Archive for the 'EU matters' Category

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The Italian Job – Part Two: Nessun Dorma – sleepless nights in Brussels

Sunday, January 13th, 2019

For most of the modern era Italy has been treated as something of a lightweight in world affairs despite being one of the world’s largest economies. This has often been on the back of weak and unpredictable government which has stopped Italy taking a wider role.

Within the European Union itself Italy has been treated as something inconsequential despite being a founder member. Northern Europeans and especially German politicians have been openly scathing about the country. More recently Emmanuel Macron trying to win some cheap points tried pushing Italy about by making an open attack on Italy and its government. 

All of this comes against a background of a decade where the EU has battered the Italian economy in the name of the Euro and has not been particularly tactful about how it did it. On the sensitive topic of immigration the scorecard is even worse. It is not hard to see why Italian voters are quietly seething with Brussels; it is harder to see how Brussels, Germany and France could let themselves get in to this position.

In “normal” times I would be of no import, but 2018 was a year when the worm started to turn. Firstly the pillars of the EU establishment began to show cracks. German politics took a decidedly “old Italy” turn when the country couldn’t form a sensible government and Frau Merkel had to promise her departure following repeated losses in state elections. 

France descended into chaos on the back of street protests as Emmanuel Macron battled to save his failing presidency. In Brussels too the Commission was looking weakened by growing populism across Europe, a steady stream of disaffected members and a sense of drift as the current commission saw its end in sight.

In Italy the situation was reversed Italy appeared to have a strongish government ready to take the fight to its Northern neighbours and ready to stand up for its citizens. In particular Matteo Salvini stepped up on the parapet and started firing. 

An expansive budget, a crackdown on illegal immigration, attacks on Brussels for a legacy of creaking infrastructure and perhaps most deliciously of all payback on Macron as he wobbles in the Elysee. The Italian public appear to love it.

The government has an approval rating approaching 60% (Macrons is 22%) and more importantly the Lega has now overtaken 5 Star since the election and stands at 33% in the polls.

If this was all simple tubthumping it would be time to buy popcorn. But Salvini appears to be picking his fights – popular issues that have been ignored are to the fore and this keeps the public on side.  On the other hand he’s not afraid to compromise and settle for the good rather than the perfect. The budget fight was a case in point.

While the Eurosceptic blogosphere was predicting an armageddon showdown with Brussels Salvini compromised but still came out better off. This is not dissimilar to the compromise with Matterella. In doing so he keeps the show on the road and moves on to the next issue with his support still growing in background. Likewise he creates a sense of national pride the Italians haven’t seen in years

And so to the European elections.

Perhaps unwisely the EU establishment has demonised Salvini.  This not only has ramped up his credibility but has made him the new focus of the Eurosceptic block. Having already been an MEP Salvini understands Brussels as well as any and is now starting to reach out to other parties and countries to establish a stronger sceptical movement. His timing couldn’t be better.

Returns from across Europe show a wave of populist sympathy in just about every member state including the founding members. Furthermore the Commission’s pariah states like Hungary and Poland are already lining up to change the status quo. Salvini currently sits in the centre of this movement in a way  sceptics like Nigel Farage never could.

For a start off he has shown he is pragmatic something  the ideologues wouldn’t countenance. He is prepared to deal with all ends of the spectrum from the untouchables most mainstream political parties avoid to the direct opposition he in theory should be competing against.

In a much more sceptical EU parliament come May there may just be the chance of a change of regime. At the very least there will be a real opposition. All of this is a nightmare to the federal integrationists as ever closer union comes to a grinding halt. If the UK is still in the EU Parliament in May the chances of this happening become much greater.

Like a lot of continental sceptics Salvini does not wish to leave the EU but to remake it at the service of the nation states. If he succeeds – and it’s a big ask – the European Union will be a very different place 10 years from now. Time to burn some more midnight oil in The Berlaymont.

Alanbrooke



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The Italian Job – Part One: 5 Star and the Lega blow the bloody doors off

Sunday, January 13th, 2019

This is an article about Italian politics.

