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News & Insights on Europe

News and Views on Europe – 8 Feb 2019

posted by eucentresg


Angela Merkel Visits Japan
German Chancellor Angela Merkel fifth visit to Japan came three days after the new free trade deal between Japan and the European Union came into force on 1 February. The new pact removes nearly all tariffs between the two economic zones that accounts for 28 percent of the world’s gross domestic product. With Japan and Germany as the third and fourth largest economies in the world respectively, Merkel hailed the free trade agreement as “an important message to the world” during her two-day trip to forge an “alliance of multilateralists.”

Merkel was received with full military honours by Japanese Prime Minister Shinzo Abe and held talks with him at his official residence. Merkel’s visit to Tokyo “sends a strong message on promotion of free trade and strengthening of the Japan-Germany economic relationship,” Abe said, adding that it was “time to raise the Japan-Germany relationship to a higher level, toward a rule-based international order and prosperity of the world.”

Merkel had brought along an economic delegation comprising 10 German business leaders to her meeting with Abe. The business leaders include Mr. Ulrich Grillo, President of the Federation of German Industries, and Dr. Eric Schweitzer, President of the Association of German Chambers of Commerce and Industry. Japanese business leaders, including Mr. Sadayuki Sakakibara, Chairman of the Japan Business Federation, and Mr. Yuzaburo Mogi, former Chairman of the Japanese-German Forum, also joined the meeting.

Merkel’s visit is viewed as part of Germany’s effort to re-balance its relations between Japan and China in the wake of growing concerns over technology leaks involving China.

Additionally, with pressure from Brexit and the US trade spats and tariff impositions, Merkel’s visit was touted by pundits in Germany as a chance for two major world powers to stand up for open trade in defiance of Donald Trump’s unilateralism and protectionism. However, Japan’s military dependence on the United States may limit the scope for cooperation with Germany. For example, Japan is not expected to join the EU’s so-called special-purpose vehicle – a mechanism concocted by the EU to circumvent U.S. trade sanctions on Iran and keep the 2015 nuclear deal with Tehran alive.

Nonetheless, Abe and Merkel were in agreement over heading off a no-deal Brexit that could harm their economies as both countries prepared their economies to minimise the ramifications of the chaotic, messy exit. The two leaders pledged to further strengthen their bilateral relationship during their meeting. “The roles Japan and Germany are playing are now getting bigger and bigger as the U.K. is heading toward the exit from the EU,” Abe told Merkel at the outset of their summit meeting.

In a joint news conference, the two leaders affirmed that they would work to keep the global economy growing. “In order to do so, we need to minimize the impact on the global economy from Brexit,” Abe said. “We definitely hope (for Britain) to avoid a no-deal Brexit.”

Despite Brussel’s refusal to renegotiate the Brexit deal and the March 29 deadline looming, Merkel expressed optimism that there is still time to create a political solution, so long as there is “goodwill” and “creativity” in finding a Brexit solution, and that both parties work out “what exactly the British side envisages in terms of its relationship with the EU.”

Merkel also used the news conference as an opportunity to state Germany’s recognition of Juan Guaido as the legetimate interim leader of Venezuela, joining other EU nations in doing so.


Theresa May races to find practical solutions to Brexit impasse amidst EU’s mounting frustrations
After the British Parliamentary vote which rejected the Irish backstop, PM May was in Belfast on Tuesday (5 Feb) to assure that there will be no hard border between UK and Ireland after Brexit. May said she does not want a “U-turn” on the backstop, which would eliminate it, but rather a time limit should the provision be triggered. The Irish backstop is seen as an insurance policy to guarantee goods can cross the Irish border without any checks if the future UK-EU trading relationship is not reached by the end of the 21-month transition period.

May has the support of Northern Ireland’s DUP party to change the backstop. DUP leader Arlene Foster said that the current backstop is “toxic” to Northern Ireland. However, some of May’s own team pulled together to make alternative arrangements to the provision. Conservative MP Steve Baker expressed doubts about the current withdrawal agreement in general, citing fears that this amendment is only a “codicil” and a substantial defeat for the deal. Theresa May will head to Brussels on Thursday to find a compromise with Brussels over the impasse.

