Did Cameron just lose a close EU ally?

Under its former ODS government, the Czech Republic, was a card carrying member of David Cameron's reform camp. Traditionally wary of "ever closer union", the Czech Republic refused to join the Euro, objected to the Charter of Fundamental Rights and, along with the UK, refused to sign up to the fiscal pact. All this combined with a shared economic liberalism made agreement easy. Unfortunately for David Cameron, they also failed to win an election.

The new Government is a very different creature. Formed from a Coalition of the Socialists, Christian-Democrats and the new insurgent Party ANO (Yes in Czech), the new finance minister has already dropped the former Government's principled objection to the Euro (although membership is still not an immediate likelihood), and now the leading candidate for the Human Rights Minister position seemingly wishes to abandon the country's semi opt-out from the EU's Charter of Fundamental Rights. With a one time self-described EU Federalist President (Milos Zeman) and a pro-integration foreign minister - the Czech Republic's direction of travel has certainly changed. It will likely be a big task for David Cameron to keep them onside.

Czech elections: The people have spoken but who will interpret what they said?

Will the Czech sausage machine
 be able to create a government?

As the old adage goes - to retain respect for sausages and governments you should not watch them being formed. To stretch the analogy, Prague remains a giant and possibly broken sausage machine trying to fuse together some unlikely ingredients into a government. Added to this the man in control of the machine, President Zeman, is by no means an impartial observer.

So will the Czech machine manage to form a new government supported by 100+ deputies in the 200 strong parliament? There are a number of possibilities, mostly centred on the Social Democrats (ČSSD) and maverick millionaire Andrej Babiš' new ANO party, but if you do the maths it is just conceivable that ANO could form a centrist/centre-right government excluding the Social Democrats - if all the other small centre-right parties can agree and a Presidential veto is avoided.

Here is the election result translated into seats in the new Parliament:



ODS, the centre-right party which led the last coalition government is still in parliament but is now a shadow of its former self (although polls suggested it could do even worse). Added to the fragmentation of the centre-right another problem is the surprising weakness of the ČSSD Party. This weakness is compounded by President Zeman - whose own SPOZ party failed to make it into parliament - been accused of orchestrating calls for ČSSD leader Bohuslav Sabotka to resign, calls which he has so far resisted. It has been suggested that Zeman's plan could be to replace Sabotka in order to make way for the appointment of his ČSSD ally Michal Hasek as PM.

As with most continental elections, there will be no mad rush to fix a coalition. Agreement between the ČSSD and ANO will not be easy, and there is no longer an obvious ČSSD candidate for PM who would gain the approval of the President. A continuation of the caretaker regime might suit the President and constitutionally there is little to stop him, although this is likely to be viewed with concern in Brussels.

Another possibility is that the President may again try to appoint an ally of his as PM who in turn fails to win a confidence vote - a repeat of what happened over the summer and which leading to the early elections. This could then lead to a centre-right coalition or another early election. But fresh elections seem unlikely to be able to produce any clearer result so a strange flavoured sausage is perhaps on the menu.

Is this a surprise? The fragmentation of the political spectrum (and the centre-right in particular) is the result of widespread disillusionment with the political class. What will this mean for the Czech Republic's policy towards the EU? Under the ODS the Czech Republic was, as we point out here, in David Cameron's pro-reform camp, but the ČSSD is unlikely to follow that route while the ANO is still an open book.

Czech election day: Which political party will prove the least unpopular?

Someone is unhappy with the way things are going

Czech artist David Cerny is best known for his satire of EU nations that caused both outrage and amusement across the EU. Today his target is closer to home - the Czech political class and in particular Czech President Zeman, erecting a giant sculpture on the river Vltava that needs little explanation. Cerny's feelings are widely shared and point to a general disillusionment with the political class ahead of elections on today and tommorow.

The elections themselves have been brought forward by seven months following the collapse of the centre-right ODS led coalition following a combination of bizarre corruption allegations involving former PM Necas' mistress, now ex-wife and state intelligence services (part of a wider deterioration in democratic standards across Central and Eastern Europe). President Zeman then appointed Jiri Rusnok (who served as Finance Minster when Zeman was the PM between 2001-02) to lead a caretaker government which fell after it failed to win parliamentary support. In other words, a right old mess.

Here is the latest poll compared to the 2010 results:

The big factor here is the fragmentation of the established mainstream centre-right ODS party. Taking up the slack are a kaleidoscope of small untested centre-right and independent parties centred on colourful individuals, including Úsvit founded by a Japanese/Czech businessman, ANO founded by a Czech billionaire and TOP09 led by former foreign Minister Karel Schwarzenberg. President Zeman's own hopes of a breakthrough for his SPOZ party have been hampered by revulsion at his own politicking. One of these parties is likely to be the junior partner for the social democrats (CCSD) who are clearly in the lead and who have said they would prefer not governing with the unreformed Communists (KSCM) who command 18% of the vote and resurrect bad memories for some (although this is also a possibility).

