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News & Insights on Europe

News and Views on Europe – 22 Dec 2017

posted by eucentresg

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Elections in Catalonia – Results a blow to Spain’s central government
After a tumultuous year of tensions between the Spanish central government and the regional government of Catalonia over the latter’s move to “secede” from Spain, the latest elections results look unlikely to heal the divide.

The election in Catalonia on 21 December was called by the Spanish central government invoking Article 155 of the Spanish constitution to take control over the region after separatist parties led by then Catalan president Carlos Puigdemont unilaterally declared the region independence. This declaration of independence came after a chaotic referendum vote on 1 October. The referendum was held in defiance of the Spanish government’s attempts to ban the vote and declaring it illegal. The political crisis that played out led to Spanish government taking drastic measures to dissolve the Catalan regional parliament and impose direct rule on Catalonia. Several separatist leaders were arrested and charged with sedition. Carlos Puigdemont managed to flee to Belgium. A warrant for his arrest remained.

Spanish Prime Minister Rajoy then called for fresh elections on 21 December, hoping that the ballot would “set the region on a path to normality”.

Unfortunately, Rajoy is unlikely to get his wish as early results from the elections showed that the three pro-independence parties in Catalonia have managed to retain their majority in parliament winning a combined 70 seats out of a total 135 seats. While a Unionist party, Citizen (Ciudadanos), won the highest number of seats, the 36 seats it won were not enough to form a majority government with other parties in favour of remaining a part of Spain.

Catalonia remains deeply fractured as the results showed that the pro-independence parties captured 47.6% of popular vote while the unionist parties increased their share from 39.1% in the last election in 2015 to 43.4%. Turnout for the elections was also at a historic high of over 80%.

Beyond the fact that the Catalan society will remain deeply divided, it is unclear what would happen next. 100 parliamentarians from across Europe have urged Spain to accept the result and engage in dialogue with the new Catalan government.

 

EU triggers disciplinary actions against Poland for its rule of law breach
The European Commission on Wednesday (20 Dec) took the unprecedented step of triggering Article 7 — the so-called nuclear option — against Poland, due to “a risk of serious breach of the rule of law” in the Eastern European country. While the procedure itself was triggered by the Polish parliament’s recent decision to back government proposals to give politicians significantly more sway over judge appointments, it is in fact the culmination of the Commission’s two-year investigation, starting in January 2016, into possible violations of the rule of law in Poland. The EU investigation came shortly after the populist Law & Justice Party – which won the 2015 elections – refused to appoint legally elected justices to the Constitutional Tribunal and blocked publication of its rulings. In the intervening period before Article 7 was formally triggered, the EU used to offer recommended remedial measures, but Poland’s government dismissed them as interference in its domestic affairs.

Poland will now have three months to adopt the Commission’s recommendations, including to amend or withdraw most of the controversial reforms of the judiciary, and to “refrain from actions and public statements which could further undermine the legitimacy of the judiciary.” If Poland refuses to do so, its voting rights in the EU could be suspended eventually and its access to EU funds in the post-2020 budget could be limited.

Despite the political as well as financial risk, it is unlikely that Poland will back down. President Andrzej Duda signed two controversial laws – which led to Wednesday’s decision by the Commission – to carry through the proposed changes to the legal system. Poland’s move is apparently a calculated one, noting that the final decision to conclude Article 7 procedures that entails harsh penalties has to be made by consensus. Poland’s main “ally” in the EU, Hungary – which itself is on a similarly illiberal course – has already said it will veto the procedure. Other countries such as the Czech Republic, Slovakia, which are part of the Visegrad Group, and Romania make concrete sanctions unlikely as well.

However, Poland does not want to escalate the standoff with the EU further, for three main reasons. The first is that the EU’s action was strongly backed by the European Parliament which voted in favour of the activation of Article 7 (and asked for putting Hungary’s EU funds under surveillance). Second, worries over the court system and being tarred as a country violating the EU’s legal standards would deter investors. Although Poland is experiencing strong economic growth — GDP is expected to expand by 4.2 percent this year and 3.8 percent in 2018 — investment is lagging. Investment growth is only 3.3 percent this year — significantly worse than the 5 percent expected by many economists.