I have had to stop typing just to double check what I’ve written. Since when has Italian politics been interesting? Italian politicians of course – Berlusconi, bunga bunga, strange men from the Mezzogiorno who sleep with horses heads, big backhanders, ladies with big backsides, Parliamentary punch ups – Italian politicians have fascinated us. But that was entertainment not real politics. 

For most of us modern Italian politics has been a distant background noise of squabbling parties, pick and mix coalitions and inherently unstable governments. Nobody outside Italy worried too much about Italy’s politics as it could all change at the drop of a hat so why invest time and effort?But that might just have changed.

That change has come about primarily from two politicians, Beppe Grillo the leader of the 5 Star movements and Matteo Salvini of the Lega. Both are colourful characters.70 year old Grillo is a kind of activist Billy Connolly who has lambasted the Italian establishment in his blog and stage shows.

Grillo channelled that discontent into the 5 Star movement, a leftish political party championing the concerns of ordinary people. 45 year old Salvini dropped out of Milan University and spent a life in politics in Europe, Lombardy and Italy, eventually moving through the right wing Lega to become its leader.

To Grillo goes the credit of consolidating the Italian left since 2009 into a large and coherent force.Salvini gets the credit for shaking the Lega out of its particularism and moving nationally. Note that’s the Lega no longer the Lega Nord – it’s as if the SNP decided to drop the S and compete across the UK. Both men have advanced on the discontent of voters in Italy with traditional parties, the EU and economic stagnation.

And the voters have much to be discontent about. Joining the Euro has put huge strains on Italy’s businesses which in the past had used the Lira to help keep them competitive. The Teutonic inflexibility of the ECB came as the first shock; the second was the realisation that Italy had locked its currency at a level which caused it harm.

In the first boomy years of the noughties nobody worried too much but once the financial crisis hit the bad news surfaced. Since 2008 the Italian economy has barely grown. Worse, the small businesses which provided much employment and activity suddenly found themselves exposed in a globalised world and struggling to respond. Shoes and handbags could be made much cheaper in Thailand or Vietnam than Treviso or Verona. 

Italy had two recessions in short order, one in 2009 and a second in 2012/13 on the back of an austerity programme designed to placate the EU. This decade of pain has left scars on the country and alienated large sections of the electorate, in particular the young where eye wateringly high levels of youth unemployment blight the country.

And then there’s immigration. No European crisis would be complete without it. In the 10 years of economic stagnation Italy’s migrant population grew by 2 million. Most of these were other Europeans (Romanians make up the largest group) but the headlines went to the dramatic events in the Mediterranean. As the Arab Spring kicked off in nearby Tunisia and Libya Italy found itself on the front line of a refugee crisis.

Whereas maybe 20-30,000 people crossed the Mediterranean or Adriaticillegally up to 2012, from 2013, (smack in the middle ofItaly’s European austerity pain) this number shot up to closer to 200,000 each year.A ruling from the distant ECHR that Italy couldn’t return refuges set the fires burning and Mrs Merkel clumsily added more fuel to the fire in 2015.

Against this background it was inevitable that the protest parties would gain votes but the depth of electoral despair were perhaps underestimated. Italy’s older parties had sacrificed themselves on the altar of Europe and lost support heavily. In the 2018 election 5 Star now led by Grillo’s deputy and nominee Luigi Di Maio topped the poll with 33% of the vote. The Lega cane third with a credible 17% a sizeable improvement on its previous results.

At first it looked like business as usual. Politics in Italy went in to its customary haggle against a background of political numbers which didn’t quite add up. President Matterella lined himself up to name a government; and then something remarkable happened. The two parties which on paper were at either end of the political spectrum, against all the odds, agreed to form a government.

Perhaps it was the realisation that this was their one chance to upset the political apple cart that made them seize it, but whatever it was Italy was entering new territory. Both Di Maio and Salvini showed a level of pragmatism to get to this point. However they are both fairly flexible politicians; Salvini began life as a left winger and ended up leading the Right, Di Maio comes from a far right family and has ended up leading the Left. In those journeys there is perhaps a level of empathy with the other side that makes things work.

