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Wednesday, August 14, 2013

Boom! Merkel opens up for the return of powers from Brussels

Well, here’s an essential development for those of us who think reform in the EU – including “less Europe” - is fully possible. 

Speaking on an interview to Deutschlandfunk radio and Phoenix TV yesterday, German Chancellor Angela Merkel said decentralisation of powers from Brussels should be discussed once the German election is out of the way. Merkel said:
“I believe that in Europe at the moment we have to take care to coordinate our competitiveness more closely, and for that we don’t have to do everything in Brussels.
‘More Europe’ can not only mean transferring competences from national states to Europe, but you can also have ‘more Europe’ by coordinating national political actions more intensively and rigorously with others. So we discuss if we need even more competences for Europe.
However, we can also consider whether we can give something back. The Dutch are currently discussing this. And we will also have this discussion after the Bundestag elections. Or we can give more competences to the Commission in order to set agreements on specific issues with national states.”
We shouldn't get overly excited – it’s only one statement – but this is the first time, to our knowledge, that Merkel has explicitly opened for the return of powers from Brussels.  This will clearly be welcomed in Whitehall.

Merkel’s comments come at an interesting time. Just this morning it emerged that the eurozone has finally emerged from recession. Is this when Merkel turns away from an inward ‘crisis containment’ policy, towards a reform agenda? This agenda would be  designed, in part, to keep the UK inside the tent (which Berlin wants for a number of reasons), and in part, to kick-start desperately needed reform for the EU to become more competitive.

What's often lost on observers of this scene is that the two go together. As people in Berlin will tell you, Merkel is convinced that Cameron is one of the few EU leaders who understands the ‘global race’. He is seen an ally in ending Europe’s dependence on cheap cash (which is why the UK government simply has to stop lecturing the Germans on the need for turning the eurozone into a debt union).

As we've argued before,  the eurozone is unlikely to take the quantum leap towards more integration, after the German elections (as some still think).  However, a window of opportunity will open up for the UK and other reform-minded governments to come up some credible and concrete proposals for change. Berlin will no doubt be listening.

Also, the October European Council is likely to be a rare occasion when EU leaders won't focus all their energy on solving the eurozone crisis – instead they can now turn to wider question of how to make the EU as a whole to work for growth and competitiveness.

Cameron has a massive opportunity here.

To temper stuff a bit. Merkel hasn't turned into a Tory MP - she chooses her words on Europe carefully. Also, the comments did not make a splash in the German press at all. None of the major newspapers reported them – they were all rather more concerned about the on-going NSA scandal, and Merkel comments on that instead.

However, it would be a typical ‘Merkel coup’ to slowly, step-by-step, start rolling out a reform agenda in the EU, which – in a German way, wrapped in pro-EU rhetoric – would also involve less Europe.

This is getting interesting. 


Rik said...

It is more than mainly competition and keeping the UK aboard.
Merkel as no other understands that the platform for the EU is eroding and eroding fast. She hardly ever misses political sentiment. And as far as the EU and the EZ goes voter sentiment is a very important part of that. It simply is top of the agenda long term playing stuff.
Her history shows she is very careful with public sentiment that might influence elections.

Looking only at Germany (but it is the whole of Europe) clearly the trend is EU/EZ negative and looks pretty structural. Not only would this make further integration very difficult. But also might even make it completely impossible without shooting yourself as main stream politician in both feet. Could easily work into the opposite direction at one point. Simply mght give her no room to do anything.

As I see it she is combining the three: UK membership, competitiveness and public platform. With the latter definitely not the most important one.

Which makes also a complete reversal of her policies imho not very likely.
She underestimated the political room for reform in the South, but she will if possible not let the thing fall apart. However that is partly not her call.
On the other hand she will not put AfD or a better alternative put itself on the map like Dave and Co did with Ukip and as has happened in most other countries.
And anyway an aging Germany with likley a structural growth potential of say 2.0% max (and costs especially healthcare rapidly rising) is not really able to support structurally the Southern Bust Belt. And that is consensus in Germany. Difficult to if not pressed to by other circumstances she will accept that. She will not tank her party.
Or go for a lost cause (if several other countries go effectively the exit route).

