Thursday, December 8, 2016

Adieu Grande Bretagne!

This is an extra-ordinary post. A bit emotional. So let me preface the analysis. My first time in the UK was at 11, in 1973. I have been a Spurs fan since then, since watching them play at White Heart Lane (they have not won any championships since then but that is another matter). Bought my Subbuteo at Hamley's and my shirt at Lillywhite's. An avid reader of Shoot-Goal. Summer school in Deal, Kent in 1974. Adieu Grande Bretagne. Divorce is what you want after all, so divorce it shall be. The writer and the EU likes you, it's you who does not like the EU, it's more than clear now.

The pro Brexit vote margin in the UK parliament, 461 to 89, was huge, makes the 52-48 ref result more than pale in comparison. Folks, it's effectively a done deal now, the pro EU MPs did a u-turn for reasons they know, and the result is a huge go ahead for May's Brexit. For reasons of her own, she has interpreted the ref result as a hard Brexit mandate.

Whereas the vote was technically on the Brexit timetable and the official MPs' vote is still forthcoming,  it is now clear that Labour does not plan to oppose Brexit. And that means a landslide pro Brexit vote by the MPs. 

Remember that the next UK GE is in 2020 when Brexit will
be complete by then, thus even a potential massive vote for the LibDems in the GE won't change anything (except maybe for a new application to join the EU!).

That's it folks. It's divorce. The MPs' vote has actually broken the bond, the ref did not. Does anyone really think that if the deal is not good enough there can a return to the before status? No, not after a 461 to 89 decision by the MPs last night. Too big, especially by an allegedly pro EU parliament. Too many negative implications from this vote. For one, Labour has turned, pressured by electoral motives. Historians may judge this stance. The LibDems voted against Brexit but due to their size in this parliament they did not matter. They have made strategic mistakes too and so has the pro EU camp in the UK. But that's all history now.

A very sad day for many sides.

Of course divorce will be clean and there will be no Single Market access w/o free movement, the best the UK can hope for is a Canada type of deal, but 5-7 yrs from when the negotiations start, they are not officially part of the Article 50 negotiations, only admin issues for the divorce are. Til then WTO rules trade will govern UK-EU after Brexit.

Plus I am of the opinion that once Art 50 is triggered, no turning back. It will be same parliament in 2019 after all, when the two years are up.

My heart goes out to:
a) EU nationals in the UK now, they are in limbo
b) Britons in the EU27, they are in limbo too
c) EU nationals who might have wanted to move to the UK in the future
d) UK nationals who might have wanted to live in the EU27. 

It should be said though that the EU as a union will be stronger w/o the UK, the UK should have been asked to leave the EU at Maastricht in 1991, to be honest. A lesson to be learned.

I am clearly no enemy of the UK but the UK has been an enemy of the EU for too long. Always a whining spouse. Things got better when Blair was PM but I sort of knew there was trouble when in the 2010 election campaign Gordon Brown did not debate with the voter who complained about Polish immigrants. He did say a word or two about it only when back in his car when he thought no one was listening. When Cameron committed to the referendum, I think it was in 2012 when I was actually near Liverpool, I sort of knew Brexit was a possibility.

Well, time for the EU to move on and for Article 50 talks to start in March.

Adieu Grande Bretagne.

Some Britons get irritated when you point these things out. They think or hope that without the UK the EU will break up. That's sinister. They wanted out, they are getting it so they should start minding their own business. Farage did manage to affect the Austrian vote by claiming that Hofer would ask for a ref if elected! Serves him right, to be honest. As I have claimed before, the EU can actually afford to lose a few members, since it now has 27 (28 minus the UK) and some 465 mio citizens.

Time to move on.

Thursday, November 24, 2016

The Trump Identity: So what is Trump really going to do?

So what is Trump going to do? He has said a great deal during the campaign, which is his true "identity" as a policy maker. Let's look beyond the gimmicks and his vast political in-corrections.

Let's look into some policy areas:

He may appoint one or two fairly conservative Supreme Court judges. Is he going to change the status of issues such as abortion and gay marriage? There can be future implications by SC rulings. Only he knows, maybe even he has not made up his mind yet.

He will probably pursue government investment in infrastructure and show low preference for government-centered money redistribution schemes like entitlements and ObamaCare.

 Trump is an isolationist based on his rhetoric. That means military and trade implications, even more so if an economic recession hits. For one thing, it looks like fewer US troops will be operating on foreign lands. How is that going to affect NATO? Europeans may have to find ways of defending themselves, via NATO or other forms (EU army).

Trade. He has already announced he is pulling the US out of the Trans Pacific Partnership. What will happen to NAFTA? Is he going to revoke other US trade deals? Is he going to break any WTO rules by offering incentives for US companies to move factories back in the US? He has already spoken with Apple's CEO urging him to open big plants in the US. Keep in mind that to impose trade sanctions a country must first appeal to the WTO.

He may attempt regulatory changes, especially in the energy, transportation and heavy industry sectors. Many will have negative implications to pollution but positive implications to the US economy and employment.

Trump's biggest challenges will be managing the defense budget and the interest on the massive US debt vis-à-vis his ambitions for job creation and the Congress’ funding preferences. Pentagon may wind up being on the losing end.

Will he attempt a tax overhaul? Readers of his tax plan with just three tax brackets claim he may leave many low incomes worse off.

Some form of the wall on the Mexican border will happen, mostly as an expansion of the existing portions. The deportation of illegal residents will see a boost, mostly targeting criminals, human traffickers and drug operatives or will he expand his scope?

The US president does not decide alone, he needs the House and the Senate to vote along.

 But what is probably the "scariest" factor is that he does not seem to be bound by the negotiations' constraints politicians normally have. But he is no Jason Borne.

Tuesday, November 22, 2016

"It's the Economy Stupid", yes it is!

In recent posts I have argued that the Clintonian motto applies to everything.

Does it apply to the Trump election? It does. US unemployment may be just 4,9% but:
a) Many people are making not enough to live comfortably
b) People are still worried about losing their job and getting a new one.

Among so many things he said, Trump promised:
a) Lower taxes (ie more money in your pocket)
b) Doing away with Obamacare (many cannot afford its fees)
c) Trade protectionism and an end to US companies moving to low wage countries

Other things he said attracted voters too and what is key, people who cared about a-c above were willing to overlook the unacceptable other things he said. Why? Because it's the Economy! Money walks. Shocking, but it does.

Yes, it is not just a job any job that people want. They want good pay and security. So the unemployment rate does not tell the whole story. Not in the US not anywhere.

Unemployment is at or near 5% in the UK, in Germany and the Netherlands. Does that mean that Brexit was not going to happen, that AfD won't do well in 2017 or that PVV won't do well in 2017 either? No, it does not.

In Germany, people are still struggling with mini-jobs, they feel job competition from migrants and EU nationals too. In the NL, people have seen their jobless allowances cut and worry about their pensions. In Germany, people do not want to pay for roads in Spain and Greece anymore.

In France, unemployment is high on top of other things. People have felt the terror in 2015 and 2016.

Humans have lived in caves, huts, tents. You cannot survive in a tent in 2016 Germany or UK, some do in Greece. How do the homeless in the US survive?

Work does make you free. Ask the 23% and 19% unemployed in Greece and Spain. How do they survive (note that eg in Greece unemployment benefits last for just 12 months and are about 400 euros). Simple: They are supported by relatives who work or have pensions, those who do not, are left in the cold, albeit warmer than the north's.

What makes Spain, Greece, Portugal, Ireland, Slovakia, Lithuania et al different is that they are not the core of the EU. Germany, France and the Benelux are. Italy to some extent, that's the reality. The core of the EU are two strips. One extends from north to south across eastern France and west Germany, all the way down to the Mediterranean and the other covers parts of northern Italy all the way to south-eastern Spain. That was the case 25 years ago and still is.

Ireland uses low corporate taxation to attract business and Hungary has decided to lower its corporate tax rate to 9%! But Ireland and others get all this regional policy funds one may argue. True.

Why isn't Greece Europe's Florida and why isn't there a Euro Hollywood and a Euro Silicon Valley in Spain-Portugal? Why are not the Baltics Europe's New England? These issues will be addressed in a forthcoming post.

Talk to average people around Europe and listen to their real concerns. Their foundations are economic. Why? Because we do not live in caves and tents anymore, everything costs money. We do not hunt for food or self cultivate it.

Sunday, November 20, 2016

EU: What happens if Le Pen wins

The Guardian has an article where it quotes Farage saying that Le Pen will comfortably make it to the second (and final) round in the French presidential elections in 2017. And while he is not predicting a victory for her, he says she could win. First of all, Farage did not predict the outcome of the UK ref and the US elections, he simply made his wishes predictions and they happened to come through.

Now, of course it is reasonable to say that Le Pen will make it to the second round and such thing will not be the first time for a Front National candidate. What usually happens then is that the rest rally behind the other candidate, that is how Shirac got elected some years ago after all. But let's assume that the Brexit-Trump wave carries Le Pen to the presidency in 2017. What then? Let's think it through.

Well, like Trump and UK Leavers, Le Pen is anti-immigration. Like Leavers, she is anti EU. And of course anti-Euro.

Unlike the UK, Germany and Spain, in France the president has executive powers. But the election is for president not for the Parliament.