It was once thought that the Czech Republic had escaped the chaotic politics of the region by settling down into a two party system, the Social Democrats and the centre-right ODS. It now appears Czech politics is just as turbulent as many other former communist EU states, where parties have short lives and bad endings.

Moreover, the marginalisation of the ODS will be a setback for David Cameron, as the party is a key ally of the Conservatives in the European Parliament and under Necas, the Czech Republic was the only other country not to sign up the fiscal treaty. It is hard to see a social democrat led government being naturally on board for the kind of pro-competitiveness reforms that Europe so badly needs.

Fresh Trouble for the Fiscal Pact

One week after we published the third draft of the new European 'fiscal treaty' setting out tougher deficit and debt rules for eurozone countries, and with a fourth draft imminent, a quick update on where negotiations are at the moment.

The big news today comes from Prague. We reported last week that Czech Deputy Prime Minister Karel Schwarzenberg had threatened to pull his party out of the ruling coalition if the government decided to stay out of the 'fiscal treaty', but Czech President Vaclav Klaus had insisted that he would not sign the agreement "under any circumstances."

Well, the Czech government has now decided to put the issue to a referendum after several rounds of "very bloody negotiations", in the words of Radek John, the leader of Public Affairs - the smallest party of the coalition (pictured). The Czech Republic is not part of the euro, meaning that eurozone countries could still go ahead with the adoption of the fiscal treaty, without having to wait for the outcome of the referendum (non-euro countries can join at a later stage).

However, the announcement is extremely relevant for at least two reasons. First, there's now a concrete possibility of the Czechs staying out of the 'fiscal treaty', which would be the coup de grâce for the 26-versus-1 scenario depicted by a large portion of UK and European media in the wake of Cameron's veto at last month's EU summit (we had a go at showing why these reports were rushed, to say the least, see here and here).

Second, the news of a Czech referendum may trigger public and political pressure for a referendum in Ireland. This would not necessarily destroy the treaty because if a referendum were held on Irish ratification of the treaty, rather than simply the government's agreement to it, the treaty could still enter into force in theory. The last draft required 12 ratifications among euro states to enter into force but, certainly, it would throw a major spanner in the works and thoroughly undermine the credibility of the treaty if Ireland (the recipient of a bailout package) were not fully signed up at an early stage.

But there could be another problem, and a quite surprising one. In fact, it looks like the Polish government is not happy with the latest draft, which (as the previous two) would exclude non-euro countries from attending meetings of eurozone leaders - a strong incentive for many of the non-euro countries to sign the treaty.

And sure enough, the Polish government is now suggesting that it might not join the 'fiscal treaty' unless its request is taken on board - Germany is thought to be rather keen on having the Poles signed up. This is what Polish Prime Minister Donald Tusk told the press yesterday,

"Our efforts aim at a fiscal agreement the shape of which does not make the division of Europe into two clubs - the eurozone and countries outside the club - more lasting than is safe in our opinion."

Meanwhile, a fourth draft of the agreement is being finalised, and should be made available ahead of the next meeting of finance ministers on 23-24 January. The way ahead still looks quite rocky...

Will this make countries keener on joining the euro?

Negotiations on the shape and form of the eurozone's permanent bailout scheme - the "European Stability Mechanism (ESM)" - are entering a crucial phase. The fund is meant to be up and running by mid-2013 and is likely to have €500bn available. Of this amount, between €80bn and €100bn will be up-front cash from member states - the rest will come in the form of guarantees.

People are naturally getting nervous about this arrangement, particularly in Germany. Sueddeutsche suggested the other day that German taxpayers will need to contribute between €18bn to €25bn to the scheme in paid up cash (in addition to the guarantees).

Chancellor Angela Merkel isn't too keen on discussing how much Germany might have to contribute in the end. "She doesn't want to talk about this now", a diplomat reportedly said.

We can see why. A direct €25bn liability on Germany's books could increase the country's borrowing costs and hamper efforts to consolidate its budget.

To avoid this, the German government is pushing only for countries without a triple A rating to contribute paid-up cash, as triple A countries - so says Merkel - are lending their good name to the cause, and that's quite enough. But this, in turn, would increase the cash contributions from weaker eurozone members. This has raised alarm bells amongst weaker euro economies as well as a range of non-eurozone members.