The establishment were shocked both in Italy and Brussels. Then the temperature rose further as the new government proposed an openly anti Euro professor as Finance Minister. The President vetoed it and a constitutional crisis ensued with Matterella eventually having to back down after a face saving compromise with the new government. The powers that be had tried to kill the populist government at birth and not only failed but had made actually them more popular.

Once in government 5 Star/Lega have set about delivering their agenda. Reversing austerity, tackling immigration and facing down Brussels and they have seen their approval ratings soar. All of this depends of Di Maio and Salvini staying close enough to see a change in the domestic landscape through and this is the weakness the government faces, but for the first time in ages Italy has a strong and popular government and the rest of Europe has to sit up and take notice. Suddenly Italy has become a player. 

Alanbrooke



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The economics of LICE. How do we deal with parasite taxation ?

Thursday, January 10th, 2019

LICE – Luxembourg, Ireland, Channel Isles, Estonia  we could add others and play alphabet soup, but the basic premise is the same small countries which live well by diverting the tax revenues of their larger neighbours. These are parasites not in the derogatory sense but in the biological sense of entities which live off others. This is not new, tax havens have been around for centuries but largely as an irritant to those next door. However in the last two decades things have changed.

Increasingly it is the corporate sector and multinational corporations (MNC) in particular which is exploiting loopholes in the rules to shelter profits from taxation. Recently the IMF  estimated tax avoidance costs around $600 billion a year in lost taxation worldwide. The true number sits in a grey area but the trend has only been in one direction – upwards.

In times of tight budgets and with growing costs governments of large nations and their electorates are increasingly asking why this should continue. And this is of course a valid stance. MNCs get all the benefits of trading in countries where they avoid paying their fair share of taxation. They get stable currencies, the rule of law, access to millions of consumers and reliable infrastructure to pursue their businesses. All this of course has to be paid for and increasingly it is consumers and domestic businesses who are being forced to pick up the tab.

It’s an unequal fight. A coterie of lawyers and tax advisers keeps  the MNCs ahead of the game. While tax authorities struggle to close off the last loophole the next one is being opened and  governments are left chasing their tails. Businesses with turnover bigger than countries have an interest in keeping it that way.

Elsewhere in the smaller economies the picture is different. Low taxation rates aimed at attracting overseas companies generate jobs, income, tax revenues which otherwise would not exist and keep local tax burdens much lower than they otherwise would be.

Even better the smaller countries avoid some of the costs larger countries must bear like defence – Luxembourg the richest country in the EU pays 0.55% of its spending on defence. That’s up from 0.38% in 2013 and against a target of 2% for all NATO members. Ireland spends 0.3% safe in the knowledge that the yanks and brits will keep them from harm. All in all like a parasite living off its host the smaller economies do very well off their larger neighbours.

For the large nations this is becoming a situation which needs to be addressed. Already moves are afoot to recover lost revenues. Trump’s tax reforms were the first shot in the US recovering around $60+ billion of missing taxation each year. Germany and especially France are likewise pushing to get greater tax equalisation across the EU.

Governments across the world have discussed setting up a common approach to reduce avoidance, but the pace of progress is slow and it’s more like countries will pursue their own immediate and tangible tax recovery programmes.

In the UK there is anywhere from £6-11 billion to be recovered annually depending on whose figures you chose to believe and that’s corporate tax avoidance not evasion. That’s like a 3p tax cut or 100,000 units of social housing each year or half of Mrs May’s NHS funding boost for free. The question is therefore how long will our politicians hold off from addressing the issue ?

The business lobby will of course claim there are benefits and seek to delay change, but this is getting ever harder to prove. This is a time when big business is getting further away from ordinary people, voting itself large salaries and letting funding for services be socialised on to the electorate. The situation is probably at its most  blatant with the Tech MNCs which have tried every trick in the book to minimise their tax bills. But increasingly this may be their weakness, they have plucked the revenue goose to the point when it is starting to hiss.

