Michael Wohlgemuth: Why the EU cannot bank on Germany’s economy

Open Europe Berlin Director Michael Wohlgemuth has written an interesting piece for World Review, looking at the current status of the German economy. Here it is:

The German economy is showing clear signs of weakening. GDP declined by 0.2 per cent in the second quarter of 2014 and German business sentiment fell for a fifth straight month in September to its lowest level in 17 months. Manufacturing orders dropped during August to the lowest level since May 2013.

Germany’s problems will remain and get worse.

Much of the resilience of the German economy during the last years can be attributed to harsh labour market and social security reforms. These were introduced by the Social Democrat Chancellor Gerhard Schroder (1998-2005) in 2003 with his ‘Agenda 2010’.

The new centre-right / centre-left coalition led by Chancellor Angela Merkel has rolled back many of these reforms by reintroducing early retirement, granting extra pensions for mothers and installing an unprecedented legal minimum wage - of 8.50 euros per hour - in all sectors and all regions of Germany.

The German government has been forced to admit that the minimum wage will increase labour costs by 10 billion euros. It is still unclear how many jobs will be lost after its introduction in 2015.

The new pension benefits will cost around 200 billion euros until 2030. Early retirement could take up to 250,000 elderly off the job market over the coming years when skilled and experienced labour is becoming increasingly scarce and valuable.

Demographic decline will be Germany’s greatest challenge in the long run: coming decades could see Germany’s workforce shrink by about 200,000 every year. The old age dependency ratio - between those older than 65 and those of working age - could increase from 31 per cent in 2013 to 57 per cent in 2045.

Immigration to boost the workforce would be essential. Experts calculate that net-migration of around 400,000 people a year - preferably young and educated - would be needed to avoid demographic decline.

So where should Germany’s future economic growth, desperately needed to pay for pensions and somehow to rescue the eurozone, come from?

The answer is from productivity and innovation, in short: smart investment. Labour participation rates, labour productivity and entrepreneurial ingenuity would have to increase dramatically.

However, Germany’s productivity growth is lagging behind almost all other economies in the world.

The established German Mittelstand - its economic backbone of small and medium-sized enterprises - and some big exporting firms, are still good at innovation. However, Germany holds a dismal 111th place in the World Bank’s ranking for ‘ease of starting a business’ and its service sector is under-developed and over-regulated, while Germany’s education system fails to produce enough matching skills.

Germany’s capital stock is depreciating faster than new investments are replacing it. A declining capital stock combined with a declining workforce, leaves no hope for a growing economy.

That does not mean Germany’s government must add more public debt to the mix.

Many observers are demanding that the government abandons its ‘austerity obsession’ and take advantage of the historically low interest rates for more debt-financed ‘stimulus’.

But the Merkel government is still in the position to do the right thing and increase investment without abandoning the new constitutional balanced budget rule. German politics should also provide better regulatory and tax environments for private domestic investment and lower barriers to entry for its service sector.

Domestic industrial investment is also increasingly discouraged by the ‘lonely revolution’ to wean Germany off both fossil and nuclear energy.

This policy may cost consumers, taxpayers and business up to one trillion euros over the next two decades, according to Peter Altmaier, the former minister for the environment, who is now chief of the Chancellery and minister for special affairs.

German energy costs are now more than double those in the US, while Germany’s greenhouse emissions have increased.

German entrepreneurs and foreign investors have always had these negative factors on their radar.

Germany’s problem is not austerity, but demography and complacency. The message is you cannot bank on Germany.

Slovenia fights back - but maybe it's a few months too late?

Gone but not yet forgotten

The European Parliament and the political machines that dominate it were, according to many, not supposed to select the President of the European Commission - but they got their man. MEPs, led by Spitzenkandidaten Martin Schultz and Jean-Claude Juncker outplayed the member states through a clever use of ambiguous treaty wording and a political deal, which in turn was driven by pure German domestic politics.

Having installed Juncker as Commission President MEPs took the individual candidates, nominated by the member states, to task. According to the Treaties, the EP can accept or reject the entire Commission, but MEPs have turned this into de facto votes on individual Commissioners, with intra-EP politics meaning some nominees may be taken 'hostage'. Having called back the UK's Lord Hill for a second hearing - creating jitters in Downing Street - MEPs finally voted down Slovenian candidate Alenka Bratušek. She was today forced to resign - despite Juncker himself insisting on her candidacy. MEPs seemed to have made their point - it has voted down individual nominees in the past, and as we predicted, the EP was bound to claim a scalp. 