Meanwhile, Irish Prime Minister Leo Varadkar met EU’s Donald Tusk and Jean Claude Juncker in Brussels on Wednesday (6 Feb) to discuss the latest developments and thank the EU for its continued support of Ireland. Varadkar also discussed preparations for a no-deal Brexit and sought emergency aid from the EU for companies and border issues arising from a disorderly Brexit. In an outburst after the talk with Varadkar, Donald Tusk made clear his frustrations with Brexiteers who pushed for Brexit without a plan. It is a sign that Brexit talks have started to wear on the EU’s nerves but May has insisted that she will find a “pragmatic” solution in Brussels. Tusk reiterated the “not open for renegotiation” line but hoped that the British PM will bring “realistic suggestions” on the backstop that consider both EU’s and UK’s point of views and which can command a majority in the House of Commons.

According to two commentators, David Henig and Danial Moylan, the issue of the Irish border is not only about trade and politics but about people and their history. They argue that with or without a deal, the EU, Ireland and UK must address underlying concerns about identity, peace, and “fraying state of communal politics” in Northern Ireland. Importantly, Brexit needs to be “made consistent with the existing Good Friday Agreement obligations” which maintains peace in Ireland.

Angela Merkel took a more diplomatic approach, while not opening renegotiations, and hinted at a creative solution to the Irish backstop at a news conference with Japan’s Prime Minister Shinzo Abe in Tokyo on Monday (4 Feb). Merkel’s willingness to find a compromise is a first from a top EU leader and provides May with the option to discuss the backstop as part of a separate agreement on the future relationship between EU and UK. Merkel’s top priority is to avoid a no-deal Brexit, which will take a toll on Germany’s economy, and keeping EU together.

However, Parliamentary opinion on what alternative arrangements can be made remain elusive. After talks with British MPs on how to solve the impasse on Monday (4 Feb), Martin Selmayr announced that the results were yet “inconclusive”, leaving the risk of a no-Brexit to be high. Jeremy Corbyn also took a stab at the Political Declaration for Brexit, while leaving the Withdrawal Agreement untouched, and demanded five conditions to be met by Theresa May. This includes a UK-wide customs union as well as close alignment to the single market. Other conditions will subject the UK to EU rules but without being involved in making them.

As Britain continued to “fumble” over Brexit, one commentator holds the view that Brexit could have benefits for both sides involved. According to Fraser Cameron, given the widespread anti-EU sentiment in the Conservative party and their supporters, the post-Brexit independence could cause a “realignment of the very tribal party scene”. On the other hand, the EU might be able to deepen integration and move forward on items such as Eurozone, defence, and migration.

Brexit has impacted how other Europeans envisage the Union membership. Right wing parties and nationalist leaders are now less encouraged to leave the bloc and instead would like to see a different sort of Union. The recurring motif is a “Europe of nations”, which have been used by France’s Marine Le Pen as well as the right wing Sweden Democrats. In Germany, the far right AfD’s idea of a “Dexit” is envisioned as a last resort to get demands for reforms. The Left has also followed this trend; the far-left France Unbowed’s Jean-Luc Mélenchon has unequivocally rejected leaving the EU. A Eurobarometer poll in October 2018 shows that 68% of Europeans see EU membership as beneficial.


Macron considers referendum on day of European Elections; Italy’s Di Maio reaches out to yellow jackets
With the European election approaching on May 26, French President Emmanuel Macron is considering holding a referendum on the same day. This move is seen as the latest of a series of concessions to “yellow vests” demonstrators who have been protesting for over 12 weeks. Other concessions include hikes in minimum wage, tax cuts, and an ongoing “great national debate”; the referendum is a response to the demand for more direct democracy and will ask questions on issues discussed in the preceding debate. These include questions about parliamentary procedures and institution.

The political response to Macron’s move has been divisive. Leader of the conservative Les Républicains (LR) party Laurent Wauquiez, sees it as “taking a big risk” if the questions are not in line with the people’s priorities whereas leftists from Macron’s own party, La République En Marche (LREM) are worried it would take away focus from Europe but are hopeful for a higher voter turnout. Minister for European Affairs Nathalie Loiseau wants to see Europe be the topic of the referendum while others like Minister for Europe and Foreign Affairs Jean-Yves Le Drian feels that European and national issues should not be mixed. Marine Le Pen, whose far right party National Rally is seeking to win the European Elections, claimed that it was a distraction tactic from Macron who has had a rocky presidency.