For the UK this is a real issue just why do we want to impoverish our own people so overseas corporations can walk away from paying their obligations? Why do we need to subsidise Jeff Bezos to empty our tax paying high streets?  In a similar vein why do we  take a benign view of small rich countries which occasionally like to nip in and eat our lunch? In biological terms have the parasites now got to a stage where they are endangering the host?

While Parliament self flagellates on its Brexit fetish, there is some real work to be done and perhaps rewards to be had for those MPs still interested in the day job. The problem is are there any of them left ?

If you want to get a quick overview you can read more about it here.

Alanbrooke



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Trying to work out what is Britain’s European Strategy

Tuesday, January 8th, 2019

Other than, arguably, joining the US in the second Iraq war in 2003, the worst post-war strategic mistake made by any British government was the decision not to join what became the EU in 1958 at the start. Had it done so it would have played a leading role and would have helped shape it into an organisation with rules, aims and a culture with which it could have been much more comfortable. Rather than being seen as a foreign institution, it would have been seen as a British one it helped create, shape and govern. Ah well. All too late now. Does any of this really matter? Yes. Here’s why.

Britain has no European strategy

What’s Brexit, then? Well, whatever it is it is not a strategy. It is a reaction – to problems within the EU itself, globalisation, the faltering of the capitalist model since the financial crash, changed migratory patterns, an uncaring arrogant elite, snotty Londoners, take your pick. But what is the strategy? Why did Britain hold back in the 1950’s, rather reluctantly and sniffily sending a civil servant to Sicily to observe what the Continentals were up to?

Lots of reasons: a desire to retreat home and build Jerusalem (there is an echo in this of Labour’s wish now to concentrate on every day issues rather than Brexit), exhaustion, a mistrust of grand schemes, a political class still in thrall to Imperial and Atlanticist pretensions (another echo there, which even Trump’s evident uninterest in all matters British has done nothing to dispel).

But the overarching reason was that Britain still held onto the European strategy which had more or less served it well since the Middle Ages – ensuring no one power dominated the Continent to Britain’s detriment. With Germany defeated and divided and US forces on European soil to keep Communist Russia at bay, what need was there for Britain to give a moment’s thought to Europe?

Eventually, of course, it decided to join but nearly two decades too late, as a supplicant, from a position of humiliated economic weakness. So, having joined the new dominant European power, what did it think this meant? Was Britain now a European power? Should its focus be on this emerging new organisation? And, if so, what did this mean for Britain itself, for British domestic and foreign policy?

The history of opt outs, of being half in, half out, never really on board with the European destination, of seeing the EU as a foe to be battled with, of cultivating a relationship with the US which was “special” in the way that a besotted fan has a “special” relationship with a celebrity whose film they’ve watched 000’s of times, suggests that an answer to the question of what Britain’s European strategy should be has never been found.

In this it was beautifully mirrored by the EU itself which never properly realised that having a country such as Britain with its different history, political and legal culture and approach as a member required a step change in its approach and thinking, beyond simply shuffling up a bit to make room for a few more chairs round the table.

Why Britain didn’t want a dominant European power

To listen to some Brexiteers now you’d have thought that Britain’s sovereignty was some golden thread running through its history since Alfred the Great and that any diminution or sharing of it is an emasculation of some essential Britishness. But the reason why Britain was concerned about this was because it didn’t want any enemy interfering with its ability to trade, with its trade routes, its control of the seas, its colonies.

Sovereignty was a means to an end. Trade and commerce were what mattered above all.  And they still do matter.  So what happens now given that much of that trade is with Europe and much of Britain’s trade with the rest of the world is mediated through the EU?

The EU is not an enemy

The EU may – at its worst – be many infuriating things: arrogant, complacent, sometimes venal, often deaf to concerns, inflexible, insensitive, self-interested, defensive, obstructive, unimaginative, overly bureaucratic, with a tendency to overreach, sometimes undemocratic etc.  But it is not an enemy. This should not need saying but it does. It is dominant in Europe, likely to remain so for the foreseeable future and, essentially (despite all its faults) friendly and benign. It is certainly in Britain’s interests that it should be so.  How then should Britain interact with it?