Le Pen is not simple. If she gets elected, the shockwave will be enough of an achievement, it will rock Europe and the world, for many a trifecta after the UK and the US. But Le Pen's government will not have a majority in Parliament. So what is she likely to do?

She may call for a national election, I am sure not she has the power, but let's assume she does.Is it likely that FN will get a majority of the Parliament (Assembly) seats? Unlikely.

The French populous only narrowly approved the EU Treaty of Maastricht and it rejected the EU Constitutional Treaty in 2005. So there is enough euroscepticism in the country, fear of terrorism and relatively high unemployment.

But let's take the worse case scenario first. Let's assume Le Pen either decides to take France out of the EU or calls for a referendum on EU membership. Let's also assume that the decision is Frexit. Article 50 will have to be triggered in this case too.

So, an EU without France! Sounds like the end. Or not? Without the UK and France, there go two of the three biggest members. There goes one of the main reasons the EC was created in the first place. But with some 390 mio inhabitants the EU26 will still be the third largest entity in the world after China and India. Its Single Market will still be potent. The largest members will be Germany, Spain and Poland. The French army will be gone so army will have to be developed. 18 of the 26 members will be Euro members. German may become the working language, with or without English, thus making Volker Kauder (CDU) happy.

Le Pen's France will probably go for a Hard Brexit although there is no indication that anti-immigration extends to EU nationals as was the case in the UK, thus maybe there will be room for a Norway type of deal.

Now assuming again that Le Pen wins, there will be six month period until the German national elections. It is probable that Le Pen does not merely want France to leave the EU but also wants the EU to dissolve, at least in its present form. In that case, she may play a hand that helps AfD in Germany. The result: Uncertainty. Nerve wracking spin. Divide and rule.

Another soft scenario is that Len Pen takes France out of the Euro and Schengen, satisfy her voters, but remains, for now, in the EU.And makes everyone's life difficult.

Interesting times and remember the Chinese curse.

What the EU needs to do is be firm. As it has with the UK. With 28 members the EU can afford to. An EU without eg free movement would not make sense. Let's not forget that in the current EU to live in another member state you have to get a job, start your own firm or work as self employed or show you have the means not to be a burden to that state, it's not like the US.

WTO. Will then the US, the UK and France try to change WTO rules? Well, maybe Trump and Le Pen would like to, but there is no indication May wants to, after all she wants to make the UK a champion for free trade.

Immigration: Le Pen may simply push for an end to the EU's stance on refugees. Many people in the EU28 currently blame Merkel for the current "liberal" policy.

What can pro EU circles do during the phase from now until the French elections? Well, one way is to point out what could happen if Le Pen wins, so French voters won't have the illusions British ones had. Could that backfire? It could, but what's the alternative? "You have nothing to fear but fear itself". The EU has been too political for a very long time, too willing to accommodate diverging views by members (not public opinion), the result has been delay in evolution and many weird Treaties, ie full of illogical compromises, that later had to be fixed.

Of course the EU would be better off with the UK and France. But an EU that knows what it is and what it wants is an EU that it makes sense to belong to. A wishy-washy EU may appear more democratic but is it? There has been enough spin about unelected EU offcials, "Brussels", and EU directives and regulations. With 28 members, soon 27, the EU can well afford to lose some, as long as it is clear where it is going. And it has to make sense, no "punishment", just cause and effect. Right now, it does not. A full EU makes sense. With 27, 26 or less. Probably one large state as a member is necessary and that is Germany. One could even argue that in theory the EU could even survive, with some changes, even without any of the big three, but that is pure theory, let's look at reality.

France can stay or leave, it's up to France to decide. But Europe has paid the price for fuzzy solutions, in its long history. So voters next spring have to be clear what they vote for.

Le Pen should be thoroughly questioned by the press as to what the stance will be if elected, no fuzz.

It should be noted that it is not up to the European Commission to tell the French people what would happen if France decides to leave. It is up to the other members, their politicians and media. And you, the European, in social media. When you want to leave a flatshare you do not bring the place down. And I should note this is not just Merkel's job or the FAZ, it is a job for all leaders of the 26 or at least most of them (surely some of the Visigrad 4 current leaders would love a Le Pen victory). The EU's future is everyone's job, not just Germany's. That should be clear.

People in France should be made aware that voting for Le Pen is not a protest vote (same for AfD but will come back to that). A protest vote would be to vote for a minor candidate, Le Pen is not. One could even vote for Mickey Mouse or Donald Duck on the ballot, that's protest.

The message should be "Dear French friends, if you vote for Le Pen that means you want out of the EU, hence we shall miss you but Adieu".

1) What happens if Len Pen gets elected and says: We are not leaving the EU and the Euro, but we want a different refugee policy.
2) What happens if AfD gets 20% in the German elections. We shall look into that too.
3) What happens if Austria elects the ultra right president. We shall cover that too.
4) One lesson from Brexit is that the 2 years in Article 50 is too long.

Brexit means Hard Brexit, let's move forward, shall we

Labour has come aboard the Brexit train. A YouGov poll shows that a pro Brexit Labour may get fewer votes than the LibDems in the next election. But the next election is in 2020 and Brexit will have happened by then.

Let's recap. The ref was 52-48 for Leave. It was non binding legally but it was the will of the people. One can ex post facto say that Remain did not campaign as hard and as early as it should have (not officially as Remain but as pro EU) but all is now history.

Some in the UK entertain the notion that Article 50 can be reversed. My opinion differs. What they basically wish for, and that includes the LibDems, is that the exit deal the UK gets is so bad that a new ref will vote for Remain!

So let's assume that the European Court of Justice says that Article 50 triggering can actually be reversed. Let's also assume, notwithstanding legal issues in the UK, that it is triggered as the government intends to, in March 2017. So let's say we are in late 2018 and negotiations have taken place and the deal looks bad. The LibDems seem to operate under the assumption that a new ref can be called to decide on Brexit! Now, a ref is usually a binary choice. You choose A or B. A would be "accept the deal". What would B be? Go for "Soft Brexit" (with free movement) or Remain (after all)? Or simply "reject the deal"? Has anyone thought through that? Now, since the election law was changed in 2010-2015, which government will decide? A Tory government with most likely May at the helm. Most likely, a ref won't be decided at all. Elections won't happen until 2020, keep that mind.

So what's the deal?

What this realm of thinking also misses is that the Brexit negotiations does not include a new trade deal. Plus trade deals take a long time to negotiate. The deal is WTO rules, ie the default. Of course the May government now operates under the notion that it can keep the EU Single Market without free movement, so not change in the status quo for goods, services and capital, only for people.

Other negotiations issues will include the payments to the EU as part of the UK membership, the status of EU officials of UK citizenship, the status of EU citizens in the UK and of UK citizens in the EU27 member states.

So what will be the benefit of hindsight in late 2018? How complicated all this is? By late 2018 everyone's nerves will have been tested.

Recent pres articles in the UK have suggested that the EU plans to come down on the UK hard, "punish" the UK, so that other members are kept in line and do not ask what the UK will get. But what is there to punish the UK for? Surely the UK can get a CETA (EU-Canada) type of deal but his will take more than 2 years and won't include freedom for services and capital, ie financial services and other business services that the UK should care about. But is that "punishment" or simply playing by EU rules? Spin is nice, but reality is even better.

So will the 2 years in effect from now until late 2018 will spent to either
a) Help Remainers come to terms with Leave, or
b) Push Leavers to change their minds re Brexit or free movement - immigration?

Unless May is doing this on purpose and plans to take the fall so that the UK remains in the EU (see relevant post), which is unlikely, the May government has chosen Hard Brexit and will proceed with it.

For all practical purposes we can assume that Brexit means Brexit and a hard one. And let's move on.
To where?

Companies have to assume that they will deal based on WTO rules. For goods that is tariffs of less than 4%, no customs union (like Turkey), no Single Market. For services there's a vacuum. For the City, loss of passporting rights.

For EU nationals in the UK who qualify for UK citizenship, they will probably have to do so. For UK citizens in the EU27, the same, different states have different rules (re minimum stay before you apply). Some of the people already in the UK and in the EU27 won't have fulfilled the criteria by the time the "divorce" happens.Those who are not are in limbo.

The UK will also have to start doing trade deals with the countries the EU currently has deals with (and cover the UK too for now).

So where's the beef (to borrow a phrase from an old US election)?

The UK hopes to use its market as leverage to have EU27 exporters to the UK push for single market to the UK. The German BDI has followed Merkel's lead and said that this is not possible since it would undermine the whole EU.

The EU27 think and say that such a deal would make others ask for it too. Who are these others? Norway, Switzerland and maybe EU members. But which EU member would like to lose free movement for its citizens? The Visigrad 4? Unlikely. Romania and Bulgaria? No.

Technically such a deal is possible, while EU Single Market is written in the EU Treaties that does not prevent a deal that emulates the Single Market without free movement with a non member (eg the UK). But who wants that? The UK's best hope is EU27 exporters to the UK.

UK based companies are already looking into plans for relocation, who is willing to wait those 2 years, especially services firms.

EU27 companies exporting to the UK are getting used to the idea of export with some tariffs. There is no indication that EU27 services are that present in the UK, those that are stand to lose too.

UK citizens who want controlled immigration are happy. Same as those who do not want Brussels rules on the UK.