Reuters yesterday quoted EU sources saying that eurozone members Estonia and Slovakia as well as Latvia, Lithuania, Bulgaria and the Czech Republic have all criticised the plans. They argue that basing cash contributions to the ESM on a country's proportion of the ECB's paid-up capital is unfair. The countries have even threatened to block proposals for tougher EU-wide budget rules unless changes are made to the suggested ESM arrangement. One representative said,

"Unless there is a change to the ESM capital key we will block the agreement on the governance package once it returns from parliament and EU finance ministers have to approve it by unanimity."

Also non-euro member Sweden has objected to the proposed capital key for the ESM.

Why do these countries feel so strongly about this issue. They're not in the eurozone after all? Well, probably because they understand that, were they one day to join, they could be forced to cough up actual cash to save a Greece, Ireland or Portugal. Paid up cash is a far more serious liability than loan guarantees. Slovakia's refusal to take part in the Greek bail-out gives a hint as to why these countries aren't thrilled by the prospect of a permanent bail-out arrangement linked to the ECB's capital key and credit status. In such an arrangement, smaller economies that haven't really done anything wrong could end up with a pretty hefty bill.

On a related note, where is the UK in all of this? So far, the UK appears to have taken little interest in the structure and pay-in arrangement of the permanent bail-out mechanism. If this is because it doesn't intend to ever join the euro, that's one thing.

But if it's because Britain thinks it has no stake in making sure that the new eurozone rules are fair and make economic sense - rather than facilitating even greater meltdowns down the road (a very real risk) - then the UK government is sadly mistaken.

The EU should impose sanctions on Gaddafi

Over on the Spectator's Coffee House blog, we set out the case for imposing sanctions on Gaddfi's regime (while also looking at the difficulties EU member states are facing in coming up with a common policy on Libya, in what is a painfully familar story).

We argue,

The EU spends €460 million a year in operational costs alone on its new foreign policy department, the External Action Service, headed up by Catherine Ashton. This body - created by the Lisbon Treaty - was Europe’s ‘great white hope’ for the global stage, finally allowing it to speak with one voice and therefore giving it leverage where it previously had none.

It hasn’t quite worked out that way. Caught between Cairo and Tripoli, the EU has received yet another reminder that its bureaucracies and institutions cannot magically replace 27 individual foreign policies, as EU leaders continue their bickering over what to do.

The EU’s response to the turbulence in Libya has been fragmented at best, and contradictory at worst. Italian PM Silvio Berlusconi – one of the few EU leaders with some clout in Libya – initially said that he didn’t wish to “disturb” Colonel Gaddafi since the situation was “evolving”. Czech Foreign Minister Karel Schwarzenberg maintained that the EU should not "get involved too much" because, "If Gaddafi falls, then there will be bigger catastrophes in the world”, though he later said he had meant something else.

In stark contrast, Finland, France – and in more careful language also Germany – have called for sanctions to be imposed on Gaddafi, including a travel ban and a freeze on his and his family’s assets, something categorically rejected by Italy and a few other countries. Still others have spoken in terms of general condemnation but proposed no concrete action, a group including Britain so far. Meanwhile, no one is paying much attention to the EU’s alleged foreign policy chief, Catherine Ashton. It all feels awfully familiar.

Does the absence of a common EU stance matter? I believe it does. While it’s true that the EU’s leverage in Libya and some other parts of Northern Africa and the Middle East is very limited, when Europe does pull together it can actually exert influence in its backyard. Enlargement remains the EU’s greatest foreign policy achievement made possible through a mix of aid and trade incentives.

So what should be done?

The UK should throw its full weight behind German, French and Finnish calls for sanctions, including an EU-wide travel ban on Gaddafi and his family, as well as a freezing of their assets across the bloc. Other possible responses, such as imposing a no-fly zone over Libya, should also be explored. The Colonel’s delirious speech yesterday – and his son’s comments that the family will fight “to the last bullet” – have confirmed that Gaddafi ranks amongst the Mugabes of this world (if anyone for a second thought otherwise).

Finnish Foreign Minister Alexander Stubb put it best when he said that "How can we on one side look at what's going on in Libya, with almost 300 people shot dead, and not talk about sanctions or travel bans, and at the same time put travel bans and sanctions in Belarus?". EU-wide sanctions could hurt Gaddafi – financially and politically – but waiting for too long will lessen their impact.

In terms of responding to the challenges in the wider region, David Cameron is absolutely correct in calling for radical reform of the EU’s neighbourhood policy, which together with other European programmes (such as the European Investment Bank), has dished out billions to the region, with few strings attached. In future, no reform on the human rights front should mean no cash.

At the same time, the EU needs to use other incentives and tools to promote long-term democratic and economic transformation in the region. For example, the EU should consider opening up its markets to more goods from North African countries on the path towards democracy. This should include agricultural products, which at the moment face a patchwork of tariffs in various guises before they can enter Europe. These barriers are contributing to rural poverty in North Africa and therefore instability. The UK is in a strong position to spearhead such trade reforms.

