Dive, he has also been meeting with parliamentarians this week, and is set to meet with senators next week. His think tank La Manufacture has been mobilised to develop an election campaign strategy, and a recent Ifop poll put Bertrand at the top of the list of potential right-wing candidates.

We’ve noted that many of Macron’s recent policies and speeches have been aimed at attracting and retaining voters from the right. But as we’ve argued, no deal will be much worse for French fishermen than what the UK is offering now. Macron has been slipping in the polls as the pandemic drags on, and last night’s curfew announcement probably won’t help. He has very little leverage and the UK knows it. His best option now is to climb down. 

14 October 2020

Free movement in the second wave

Travelling in Europe is a haphazard enterprise in times of Covid-19. Destinations can turn into red zones from one moment to the next, triggering lockdowns and quarantines. Dos and don'ts are fragmented and constantly change, not to mention all the new forms to be filled out before entering another country. Now that the second wave is in full swing, uncertainty weighs heavily on travel. One might as well cancel all plans, hibernate and wait for better times, hopefully by next year.  

Entering the second wave, member states responded in an uncoordinated way once more. Belgium was the first country to impose restrictions on travel to and from other EU countries last month. Other member states followed with their own lists of selected travel restrictions. Only France, Sweden and Portugal left their borders completely open, Jean Quatremer observed. 

What happened to free movement, one of the pillars of the single market? National health concerns override these principles. But, by doing so, they also risk undermining the meaning of free movement in Europe. There are no complete border closures in the second wave, and it is unlikely that we will see them. But imposing a 14-day quarantine is not dissimilar to closing down the border. It is not only a direct order, but one that works by discouraging travellers.

There has been some effort to coordinate better. Yesterday the Council adopted the European Commission's recommendation to coordinate restrictions of free movement in response to the pandemic. These are guidelines only, and still have to be implemented by member states. But it is a step forward and will most certainly lead to more clarity and a better overview about the European case responses, if only to find out how fragmented those really are. 

Member states will have to submit a weekly harmonised set of data to the European Centre for Disease Prevention and Control (ECDC). These include cumulative Covid-19 cases over 14 days, the number of tests and the positive outcomes. On this basis the institute will publish a map of Europe, classifying every region according to three colours: green for those with less than 25 cases per 100,000 habitants or less than 4% positive test results; orange with between 50 and 150 new cases but less than 4% positive results, or less than 50 new cases and more than 4% positive results; red with either more than 150 new cases or more than 4% of positive test results.

Once the region is orange or red, member states can respond by imposing quarantine, lockdown or tests. The only travellers exempted are those with essential functions such as students, journalists, cross-border workers, diplomats and employees in the transport sector. This is a plus. But uncertainty for travel remains, with the full array of measures available and little time to adjust to changes. Member states have to inform the ECDC only 24 hours in advance before imposing a new measure. This is not much time for travellers to change their plans. The UK gave 48 hours for holidaymakers to return home before quarantine in August, leading to panic returns at exorbitant prices. The European Commission suggested five days in its proposal. But member states prevailed in their desire to hold all the cards.

13 October 2020

Smoke and mirrors: Russia sanction edition

We never cease to be amazed that German media reports on sanctions against Russia don't even mention Nordstream 2. The pure hypocrisy in Europe's policy towards Russia and China is probably easier to see from the outside than from within. At no point have Europeans dealt with the fundamental issue that the pursuit of geopolitical goals comes at a cost. You can't be a trade-surplus-maximising Mercantilist and a global policeman at the same time.

In their meeting in Luxembourg yesterday, EU foreign ministers signed off on a Franco-German proposal to target Russia for sanctions because of the Navalny poisoning. Concretely, the French and Germans want to draw up a list of individuals to target by the end of the week. According to the report, the list will also include the research institute that developed the nerve agent novichok. But obviously, these sanctions are being drawn up in such a way that no EU country is in any way affected. Heiko Maas likes to talk about sanctions against Russia, but we should always remember that he and his party are supporting Nordstream 2. Russia sanctions, like the Juncker investment programme, fall in the smoke-and-mirrors category of EU politics. The policy produces a lot of visuals and noise, but ultimately makes no difference. In the meantime, the gas keeps flowing. 