The May government has decided to make Brexit hard (no free movement) but try to keep the Single Market. There is no indication that the hard Brexit stance will yield. Two years from today we will probably all be at the same point but simply more aware of the effects. The likely scenario is that no side will give in. A standoff.

Saturday, November 19, 2016

World: May you live in interesting times. Where do we go from here?

One national leader, when asked to comment on Trump's victory replied that it is not time for comments now, it is time for thinking. He is very right.

So what's next? Let's think about it.

There are elections coming up in the next few months in Austria (for president, the last one was annulled), a referendum in Italy on constitutional reforms which could cause PM Renzi to resign, national elections in the Netherlands and Germany in 2017, inter alia.

The key issue is what's going on in the economy and society. That's what drives politics too after all.

I insist in the Clintonian motto "It's the Economy Stupid", in spite of what people may think caused Trump's victory. People want a job, good pay, job security (ie the expectation that they keep their job or find a new one if they lose it), a nice enough life. When they do not have such things, other issues become active. Then the blame game starts and usually scapegoats pay the price.

In other words, the theory I support is that when you have sound economics in your household then you are less likely to be concerned what language your next door neighbour speaks, less likely to be irritated by hearing someone speak in a foreign language in the tube (subway) or the bus. No wonder Britons on benefits and low salaries were key to Brexit. But they were not the only ones. Because in the UK at least  (because of the language inter alia) foreigners do not compete only for low pay jobs but middle and for high end jobs too. So the fact that UK unemployment is just 5% (that is supposed to be a normal rate since people change jobs), this stat alone does not tell you how people feel about their economic and job security.

On top of that, many in America don't appreciate US companies moving production facilities to Asia. Manufacturing jobs were not pretty but they paid relatively well. Plus, consider this. A few weeks ago I was talking to a European IT professional with US citizenship who spent the last three years working in the US. He had to relocate several times to have a job and in the end decided he could not compete with IT work being outsourced to Asia and Asian IT professionals on professional visas in the US hired via middlemen, he claimed. Of course he was now supporting Trump.

Yes, you can now buy a laptop made in Asia for 300 Euros instead of 1000 or so 10 years ago and that is benefit to the Western consumer. But it comes at a cost: Jobs at home. The cost-benefit analysis does not work for everyone.

With Trump president the TTIP (US-EU) deal is probably off and was not progressing well anyway. Will Trump recall existing trade deals of the US? Will he question the WTO Uruguay trade rules as far as the US is concerned? What stance will the GOP led House and Senate have on trade?

The Brexit UK (in trade deficit for years) wants to champion free trade (without free EU movement). Will it push for a new WTO deal? Unlikely it has the muscle or can get a momentum going after the Doha Round of WTO talks failure.

Everyone wants to export and host tourists. All countries/economies do. But as a UKIP fan pointed out in a recent discussion only 6% of UK firms export. That is probably true for most countries. Can things be done to make exporting a game for everyone?

Of course many people have jobs due to inter-national trade. They work for multinationals in country units, provide services to them (eg advertising, PR, tax, IT). They sell in small stores goods made elsewhere. They export. But many don't.

As Angela Merkel pointed out, some people take advantage of free movement to get a job in another EU state, keep it for a few months and then benefit from benefits natives do. Will come back to this issue in a separate post.

Refugees and economic migrants hope for a better life in another country. Let alone their skills
sets, what about language barriers? We are very very far from real globalisation and we are facing the cons of the existing phase. And it looks like they have serious effects, socio-economic thus political too. The Trump election showed that political correctness is not a way to suppress these concerns. Their roots must be addressed. How?

Countries are a system of modern life. They evolved from city states in Ancient Greece, empires (Alexander the Great's, Persian, Roman, Byzantine, British, etc), local kingdoms in Europe (eg Italy and Germany were "united" merely 150 years ago), the US is a result of migration first from Europe and now mostly from other continents, China is now capitalist and a member of the WTO since 2002, Russia is now in the WTO (but has an embargo going on with the EU), some people are concerned about the potential of new world war.

Western economies in recent decades have become Services based ones. The dotcom phenomenon led to a bubble and its bursting. Why did the financial world invest so heavily in subprimes instead of industry? Have derivatives and other financial instruments created too much "fake" money in the world?

Austerity aka budget discipline has become a fashion in recent years, especially in Europe (Germany, NL, UK, etc). Now it seems that Britons want less austerity out of the May government. Obama implemented Obamacare and brought inflation down to 5% but some people cannot afford the Omabacare care fees. Of course they voted for Trump, who also promised lower taxes. Obama skyrocketed the US debt, let's keep that in mind.

It's the Economy Stupid but with 7 billion souls on this planet and some 200 countries ie national economies, large (US, China, India, Russia), medium, small and extra-small, go figure how to make it all stick. They are ways and I will discuss some of them in the near future. But what is a national leader supposed to do? Push exports, help his people move as economic migrants to other economies (eg India), bring in foreign investment, these are the usual main ways. Many are using immigration barriers, the UK now wants to do that too.

Wallonia received angry and dismissive reactions when it temporarily vetoed CETA (the EU-Canada deal). Yet many said "Kudos", especially in social media. Yes, trade is good but does not benefit everyone.

In recent years regional arrangements seemed to provide an outlet. UNASUR, African Union, ASEAN, Trans-Pacific, NAFTA (to some extent) and of course the EU and the European Economic Area, with mixed results. They have to be part of the re-think.

The obvious way is of course to focus on your national economy, try to get everyone jobs and other benefits, use barriers that are not against WTO rules, keep your voters happy or at least as happy as possible. But what will be sum result? Walls. 27 years since the fall of the Berlin Wall. No wonder some people in or from the ex-USSR and ex-Comecon are said to miss the days they "could sleep worry-less at night" (as long of course as they did not oppose the regime). What does that show? That in the modern era people want safety, not just from crime but economic one too and foremost. Ten years ago a BBC survey, global, showed that many in the world are not happy with the current system. They do not want communism, who knows what they want and who can deliver it. But the current system does not please them. Of course compared to 1016 or 1716 everyone in 2016 has a better life, right?

I will end this post by pointing out that maybe over-legislation and bureaucracy are an ill of at least the West. They depress the economy and create many effects. But create many jobs too. Will come back to that. "May you live in interesting times" was a ancient Chinese saying. But it was a curse!

Does the EU make sense?

In past posts I have looked at the present and at the potential future of the EU. I have argued for a scenario in which the EU will evolve into a deeper union. Even pointed out that maybe the next EU Treaty should be "take it or leave (the EU)" But of course deepening is not the only scenario.

Another scenario is things remain pretty much the same. Will come to that. A third scenario is a move backwards. Let's look into that.

Why is there an EU in the firstplace? The three communities were created to help avert a new war in Europe. They succeeded in that.

The idea was that via co-operation in carbon and steel, nuclear and trade between European countries peace would be promoted.

But nowadays there is there is a free trade system (or a near free trade one to be precise) via the evolution of GATT, the WTO.

The EU Single Market provides the ease of common product standards which otherwise can be used as a trade barrier, but with WTO rules trade tariffs under 4%, is that such a big deal after all? Is the EU Single Market worth sacrificing national sovereignty and for German and Dutch taxpayers spending money on roads and bridges in Spain or Greece? If the Brexit and Trump phenomenon is indeed real and not exclusive to those countries then many are wondering the same in Germany (eg AfD), the Netherlands (PVV), France (Front National), etc. After all, Finland's biggest export markets are Russia, Sweden and the US and Germany's Angela Merkel has been smart to promote non EU exporting for Germany (and thus affecting the EU's trade policy, ie to be open, no fortress Europe).

Without the EU, each country will decide its own immigration policy (of course it may have to build more walls).

What about defense? The Russia factor? Well, if Trump indeed makes NATO less potent, European countries can always start an ETO (European Treaty Organisation), no need for a whole EU.

What about free movement? Of course, there will be much less of that. But that is exactly what many want. They want exports, they are willing to buy foreign products and services, they want foreign tourists but they do not want foreigners competing for the same jobs head-to-head. What if these jobs move en masse to Asia? That is what has been happening too and many voters are not happy about that either.

Have I just described Boris Johnson's wet dream?

Friday, November 18, 2016

EU: From Maastricht to Brexit

Twenty five years ago, in December 1991 during a Dutch presidency of the Council of the EU (EC back then) there was a European Summit and an Intergovernmental Conference (IGC) to decide on a new Treaty. It was finally signed in February 1992.

Spearheaded by Jacques Delors, Helmut Kohl anf Francois Mitterand the EC12 back then wanted to move things forward. The European Union created as an evolution of the three European Communities. The Treaty also established the process towards Economic and Monetary Union (EMU) part of which is the Euro, as well as new provisions in Social Policy.

The UK, led by John Major, vetoed both the EMU and the Social Policy articles. The latter were agreed by the eleven and were attached to the Treaty as a Social Protocol. The UK as well as Denmark got a formal opt out of EMU.

Europe moved forward via Maastricht (the Single Market had been decided in the 1980s and started on 1/1/1993) in spite of a very narrow adoption by the referendum in France and initial rejection by the Danish voters.

A year earlier, in December 1990, on a train from Brussels to Paris, one could read the feature about the EC in the Economist, pondering whether Europe would become fortress. It did not. The EU has maintained a free trade stance and signed many agreements on top of the WTO (Uruguay Round). It has not used the muscle provided by its 540 mio consumers to defend its industries. Next year, Donald Trump may do that for the US. May's UK wants the Single Market without free movement using its market as a card. The Italian minister for the Economt reminded Boris Johnson that if Italy and the other 26 lose the UK market, the UK will lose 27. Of course if there is no agreement, there will still be trade based on WTO rules (average tariffs of 4%).