A close relationship

Ah yes – the fabled close relationship. What Britain is now realising, very late in the day, is that if the relationship is close, Britain does what it is told by the EU and has no say in the rules it has to follow. If joining an organisation after the rules were written was humiliating and unworkable in the long run, how much more so will such an arrangement be. If it is not close, Britain will need to earn its living elsewhere.

It will end up largely doing what it is told by other countries: China, the US, Asian nations, Pacific nations, even eventually emerging African nations. It will have a bit more say in other negotiations but the days of Britain bestriding the world imposing its rules, its language, its laws, its will on other countries are long gone.

Again, this should not need saying but it does. Britain dominated global trade in centuries past because it was able to dominate, militarily if need be, anyone who stood in its way and could outcompete others. It will be much more of a supplicant now and one without a once winning card, namely, easy entry into the EU market. All of this is doable but it is not an easy cost-free option and will involve trade-offs and sacrifices (ISDS tribunal jurisdiction, anyone?) at least as hard, if not harder, than those required by EU membership.

What now?

Currently Britain’s approach to the EU might best be summed up by Sybil Fawlty’s description of her permanently enraged husband: “You never get it right, do you? You’re either crawling all over them, licking their boots, or spitting poison at them like some Benzedrine puff adder.”

Let’s assume some form of Brexit goes through on 29 March.  A brilliant slogan – “Take Back Control” – will have achieved its aim – departure. What it won’t have achieved is any idea of where next nor what control Britain will be taking back and for what purpose.  What is still missing is a realistic strategy for Britain’s relationship with a dominant Continental power. Departure does not render this question moot. It makes it more urgent than ever. A little late you say?  I agree. Still, if not now, when?

Cyclefree



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BACK TO THE FUTURE – Part 2 The past is a foreign country – Remainers and Leavers are in for surprises

Sunday, December 9th, 2018

In the previous article I highlighted how UK politicians have become so entrenched in their  insular debate that they are effectively ignoring the significant changes sweeping Europe.

One can argue that our MPs primary focus has become to smash the other side rather than look at what is best for the country. So perhaps they should take some time to look beyond these shores and see how the politics are lining up.

REMAINERS

Congratulations! We are staying in! Enjoy the champagne because tomorrow a decades long hangover begins.

The UK can expect few favours

After the initial euphoria of Remain the long slog begins. The EU will be happy with those individuals who fought for it but the UK as a whole can only even be viewed with suspicion, non U,  a country on the periphery.

Only the big jump to Schengen, currency and total integration can change this and perhaps not even then, we are gens non grata. Much as Remainers like to tell Leavers they own Brexit, Remainers will now own Bremain. That will not be a comfortable position especially as the rest of the EU will be telling you to be on best behaviour and not let the side down.

Someone will have to sell an unpopular  dish

For a start off the core countries and the Commission will continue to push for more integration irrespective of British sentiment.  It is inevitable that at some point the nation’s sacred cows will be ordered to the abattoir something a surly unbelieving electorate will baulk at. 

This will be worse if the EU follows its normal modus operandi of ignoring dissent or judicial sleight of hand.  The EU has few active advocates in our political classes and lots of foot dragging ones.  Remain will not stop the Europe headaches it will simply spread it across the political spectrum.

Europe has been made an issue

52% of the population voted to Leave. If the politicians reverse that choice British politics will change. This was one of the few times the have nots beat the haves. The establishment threw everything into its campaign and lost now they will have fixed the outcome. 

This is not healthy. UK politics will be faced with a discontented disengaged electorate which treats politicians with contempt and which like the Continent, finds itself increasingly attracted to non-traditional politics. UK politics may become more European but not in a good way

European politics is in flux

And that bad way might just be the future. Across Europe the voters are not happy; a much larger Eurosceptic bloc seems on the cards for the next EU parliament. Traditional parties are struggling to maintain support even in national elections, in a protest vote for Europe this could get much worse.