She also however has a history of trying things out. This imho is likely such a thing. She did lately with the NSA. Defended it basically but more or less directly saw that it was not goiing to work and went back to a more traditional German line on it.
Like she will drop eg Draghi if it would be required for German political reasons. Simply the way she operates and she gets away with it.

But here it is hard to see that reforms and power back would do her politically much harm at home. It most likely will be pretty popular. And even worse for the further integration crowd it will not do her much harm with the pro-EUs and a lot of good with the anti-EUs.
Only issue will be high enough on the political agenda.

jon livesey said...

At the risk of sounding like a broken record, here is more evidence of the trend towards a new settlement in which the UK gets a renegotiated relationship with the EU and stays in the EU, and the EU saves face. Sorry, but I could not resist.

More seriously, yes of course Merkel isn't becoming a Tory MP, but she is showing that she understands the big picture, which is the EU's declining share of World Trade and World GDP.

To some extent, globalization has sealed Europe's fate. Europe can't compete with a billion Chinese workers will to work for a Dollar a day.

But within an overall fate that is unavoidable, you can navigate towards better or worse outcomes.

The worst thing Merkel could do for Europe is to persist in defending Europe's traditional strengths in low and mid-tech manufacturing. The writing is on the wall for that stuff as clearly as it was for the UK's coal, steel and ship-building in the Seventies.

What is called for is a period of creative destruction, such as the one sparked off by Maggie, in which Europe prepares to compete with emerging economies in the only way it can - with more and higher tech.

But Governments can't do this, and Brussels least of all. The only way is to delegate decisions to entrepreneurs, help them get funding, and then make sure you don't regulate them into the ground.

Eventually Brussels will realise that its role in life is to take care of the weak and unskilled, while the aggressive and successful create the welath.

Rik said...

Face it Europe's South has simply missed the train.
Nowadays you can get better quality workforce in the China's of this world and much cheaper.
Being the market advantage is gone as well.
The only question is can the North get its house in order before China and Co starts to compete with them. Their workforce is rapidly catching up also there. Effectively places like Shanghai already are better equipped for many sectors. Average education level already id highher than in most of Noprthern Europe. Just waiting for companies to grow to Western size. Few questionmarks on creativity but Chinese has seen that go wrong in other places if necessary they will simply buy.
The only open question is what will be their wages level when they are there. Looks like it will be considerably lower than Europe's tbh at this moment.

Might be harsh but the South is a goner and something to stay away from as far as possible. It will be hard enough to survive the competittiveness battle that is to come even without a Southern drag. In that respect the UK has the advantage that it is not in the EZ. Which will be a huge drag for countries like the Benelux and imho in the longer run also Germany.

Rollo said...

A bit pissed off having our industry being chucked in the bin. We export bridges and aircraft hangars world wide, including through China to Mongolia. Should we sack all the blokes and close down? Or just continue to be competitive with the real world?

Rik said...

UKs industry overall is simply not really competitive. And as such an attention point for any government.
In deep crisis like this one it appears that industry is simply more stabe, less volatile than services. Next to that spreading risks is not bad.
The UK is however great in certain sectors, but not in enough sectors to be overall properly competitive.

Next to that overall (services and industry) it is also not competitive enough imho. Whatever some macro economists might say the safest position is having a surplus. Look at the EZ the countries in danger and the ones that could join them (France in particular) all have deficits and structural ones.

You are doing your job in this respect, but too many others fail.

Denis Cooper said...

The Daily Mail today:


"Germany to start talks on clawing back powers from Brussels within weeks in major boost for Cameron."

But note this about clandestine contacts with the so-called Fresh Start group of Tory MPs:

"Mrs Merkel has opened a secret back channel to Tory MPs who are working with the Foreign Office to draw up a list of demands for the renegotiation.

She sent an envoy from her Christian Democrat party to talk to members of the 100-strong Fresh Start group of MPs – and he promised to support the UK as long as their proposals do not involve changing EU treaties."