What has been gained in 25 years, what has been lost?

In 1990, one could also read in the Economist about the break of the USSR into separate countries with separate currencies. People in eg Georgia lost their bank deposits in Rubles. Some Eurosceptics call the UK a "USSR". Has Pandora's Box been opened via Brexit? Will others follow down the UK's path? Will Front National's Marine Le Pen be elected president in 2017? Will AfD gain much to even force Angela Merkel out?

In the aftermath of the Trump victory many have elevated Angela Merkel to a defender role for Liberalism in the West and in Europe of course.

Delors, Mitterand and Kohl and others at Maastricht had vision. Many they should have gone further than they did. Even without the UK.

In previous posts I have argued that maybe new EU Treaties should be on a "take it or leave (the EU)" basis. Of course not easy to put forward. but maybe necessary, since the EU stands in between the US and Russia (geographically).

Are EU citizens going to elect EuroTrumps? Trump after all promised lower taxes. And a stop of business moving to Asia. The migration issue of course played a role, but so did the fact that many could not afford to pay Obamacare's fees. In the EU27, many are anti-migration, unemployment varies, it is low in Germany but still high in France and Italy. In the Netherlands, the eurosceptic PVV brought the government down in 2012 as an anti-austerity stance, note that.

For many years now, the EU28 comprised on mostly conservative national governments, pro trade, pro budget discipline, pro EU, pro Euro.

Hungary is lowering its corporate tax to 9% and does not plan to enter the Euro. The Visigrad 4 want more sovereignty. The governments that will be called upon to agree on a new Treaty will have to worry not only about rejection in referendums but also national and local elections' backlash. We may not have EU wide TV and radio but we are in the era of social media.

One of problems of entity as large as the EU is how do you understand what is going on sur-le-terrain across the entity. In other words, who understands the economy and society in all 27 states? Many in the European Commission, how many in the European Parliament? Of course members of the ECOFIN and the Eurogroup know the macroeconomic date outside their national economies. But how do they understand these economies. Of course you also have the permanent delegations to the Council and the COREPERs, But is that enough to understand what "Europe" needs, what the EU citizens will accept, what they will reject? Brexit showed us that the ground is good for populism, so did Trump's election. But what is the real solution to populism?

So who understands the people of the WU27 or at least the Eurozone19 to express them? Does Angela Merkel do? She may or may not, but she seems the only viable option.

Why? Because with 27 or 19 it is difficult to decide together. It is. When you do, you can reach weird agreements and the EU history is full of such. In Athens, Barack Obama gave monumental speeches about democracy and citizenship. That is maybe the kind of leadership the EU needs. But do not forget that the EU speaks not in one but 24+ languages.

Bonne chance Angela!

Thursday, November 10, 2016

Europe with Donald Trump: EU 2.0?

So, who would have guessed that 27 years after the fall of the Berlin Wall, a man like Donald Trump would be elected POTUS.

It has been a rocky 27 years for the West. They have included the dotcom bubble, the subprime bubble, the WTO, China's entry in the WTO, the EU (Maastricht) and the Euro, Doha's failure and the proliferation of regional trade agreements and NAFTA among others.

In retrospect, maybe capitalism was performing better with competition from communism. Maybe.

Europe has had it good. It has grown from 12 to 28.

Soon 27.

Trump's campaign has shown he is an isolationist, in both defense and trade matters. Plus he wants lower corporate taxes.

Many in Europe are thus concerned about the Russia factor. Whether that is a real factor or not is maybe besides the point.

In recent weeks, I have posted food for thought on EU Reform, some far fetched, some not.

In view of Trump's election, let's have a brief look again.

- EU Army or something like that.
- Closer economic union, including tax matters.

Are these possible? Front National, AfD, PVV and others are banking on nationalism - anti-EU feelings. Won't such proposals play in their favour? Why would CDU, French conservatives, et al ever agree to such proposals?

Well, one way to move the EU forward is convince taxpayers-voters in Germany, NL and other parts of Europe that this won't cost them more. Even better, if it costs less!

For example. should the EU continue to fund regional policy in Spain, Greece and others? It has been 25 years since it started.

The other factor is "take it or leave it"!

Europe has enjoyed protection from the US. Europe has also given in to members' diverging points of view. best example the UK. Where has it led? Brexit.

People in Europe should not feel that their countries have to participate in the EU. The EU has benefits as well as costs. Sovereignty is one of them. So why push members to stay in. Even better, makes the new draft Treaty an EU 2.0. Those states that adopt it, stay in, those that don't, join the EEA or some new form of it.

This may sound harsh or cruel, but is it, really?

If Europe needs a defense and real economic union, then it must proceed. Those that do not share that view should not be forced. The EU should stop being seen as a Hotel California!

The US is 320 mio. EU 2.0 should have a least the same population, same or better GNP/capita and above all commitment to union, by its people. In defense and economic matters, above all. The Trump era may witness trade and currency wars among others. A real union is needed in Europe, that's the rationale. Not more relying on the US. Ability to negotiate with the US on trade matters, as well as the whole world. A common immigration policy. And other parameters. That is a different EU than the one so far.

For the rest, the European Economic Area (EEA) or a revised EEA should do.

Germany and France seem necessary members of an EU 2.0. Together they make 145 mio.
Membership of all other existing 25 members should be welcome but not required. Of the 25, enough will join in to make it 320 mio plus and have a real union.

Are "the Russians coming"? I doubt it, but so many think so that this could be the driving force, but not merely for an EU army, that would be shortsighted, for an EU 2.0.

The alternative is no EU or a stale EU as the current one is.

Friday, November 4, 2016

Should Greece, Spain and Portugal have joined the Eurozone?

In a previous piece I looked at the range in unemployment rates in the EU28 and pointed out that the Eurozone19 has a 1.5 pc points higher unemployment rate than the EU28 average. That this difference comes from high unemployment in Greece, Spain, Cyprus, Italy, Portugal and France (all Eurozone, all South and mostly Mediterranean) plus Croatia (the EU's newest member, since 2013).

One reason for these statistics is that in these countries flexible employment (eg part time, mini jobs) is not as wide as eg in the UK, Germany and the Netherlands.

So why have these countries-economies not been able to produce enough jobs?

The Euro was established as a tool by the 1992 Maastricht Treaty of the EU. It was part of Economic and Monetary Union. And was implemented ten years later. The criteria for entry were public debt (as a % of GNP), convergence of inflation and interest rates as well as public deficit (as a % of GNP).

Many economists, eg German had pointed out that these macro-economic criteria were not enough and that the real economies had to converge before they joined (not after). The EU was not a US with strong regional policies and funding to help lagging areas. EU regional funding existed by it was not comparable to the US. Economies had to be prepared to join.

All countries mentioned above joined from the start except Greece that joined one year later and Cyprus that joined even later (it after all joined the EU in 2004).

The Euro reduced lending rates (including bonds) and allowed states and companies and people to borrow at much lower rates. That led to consumption increases.

The Euro was managed as a hard currency (I will do a separate piece on that) and thus it encouraged imports to the Eurozone and discouraged exports for many of its goods categories.

Post subprime crisis and in the last few years Greece, Spain and Portugal went through crises (Greece of course faced and still faces the biggest one). So did Cyprus.

None of these economies have become economic powerhouse, but they were supposed to do so before they joined. They did not become competitive by simply joining the "Champions League" of the Eurozone. But that was not supposed to be the case.

The Euro became a reality because Germany was willing to join. It is natural that the Euro and the European Central Bank was designed based on the DM and the Bundesbank (for example, unlike the US Fed, only inflation is the ECB's concern, not growth/employment).

Countries rushed to join the Euro as a status symbol and it seems that they paid a price. It more than clear Greece joined the Euro too early ie unprepared from a real economy point of view). Evidence shows that this partly applies to Spain and Portugal too.

Should some member leave the Eurozone? That is a very complicated issue. The Eurozone is not a country club that one can easily join, leave and re-join. Entry and exit cause major adaptations.

What members lost was the ability to absorb loss of competitiveness by changes in the exchange rates of their national currencies and that means that once you are in the Eurozone you have to be extremely mindful of your competitiveness.

There are anti-Euro feelings in Greece and in Italy. But in the Netherlands and even Germany too. One way to make the Euro more economically sound at this stage is to make the Eurozone an even closer economic union (and possibly political too). Make the Eurozone more of a "Single Economy" I have referred to in previous posts. With 19 or less. With a Eurozone tax system, especially in corporate taxation, and other features too.

But one drawback will always exist: Linguistic barriers, both in the Eurozone and the EU. Nothing can be done about it but it has to be taken into account in every new design idea in EU Reform.

Thursday, November 3, 2016

Brexit: An analysis of the UK court's ruling from a European POV

So the UK Parliament must vote on whether the UK government triggers Article 50 or not. That seems rather straightforward. Either it thinks that leaving the EU is a good thing or not.

Yet this is quite more complicated and disturbing as far as the rest of Europe as well as Europeans in the UK are concerned.

