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News & Insights on Europe

News and Views on Europe – 22 Sep 2017

posted by eucentresg

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Countdown to German general election – Merkel poised to continue her 12-year tenure
Compared with Trump’s victory, the Brexit vote or Marine Le Pen’s presidential bid, the German election campaign for Sunday’s (24 Sep) general election has been rather subdue and quiet. The latest polls suggest that Angela Merkel’s center-right Christian Democratic Union (CDU) leads with around 36% of the vote, well ahead of the Social Democrats (SPD) who are expected to take around 23% of the votes. This makes it very likely that Merkel will govern a fourth term as Chancellor. However, it is still unclear which coalition will emerge from Sunday’s election. The biggest shock would be when the far-right Alternative for Germany (AfD) gain enough votes to enter the Bundestag – it would then be the first far-right party since WWII to do so.

According to polls the AfD will get around 10% of the votes, possibly making it the third largest party in Parliament. The better they do, the less likely a two-party coalition between the CDU and either the Free Democrats (FDP) or the Greens becomes. However, it is common practice among German party leaders to avoid talking about potential future coalitions. Nevertheless, all parties have ruled out a collaboration with the AfD.

The election campaign has been labelled by some as being boring, since Merkel’s victory seems certain. During the campaign issues around migration were central since Germany, namely Merkel, played a crucial role during the refugee crisis in 2015. However, it is more interesting which issues were not on the agenda. While Merkel has signalled her general support for the suggested reform agenda by the French President Emmanuel Macron, she stayed rather quiet on the matter during a meeting with French Prime Minister Edouard Philippe in Berlin last Friday (15 September). During a joint press conference she confirmed that Germany “will cooperate very closely with France – no matter what the future German government will look like”. At the same time she insisted that keywords like the eurozone budget must be “fleshed out”. Instead of focusing on the eurozone reforms, Merkel spoke about other challenges for the EU, such as digitisation, industrialisation, trade relations with third countries, strengthening of European competitiveness. The reasons behind Merkel’s move are quite clear: additional billion-euro payments to the EU would not be welcome by her party and their voters and there is of course the uncertainty over her coalition partner(s). While the SPD and Greens are in favour of Macron’s plan, the FDP has been more critical. Christian Linder, FDP chairman, stated that “The FDP will not accept a money-pipeline from Germany to the other euro-countries.”

 

Tensions continued to escalate between Madrid and Barcelona over referendum
Despite last week’s protests in Barcelona in support of the referendum, the Spanish government has toughened its stance to stop the referendum from going ahead. On Wednesday (20 September) Spanish gendarmes have arrested 14 people, most of them Catalan senior officials, and seized ballots for a Catalan independence referendum on 1 October. Websites have been shut down and newspapers raided, and the Spanish finance ministry has also launched a crackdown on the Catalan government’s finances.

All this is happening because the central government of Prime Minister (PM) Mariano Rajoy argues that the the referendum is illegal and unconstitutional. Speaking in Parliament the same day, Rajoy defended his actions and said that Catalonia has defied a constitutional court order not to hold the independence referendum. In a televised speech he said: “Don’t go ahead. Go back to the law and democracy. This referendum is a chimera.” There have also been talks between Rajoy’s centre-right Popular Party and the centre-left Socialist Party to invoke Article 155 of the Constitution, which would suspend Catalonia’s self-rule.

Catalan leader, Carles Puigdemont, condemned Madrid’s actions as a “a co-ordinated police assault and aggression” that showed Madrid “has de facto suspended self-government and applied a de facto state of emergency” in Catalonia.

Brussels has stayed rather quiet on the matter. Last week, European Commission President Jean-Claude Juncker said that Catalonia should comply with the constitutional ruling. The Commission’s Vice-President Valdis Dombrovskis declined to comment on Wednesday’s events.

 

Boris Johnson’s Brexit visions draw wide-spread criticism
In a 4000-plus-word article for The Telegraph, the UK’s Foreign Secretary Boris Johnson set out his wide-ranging vision for post-Brexit Britain. Notably, Johnson envisaged a Britain with low tax and regulation after it leaves the EU while making no reference to the transition period many people call for after March 2019. One particular controversy arising from the article is that Johnson pledged to redirect 350 million pounds that is allegedly sent to Brussels per week to National Health Service – the figure was firmly discredited and even arch-Brexiteers such as Nigel Farage disassociated themselves from it. He also rebuffed critics and sceptics by reaffirming that the UK has the “the stamina, the guts, the persistence to pull it off”.