MEPs now seem to be pushing their luck further - attempting to tell the Slovenian Government who they should appoint as their new candidate, with both the EPP and S&D calling for the nomination to go to social-democrat MEP Tanja Fajon. Slovenia, however, is pushing back. The country's PM has issued a statement saying:

"The Slovenian Prime Minister expects political groups in the European Parliament to abide by EU law and the fundamental democratic principle in selecting candidates for commissioners" 

In other words, the Slovenians say, this is for their Government - not MEPs - to decide.

Will MEPs stand back? We will see. To be fair, Slovenia has a new government and we can't blame it for events over the least few months. But we can't help asking, isn't this exactly what member states were asking for when agreeing to the Spitzenkandidaten in the first place?

Malmström impresses in her hearing, but is she on the same page as Juncker on TTIP?

Cecilia Malmström during her hearing today

The European Parliament kicked off its hearings of Commission nominees today, with most of the attention focused on Sweden's Cecilia Malmström, the current Home Affairs Commissioner who has been handed the hugely important Trade portfolio. The hearing was eagerly anticipated due to the controversy around certain aspects of the EU-Canada (CETA) and EU-US (TTIP) free trade deals; specifically around investor safeguard clauses (ISDS).

Indeed, the hearing managed to make waves in Germany (where the issue is particularly sensitive), after Malmström's written response to initial questions from MEPs suggested that she rejected the need for ISDS in TTIP. German Green MEP Sven Giegold posted the relevant section on his website:

As the President-elect Juncker has committed himself to in his Political Guidelines..."no limitation of the jurisdiction of courts in the EU Member States will be accepted in [TTIP]; this clearly means that no Investor-State Dispute Settlement mechanism will be part of that agreement."

However, this version - sent out to MEPs on Friday - was subsequently re-called, and the new version published on the Commission's website now reads:

As the President-elect Juncker has committed himself to in his Political Guidelines... he will "not accept that the jurisdiction of courts in the EU Member States is limited by special regimes for investor disputes."

In other words, a clear change from ruling out ISDS altogether to a much more qualified acceptance. This change was subject to much speculation on Twitter, and Malmström herself claimed it was "simply the wrong version".

However, at today's hearing, Dutch MEP Marietje Schaake claimed that the Microsoft Word version sent out on Friday contained 'track changes' made by none other than Martin Selmayr, Jean-Claude Juncker's chief of staff (seemingly confirming rumours in Brussels about Selmayr's "Rasputin-like qualities"). Malmström replied that she had agreed to Juncker's office inserting a quote from Juncker and tried to brush off the affair as a "misunderstanding" and an "over-interpretation", basically denying that she and Juncker were at odds over the ISDS question.

In her opening remarks and in answers to questions, Malmström strongly endorsed the principle of free trade and TTIP specifically, which rather dominated the debate, while also defending European social and environmental standards (there is always something for everyone in the European Parliament). On ISDS, she defended the principle, while clarifying that she was committed to transparency and qualifications - such as protections for national parliaments to legislate in the national interest. She claimed that there was no need to renegotiate ISDS in CETA, as without it the deal could fall apart, that the EU itself would want to include ISDS in future agreements with other parties, but added that possibly it could be excluded altogether from TTIP - so far from a coherent line overall.

Malmström put in a solid performance - with the right mixture of assertiveness and reassurance - and it is certainly good to have a pro-trade voice in that role. However, as the shenanigans over her written answers demonstrate, there are questions over whether Malmström and Juncker are on the same page on TTIP.

Italy slips again into recession: time for Renzi to re-focus his reform plans?

When Matteo Renzi was widely tipped to take over as Italian Prime Minister back in February, we wrote on this blog: 

Renzi may be able to muster wider parliamentary support than [his predecessor Enrico] Letta, but he would still be stuck with a diverse coalition with smaller centrist and centre-right parties – meaning that the difficulties in pushing ahead any significant political and/or economic reform would not evaporate.

A few months later, it is fair to say the prediction was broadly correct. In his first keynote speech in the Italian parliament, Renzi pledged to implement one big reform per month. However, not much has been achieved so far:

• Some of the promised reforms have been passed only in part (such as the reform of the labour market);
• Others have been proposed by the government but are still awaiting parliamentary approval (such as the reform of the electoral law);
• Others have been announced but have yet to be turned into an official legislative proposal (such as the reform of the judiciary).

To be fair to Renzi, his reform plans involve changes Italy has failed to make for decades. However, there is little doubt the pressure is slowly mounting on the ambitious Italian Prime Minister - especially in light of the latest daunting economic data. Italy has entered recession again. Its GDP contracted by 0.2% in the second quarter of 2014 - worse than expected. The country's national statistics office ISTAT now expects Italian GDP to shrink by 0.3% this year, unless the trend is reversed. This is nowhere near the 0.8% GDP growth initially predicted by Renzi's government. By contrast, Spain is going to upgrade its growth forecast to +1.5% and +2% for 2014 and 2015 respectively.