Let's first see what the Court said:

The Lord Chief Justice, Lord Thomas of Cwmgiedd, declared: "The government does not have power under the Crown's prerogative to give notice pursuant to Article 50 for the UK to withdraw from the European Union".

The three judges ruled there was no constitutional convention of the royal prerogative being used in legislation relating to the EU. That triggering Article 50 would fundamentally change UK people's rights and that the government cannot change or do away with rights under UK law unless Parliament gives it authority to do so.

Based on that, one would think that MPs and Lords would say a pure Yes or No.

Yet it has been interpreted as a need for government to present its negotiations plan.

Let's see what the leaders of the two main opposite parties said:

Labour's Jeremy Corbyn : "This ruling underlines the need for the government to bring its negotiating terms to Parliament without delay. Labour respects the decision of the British people to leave the European Union. But there must be transparency and accountability to parliament on the terms of Brexit."

Why on Earth should the government reveal its negotiations terms, to weaken them? The decision should be about Yes or No to triggering Article 50.

Liberal Democrats' Tim Farron: "Ultimately, the British people voted for a departure but not for a destination, which is why what really matters is allowing them to vote again on the final deal, giving them the chance to say no to an irresponsible hard Brexit that risks our economy and our jobs."

The reactions of both Corbyn and Farron are troubling from a European point of view.

a) Both seem to choose to ignore that the ref was non binding. They are conveniently yielding to the political pressure placed on them by Theresa May (side note: good for her). As Remainers point out I) the ref was non binding II) the decision was 52-48 not 65-35 III) much of the population did not vote.

At the end of the day, all that is the UK's business. What those of us not British in the EU have a say in is:

b) What Tim Farron says involves the rest of the EU. As I pointed out in a previous post, he seems to be under the impression "Europe" is going to wait for the end of negotiations and give the UK the chance to change its mind and remain in the EU if it the UK does not like the Brexit deal! Does he even consider the precedent that would set for other members?

As a non British analyst of UK affairs (and European ones), it seems to me that:

1) Once Article is triggered, Brexit is Brexit (as May says). The choice set becomes what type of Brexit. If MPs give it the go ahead, Brexit is Brexit, no turning back.

2) The only way to avert Brexit is for Parliament to reject triggering of Article 50, clearly and directly, have a second referendum, this time binding and well informed, and decide, for good, for all sides concerned.

There are no trial separations and wait and see how the divorce negotiations work out. The UK has been a complaining "spouse" in the "marriage" with the EU for decades, the ref was not the start but the end.

It is maybe up to the 48%, the Remainers, to explain these facts of life to MM Farron and Corbyn.

The role for us in the rest of the EU is to make clear, here and now, that once article 50 is triggered, Brexit is Brexit and there is no turning back.  Maybe in 15-20 years, but not in two.

PS. Some people I have spoken to have suggested that a No vote by the Parliament and a new ref would lead to civil unrest and that the drafter of Art 50 has said that is reversible.

a) About Art 50: This is not a law that carries an explanatory memorandum. What matter is what the text says. And it does not foresee untriggering. Of course the ECJ will have the final say if need be.

b) About unrest:  If in 2 yearrs there is 60-40 Remain ref the 40% will not cause unrest then? People are afraid to speak a foreign language in the street, the damage has been done.
Tbh I think Brexit is by now a done deal, the best scenario is soft Brexit. Not what we would have wanted but events have proved too many in the UK don't want the EU or foreigners. Sadly. Very sadly.

A Single Economy

Why are unemployment rates so diverse in Europe? Why is it 19.5% in Spain and less than 5% in Germany? Are Northern European hardworking and the Southern Europeans lazy? Not really. For example Greeks work the third longest hours in the OECD and yet they are in a huge crisis. Is bad weather conducive to productivity and the Mediterranean sun counter productive? Not really.

Then why are companies manufacturing mostly in North and Central Europe and not in the periphery? Of course there are factories in Portugal and in Spain but why aren't there more of them?

Are Southern Europeans well educated but not in the right fields?

Why are Ireland and Finland doing so well? Why does Malta have record low unemployment while Cyprus high (and it even higher during the crisis)?

Well, like in most issues, there are many reasons aka factors.

Some like to dismiss countries for not having the right work culture or for state corruption. That is superficial treatment.

The indirect cost of labour may be high eg in Greece but it is no that low in other EU members either. Why did auto makers from other continents invest and produce in the UK and not in Spain, Portugal or Greece? The simple answer is English and a flexible labour market. But what does one really mean by the term "flexible"?

All companies are not allowed to fire at will in the EU, there are caps on monthly firing volumes via EU directives. In some countries when you fire an employee you have to pay him/her off a high severance pay than in others, but multinationals in general like to send off an employee with a gift higher than what the law says.

Very few people have a thorough understanding of what it's like to do business in the EU 28 member states as well as outside the EU and they are usually not available to policy makers (because they are not sought by them). With Brexit, some governments have sent letter to corporations luring them with low tax rates. But when companies make location decisions they look at many factors. Infrastructure, hard and soft (human capital), logistics, etc. On the other hand cars and other equipment is being made in Asia and shipped to the EU and they are still competitive.

Why are so many companies locating in Ireland which is in the periphery? Is it just low taxation and the English language (as well as proximity to the large UK market, asset which is now being lost due to Hard Brexit)?

In a well performing economy each geo segment has some competitive advantages. Plus there is aid by the government (eg Wales by the UK). How well has east Germany adjusted in the 25 years since reunification?

The EU Single Market which started in 1993 required many regulations and directives. It was a major breakthrough. But it was not panacea. As a UKIP supporter argued in a recent debate, only 6% of UK companies export. For a large number of companies in the EU doing business beyond the national borders is still an orama not a reality. One has to look at the real life reasons for that and not rely on economic theories and traditional business analysis.

The EU economy is not doing badly but it is underperforming. People are not satisfied and blaming the EU, globalization, foreigners in addition to their national policy makers.

"It's the economy stupid" I have argued applies to the 2016 EU too. The Dutch have in the last few years seen cuts in their social security, the Germans had Hartz including mini jobs. Their unemployment benefits have been cut (yet they are still generous compared to those of the Greeks or the Polish). So of course they are easily upset by money given to Greece or other periphery members.

Germany wants convergence of tax rates (corporate ones) and seems to want France. It makes sense. But why will others agree? In a united states or federal republic of Europe maybe they would agree. But we are nowhere near that and many leaders across Europe think it is not feasible. A Gordian Know? Is there a need for a new Alexander the Great? Tusk is obviously not that. Delors conveyed a vision that may not have been shared in the UK but was largely effective. Of course the EU at that time had 12 members. Now it has 28 (soon 27).

So is "union of sovereign nations (or states)" the only feasible solution politically? It may be, but does it make economic sense?

A Single Economy will of course require further surrender of national sovereignty.

A single or converged tax rates for companies
A single VAT rate for all
Single labour laws/rules
Use of a single business language (!)
An EU IRS and EU personal tax rates

Can such endeavor be marketed to the people of the EU27 in 2016 or 2017? Maybe it can, when it is sold on the USP (unique selling proposition) of Jobs (more and better ones). An EU27 (or even EU26 or EU25) will be powerful as a Single Economy, inside and outside (in trade negotiations).

A single immigration policy (for refugees and economic migrants)
Single environment rules (we have them already largely)

Some say these will come, eventually. That it took centuries to build the US. True, but maybe the EU is now in a do or die situation. Why? Because like any half built house, it is not easy to live in.

Leavers in the UK are starting to realise that life outside the EU is not going to be that easy. Federalists have not been convincing in Marketing Europe.

If Europe does not move forward it will move backwards. A federal republic of Europe does not 460 mio, it can work with even 320, thus with 25 lander or less.

More Europe for more Economy and for more Jobs.

If the EU economy is doing so great at its core today why are AfD in Germany and PVV in NL doing so well?

Tomorrow: Argumentation for Less Europe

Wednesday, November 2, 2016

Jobs in Europe

When one takes a look at unemployment rates in the EU, one notices the wide range. In July, they ranged from 3.9% to 23.5%!

The Eurozone's average is 1.5 points higher than the EU one. That is because Eurozone members tend to have higher unemployment rates than the non Eurozone ones. Could that be attributed to Eurozone policies, eg the 3% budget constraint?

Before we look into that, let's see who has the really high unemployment. Greece, Spain, Croatia (non Eurozone, the EU's newest member), Cyprus, Italy, Portugal and France. These job markets are above the Eurozone average and other than Croatia, they are all Eurozone members.

But they have something else in common. They are all South states and all except Portugal are Mediterranean ones.

Add to that one fact: The lowest unemployment rate in the EU can be found in a very small Mediterranean member, Malta, a member of the Eurozone!

Next to Malta is a former Comecon member, the Czech Rep and then Germany (Eurozone member). Then the UK, Hungary (another ex-Comecon) and the Netherlands (another Eurozone member).

One could say that non Eurozone members, because they have wider economic policy options than Eurozone members have better performing economies, thus lower unemployment and that Germany and NL are part of Eurozone core thus best adjusted to the Eurozone. Whereas Greece, Spain, Italy, Portugal and Cuprus are not Eurozone's best members.

One other theory could be that flexible employment contracts (part time, zero hours, mini jobs) are more predominant in Germany and NL, as well as the UK, and that ex-Comecon member have low wages thus more jobs compared to the Southern states that have less flexible labour markets than Germany, NL and the UK and higher wages than the ex-communist states.