So, what kind of meaningful "renegotiation of our terms of EU membership" with "repatriation of powers" could involve no changes to the EU treaties?

Answer -the same kind of "renegotiation", extracting "a new deal for Britain", that Wilson performed before the 1975 referendum.

clinihyp said...

Any belief that Frau Merkel's opaque and meaningless comments are in anyway a commitment to repatriation of the sovereign powers willingly surrendered by our venal and self serving politicians, or even any significant renegotiation of them,has to be regarded as a triumph of delusion and wishful thinking, over common sense, together with willfully ignoring the inflexible 'Acquis communautaire'!

jon livesey said...

Well, the usual nonsense about the UK's industry not being competitive. The World Economic Forum publish an annual ranking of nations by World competitiveness, and in 2012/3 the UK came in 8th place, just above Hong King and just below the US. Germany was in 6th place and France in 21st.

And besides the facts, there is the common sense question of how the UK could export so much if it wasn't competitive. Last month the UK exported L43bn, which is about E53bn, while France managed E36bn, Italy was at E33bn and Spain was at E20bn. You can see why we are building new ports in the UK.

Of course, as everyone in Europe can tell you, the UK has a trade deficit, but that's not due to a lack of exports. It's due to very high wages sucking in a lot of imports. Our wages are much higher than with in the EU.

The pattern of UK trade is also very instructive. We run a very high trade deficit with Europe and a very high trade surplus with the US, which actually makes perfect sense, since the European economies have been stalled for six quarters - not a good start if you are exporting to them - while the US has been growing quite strongly for the same length of time.

People often quote trade surplus and deficit over a short period of time, just as it suits their argument, but the real long-term measure of how a country is doing is net overall international investment position. Since that shows the very long-term accumulation of assets and liabilities.

In the case of overseas assets and liabilities, he UK has a small net surplus, with accumulated overseas assets of L10,882bn, which is a huge number, equal to 708% of UK GDP.

Since the financial crisis began, everyone has become his own "expert" on economics, but unfortunately people tend to latch onto headline sound-bites, and they don't dig in to find out what the long term says.

It happens to be a fact that European are licking their wounds and comforting themselves with pretty silly statements about the UK, as if that makes the euro crisis any better.

Please don't waste your time worrying about the UK. The UK is continuing along the path that began in 1979, getting out of unprofitable low-tech manufacturing, getting into high-tech manufacturing and services, and reducing its trade with the EU while trade with the rest of the World increases at double-digit annual rates.

And that's the real story behind our changing relationship with the EU. We just don't need it as much as we used to.

Rollo said...

Just google aircraft hangars or steel bridges. see how easy it is for the UK to compete; except of course for the growing threat of EU regulation

Rik said...

These competitive lists are complete crap imho. In the top are countries that barely can get out of recession and still need huge deficits for that. And before had 2% structural growth at best.
Imho they only show relative competitiveness compared to peers imho. The UK compared to France, Sweden, Germany etc. For the rest they are simply rubbish. Just ask yourself why is business leaving top 10 countries and in a nett way.
Simply donot have your criteria right (or how you weight them).

Imho the only real test is the proof of the pudding one. What is happening in the real world and in money terms and in a more longer term structural way. And in that world the UK simply isnot doing very well.

They have of course their 'Rollo' sectors but overall (and at the end of the day that is what counts) manufacturing is a big negative.
Services are a big positive.
But again overall it is negative.

There is clearly potential for improvement but that is potential. If potential was the determining factor Italy eg would do pretty well they have great designed products and great potential brands. Only they are since human memory crap at selling them worldwide and transforming the potential into the green stuff.
There is potential and potential. Imho the main thing is if enough companies have the products to sell internationally and the will and determination to make that a success.
As said Italy simply doesnot have that and it is hard to see they will get it in the near future. They will need a lot of Rollos to make that happen. Iso that they have Berlusconis and red tape loving burocrats.

The UK is a mixed picture imho have to see how that plays out. A good indication is having a look at products and markets for them and as important do they put their teeth in it. My idea is that overall as said the judge is still out on that as far as the UK is concerned.

