France might not be the only ones who are left feeling double-crossed by Germany’s last minute blockage of the 2035 end to the combustion engine. Italy, who backed the German move to block the proposal, could also come away from the discussions with a feeling of betrayal. Italy’s position is that it did not want an end to the combustion engine, but it backed a different solution to Germany’s. The Italians have more heavily invested in biofuels as their ideal decarbonised fuel source, compared to the German backing for synthetic e-fuels.

But Italy’s problem now is that biofuels did not seem to made it into any revised proposals. Whilst a draft of the amended proposal mentioned e-fuels, it did not mention biofuels. This prompted the Italian government to send a letter to the European Commission formally requesting that biofuels be in scope as well as e-fuels. They have not, so far, received a reply.

Germany and Italy are both the important swing votes in the EU Council on this issue. To block the legislation, at least four member states representing at least 35% of the EU’s population would have to vote against it, since this is an ordinary legislative matter. Assuming Poland and the Czech Republic, who have also both expressed doubts about the ban, vote against it, that would mean needing both Germany and Italy. Without either one, they would not reach either the population threshold or the member states one under the EU qualified majority counting rules.

There is, however, no particular reason now for Germany to back Italy’s biofuel bid. Unless Italy can find votes against from member states comprising 11% of the EU’s population, again assuming Poland and the Czech Republic still don’t back it, they cannot block any amendments.

The only thing Italy could do would be to say that unless biofuels are in scope, it would vote in favour of the original legislation. In that instance, Germany, Poland, and the Czech Republic would be around 5% of population away from a blocking minority. But we doubt that will happen, especially since Giorgia Meloni’s government staked out their position so early on.

What this will, of course, do is reduce trust in Germany further within the rest of the EU. The relationship with France is already in poor shape, partly because of the combustion engine U-turn but also because of divisions over nuclear energy and fiscal rules. Nordic countries are being alienated by the combustion engine move too.   

If you listen to what people say in the Westminster village, you’d be forgiven for thinking that the UK was synonymous with England. The general attitude towards the UK’s other nations is a combination of confusion and apathy. Scotland is a place where you go for a couple of weeks for the Fringe, or a nice whisky tour. But politically, it’s mostly viewed as irrelevant. This view has always been inaccurate, but never more so than now, since one of the UK’s most interesting and consequential political developments is north of the border.

What’s happening in Scotland now is one of the rarest and most fascinating phenomena in politics: a party, the SNP specifically, imploding entirely from the inside out. Nicola Sturgeon’s resignation has triggered a fractious leadership contest between uninspiring candidates. This is probably one of the reasons why the SNP has lost around 30,000 members, something Peter Murrell, the party’s chief executive and Sturgeon’s husband, resigned over after the party tried to cover it up.

One of the most obvious implications of the SNP’s self-destruction is a blow for the cause of Scottish independence. While the SNP isn’t the only Scottish political party that backs independence, it has been the main political proponents of the cause for more than 50 years. Similar movements exist elsewhere in Europe, but it is hard to think of one that’s as intimately associated with one party as is the case in Scotland.

More importantly for the next elections, however, is what happens to the 59 Scottish seats in the Westminster parliament. At the moment, the SNP holds 45 of them. But on current form, it is hard to see that being the case after 2024.

On first appearances, the most obvious beneficiaries would be the Conservatives. They were the second-placed party in Scotland in 2019, both in terms of seats won and total vote percentage. In both, they came far behind the SNP, but in front of Labour, who only holds one Scottish seat.

But the Conservatives face two problems. One is that the SNP’s support base, if they will move anywhere else, has a stronger centre-left tendency. Gone are the days when the party had a more radical centrist bent, giving it the Tartan Tory nickname. The other is that the Scottish Conservatives’ leader, Douglas Ross, is very unpopular in Scotland. When the Conservatives won 13 Scottish Westminster seats in 2017, their best performance there since 1983, they did so with Ruth Davidson, a capable and charismatic figure in tune with Scottish public opinion, as leader in the Scottish Parliament. Now she is out of the picture.

Whether Labour can benefit from the SNP committing political suicide is another story altogether. But if they can, it will change the calculus around their political fortunes. One of the less-discussed shifts against Labour in UK politics was how the SNP destroyed them in a part of the UK where they could reliably bank a good 40-50 seats, sometimes even more. When you need 326 seats to form a majority, these are materially significant numbers.

Cui bono? This is the question to ask about the political consequences from the pension reform debacle in France. Amongst the political parties it is clearly Rassemblement National, Marine Le Pen's party. They stayed out of the limelight and away from violent confrontations, quietly benefitting from the fallout of those clashes. It is their electorate, the lower middle class, that stands to lose the most from the pension reform, according to a note from Terra Nova. Compared with the left, they remain the most respectable opponent of the pension reform. There is no chaos on the streets or shouting in the National Assembly. Compared with the conservatives, their MPs have stayed united behind Le Pen.