Despite the President’s concessions, the “yellow vests” are themselves running in the May European Elections, albeit in a divided fashion. A third list of names from the movement were added on Friday (1 Feb) called “Rassemblement des Gilets jaunes citoyens” (Rally of the citizen yellow vests). The two other lists are “Référendum d’Initiative Citoyenne (RIC)” led by a leading figure of the movement, Ingrid Levavasseur and “Union jaune” (yellow union). While each list have different priorities and agenda, a “yellow vest” list could obtain 13% of the vote, according to a poll. In this case, the Le Pen’s National Rally will fall behind by 3 points and Mélenchon’s France Unbowed by 1.5 points as they appeal to those voting for similar reasons.

Both the French political right and left have appealed to “yellow vest” movement for votes. They were seen as posing a political threat to Macron through violent demonstrations, forcing him to make concessions. However, as it emerged, the real threat of the yellow vest movement may be Le Pen or Mélenchon as Macron’s centrist base is unmoved by their demands. Macron’s numbers will seem stronger with more “yellow vest” lists.

However, this has not stopped one of Italy’s populist politicians Luigi Di Maio from meeting with a leader of RIC, a leftist representative of the movement, on Tuesday (5 Feb) in defiance of the French President. Di Maio expressed enthusiasm over working together with the RIC and his party released a statement that showed 5 Star and “yellow vests” have “common positions and values, such as the defense of citizens, social rights, direct democracy and environment”. He also posted a picture of the meeting in Paris and heralded “the winds of change”. According to commentator and political consultant Catherine Fieschi, Di Maio is reportedly trying to make himself the left-wing populist movement alternative to Matteo Salvini right wing populism.


Alstom-Siemens rail merger blocked by Brussels
The European Union (EU) on Wednesday (6 February) blocked the planned Alstom-Siemens merger due to “serious competition concerns.” Had the merger proposal between the French and German rail companies gone through, it would have resulted in a European rail champion worth 15 billion euros.

Brussels concluded that the deal was “incompatible” with the internal market and would harm competition in markets for railway signalling systems and high-speed trains. Competition Commissioner Margrethe Vestager said in a press release that “the Commission prohibited the merger because the companies were not willing to address our serious competition concerns.”

The announcement comes a day after Jean-Claude Juncker, president of the European Commission said that the institution will “never play favourites.” Brussel’s stance came in spite of intense Franco-German campaign and political pressures rallying to compete with Chinese rival CRRC, the largest company in the sector. Paris and Berlin had lobbied forcefully, successfully convincing 19 EU countries to rally for updated antitrust laws to facilitate the emergence of European industrial giants able to face “fierce competition” from the US and China.

However, EU antitrust enforcers are vehemently against the creation of a ‘Railbus.’ They feared that the merged entity would swindle consumers in national markets due to their monopolisation of the market share, resulting in worse deals for everything from passenger fares to cargo fees. The Commissioner’s tough stance is a setback for German Chancellor Angela Merkel, who had previously griped that EU competition laws were targeting and holding Germany back from fostering more global champions to take on their Chinese and American competitors.

Vestager had been sceptical of the sentiment, believing that successful companies “will be the ones that are ready to compete under the bright lights of global competition; because they’ve been working at home in Europe to be more efficient, more innovative, better at serving their customers … So the champions Europe needs are not coddled favourites, freed from the need to compete within Europe.” Vestager also noted that the EU needs to “strike the right balance…to give businesses room to grow and compete; but we also need to be ready to step in, when they act in a way that harms competition.”

Despite their dissatisfaction with Vestager, France and Germany will not be contesting the Commission’s decision. Instead, the two countries are planning to use it as a springboard to push for a bigger agenda. “We have to look to the future and reset European competition rules,” said France’s Economy Minister Bruno Le Maire, adding that together with his German counterpart Peter Altmaier, the two countries “will make proposals to reset these rules and have a more ambitious European industrial policy.” This comes a day after Altmaier’s National Industries Strategy 2030 plan released Tuesday (5 February) to achieve such aims, as France and Germany worry over China’s industrial dominance.

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