Add to that the language barriers to mobility in the intra-EU labour market and you may have an explanation why rates vary so much.

What is the net result? An inefficient EU labour market.

What can be done? Not much.

a) Establish English as the language in the EU labour market? Not possible.
There types of jobs (medical, IT/engineering, cleaning/care services) where there is high intra-EU mobility, from the poor member economies to the richer ones. But if you are working in Marketing or PR in Hungary or Spain or Greece why would a company in Germany or the Netherlands hire you, especially if you do not speak German or Dutch? That is a feature of the EU market compared to the US.

b) So in effect the 28 (soon 27) national EU labour markets remain "sovereign". How do you then explain the high penetration of non EU migrants? Well, a very large % is in blue collar - manual jobs. A very good example of that is Greece.

With respect to EU Reform, are there any insights? Not really, other than the EU needs to become more of a united/single economy. Feel free to send me a comment at if you think there are.

Would Greece, Spain, Cyprus, Italy, Portugal have been better off outside the Eurozone, ex post? That is a topic for a future post.

Monday, October 31, 2016

EU Reform: Hard and Soft

In my previous piece on EU Reform I presented elements and the rationale of a "hard reform" scenario. The main term one hears these days is "union of sovereign nations". As I explained you cannot expect the Germans, the Dutch and the Finns to pay for your roads and bridges and claim to be a sovereign nation. Or send workers to work in another country using your own national employment terms. Let me take it further, as UK developments have illustrated: You cannot expect foreigners to freely buy your products and services but deny them the right to live and work in your country.

These are no simple issues and the whole world is at crossroads nowadays. Let's see for example who wins in the US (not just the White but in all November races). See what almost happened with CETA and Wallonia.

As I proposed in other pieces on EU Reform, "it's the Economy stupid", people want jobs and a good life and when they do not get them they start looking for scapegoats. As the UK ref showed, people who said No to Europe and foreigners tended to have low skills/education, be aged, be on welfare. And they are not just the 5% that is currently unemployed in the UK, it is 52% in total. Those people have rights too and they don't just exist in the UK but throughout Europe and the whole world (and the "West").

So let's keep these things in mind and talk about soft or softer EU Reform scenarios.But let's be aware that if Europe does not advance in a way that promotes growth and jobs/working conditions then - even if it does not try to reduce members' sovereignty - the EU will still be blamed for problems at national and local levels. CETA may have been signed but as explained in previous posts the German constitutional court's opinion as well as the forthcoming ECJ ruling on the EU-Singapore trade deal (which too goes beyond pure trade issues) are live issues.

1) Taxation:

As the French PM pointed out in his recent FT article, there is a need for convergence in tax matters and he does not mean indirect taxation - VAT. He mainly means tax rates. There is also demand for this in Germany and Germany is where 81 mio EU voters live, ie a large % of the EU27 population. Low tax rates for certain companies or sectors (be they straightforward or tax breaks) do not differ that much from state aid - subsidies, they too distort competition.

Of course member states such as Ireland are not willing to give up sovereignty in direct taxation, probably even if they get offsets for that.

Valls, the French PM, says that it is feasible for certain members to move ahead in these taxation matters. How much sense does that make, are we talking on a repeat of things in the Euro and Schengen, ie a "core"? EU members will low tax rates will still undercut others.

Plus, one must not forget that double tax avoidance and other matters of direct taxation, corporate and personal, in the EU are still governed by bilateral agreements based on an OECD model! That is ridiculous for an EU .

Thus the idea of national sovereignty in tax matters seems less and less credible in the EU. Yet a state is based on taxation, it is a basic potency of a state. Who will agree to give that up, even marginally? Wars were fought over that. Well, in VAT, members have long accepted that their VAT rates should converge, ECOFIN decides those matters not national parliaments.

2) Trade:

The EU has a sole competency in making trade deals. The reason CETA had to be approved by 34 national and regional parliaments of the member states is that it included non pure trade issues. One could think of issues to be included in EU competencies in a new EU Treaty.  But it will be complicated.

3) Employment - Labour Relations:

Mention EU minimum wage and watch for the reactions in any forum. Not only from fans of sovereignty but also from those who against a minimum wage ideologically. Is it realistic to want a common minimum wage in Spain, Germany and Hungary? Or even inside the Eurozone. Can eg the Greeks have the same minimum wage as Germans do? Of course, as in the US, there can be federal minimum wage and states can have higher ones if they so choose. If Wyoming has the same federal minimum wage as California, why not Spain and Germany? But Spain already has 19% unemployment, Germany 5%.

Let's forget EU professional wage agreements and sectoral ones for now. There are European Social Dialogues going in the EU, both horizontal and sectoral/professional, but wages are not in the agenda. Someday, if the EU still exists, they will be.

There are EU rules on safety at work, working time, firing caps per month for employers, the rights of employees when a company changes ownership and some other areas.

4) Social Security:

When you travel inside the EU you get a card that gives you access to hospitals in other member states as many pointed out when a UKIP MEP had to hospitalised in the French hospital recently. Yet that does not mean that you will not be charged eventually, it depends on your national social security system back home and your provider.

When you have worked in more than one member states and retire, member states' social security systems co-operate to calculate your pension and award to you.

Is there a need for an EU-wide social security system? Yes there is. It would perfect sense, especially for a Single Market for jobs. But it's too complicated a deal to be even considered in 2016.

5) Education:

An engineer studies for three years in the UK, five in Greece. But everyone likes EU funding for academia work, that is one key thing UK unis will miss.

6) Transport:

The EU has a common transport policy. Yet there is no one railway company that can take you from Germany to Spain and/or from the UK to Greece. There has been a lot of progress though in airline travel, you can fly to many points inside the EU with a third (EU) country's carrier.

7) Defense:

Greece spends top dollar for its defense although in crisis because if it is ever invaded it has no reason to believe that being an EU member will save it. East European countries have concerns too. France complains that its army serves de facto as an EU one. With the UK leaving there is a military vacuum.

The EU has grown to have geostrategic ambitions consistent with a powerful country in the world yet it is not a country, not yet. Far from it. An army would make sense for a United States of Europe, but how many eg Spanish or Lithuanian men are willing to die in defense of eg Bulgaria, in 2016 or 2026?

If an EU Treaty tries to create any EU army or anything resembling this they will hardcore debates all over Europe and it will top in the agenda when national ratification time comes.

Will look into more areas and these areas more analytically in forthcoming posts. Feel free to send constructive comments to (in English).

Tomorrow I will look at diverging unemployment levels throughout the EU and the Eurozone and discuss reasons for them plus look how it relates to EU Reform.

UK: A very tough strategic choice for the Liberal Democrats

The UK Liberals Democrats faced a humiliating election defeat in 2015. Nick Clegg had to resign. The electorate did not forget that a 2010 pre-election pledge for free tuition was turned into an agreement for tuition raise when in co-government in 2010-2015. Plus the co-habitation with the Tories obviously did not please their 2010 voters as 2015 proved.

In the wake from the Brexit referendum, and with a new leader, the LibDems re-gained momentum. They are the most pro EU (pro Remain) national party in the UK.

Yet, as I analysed in the previous post, their position for a second ref after the Article 50 negotiations are completed and a deal has been reached is simply not a realistic one, at least not from an EU27 point of view, even if some argue that Article 50 is not explicit about non reversal.

One can fully understand that a political party like the LibDems does not want to turn into a pro EU "UKIP", ie a party defined by a single issue. Yet, the issue is of crucial importance to the UK's future. For years, Brexit had a strong and dedicated advocate and it paid off for the UKIP. So much that it made the Tories do what they are doing now.

The 48% that voted Remain did not have a dedicated advocate. Some voted Conservative, some Labour, some for other parties. Most LibDem voters, although the party lost lots of its strength in 2015, voted for Remain. Post ref, the party has seen a dramatic surge in membership, but other parties have seen a surge too. And there was no gain in the opinion polls.

In spite of his second victory, Labour's Corbyn has not been able to lead the party in success in the polls.

As weeks and days pass after the referendum the whole country is astonished to see Theresa May turn into a hard Brexit proponent of the most populist kind. Plus many Leavers have come to realise that Leave was not such a grand idea after all.

In the coming weeks the public opinion is going to realise even more of the dangers of Brexit, hard or soft. For the LibDems to rally behind a second referendum after the negotiations, it is an unrealistic position. One should add that the ref was not binding, officially.

Thus for a political party to advocate a second referendum soon or merely a vote by the Parliament is not undemocratic. May is doing a good populist move by claiming that Corbyn is frustrating the will of the people but of course she is not taking into account that the vote was 52-48 not 72-28 and that in a democracy a minority view has a permanent right to be represented, ie for a party to continue to call for Remain is not undemocratic, it's the opposite.

The LibDems have a strategic choice to make. Become a UKEuropeParty or play it safe.

The stakes for the UK as well as Marketing may point towards the former. After all it wants people to forgive it for the tuition pledge and rally behind it. In a political system such as the UK's at present, having 20% of the vote as the LibDems did in the past does not give you 20% of the seats. The Brexit issue is a grand opportunity for the party to get a major boost. Of course there are risks. But as Gordon Brown pointed out years ago, Britons have to learn how to take risks.