Johnson’s treatise on Brexit drew quick and wide-spread criticisms, from both inside and outside the Tories. His Cabinet colleague Amber Rudd, Home Secretary, accused Johnson of “backseat driving” on Brexit, saying “I don’t want him managing the Brexit process”. “[He is] the life and soul of the party, but not a man you’d want to drive you home at the end of the evening,” Rudd added. More starkly, former Conservative Chancellor Ken Clarke accused Johnson of exploiting a weak prime minister and “self-publicising” in an attempt to appease readers of the Eurosceptic newspaper (i.e. The Telegraph) who may vote in a potential leadership election. Vince Cable, leader of the Liberal Democrats, agreed while also criticising the foreign secretary for being “volatile” with “Trump-like characteristics.”

Johnson made public his vision for Brexit just days before Prime Minister Theresa May’s (first) trip to Canada (followed by two days at the UN General Assembly in New York). Facing repeated questions from journalists about the unity of her cabinet and her authority, May responded seemingly frustratingly that “Boris is Boris”. In Ottawa, Canada agreed on Monday (18 Sep) to use its new free trade agreement with the EU, the Comprehensive Economic and Trade Agreement (CETA), as a template for a pact with Britain post-Brexit. A working group is to be set up to look at the details, but the timeline for the actual trade negotiations remains up in the air. This is largely because Canadian Prime Minister Justin Trudeau cautioned that Canada would respect EU rules against direct negotiations with individual EU member states, as long as Britain remains in the EU. (For an analysis of four takeaways from May’s trip to Canada, click here.)

The next round of Brexit negotiations is set to start on 25 September after being postponed by a week. In an interview with the Independent, Antonio Tajani, President of the European Union, said it is up to British negotiators to make concrete Brexit proposals, “not the other way around,” and that London needs to be clear on what relationship it wants with the EU. Indeed, May will deliver a speech outlining her Brexit policies on Friday in Florence. While Johnson wrote that the UK should pay nothing to the EU for access to the single market, he has backed off from a showdown with the Prime Minister, who he said is the only person “driving” (in response to the “backseat driving” accusation by Amber Rudd). May was reportedly preparing “€20bn EU budget offer to break Brexit deadlock.” According to Financial Times, €20 billion “would allow the EU to avoid reopening its long-term budget plan prematurely, and would cover unpaid projects Britain signed off before its 2019 exit. It would not, however, cover long-term liabilities or spending promises made during the transition period.”

Brexit, which will deprive the EU of its main financial centre in London, (and the decade-long financial crisis) have forced 27 other EU countries to strengthen cooperation in financial industries. The European Commission on Wednesday (20 Sep) proposed transferring some powers to oversee the financial sector from national capitals, as part of a broader long-term plan that could lead to common supervision of the European financial sector and widely expand Brussels’ clout over foreign firms that operate in the EU. The move might sound like bad news for post-Brexit UK, but ironically, as pointed out by Politico, the City of London would emerge as a winner if enhanced EU oversight gives Brussels the comfort it needs to continue to allow firms based in London to offer services to clients in the EU.

 

EU businesses urge China to deliver on trade and access
Following European Commission President Jean-Claude Juncker’s announcement last week of a plan to screen foreign investments, the European Union Chamber of Commerce in China (EUCCC) published a new position paper on Tuesday (19 Sep) urging Chinese leadership to honour its public commitments to free trade and globalisation.

One thorny issue concerns reciprocal access to China’s market for trade and investment for European business. For example, in pharmaceuticals industries, Chinese rules force European firms to partner with local firms and often to share crucial technology, whereas Chinese companies in Europe have no such restrictions. And according to EUCCC president Mats Harborn (who judged China’s investment climate to be “too complex, unpredictable and opaque to attract foreign capital”), Chinese investments in Europe rose by 77% last year while EU investments in China fell by a quarter over the same period.

The chamber’s report also states that 54% of European companies perceive that they are being treated less favourably in comparison with their Chinese counterparts. (Yet, if greater market access were granted, 56% of them would be more likely to increase their investments.)

Chinese foreign ministry spokesman Lu Kang responded at a regular press briefing on Tuesday (19 Sep), saying that “China firmly supports an open world economy and improves its business environment.” Lu also urged the EU to respect WTO principles, especially non-discriminatory principles, in any investment screening measures it wants to adopt. The EU must “avoid putting out wrong, confusing and negative information to the outside world,” he added.

Not only China, but also some EU member states have expressed concern over the push to curb foreign, especially Chinese, takeovers. Speaking to the Financial Times, Kai Mykkänen, Finland’s minister for foreign trade and development, said the European Commission plan seeks to appease France and Germany at the risk of provoking China, India and the US, adding that it will increase the likelihood of trade wars with those major economies.

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