Once the pension reform is enacted, there is a new electorate for them to explore. Le Pen's pitch to prospective voters is that she is the last chance to undo the pension reform if they elect her into power in 2027. The party is also looking to pick up the pieces from the implosion of Les Républicains. They even promised conservative MPs who backed the motion of confidence against the government not to put up a candidate in their constituency for the next legislative elections. 

One of the biggest hurdles for Le Pen is competence. The party just launched a finishing school for their future elite cadre of MPs and administrators. But she herself too has to demonstrate that she has a grip on various dossiers, not just the ones that happen to be her favourite topics. It is one thing to oppose, but quite another to actually assume power. Le Pen seems to be fully aware of this. She rejected the idea of becoming prime minister in case the assembly is dissolved. She fears becoming a target of the very same anger she is now thriving on. The confidence vote has ended that scenario for now. 

ARD German TV reports on a study by the Potsdam institute for climate impact research, which reveals the utter lack of reality in the German debate about e-fuels. Even in the best-case scenario, Germany will struggle to get enough e-fuels to meet its indispensable demand, from shipping, air transport and the chemical industry. These will all still require liquid hydrocarbons as their energy source. In other words, there won't be anything left for cars. The whole FDP debate about the exemption for e-fuelled power cars after 2035 is a smoke screen.

The politics of this is that the FDP is trying to arrest its political decline by appealing to rural voters, who are dependent on the motorcar for transport. A recent poll in Germany has shown that around two thirds of the population opposes the end of the fuel-driven car.

E-fuels are based on the extraction of hydrogen from water through a process called electrolysis. In a second stage the hydrogen then combines with carbon dioxide to produce hydrocarbons. The idea is to use green energy for the production of e-fuels, for use by ships and airplanes. The same goes for parts of the chemical industry. Together, they account for 40% of Germany's total demand for liquid hydrocarbons. The institute's simulation assumes the relatively optimistic assumption that air transport stays at current levels.

A far more likely scenario is that there won't be enough e-fuels around even to satisfy the indispensable demand. So far, only 60 production facilities are currently in the pipeline worldwide. Of those, only a small fraction are funded. Even if they all get funded, they will only produce a tiny fraction of what Germany itself demands. The idea that there is enough left for cars is completely unrealistic.

What this is telling us, beyond the petty FDP politics, is that the Germans are fighting tooth and nail to squeeze the last hydrocarbons into their cars, rather than focus on next generation technologies. All for the sake of a couple of percentage points in the polls.

It is the classic losers' strategy.

Germany's electoral reform passed the Bundestag at the end of last week. It is a big deal. It removes a technical gateway that secures parliamentary representation for parties that fall under the representation threshold of 5%. The Left Party was in that situation in the last elections. The CSU could be next. The contours of how this can backfire are already becoming visible.

The political impact of the war in Ukraine is radicalisation. The big shifts that are happening right now is that the AfD is rising, and that the Left could regroup. Sahra Wagenknecht said she will decide before the end of the year whether to set up a new party in opposition to the Left Party. If she does, we would expect such a party to attract more than 5% of the votes, possibly quite a bit more. This means the radical fringe of German society would be fully represented, which would make it harder for the centrist parties to form coalitions.

The latest German polls already show how difficult this could be. The AfD has now overtaken the Greens in one poll. We have to see whether this is a trend, but we think it might be. It is the only party that is opposed to supporting Ukraine, a sentiment that is shared by around one third of the population. The FDP hovers in the 5-7% range. The CDU/CSU is strengthening slowly. It is now back to around 30%, on a steady progression from the last election, when it obtained 24% of the vote. If the Left Party, or a successor party of the left, were once again represented in the parliament, the current traffic light coalition would not have a majority under any of the polls. Without the Left Party, it’s a tie, too close to call. This is why the coalition badly wants this reform passed. But we think it underestimated the dynamic effects. 

We should recall that the last elections were decided by voter movements during the last three months. It is not clear at all that the Germans prefer Friedrich Merz over Olaf Scholz. There is what the Germans call a chancellor-bonus that might benefit Scholz at the end. Nor does the CDU offer any feasible coalition options, other than another grand coalition.

The FDP saga has a fascinatingly morose quality to it. Of the many contradictions, this to us is the most striking: this is a party that pitched itself to the techie generation with promises of modernisation and digitalisation. And here they are, in a life-and-death fight for the survival of the fuel-driven motor car. Does it not occur to them that they be should perhaps be focusing on the next-generation mobility technologies like artificial intelligence and changes to road infrastructure to support it? The young tech generation is not as big on cars as FDP folks are.