You cannot please all the people all the time and the LibDems managed to upset many of their voters in 2010-2015. Taking a much firmer stand on "Europe" (Brexit) is a golden opportunity to not only do what's best for the UK and its people but also draw pro Europe voters from the Tories and Labour massively. Of course they get heat from their political opponents as well as the Sun, the Daily Mail and the Express if they do so. But proposing a new ref after Brexit negotiations may sound appealing and may be convenient but it is not neither realistic nor in the UK's best interest. Frankly it's a cop out, a "political" move.

Once Article 50 is triggered in March, Brexit is the deal. What one can fight for after that will be a soft Brexit deal, there should be no illusions cultivated about that.

Sunday, October 30, 2016

Brexit does mean Brexit, after Article 50 is triggered

One has to sympathise with the plight of UK Remainers. They fought a difficult battle (albeit a tad late) for Remain and lost by a 52-48 margin after much uber populist propaganda by the other side (that had started it many years before). Plus they are now seeing May push for a hard Brexit option claiming that is what the people decided in June (not so of course).

Having said that, this is what I pointed out to some LibDems today after asking to clarify what is exactly the position of the chosen candidate in the Richmond by-election after various press reports:

Press reports have suggested that there was thinking to make the Richmond by-election a mini Brexit ref since the district voted 72% Remain last June. And that in line with that there were calls for Labour not to field a candidate. I hate to interfere with party politics but the issue is now of European significance. The concept that after Article 50 is triggered there can be a change re exit may be based on an wide interpretation of Art. 50 is very iffy. A hard vs soft Brexit choice set is of course possible then. To put it bluntly, the UK cannot trigger Article 50, negotiate divorce and then change its mind if the terms are not good. Not to mention that the negotiation as Barnier has pointed out will be on red tape issues not trade etc. That is his mandate. As an analyst I am of the opinion that Parliament should remove (via a series of two non confidence votes) May before March if Brexit is to be avoided, since after that the choice is what type of Brexit, hard or soft. That is an internal matter for the UK though, none of the business of those of us who are outside the UK or not British.

I should add that I am fully aware that this quite a tall order for Remainers, but one cannot expect the EU27 to wait two years for the UK to change its mind. Life simply does not work this way and there are potential precedents in play here, putting at stake the cohesion of the EU.

Saturday, October 29, 2016

EU Reform: Which Way Forward (Part II)?

In EU Reform: Which Way Forward I looked at some of the complications of the current situation in the EU.

Now let's look at some of the EU Reform ideas that have floated around in the last few years. I have not seen many concrete ones and a Google search did not help either.

It is true that recent years the upgrades of the EU have focused in banking and financial matters, issues which leave average citizen unaffected (directly). At the same, the ECB is buying bonds of banks in order to help Eurozone growth, causing reaction from eg Germany.

It must also be mentioned that many members are driven by an austerity (ie fiscal discipline) mantra. Growth has suffered and exports ie trade have been relied upon to do the job.

As I suggested in other posts in recent weeks, "It's the Economy Stupid", the Clinton era philosophy applies in 2016 Europe as well.

Let's see what the UK, David Cameron proposed in 2014.
A seven-point plan:
  1. Powers flowing away from Brussels, not always to it. Too generic and theoretical.
  2. National parliaments able to work together to block unwanted European legislation. Was CETA a case for it (Wallonia)?
  3. Businesses liberated from red tape and benefiting from the strength of the EU's own market to open up greater free trade with North America and Asia. The Tories seem to forget that red tape comes from national level too.
  4. UK police forces and justice systems able to protect British citizens, unencumbered by unnecessary interference from the European institutions, including the European Court of Human Rights. A la carte union.
  5. Free movement to take up work, not free benefits. That exists, intra EU migrants have to prove they have the means to support themselves and buy insurance. The UK should have been better read.
  6. Support for the continued enlargement of the EU to new members but with new mechanisms in place to prevent vast migrations across the continent. Well, members such as Germany usually phase workers from members in after seven years, the current Treaty allows them to do so.
  7. Ensuring Britain is no longer subject to the concept of "ever closer union", enshrined in the treaty signed by every EU country.

After the ref, the Polish Prime Minister Beata Szydlo said "We need to build a strong community of sovereign nations. We cannot pretend that there are no crises in the EU, it led to Brexit, we cannot not reach conclusions out of this" (Wirtualna Polska).

Also after the ref, a nine page French-German memo, ‘A strong Europe in the world of uncertainties’, was released by Poland’s TVN broadcaster. The document is said to have been authored by French Foreign Minister Jean-Marc Ayrault and German FM Frank-Walter Steinmeier.

“Germany and France have a responsibility to strengthen solidarity and cohesion within the European Union” despite “different degrees of ambition towards further integration among the member states.
Spoke of:
Bolstering common defense, migration and fiscal ties among the members
Closer cooperation on internal and external security, the migrant crisis, as well as a change in the EU’s fiscal and economic policy.

Other mentions are:

"The EU will in future be more active in crisis management,” the memo reportedly said, proposing to introduce the “European Security Compact” – a number of military means able to deal with emerging crises, including a deployable high-readiness forces, developing common military spending plans as well as investing in conflict prevention. The “European Security Compact” places special emphasis on internal security, mentioning the creation of a “European platform for intelligence cooperation,” improvements of data exchange and the establishment of an EU civil protection corps.

It called migrant and refugee influx to Europe "the central challenge for the future of our continent," saying the bloc must be able to secure its external borders while remaining committed to its humanitarian values. “Europe should stay open to what migration and mobility can contribute to our society”. "A situation in which the burden of immigration is unevenly shouldered by a few member states is unsustainable.”

On financial policy, the paper proposed a future joint budget to "promote the convergence of our economies, achieve sustainable growth that creates jobs, and make progress towards the completion of the European monetary union.” This part of the document also added that “France and Germany have a shared responsibility to build a robust monetary union that is globally competitive."

The fundamentals:

As I said to BBC World before the 2005 French rejection of the Constitutional Treaty, the Single Market is the core of the EU integration.

But as Norway and the other non EU countries that have access to the Single Market have found out, a Single Market is more than a Free Trade Area. One of the key issues, that German and French  officials were quick to point to Boris Johnson and other after the June ref is the free movement of people.

But, I argue, it is much more than that. It is about labour conditions. It is about many other areas of law. And a common trade policy. Economists have argued that a country that opens up its market to trade gains even if others don't reciprocate. But economic reality is not that simple.

The EU needs to make much more economic sense to the average company, the average worker and the average self employed citizen.

Cameron is said to have wanted to propose a temporary cap on non EU workers in the EU but to have withdrawn it because Germany was allegedly against it.

The EU, the European Commission, has the REFIT programme:

"Each year, the Commission launches a set of simplification initiatives within its REFIT programme – drawing on input from individuals, businesses, NGOs, national authorities and other stakeholders. Simplification can take a number of forms.
Changes are made to existing law:
  • codification: all amendments made to a piece of legislation over the years are incorporated into a single new act, reducing volume and complexity
  • recasting: similar to codification, but in this case the legislation itself is amended at the same time as previous amendments are incorporated to form 1 consolidated text
  • repeal: unnecessary and irrelevant laws are removed
  • review/sunset clauses: laws are reviewed or automatically removed after a given period
  • revision: laws are modified to keep them up-to-date
  • directives are replaced with regulations, so that all EU citizens are subject to the same rules and national governments can't add extra requirements
  • laws still in preparation are withdrawn if they become obsolete due to scientific or technical advances or if they are no longer in line with new policy objectives
  • legally binding laws are replaced with lighter alternatives such as voluntary agreements (self-regulation, co-regulation)"
REFIT is very important and should be expanded. But ove-rlegislation and red tape also come from national and sub-national laws in the EU (much like the US). So when public opinion says its wants more sovereignty, it means the right to produce red tape at national level? There are major economic benefits that can come from removal of both EU and national red tape and this must not be left to national and sub-levels, is Wallonia a red tape free region or is globalisation their only concern, for example?

Nationalists have found an easy target in the EU. As the UK example shows, it is very easy to blame the EU (and migrants too) for most if not all evils and that means not only Eurosceptic citizens and parties but media too. Sorry to say, but the BBC played a part over the years in Brexit, not only the Sun, the Mail and the Express. Pro EUer Britons (aka Remainers during the campaign) relied over the years on the European Commission offices in the UK as well as the other institutions to speak out for Europe. The same happens in most if not all other member states.

So is there a way forward that will not cause rejection of the new Treaty by national parliaments or electorates?

In his recent FT article, French PM M. Valls argues inter alia for convergence of tax rates and says it could go forward with just the members that agree. Some media have speculated that a two tier may be in the making, with Euro, Schengen and other common features such an a common tax system (or elements thereof) leaving the non Euro, the Visigrad 4, Greece and may others, eg Ireland in case it does not want to give up its low taxation of companies, in tier 2.

Indeed, that an option. But it will increase the intra-institutional problems of managing two EUs with the same decision bodies.

Hard Reform (as in Hard Brexit):

A much more radical option, albeit remote, exists. To make a new Treaty "take it or leave it", ie states that reject it to have to move into the EEA out of the EU. Sounds too radical, but with 27 members instead of 12 or 15, the EU could afford to make such moves. After all, its main competitor, the US, has a population of 320 mio where the EU27 is at 443 mio. Thus the EU could afford to lose another 123 mio in addition to the UK 65 mio and still be competitive against the US and a strong force in global trade especially if the states that leave (and go to the EEA ie still in the Single Market) have a low GDP/capita. The UK's exit has made this "nuclear" option a bit more feasible, albeit still remote. But that is one solution to the Gordian Knot that the EU has become. And Germany and France may be tempted to pursue such an option if negotiations about the EU's future become too unreasonable, keep that thought in mind.