We agree with Germany's principled position that decisions on EU foreign and security policy need to be taken by qualified majority vote. That would indeed be a first concrete step towards a more strategic approach. We also agree with a recent discussion paper that the direction of travel should be to leverage soft-power instruments. But it is crucial to understand that there are political and economic costs to be paid if you impose real sanctions as opposed to this symbolic stuff.

12 October 2020

Incumbent honeymoon ends

The first wave of the pandemic brought increased levels of political support to incumbent governments in Europe. We are seeing the first signs of a reversal. Bild is reporting that its latest poll has the CDU/CSU at 34%, the lowest level since the beginning of April. The big winners are the Greens, which are once again at 20%. This poll has the SPD at 17%, the AfD at 9%, the Left Party at 8%, and the FDP at 5% which is exactly the threshold for entry into parliament.

The FDP's ability to clear the 5% hurdle may well be a decisive factor in next year's elections. But, with the current numbers, CDU/CSU and Greens would have a majority by themselves. These numbers also tells us something about the SPD's game: their goal is to remain larger than the Greens. The gap between the two parties is within the error margin of this poll. We think the trend favours the Greens.

The virus will not be the big issue in the summer of 2021, while green issues are already re-emerging in the policy debate. We noted for example that, according to the business lead in FAZ this morning, VW and Mercedes-Benz are risking huge fines for missing CO2 targets. Another factor that is very likely to influence voters is the CDU's choice of the next party chairman and the CDU/CSU's choice of Angela Merkel's successor. If the party were to choose Armin Laschet as its candidate, we might well see a decline in the CDU's vote to 30%, with the FDP and the Greens as the main beneficiaries. That would be a scenario in which a three-party coalition would emerge, most likely between CDU/CSU, the Greens and the FDP.

9 October 2020

Marine vs Marion

Marine Le Pen may not have benefited from the pandemic, but now that Emmanuel Macron's approval ratings are dropping, both are head-to-head in the polls. These are early days and the 2022 elections are still far away. Will Le Pen's party gather more support? There are votes up for grabs on the left and right of the spectrum. Jean-Luc Mélenchon is on a downwards trajectory in the polls, too, and disgruntled rural voters may well turn towards Le Pen as she offers them comfort and a similar agenda. Le Pen also hopes to benefit from those on the right who look for alternatives amid the government's handling of the pandemic and a power vacuum in the Republican party. The pandemic and its economic and social implications could well last for another year, tilting right into the election campaign. This is a long time, and offers many opportunities to shake things up.

One story to watch out for is the confrontation between Marine Le Pen and her niece Marion Maréchal. Officially, Maréchal is no longer in politics, and yet she is one of the most effective political players in France. She left her aunt's Rassemblement National in 2017 and has since developed a vision to assemble the right over identity politics and economic liberalism, with the creation of a college and a think tank. She is also coming out more forcefully in the press, criticising her former party over its left direction. However, she refrains from any personal attacks on Le Pen herself. It is not yet Maréchal's time to emerge as an election candidate, and she herself excluded this possibility for 2022. The right is not organised enough and, for personal reasons, she would not want to run against her aunt, according to Louis Hausalter who wrote a book about Maréchal's political ambitions.

The Rassemblement National's recent move to purge itself of all members linked to Maréchal may change the parameters of this relationship. Those who work with Maréchal or support her discovered they are no longer welcome in the party when they tried to renew their membership, Marianne reports. Throwing down the gauntlet like this could push Maréchal into the ring. Will she react and, if so, how? Creating her own movement will take time, but in a way she is already doing it. For now, she may use media interventions effectively, and this could become a problem for the RN. Maréchal is somewhat of a darling of the right, and voters may be tempted to turn away from Le Pen. The Rassemblement National's purge may have solved some internal conflicts, but it poses new challenges down the road if Maréchal decides to take up the battle. 