FAZ had a depressing story this morning, according to which Volker Wissing, the German transport minister, has come up with a mindbogglingly devious technocratic proposal to break the deadlock after he himself blocked the final deal on the 2035 phase-out for fuel-driven cars. The hook Wissing used was a clause in the deal under which the European Commission would allow fuel-driven fleet cars to be registered after 2035 so long as they use e-fuels. The deal says the Commission would make a proposal, but hasn’t done so, and does not appear to be in a hurry either. Wissing tied his go-ahead to that happening first. He is now written to Frans Timmermans, the vice-president of the Commission, who, we suppose, must be rolling his eyes at those antics.

Wissing wants the Commission to issue a so-called delegated act, a procedure that is harder to unravel than ordinary legislation because voting it down in the EU Council requires a qualified majority against it. As FAZ points out, there are a number of obstacles to this route. The most important reason is legal: delegated acts can only be brought forward if there's a basis for it in the original legislation. If no such basis exists in the 2035 phase-out legislation, they would have to amend it to add one.

Wissing essentially wants the Commission to override the 2035 deal, so that Germany can produce the only cars it knows how to build at a large profit. The position of the Commission is that they can only announce a statement of intent at this point.

Our advice to the Commission is to keep calm, and see whether the Germans are ready to torpedo the entire deal. What is happening here is that the FDP needs its 15 minutes of fame, and that they picked, as usual, the wrong subject. The other is, of course, the stability pact reform.

What this story shows is that Germany is choosing the protectionist route, not the innovative one. That's the change of era that is happening.

All those who believe in Olaf Scholz's change-of-era fairytale should perhaps read the annual Bundestag report on the state of the armed forces. The author is a member of the SPD, Eva Högl, who has the rare quality of not mincing words. Of course, the German army is not ready to fight. This is not what it is there for. But it is also starting to struggle to meet its commitments to Nato. It has become a cesspit of anti-semitism and sexual violence. The biggest registered offence is the Hitler salute.

She noted that of the promised €100bn budget facility for repairs, not a single cent has arrived. This is how the smoke and mirrors of German, and increasingly European, budget planning works. It is mostly an announcement effect. We have reported on several occasions before that the Bundeswehr suffers from derelict equipment, like Puma infantry fighting vehicles and Eurofighter jets. A majority of the Leopard 2 tanks are also not in working order. But the biggest shortage of all is the same as in German industry more genrally: staff.

The author writes that it would take some €300bn to reform the Bundeswehr, money that Germany is unlikely to make available, given the competing political priorities, namely the expensive energy transition and Christian Lindner’s assertion to stay within the legal framework of the constitutional debt brake. All countries in Europe are facing acute fiscal constraints going forward. That was also painfully clear in the UK’s budget yesterday.

Concrete problems relate to procurement. An example is the planned purchase of a helmet from a US supplier, which has been in a testing phase for nine years. Army barracks are in a derelict state, often with no functioning toilets and plumbing, and, of course, no internet connection.

The Bundeswehr is clearly not an army designed to fight. In that respect, it is very much in accordance with German policy since the second world war. The change of era is at most in ambitions, but given the lack of a strategic plan, we don't buy it.

The report did not talk about Ukraine, but surely raises the question of how long Germany can keep up the support. 

Water shortages are going to be an issue this year not only for Europe. The dry weather over the first few months has increased the chances of droughts and water restrictions in the summer. There was less rain and less snow in the mountains to melt and fill the river basins in spring. This map from the European Drought Observatory already shows soil moisture deficits throughout France and England, parts of Belgium, the Netherlands and Northern Italy. In Ireland, the alerts are one step further on red, indicating stress on the vegetation as a result of the moisture deficit. Turkey is largely affected too by moisture deficits, as well as parts of Romania and Greece, while countries like Spain or Portugal seem less effected. This has implications for harvests in those countries, but for their industries too.

According to the French government, manufacturing uses 8% of the total water supply, nearly as much as agriculture with 10%. The sectors which consume the most water are chemicals, paper, and agri-food. It takes 400 litres of water to produce 1kg of sugar, and 10,000 litres to produce one pair of jeans. The French government is preparing for water shortages in the months to come, some communes limited water usage already not to drain their water silos.

After three years of repeated draughts, French producers are also shifting gear, and have started investing into saving water. The prospect of repeated water shortages, higher costs and potential stops to their production has led to a wave of investments into new ways of recycling their own water or sharing water with other sectors where standards, writes Les Echos.

Hydraulic efficiency is becoming a thing in France. Water recycling is still only 0.6% in France, compared with 14% in Spain or even 98% in Israel. Manufacturers in the chemical sector are hiring hydraulic experts to consult them what quality of water is required at which stage of their production process and what provisions and recycling capacities are the best way forward.

Some larger companies, like Silab, which is part of the supply chain in the cosmetics industry, invested already millions in recycling their own waters. In the pharma sector, there is a mountain of regulations to take into account.