To give with aid on the one hand and take away through trade restrictions with the other makes no sense. Alas, it’s symptomatic of the inconsistency that too often characterises the EU’s relations with the outside world.

The Libyan protesters’ push for change presents an opportunity for Europe to put this right.

Does Danny the Red need help?

Cohn Bendit... losing his mind?

A transcript of the meeting between Czech President Vaclav Klaus and senior MEPs at Prague Castle on Friday is reproduced on EUreferendum.

The exchange speaks for itself, but Bruno Waterfield correctly diagnoses the "staggering arrogance of MEPs who were, we must remember, guests in the official residence of the Czech head of state."

We've blogged on Peter Pan revolutionary Green MEP Daniel Cohn Bendit before, in particular regarding his swivel-eyed conspiracy theories on the supposed links between anti-Lisbon group Libertas and the US industrial-military complex. 'Danny the Red' remained true to this increasingly insane form during his exchange with Klaus on Friday:

I brought you a flag, which - as we heard - you have everywhere here at the Prague Castle. It is the flag of the European Union, so I will place it here in front of you.

Lisbon Treaty: I don't care about your opinions on it. I want to know what you are going to do if the Czech Chamber of Deputies and the Senate approve it. Will you respect the will of the representatives of the people? You will have to sign it.

I want you to explain to me what is the level of your friendship with Mr Ganley from Ireland. How can you meet a person whose funding is unclear? You are not supposed to meet him in your function. It is a man whose finances come from problematic sources and he wants to use them to be funding his election campaign into the European Parliament.

Charming MEPs

Extraordinary story from Danish MEP Hanne Dahl. On a recent trip to Prague with a delegation from the European Parliament's constitutional affairs committee, ahead of the Czechs taking over the EU Presidency in January 2009, Dahl got to experience the more unpleasant side of the Lisbon Treaty fanatics. Hanne explains:

Naively I thought that it would be a courtesy visit. But no! I was really mistaken. The underlying agenda of my co-travellers turned out to be to try to threaten/scare/demean the Czech Republic into ratifying the Lisbon Treaty, before taking over the presidency. Now I also thought that one would follow certain rules for polite behaviour, while travelling as a representative of the EU. I was convinced that people would see themselves as some sort of diplomatic envoys, and thereby constrain themselves somewhat. I assumed so much, but I got wiser.

She goes on:

During the meeting with representatives from the Czech Parliament a Liberal British MEP started out by saying that he did not think that the Czech Republic could take over the presidency, if they had not ratified the Treaty...I thought it was quite rude that an MEP seemed to consider himself qualified to criticize a legitimate democratic process as a problem, and at the same time challenge the fundamental principle that all EU countries are equal. Who does he think that he is?

As we have noted before, the Czech ratification process is becoming increaingly more uncomfortable for the EU establishment.

Anyway, Hanne goes on. Having moved on to the Senate, the rather obnoxious delegation ran in to some resistence, as the Senate's European Affairs Committee began to to bite back. Dahl herself also joined the debate, and gave a speech highlighting six points which are central in the debate on the Lisbon Treaty in the Czech Republic, including the impact of the Charter of Fundamental Rights. She also noted, quite rightly, that the Czechs should be "proud to have such a self-conscious democracy".

This proved too much to bear for some of the delgates. Hanne describes:

This triggered a rage from the German conservative (EPP-ED) Elmar Brok. Not only could he not constrain himself from coming with outbursts during my speech – he also followed me around shouting terms of abuse at me, while we were supposed to have a tour of the castle. I politely but firmly said that he had by far crossed the line and ought to constrain himself.
And while all of this happened I had reporter on the phone, who wanted to speak to me about this week’s huge victory in the protection of groundwater.

Try to picture this: A snorting, sweating and shouting German following a very pregnant woman around the Senate in Prague during an official visit. It was so embarrassing! Well not to me, but for the EU that thought that it had to lecture the Czech Republic on them not having the strength or the dignity to take over the presidency. Yes some even said that it would be best if they would just leave the presidency to the French for another term. They even threatened that it was just this kind of problems from a small country that could lead to the abolishing of the rotating presidency and the introduction of a permanent presidency, consisting of the six largest countries. I think it was a German who said it.

How charming. And what a way to convince people of the benefits of the Lisbon Treaty.

Czechs increasingly opposed to Lisbon Treaty

A new poll in the Czech Republic released today shows that 55% of voters are against ratification of the Lisbon Treaty, which is expected to take place in Parliament in the first few months of next yer.

Not only that, but more Czechs are opposed to it now than at the beginning of the year.