It also depends on the competition you face. Fair to say that most countries are crap but usually there are a lot very capable companies around and you compete mainly with those.

clinihyp said...

Britain ran a large current account deficit (over £52bn)with the EU27 in 2010, but a healthy surplus with non-EU countries (nearly £16bn. Our trade deficit with the EU, has continued to increase ever since!

In June last,the deficit increased alarmingly from £4.6 billion to £5.4 billion! If it had not been for the burden our membership of the EU imposes on all of us our trade surplus would have been the lowest for many  years!

The EU accounts for half of our trading, however given the ever increasing losses and costs  that trade incurs and has been growing since 2010 when our trade deficit with the EU in amount to a colossal £52 billion, one does not have to be a mathematician or economist to realise that we're throwing money out the window!  How is it possible for recovery to develop and grow when we continue trading at a loss?

Despite this one sided situation, incredible as it may seem, 100 per cent of our economy is subject to the incredibly complex EU regulatory burdens and costs, but less than 15% of GDP relates to trade with the EU!

I don't know who is responsible for negotiating such a stupid, one sided arrangement, or what their motivation was. The one thing I am clear about is the old chestnut that so beloved of politicians and certain businessmen and quango heads, that it is in our national interests to remain in the EU is inexplicable

Rollo said...

Our trade deficit with the EU is £4 billion per month, 50 billion per year. This is due to EU protectionism, coupled with our free trade instincts. Get out and trade with the rest of the world! Forget the sinking ship of Europe

Anonymous said...

Well Germany is out of recession France and portugal are finally looking like it but as the whole of the eurozone is only 0.3 % growth it is only these three that make it positive the other eurozone members are still in negative growth but don't let the facts get in the way of the report.

IDRIS said...

It's started then, as Denis Cooper refers to - the PR spin to try to fool us intio believing that we can have a new and better relationship with the EU - just as Wilson and Co lied about in the 1970's to keep us in.

Mark my words - there will not be 10% of the meaningful change necessary, especially if there will be no Treaty changes. It's 1975 all over again, but this time it won't work, because far too many people know the truth about the EU.

Including, in case no one had noticed, that the EU now has the legal right to seize bank deposits at will. How long before they bring in the exchange controls that will be needed to prevent capital flight?

Gosporttory said...

Agree fully with Denis Cooper,Rollo,clinihyp and IDRIS comments above. It does indeed sound like the Harold Wilson con all over again. We will have to work hard to try and educate the masses of the big con coming there way again i.e. if we can believe Cameron again to give us a referendum after the previous lie.

It is apparent that both the socialist and liberal socialist parties are scared to let the people decide on whether we should have a vote on whether to continue to subsidise the ever corrupt, profligate, undemocratic EU Gravy Train.

I am afraid that we can now only trust UKIP to help to get us out of this EU nightmare, and allow us to control our borders, save huge sums of money, and allow businessesto expand free of all the Gravy Train nugatory regulations, constraints, etc.

jon livesey said...

It's marginally off-topic, but I want to try to correct the simplistic stuff about a trade deficit indicating that a country "isn't doing very well".

The idea that a trade surplus or deficit is a single number you can use to evaluate how well a country and its economy are doing is just wrong. It's an attractive idea, because it is so simple, but it's still wrong.

Here are a couple of examples. Do you think of Saudi Arabia as an efficient economy? I hope not, because it's a heavily subsidised economy, where foreigners do a lot of the work, and yet Saudi Arabia runs a trade surplus of 24% of GDP! The Saudi trade surplus tells you nothing about efficiency or competitiveness, but simply that Saudi is sitting on massive amounts of a commodity that their own economy is unable to use.

To take an example closer to home, since 2008 Spain's current account has "improved" from -10% of GDP to -1.9%, but in the same period its unemployment rate has gone from 8% to 26%.

The truth is that Spain's current account hasn't improved because of rising exports, but because collapsing domestic demand has sharply cut imports. An improvement in its trade deficit actually indicates a *weakening* of the economy.

The bottom line here is that if you want to know how competitive a country is, you look at its exports, because to sell exports, it has to compete with other exporting countries.