Not every sector needs tap water for their production. There are those looking into sharing their water with less regimented industries. The water quality required for cleaning machines is clearly different than for what is needed in the chemical process for drugs. These solutions are more likely to address the needs of smaller and medium-sized producers. This is just the beginning of a long road.

The Germans like to refer to their partnership with the French as being an engine. The French themselves describe it as a marriage. While neither can agree on what to call the relationship that has played a central role in EU policymaking, what they would probably both say is that it doesn’t resemble a power plant.

It’s hard to think of an area where the French and Germans are more at odds with each other than on energy policy. Since the 1970s, France has adopted what is by far the world’s most nuclear-heavy energy mix. At the same time, the anti-nuclear movement has been one of the most consistent, and successful, currents in German domestic politics.

Recently, both countries have recommitted to their divergent positions. After initial hesitation on nuclear power’s future, France is now completely behind it. The only disagreement is over whether to build a lot of nuclear reactors, or a silly number of them. Germany has pushed ahead with its nuclear phase-out, despite the FDP’s objections.

Neither side would go so far as to publicly criticise the other’s energy mix choices. But it will be an implicit problem as the EU debates what to do about how its electricity markets are designed. This will kick off in earnest today, with the European Commission presenting its reform proposals. 

There are two main issues at stake. One is whether so-called infra-marginal generation sources, like renewable energy, should sell their electricity at the same price as others, like coal or gas. The variable cost of producing electricity using wind or solar is substantially lower than other sources. Under the current marginal pricing model mandated by EU law, however, they receive the same proceeds as whatever the most expensive source in use gets.

Another, related question is the role which so-called contracts for difference should play in the future of European energy markets. These arrangements mean that buyers and sellers lock in prices as part of a longer-term agreement rather than letting them fluctuate. If the market price is lower than the strike price, the generator benefits. If it’s higher, the power consumer does.

Some countries, like Spain, have an especially strong view on these issues because of how they relate to the affordability of renewable-generated electricity. For France and Germany, it’s more about industrial policy. France favours a more Spanish-style approach, making liberal use of contracts for difference, while Germany has a cautious, wait-and-see position.

The more open market approach of recent decades has been very bad for the French nuclear industry, since reactors require a lot of upfront investment to build and maintain. Renewable energy producers, on the other hand, may benefit from contracts for difference in certain circumstances, but not in others. The best approach is the most flexible one.

The technical, legal, and political intricacies of nuclear power mean both countries are now stuck on their courses. Ditching nuclear would be practically impossible and extremely expensive for France, as would starting up German reactors already in the process of decommissioning.

Sometimes major accidents become a symbol of all that is rotten in a state. The Beirut port blast was such an example, exposing the extent of neglect that allowed hundreds of tons of improperly stored ammonium nitrate to explode, killing at least 218 people and destroying a major component of Lebanon's trade infrastructure in times of economic crisis. The frontal collision between a passenger and freight train in Greece is not nearly as deadly, but it has a similar symbolic power. Both incidents could have been avoided if only the proper procedures were in place. Both countries suffered under-investment as a result of a debt crisis.

With the train crash, it is about negligence and underinvestment in safeguarding mechanisms and mismanagement. Over the past two weeks since the crash, thousands of protesters took to the streets over safety deficiencies, demanding accountability for those responsible for those gaps. In Greece, trains are operated by private companies, but the state-owned Hellenic Railways is in charge of maintaining the track. So the pointer goes straight back to the state.

There is an economic crisis context for which the incident stands symbolically. The train collision happened years after Greece’s sovereign debt crisis, which nearly brought down the banking sector. In Lebanon, the port blast happened at the onset of the still-ongoing banking and sovereign debt crisis that brought economic hardship on its people. The timing and extent of the disaster in those countries may be different. But the link is there in both cases. The hollowing out of public services during years of austerity under bailout programmes has been mentioned during the protests, organised by civil servants and university students.

The safety gaps on one of the busiest commuter railway routes put the incumbent conservative government on the defensive. Kyriakos Mitsotakis promised to upgrade the system and seek support from the EU. He also promised to fully cooperate with a judicial probe into the crash.

What does it mean for the upcoming elections? New Democracy is already losing the comfortable lead of 7.5pp it had over Syriza. One poll suggests that New Democracy is still leading, but with 29% of the vote compared to 25% for Syriza. Mitsotakis' mishap in the immediate aftermath was to blame human error for the accident. This did not go down well with the voters. Even if he later apologised, some observers still see this gesture as too little and too late to repair the damage. Until the accident, it was was expected that Mitsotakis would call elections in April, but now it looks likely to be postponed, possibly even to the end of May.

Not only New Democracy, but every major party including Syriza, have been in power at some point over the past 10 years. So negligence in rail safety could become part of their story too. This is why all bets are off in predicting an election outcome at this point in time.