8 October 2020

Rule-of-law rears its head again

Two important developments for rule of law took place this week: a ruling against Hungary’s crackdown on the Central European University, and new efforts by the European Parliament and the German council presidency to separate rule-of-law conditionality in the EU budget from the Art. 7 TEU procedure.

On Tuesday, the CJEU ruled that a Hungarian crackdown on foreign-funded universities, meaning the CEU, violated EU law. The court found that restrictions rolled out under Hungary's 2017 lex CEU breached human-rights laws on academic freedom and university autonomy, as well as EU and WTO laws on freedom of service and the freedom to operate a business.

It may be a landmark ruling, but it comes too late. CEU spent €200m to relocate to Vienna last year. Gergely Karácsony, Budapest’s mayor, told media he would happily welcome the university back. But CEU will maintain its Vienna campus and has not made plans for a return to Hungary. The incident is emblematic of Orbán’s strategy for dealing with the EU. The Hungarian government goes through the requisite court procedures while moving forward on the policies that necessitated the court's involvement in the first place. Rulings against Hungary are meaningless because they don’t arrive in time.

As we’ve been arguing, the rule-of-law issue is fast becoming existential for the EU recovery fund and the upcoming budget, as well as for the EU itself. The issue was front-and-centre in the European Parliament’s budget debates yesterday, when MEPs and the German council presidency both made efforts to separate rule-of-law conditionality from Art. 7. The German presidency offered MEPs spending in the single-digit billions of euros in an effort to break an impasse, but insisted the money could not be used to sanction violators. Katalin Halmai wrote that the German presidency doesn’t want rule-of-law conditionality to become an Art. 7 procedure because of the procedure's scope. EP leaders agreed that they didn’t want another Art. 7 procedure, because it would be ineffective. This is positive in the sense that there is at least some common ground. But, as with court rulings, it is almost meaningless in the bigger picture. 

The courts are too slow, Art. 7 is useless because it requires unanimity, and monitoring reports clearly won't solve the problem. Recognising that existing mechanisms don’t work is one thing. Establishing new mechanisms without torpedoing the recovery fund and budget is another thing entirely.

7 October 2020

Reasons to be wary of the green deal

Nobel prizes in the sciences are a glimpse into the past: they reward intellectual breakthroughs that happened a long time ago. The award of the physics prize to a British and a German scientist among three overstates the competitiveness of cutting-edge scientific research in Europe. There are still pockets of excellence, including in physics, chemistry and the applied sciences. The benign reason for Europe's relative decline is the advance of others. But the decline has been greatly accelerated by an obsession with fiscal austerity. The persistent current-account balance means that Europe has to save while others invest.

That cannot go on. The green deal, at least in theory, offers the best chance for the EU to assert global leadership in at least in one important future technology. In theory, green technology could be to Europe what digital has been to the US and what artificial intelligence promises to be for China. We have our doubts, though. The EU is clearly overselling the green deal. The green share in EU projects is vastly exaggerated through dubious rounding-up practices, a creative accounting method that would land you in prison if you tried it on your tax returns. The EU has still not kicked the habits of the Juncker investment plan: a castle in the air combining hype and leveraged aspirations. The green deal offers the possibility of something genuinely new. A huge investment programme, co-funded by the EU and monetised by the ECB, would indeed be something. But that is not going to happen. A successful green deal would require a degree of purpose and consensus that is completely absent from the EU. 

The hard bit is not setting ambitious targets, like the recently proposed 55% reduction in CO2 emissions by 2030 relative to 1990. We noted an article in FAZ this morning by Hendrik Kafsack, who points out that this target requires, at a minimum, the following sectors to be completely CO2-emissions-free: energy production, traffic, buildings, and almost the entire manufacturing economy. He writes that the EU has picked all the low-hanging fruit, but has yet to take the tough decisions. De-carbonisation will be very expensive. And these decisions will only be made if the rest of the world adopts the same targets. Otherwise, production will simply relocate. We agree with Kafsack that a CO2 border tax is absolutely required to prevent this relocation. We also agree with him that emissions trading is probably the best instrument to achieve the target. Sectoral micromanagement, of the car industry for example, has become necessary because the system is not working as expected.