What is more clear is that the EU has not used it weight as much as it should have. It allowed propaganda to claim it is undemocratic when the exact opposite may be the case. Thus we have come to the absurdity of talking about a union of "sovereign" states. That is hogwash. You have sovereignty if you are in the WTO trade system but when you have a Single Market and want to create a Single Economy that is lip service. What you do need to give the citizens of the members states is say in the policy making but at the end of day, as was the case in the UK ref, 50.1% is the rule (unless there are constitutional rights at stake). There are 81 mio Germans in the EU and every one of them has the same political rights as an individual Luxembourgeois or an Irish or Greek or Hungarian or Maltese.  If 40% of Hungarians (but 98% of those who bothered to vote) do not want non EU people in their midst, then they do not have to be in the EU. Or, to use an even more recent example, if the Polish government wants to do away with the constitution, then the rest of the EU does not have to take it (see article 7 of the Treaty). These may sound harsh, but as Boris Johnson has been told one cannot have the cake and eat it too.

The logic is not ideological but practical. The EU needs a single economy in order to have growth and jobs, a real Single Market and that means a common trade policy, less national and EU red tape, common labour standards and EU labour law, a common minimum wage, a common tax system and many other common features, including a common refugee and immigration policy. Social dumping can take place outside the EU. You cannot employ people in Germany and pay them Greek or Romanian wages, you should be able to pay them lower if they accept it, but at or above minimum wage and collective bargaining agreements, EU ones. Then maybe the Germans, the Dutch and the Finns will accept to have a real federal budget (US style) and fund real and effective regional policy in less developed regions. But forget sovereignty, you cannot have sovereignty and expect the Dutch and the Germans to pay for your roads, your airports, your bridges etc. in a union of sovereign countries.  Greece has found that out the very hard way since 2009. You think the experiment was a random one?

If 50.1% of the EU population wants fiscal discipline, aka austerity, that's the policy. V. Schauble has to defend the economic interest of his national voters, not the Greeks' or the Portuguese. If he was Min Fin of Europe, then his scope would be the EU taxpayer and voter, even better if there is an EU tax system as in the US.

Sovereignty is one thing, national identity and national interest are another. A real US of Europe would remove the former (sovereignty) but not the latter.

This Hard EU Reform scenario will most likely not happen, but use it as a reference one in your thoughts about EU Reform.

More "Soft EU Reform" ideas in a post tomorrow.

Friday, October 28, 2016

United Republic of Ireland and Scotland

Today, in an online discussion re how well EU nationals feel in Scotland, I was informed by British friends that Scotland is technically a country.

If it is country, then it should get out of England's grip and turn into the most attractive member of the EU. The EU needs an enthusiastic European member that speaks EN. If Nicola plays this right, she can have commitments of relocating to Scotland by companies (industry and services) before a new indy ref takes place. 

I hope they are doing that as we speak, the opportunity is too great to be missed.
In fact, here's an idea. Scotland could become part of the Republic of Ireland and thus auto join the EU, no need for application. United Republic of Ireland and Scotland (URIS), it will be an EU and international hit.

EU Reform: Which way forward, after Wallonia?

Wallonia has given in and the EU-Canada CETA deal will be signed. But the decision of the German constitutional court that allowed the deal but said that member states (Germany) can decide to call it into question exists. So is the upcoming decision of the ECJ (European Court of Justice) as to which portions of the EU-Singapore deal are "trade", and thus can be voted on only by the EU, and which not, and thus require approval by member states' parliaments.

Wallonia claimed that its veto was driven by concern about globalisation. It was driven by its Socialist majority, which has been in power for quite a long time. The region, South Belgium in effect, has been the poor relative in Belgium's economy since the demise of mining and agriculture in the region.  While Flanders has prospered based on services and the role of  the Antwerp port in EU trade as well as light tech, Wallonia has not. Ryanair got aid to fly to Charleroi. Wallonia exports arms.

Wallonia has become a test case not only for the EU's future trade but also the future of the EU.

Some MEPs in Brussels/Strasbourg have claimed that there is no reason for member states to have a word in trade matters, even mixed. This flies in the face was a lot of people around the EU who want less Europe. They want powers returned to the member states. Eg the Visigrad 4 (Poland. Hungary, Czech Rep and Slovakia). Front National in France, the five stars (Grillo) in Italy, AfD and others in Germany, etc. Many just want no More Europe, no new Treaties.

Some EU leaders have come in favour of an EU army.

Is there way for some consensus or a majority towards one direction? The same, less or more Europe? Who wants a repeat of the Lisbon Constitutional Treaty debacle of 2005 (France and the Netherlands voted it down).  The EU has had its share of badly formulated Treaties, a result of very late night horsetrading. Nice was one of them.

The EU has come a long way. The Single Market (started 1/1/1993) was a major step forward from a mere Common Market. So was Schengen that allowed for removal of border controls. Maastricht was too (1992). It defined Economic and Monetary Union (EMU) and led to Euro a decade later (now adopted by 19 out of the 28).

But lets start from the fundamentals. The EU has and will continue to have a major setback. Lack of the common language (sur-le-terrain). There are 23 officials languages. That affects the cost of doing business as well as mobility of workers.

The 28 states of the EU (27 soon) have very distinct histories. Some used to be colonial powers. Italy and Greece used to "rule" the world, a very long time ago. There are strong national identities as well as regional ones (see eg Belgium or Spain). Can there a European identity?

Well, my theory is that in this day and age, one criterion of nationality is: Do feel that decisions (political) take account of your POV and needs?

Wallonia did not think CETA took incorporated its concerns over globalisation. Greeks complain that feta cheese was not included in the list of products with protected origin. Scots complain that they will have to leave the EU while they voted to remain. In many countries it is felt that decisions made in the capital do not take account of their needs. In the US Trump got a boost arguing his was anti-DC establishment. Yet in the US, everyone considers themselves American.

It would be easier to unite Europe if there was a common enemy. In the past, competition with the US did some of that.

When interest rate decisions are made in the ECB in Frankfurt, do they take into account the needs of all the Eurozone or mainly its larger economies? In Germany, the lander are represented in the Senate (Upper House). In the EU the regions have their own body, the Committee of the Regions, but is that the key to their representation?

Some have said that Europe would be easier to manage if states were roughly of the same size. One cannot of course expect Germany France and Spain to be separated into regions to move the EU forward.

So is there a way forward? One that will engage most of 450+ mio citizens (EU28 minus the UK)?

Well, people from all over the EU are represented in the European Parliament. Some countries elect their MEPs on a national ballot some regionally. That means that some areas do not have their own rep in the European Parliament. But even if the did, could one person in 800 make a difference?

Some ideas will be posted in Part II tomorrow.

Roundup: Which way forward?

Wallonia has given in and the EU-Canada CETA deal will be signed. But the decision of the German constitutional court that allowed the deal but said that member states (Germany) can decide to call it into question exists. So is the upcoming decision of the ECJ (European Court of Justice) as to which portions of the EU-Singapore deal are "trade", and thus can be voted on only by the EU, and which not, and thus require approved by member states' parliaments. A separate post re trade will be posted.

In the US, Clinton seems headed for a win. The issue is what happens with the Senate and the Congress. Hillary was expected, like Obama, to have to deal with GOP majorities in the both houses, but the Donald effect could change that.

In Greece, the Tsipras left of center government was dealt a blow when the county's highest court ruled that the license granting law for national TV stations was unconstitutional.

The Russian fleet was not fueled by Spain, in the end. The Spanish government's action would have been a breach of EU strategy that Spain had agreed to. The cancellation came from the Russian side. Spain has a transitional government headed by Rajoy, a conservative, following two election deadlocks. It has 19.5% unemployment, second only to Greece (23%) in the EU.

Nissan has agreed to produce two lines of cars in the Sunderland plant. PM May hailed that decision as a sign that post Brexit Britain is Open for Business. News reports claim the company has received Brexit Refief assurances in case its made in the UK cars face tariffs in the EU27.

Zac Goldsmith's decision to quit his Richmond seat as a Tory in protest of a Heathrow expansion decision by his own government and re-run as an independent has prompted a Brexit battle for the new seat. 72% of local voters voted for Remain in June and the Liberal Democrats have tried to make the by-election a Brexit poll. And while they were calls inside Labour not to field a candidate in order to support a LibDem pro Remain candidate, the main candidate for the LibDem nomination (takes place this weekend) said that the Leave decision of June must be respected! Messy indeed.

The Guardian has revealed the content of a Theresa May speech in May at Goldman Sachs in which she mentions grave concerns re the economic effects of a Brexit. The PM's office replied that this was then, now May will implement the will of the people. She has also accused the opposition leader of frustrating this will. Note that according to Brexit ref exit polls, 33% of those who voted for Leave did so to curb migration. That means that around 17-18% of voters actually want freedom of movement between the UK and the EU curtailed. So, why is May making end of free movement the cornerstone of her Brexit policy. No one has explained that.

Feel free to send comments to May be added.

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