Ironically in remaining, a sceptical UK vote could make this problem even more acute. Already the ghosts of Nigels past are stirring and they have been presented with a rich new seam of discontent to mine.   

Summing up if Remainers get their wish they will need to work hard to keep the public on side this is an uphill and thankless task. They own all the problems and get little thanks for the successes.

LEAVERS

Commiserations! You snatched defeat from the jaws of victory.  But cheer up there has never been a better time to be in Europe. You can party like it’s 1945.

British Eurosceptics are no longer alone

The days when the EU Parliament was filled with project zealots may soon be coming to an end. In just about every European country there is now a sizeable bloc of Eurosceptics.  The days when sceptical Brits were something of an oddity are behind us. To succeed however Leavers need to understand European Eurosceptics quite often like the EU.

What they don’t like is the commission and its incessant need to boss countries around. If Leavers understand that, then major reforms of the EU may at last be possible and the Commission and its desire for closer union brought closer to the will of European electorates. Even   in the core countries politicians are struggling to stay the pace with Macron’s France looking the weakest link. The inevitability of Union is no longer quite so inevitable.

Leavers will have a warmer welcome than Remainers

The European parliament will in all events get a meaningful opposition rather than the traditional stitch up between the EPP and the Socialists. Now oddly might just be the time to have the UK at the centre of those countries who wish to change direction. While Remainers from UK are beyond the pale to core countries, in scepticland Leavers have kudos from having upset the whole apple cart. 

One thing the sceptics can be certain of is that the commission will continue to feed them issue that upset the voter. Partly it is what comes with having to govern but it is also the style of an establishment that has been used to getting its own way. Time to buy a yellow jacket.

Leavers mount a credible threat to the EU

Finally the leavers may just be able to protect the UK national interest assuming our politicians don’t give it away. A large curmudgeonly member state  who has previous for leaving might just make European politicians think let the sleeping dog lie. This approach will never work with a Remainers PM but with a Leaver that’s a different call. In as much as the UK has been through mangle on Brexit, the EU is in poor shape to kick the problem off again, it has too much else on its plate.

So summing up Leavers may actually have an easier time in the EU than Remainers. The winds of change are blowing and suddenly there are more like minded people to work with. If Leavers combine with others Eurosceptics there may actually be a chance to reform the EU. No the same as leaving of course but perhaps more liveable nonetheless.

Whether Remain or Leave though the UK has yet to take full account of the changes of the last two years. Europe will remain a dividing issue more so as the political class has invested so much emotion in to the issue. Time to stop our insular spat and look at what the neighbours have been up to.

Alanbrooke



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BACK TO THE FUTURE – Part 1  Europe has changed – We can’t put  Humpty together again.

Sunday, December 9th, 2018

In the first of a two part series, Alanbrooke looks at our relationship with the EU.

As the Brexit debate rolls on the recent ruling by the ECJ Advocate General that the UK can unilaterally revoke article 50 brings a new angle to proceedings. Suddenly it is a lot easier to stay in.

The uncertainty around how to stay in the EU and under which terms looks a lot clearer and in some ways simpler. So set aside the mechanics of how, what would remaining actually be like ? This is a two part post – the first looks at the changes in Europe since the leave vote and the second looks at how remaining will impact Remainers and leavers.

There is a certain irony to the UK remaining, in that events in the EU are largely being ignored, Europe is little more than a bit player in the UK debate.  Really only Ireland has had much coverage in the UK’s internal wrangle and that as a convenient pool of mud to fling at the other side. 

So first let’s refresh ourselves on the Europe we voted to leave. At the beginning of 2016 the advocates of international liberalism were in firm control of the West. David Cameron had just been re-elected; Mutti Merkel presided over a successful Germany and a recovering EU led by her placeman Jean Claude Juncker. In the USA Obama looked ready to hand over to America’s first female president while a twitter happy property developer showed just how out of touch the opposition were.

That world has all gone.