When you look at imports, on the other hand, you are mostly looking at how rich its consumers are, and if you compare the UK to say Germany, UK PP average wages are $44k while Germany's are $40. In other words, although Germany has about ten percent higher GDP/head, German workers are paid about ten percent less than UK workers. Given that, it's not hard to see why Germany has a surplus of goods to export, while the UK imports more than it exports.

Of course, as well as depending on how rich domestic consumers are, there is also the factor of domestic industry producing goods in competition with imports, the so-called import substitution question. And for the UK, when it has a position in consumer goods at all, it does quite well. For example the UK runs a trade surplus in automobiles and automobile parts. But the UK simply isn't going to compete with imported t-shirts and underwear, because no-one in the UK is willing, or even needs to work for a Dollar a day.

It goes against most peoples' instincts, but German workers are experiencing a lower standard of living, effectively to subsidise exports. German workers don't even have a minimum wage. Germany doesn't import as much because German consumers can't afford it, not because German workers are ten feet tall. Shocking, right?

Now, it's a free World, and if German workers are willing to exchange lower wages and a lower standard of living to generate an export surplus, while British workers tend to spend more and suck in extra imports, then in both cases that is a choice, not a matter of "competitiveness".

One last thought. The popular dry today that the UK should be "more like Germany" amounts to what, exactly? It amounts to saying that the UK should practice German style austerity and adopt German levels of wages. In other words, it's a desire to run the UK as if it were in the euro, when it isn't.

The UK would be very unwise to try to improve its trade position by cutting wages and domestic demand to get imports down. It's far better to set new export records month by month, since that would represent an increase in employment in export industries, not a decline in domestic demand.

jon livesey said...

IDRIS: Interesting comment. As one of the people who think that there will be meaningful Treaty changes, I can't prove you wrong. It is always possible that a desire to save face will lead the EU to dig in its heels, refuse a meaningful renegotiation and impel the UK to leave.

To be clear, if Cameron can't gain a meaningful renegotiation, I would vote to leave the EU myself, because I'd see a future in which things just got worse.

That said, I think he can get meaningful "concessions" because they really aren't concessions. The UK wants to repatriate significant powers, but who does that hurt and what does it cost them?

The eurozone currently has far worse problems than worrying about whether the UK handles its own Justice system, make bilateral Trade Agreements with Third countries, never joins a future EU military force, and so on, adding whatever bit of UK/EU distancing you like.

Compared to the fiscal and economic problems of the eurozone, letting the UK open up the distance between the UK and Brussels just isn't very important to the rest of the EU.

Or rather, it isn't important in day to day practical terms, but if the EU screws up, they can make it important in psychological terms. If they play dirty with the UK, they risk setting off a process of general disintegration as national Governments become increasingly suspicious of Brussels - and these days "Brussels" is a district of Berlin - and I think, or at least hope, that this is beginning to dawn on them.

Anonymous said...

Merkel is a proven Eurofascist liar.

Her words are empty, meaningless and arrogant.

the UK MUST escape the EUSSR if it is to survive as a sovereign nation.

Anonymous said...

And still no mention of any kind of mandate from the people of Europe. This is a bit odd as most countries would vote for free trade only and leave the EU.

Anonymous said...

i want out of eu--sovereignty remains here

Rik said...

Your examples are no proper ones they are both uncomparable with the UK.
SA has the advantage that they have a lot of valuable stuff in the ground.
Spain has moved into the right direction as its economy is a disaster and as a consequence nobody has money to buy expensive foreign stuff.

The UK is still operating more or less normal. And in normal countries running long term deficits simply is dangerous. Like the US and the UK (but at the moment) you might get away with it. But if the markets turn you might not.
The reason for that is nearly always that a country is uncompetitive.

From an economic pov SArabia is pretty competitive. It has enough money from the stuff in the ground to pay for all its imports. The rest is just a bonus. Stand alone its industry is like the gulfstates not in anyway able to compete (it is worse than Greece), but with the oil it works overall fine. Big danger that if the oil dries up they will get into troubles.