Needless to say, the meagre growth prospects are raising questions in Brussels, Berlin and Frankfurt over Italy's ability to keep its deficit below the 'magic' EU threshold of 3% of GDP and start reducing its mountain of public debt. Unless Renzi can show substantial progress on the reform side, he's unlikely to achieve any of the 'flexibility' on the application of EU fiscal rules that he's been demanding - along with French President François Hollande - over the past few weeks, and may find himself left with little wiggle room. This would set the scene for another political stand-off between the core and periphery of the eurozone - a scenario which few emerge from looking good.

Perhaps more worryingly, Renzi seems to be currently focusing too much of his reform efforts on the political-institutional side. The reform of the Italian Senate - which has recently taken the centre stage in Rome - is of great symbolic importance and will help speed up the decision-making process once (and if) passed. But its economic impact is limited, and it involves changing the Constitution, meaning that it may not be finalised until early 2015 and will then also be put to a referendum - whose outcome cannot be taken for granted at this stage. Italy can only benefit from the removal of the institutional blockages stemming from a system where the two chambers of parliament have equal powers. However, Italy's economic situation means Renzi should consider investing his best energy and political capital elsewhere - not least because economic reform is the key area where his EU counterparts wish to see progress.

On the economic front, the main achievement of Renzi's government to date is probably a tax cut worth €80 a month for employees earning less than €25,000 a year. The measure may have played a part in Renzi's Democratic Party winning an outstanding 40.8% of votes at the European Parliament elections in May - but the jury is still out as regards its effectiveness as a means to boost domestic demand.

Furthermore, uncertainty remains over Italy's plans to cut public spending and use the savings to finance tax cuts for workers and businesses. Carlo Cottarelli, the Italian government's special commissioner for public spending reform, has recently warned on his blog that the resources he's expected to raise via spending cuts next year are already being used to fund new spending projects. In practice, this means less money to cut the tax burden on Italian businesses and workers - which is among the highest in the world and has been identified as a key pillar of economic reform.

Predictably, Renzi was off to a strong start in terms of trust from both Italian voters and Italy's European partners. However, the time may have come for him to re-focus his priorities and push harder on economic reform. A more efficient parliamentary system and electoral law, while very necessary, will do little to help him win any meaningful concessions in Europe. A thriving economy that grows at an acceptable pace will.

Is the UK's new man in Brussels a dark horse?

On his Telegraph blog, Open Europe Director Mats Persson looks at Lord Hill's nomination as the UK's next European Commissioner:

This morning, Brussels watchers, virtually in unison, typed the following name into Google: Lord Hill. David Cameron’s long-awaited nomination for the UK’s next European Commissioner was hardly a household name.

In 2009, Gordon Brown nominated Baroness Ashton for the post – the then leader of the House of Lords, known to few people outside of Westminster. As it turned out, Ashton grew in the role and will leave Brussels with a relatively good reputation. The main problem was that Asthon’s position – EU foreign affairs chief – meant long absences from Brussels. This proved critical as, whether we like it or not, working the Brussels corridors and getting stuck into the agenda-setting “College of Commissioners” are absolutely vital if the objective is to make as many EU proposals as possible come with a UK flavour. Some people hate this stuff – including William Hague who just refused to go anywhere near the role despite being the most obvious candidate – but others thrive on it.

I was always in favour of Cameron sending a high-profile figure to Brussels. It would have sent a strong signal that EU reform is for real and improved the likelihood of the UK getting a top economic job – internal market, competition or trade. Lord Hill lacks the obvious external gravitas and high profile, so in that sense, his appointment has reduced the chances of the UK getting a top job. Cameron has been criticised for not sending a sufficiently strong signal of intent. However, not least since I expect several portfolios – including internal market – to be broken up or altered, the job allocation is unusually unpredictable, and we shall have to wait and see. Also, sending someone with a lower profile may work in the UK’s favour. A heavy hitter – particularly with a Eurosceptic reputation – in combination with a big portfolio may have been too much for EU partners and Juncker to swallow, not to mention the European Parliament. And Lord Hill is hardly a novice, having worked across departments and at the heart of government, including as Chief of Staff to John Major, during which he was involved in negotiating the Maastricht Treaty.

On making EU reform happen – which remains the key objective – Lord Hill is a clever operator with a fantastic reputation in Westminster circles. Brussels is a very different place to Westminster, but if he can replicate his operational style over there – winning people over, striking deals – then perhaps he’s exactly the type of person the UK should be sending. Opting for a Viviane Reding-type, who does a lot of shouting but achieves little, wouldn’t be ideal either.