And by gone it’s not just the personalities, but the assumptions and policies which backed them. 2016 is in some ways as significant a year as 1989, a year when the mould broke.  And break it did, first with Brexit and Cameron’s departure and next with Trump; worse in the following year Frau Merkel became a casualty as her electorate tired of her. Suddenly all the old certainties were gone and the peasants were revolting across the Western World.

And that revolt was triggered by much the same factors in all countries.   Stagnation in standards of living for ordinary people, the impact of globalisation on jobs and on job security ; then add in immigration and  a political class which had lost touch with voters. In essence a system which worked well for those at the top of society was not working at all for those at the bottom and they made their discontent known.

The reaction to the referendum result in the UK was shock. Remain didn’t expect to lose nor Leave to win. Then all hell broke loose, the PM resigned, a snap election, a messy result : the body politic turned on itself and the UK settled down to two years of trench warfare with neither side conceding much bar  introspective wrangling over Brexit minutiae to the exclusion of everything else. And that’s the weakness of the UK’s position. A world has changed around us and we are not giving it much thought

The lie of the land in Brussels today is  of both the familiar and the new.  A UK staying with the EU will face several key factors

The will of the commission and the ”core” is for ever closer union

There still remains at the heart of the EU project the will to make a union with all the infrastructure of a state – currency, parliament, army, taxes – controlled by a central body. British politicians howl at this prospect and ridicule it, but the trend of the EU has only ever been in one direction, few powers are ever handed back. This will remain a constant feature of staying in the EU a steady creep of centralisation pushed by core countries.

Long Term the Euro is unsustainable in its present form

This might sound like a side issue to a country outside the Euro but the Euro is probably one of the largest risks in staying in the EU. The severe imbalances within the currency are creating the conditions for the Union to fall apart. Previously within the ERM there was an adjustment mechanism which allowed imbalances to be corrected. Now values are fixed which gives a huge advantage to the Germanic countries while impoverishing the Latin south. Something must give or the Union wort work and if it breaks the UK will be dragged in to the maelstrom.

Perfidious Albion

Staying in, leaves the UK in a slightly awkward position. A large and important member but one which can never quite be trusted. If things were a little terse before the vote they will be even more so when staying in. All talk of influence and soft power should be forgotten as someone once said can you imagine an EU with a British President?

The old problems are still there

The cocktail of issues which in the UK led to Brexit are still present in the EU and if anything greater. Immigration, the impact of globalisation, political alienation are all core issues across Europe. The UK  debate ignores that these are also the conditions  in Europe and this will lead to a very different political climate in the next decade. What if post the EU Parliament election in 2019 we are not returning to a government of Macron Merkel and  Juncker  but of Le Pen, Farage and Salvini ? Whatever way you look at it, it is hard to see how the next EU parliament  will not be a very different creature. We have given this very little thought,

These are the realities of the EU today. One side of the EU is desperately seeking to hold together a model it has pushed for years while the other is seeking a completely new model. In between there is a struggle for what Europe is about. But the hard fact remains we can’t go back in time and even a child could tell us it is too late to put Humpty back together. 

Alanbrooke



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With or without EU, will anybody follow Le Royaume-Uni’s lead?

Sunday, September 23rd, 2018

This market on which countries will leave the EU by the end of 2025 from Paddy Power on first inspection seems like an excellent way to contribute to the Paddy Power bonus fund.

In terms of disasters for the United Kingdom a no deal Brexit is to picture the Hindenburg meets Chernobyl meets the fall of Singapore meets Solo: A Star Wars Story.

I’m not sure any country will be in a hurry to repeat Brexit, particularly those countries in the Eurozone. If you thought leaving just the Single Market and Customs Union was difficult just imagine leaving the Euro at the same time as well.

For example the 14/1 on France seems like an effective proxy on the Front National winning the 2022 French Presidential election, I’m not keen, ditto the 5/1 on Italy.

The one option I’m tempted to back is Hungary at 20/1. Following the contretemps in recent weeks involving the EU and Hungary it isn’t hard to see the situation escalating, particularly with Russia taking such a close interest in Hungarian affairs  and Hungary seeming intent to ignore all the norms that make a country a vibrant democracy.