The third, and perhaps a more fundamental, reason is that the decision is more emblematic of ever-growing tensions between Western and Eastern Europe over democracy and the rule of law. In the past years, Eastern European countries have been criticised by Western European countries for undermining democratic principles, and/or for doing too little to combat corruption and uphold judicial independence. The east-west tensions have implications on the EU’s 2021-2027 budget. Easterners are the main recipients of regional funds distributed under the 2014-2020 budget. (Poland is the largest overall beneficiary of EU cash — set to receive about €100 billion in structural, agricultural and other funds during the current seven-year budget ending in 2020.) Germany and like-minded countries contend that the next budget should tie disbursements to observance of core EU values and norms.

 

Post-Brexit trade deal excludes financial services
In a drastic announcement, the EU’s chief Brexit negotiator Michel Barnier said the EU will not do a post-Brexit trade with the UK that includes financial service. It means that, after Brexit, financial firms based in the UK will lose their “passporting” abilities that allow them to sell services across the single market. His remarks will surely disappoint Theresa May and her Brexit secretary David Davis who are pushing for a bespoke “Canada plus plus plus” comprehensive trade deal including all services with the EU27. Paradoxically, the decision was welcomed by lobbyists for The City of London. The lobbyists – who are frustrated by the government’s ambivalent attitudes towards the status of financial services post-Brexit – expected Barnier’s hard-line intervention to force the UK government to make clear its position in relation to financial services in Phase 2 of Brexit negotiations.

In another major announcement made after the Commission put forward the draft negotiating mandate which set out how the transition will be negotiated, Barnier indicated that the EU wants a post-Brexit transition period to end on 31 December, 2020. This is because the current multi-annual financial framework (i.e. the EU’s seven-year budget cycle) ends on that date. In order for that to happen, the framework of the future relationship between the UK and the EU must be known by October 2018, to give time for ratification by relevant parliaments. While he also mentioned that the UK would have to fulfill all obligations and lose all voting rights in the bloc, Barnier did not comment on what would happen at that point if the UK is not ready to end the transition at the end of 2020.

In the face of uncertainties regarding the length of the transition period and to avoid another defeat like the one the UK government experienced last week when MPs voted in favour of a key amendment that will allow parliament to have a say on a final divorce deal, it is likely that Ms May may not put fixed leaving date in final exit bill, allowing for flexibility on the exact date when the UK leaves the EU.

What constituted a latest diplomatic concern for Ms May was talk of Spain trying to drag Gibraltar into discussions on a transition period after Brexit. It was feared that Spain may veto a potential Brexit deal not in line with Madrid’s views on the status of Gibraltar after the UK’s departure. Spain has rights to do so because it had managed to convince other members that whatever future agreement between the UK and the EU to be applied to Gibraltar must be agreeable to Spain.

But irrespective of the length of the transition, the UK is leaving the EU. Optimists see Brexit as a historic opportunity to address the mounting inequality and to induce other positive social changes in the UK. After all, the Brexit vote was widely regarded as a protest vote and a wake-up call to both politicians and the London elite that many in Britain felt left behind by the country’s economic growth in recent decades. National levels of inequality currently make Britain one of the most unequal of all developed countries, according to LIS Cross-National Data Centre, a non-profit organisation.

However, there are few signs suggesting that the opportunity could indeed be grasped. An inconvenient fact is that some of the British regions that voted Leave also have the highest dependency on trade with the EU. Brexit could be particularly damaging to the northeast and Yorkshire and Humber, who rely on the EU for 62 per cent and 55 per cent of their region’s exports, respectively. Wales, which exports a total of 67 percent of its goods to the EU, also voted Leave. (By contrast, some of the regions that voted most overwhelmingly to remain, like Scotland and the London area, have more diversified export portfolios, meaning their post-Brexit trading prospects could be less damaged by any new barriers.) Therefore, any new trade barriers erected post-Brexit between the UK and the EU may exacerbate – and not alleviate – the UK’s existing social and economic inequality.

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