With Brexit  delivered Hungary will lose Tory support inside the EU, Orban and Hungary will become even more isolated, but this is a market where I wish Paddy Power offered a no country, after the UK,  shall leave by 2025 option.

TSE



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Sweden sours? Will the far right make further inroads in Scandinavian social democracy?

Sunday, September 9th, 2018

For the last 100 years, the Social Democrats have dominated Swedish politics.  They have been in government for all bar 22 of those years.  It used its hegemonic status to establish a social democratic culture that worked with the country’s Lutheran ethos and with business, and for a long time managed to preside over a successful and distinctive blend of high taxation supporting a strong social safety net and a dynamic economy.

Their grip has been loosening for a generation.  For over fifty years the Social Democrats tallied more than 40% at successive general elections (a mighty achievement under a system of proportional representation), but they have not hit that mark since 1994 and they have barely scraped 30% at the last two elections.

Sweden goes to the polls again today and that decline looks set to continue.  No poll has shown the Social Democrats getting anything like 30%: they are averaging just under the 25% mark.  The Europe-wide crisis on the centre left looks set to intensify.

This is not the tale that most outside observers are telling of the Swedish election.  All the journalism has focussed on the rise in the polls of the Sweden Democrats, a socially conservative party whose USP is an opposition to multiculturalism and immigration.  Certainly the Sweden Democrats are performing considerably better than at the last election in 2014, scoring in the high teens with most pollsters (and higher with YouGov and Sentio).  This seems, however, to be part of a wider fragmentation of the Swedish vote. 

The Left party looks set to almost double its share from 5.7%.  The Centre Party, the Liberals and the Christian Democrats all look set to see an uptick in their support too.  At the last election the Social Democrats and the Moderates took over 54% of the vote between them (in 1994 they got a combined share of over two thirds of the vote).  This time they look set to get between 40% and 45% combined.  The Social Democrats got a larger vote share on their own in 1994.

This fragmentation, of course, is not unique to Sweden.  Germany, Spain, Ireland and the Netherlands have all seen the same phenomenon.  This has led to a string of fragile governments, unable to take strong action because they lack the stable majorities to do so.  Sweden looks set to join them.

Sweden’s electoral system is essentially one of proportional representation.  There are 349 seats.  Voting takes place in 29 constituencies and 310 seats are allocated internally within those constituencies on a proportionate basis (the constituencies do not have equal numbers of MPs). 

The threshold within a constituency for eligibility for a seat is a 12% vote share.  The remaining 39 seats are allocated to correct deviations from the national vote share that have arisen: the threshold for eligibility for a seat on this basis is a 4% national vote share.  The end result has historically been highly proportional. 

A month ago, when I last looked at this contest, the Sweden Democrats were odds-on favourites to take most seats.  This was surprising, given they had been ahead in few polls.  Since then, the Sweden Democrats have drifted in most polls and so has their price on Betfair.  However, they still hold a slender lead with the same two pollsters who had found them to be in the lead a month ago (though they are well adrift with other pollsters and sometimes in third behind the Moderates).  It is not impossible that they finish top.

Impossible is not the same as likely.  Chris Hanretty has nailed his colours to the mast and estimated their chance of finishing top as being between 0.1% and 12.5%, depending on how you approach the problem.  (I think he was unaware of YouGov finding the Sweden Democrats in the lead, which would up the second figure to 25%.) 

At the time of writing, they were last traded on Betfair for most seats at 3, giving in implied probability of 1/3 that they will finish top. There is therefore still substantial value in laying them, and, conversely, still value in backing the Social Democrats to finish top at the 1.4 mark where they currently sit.

Whatever happens, is almost certain that all the headlines afterwards will be about the Sweden Democrats. The bigger story of fragmentation and the consequent enfeebling of government is likely to be missed. Sweden looks set to join the lengthening list of European countries consumed by introspection.

Alastair Meeks