There's still no denying that choosing someone less known remains a gamble. But Lord Hill may yet surprise plenty of people both at home and abroad.

Are things heading towards a showdown on the new EU foreign policy chief?

UPDATE (18:20) - The FT's Peter Spiegel and Alex Barker are reporting that Belgium's Karel De Gucht, currently serving as EU Trade Commissioner, could be a late entry into the race for High Representative.

Like former Estonian Prime Minister Andrus Ansip (see below), De Gucht is a member of the liberal ALDE family - that has joined the 'grand coalition' supporting Juncker in the European Parliament and now looks to be asking for something in return.

ORIGINAL BLOG POST (17:07)

EU leaders will meet in Brussels tomorrow to get on with the assignment of the remaining top jobs. Priority will probably be given to the appointment of the EU's new foreign policy chief (aka High Representative for Foreign Affairs and Security Policy).

Italian Foreign Minister Federica Mogherini is still regarded as the frontrunner for the job. However, things may not go as smoothly as initially thought. Sources close to European Commission President-elect Jean-Claude Juncker have told Italian news agency ANSA that "ten-eleven [EU] countries" are currently against Mogherini's appointment.

The sources didn't name any names, but it is understood that Eastern EU member states are particularly reluctant, since they believe Italy did not take a hard enough stance against Russia during the Ukraine crisis.

The Lisbon Treaty establishes that, similarly to the European Commission President, the High Representative is appointed by EU leaders under qualified majority. And Italian Europe Minister Sandro Gozi has made clear Italy is prepared to go to a vote. He said:

"[The appointment of] Juncker is part of an agreement whereby the High Representative goes to the socialists." 

"Juncker has been designated by [qualified] majority. No-one ever raised objections [against Mogherini] with us. If there were any, that would mean the High Representative will also be designated by majority."

Therefore, things may be heading towards another showdown. This time, though, the outcome of the vote could be a lot more uncertain. A group of ten or eleven countries (very likely to include Poland, a qualified majority heavyweight) would have good chances of success in forming a 'blocking minority' to reject Mogherini's appointment. That would be a blow for Italian Prime Minister Matteo Renzi, who seems to be investing a good deal of political capital trying to secure a post that he considers as of great prestige. But it could also shift the balance in the distribution of the other top jobs - notably the Presidency of the European Council.

Mogherini is from a centre-left party. This means her appointment would make it less likely for Danish Prime Minister Helle Thorning-Schmidt, another centre-left politician, to succeed to Herman Van Rompuy as European Council President. However, this argument could no longer be valid if the new High Representative were to come from a centre-right party.

This would be the case with Bulgaria's Kristalina Georgieva, who looks to be gaining momentum as an alternative to Mogherini, although, as our dove-hawk axis showed, Bulgaria has so far also been quite soft on Russia.

Another option could be to offer the post of European Council President to someone from an Eastern European country in order to assuage opposition to Mogherini. Polish Prime Minister Donald Tusk could be an option, although with Polish domestic politics in a precarious state he may prefer to stay put. In that case, former Estonian Prime Minister Andrus Ansip - who has already been nominated as Estonia's next EU Commissioner - could be one to watch. Ansip's Estonian Reform Party belongs to the liberal ALDE group, that has joined the 'grand coalition' supporting Juncker in the European Parliament and would presumably be keen to get something substantial in return.  

In other words, a few surprises may come out of tomorrow's European Council. Stay tuned.

Who is Lord Hill? (The UK's new appointment to be the UK's EU Commissioner)

The most visited Wikipedia page from Brussels IP addresses today will be Lord Hill's - the UK's European Commissioner nominee. Lord Hill is currently the leader of the House of Lords.

We have previously argued that David Cameron should "send forth to Brussels the best he has." The reason is simple: reform is fundamental to the UK's EU membership so the UK should put forward its best candidate to secure one of the 'big jobs' in the Juncker Commission and maximise the chances of negotiating success on all levels.

In 2009 Gordon Brown made a serious mistake in coming late to the game and sending a little known Peer, Cathy Ashton (also leader of the House of Lords incidentally) and ended up with a job that nobody else wanted. Have the lessons been learnt? Well, Cameron certainly hasn't sent the guy with the highest profile, instead prioritising avoiding a by-election, but it's too early to tell whether Lord Hill will sink or swim. He could turn out great.

But who is Lord Hill?

Well he's certainly not a household name but has been in the Cabinet albeit as a Lord. Here is his biography:

• Conservative Research Department 1985-86 
• Special advisor to Rt Hon Kenneth Clarke at Department of Employment 
• DTI and Department of Health 1986-89 
• Lowe Bell Communications 1989-91 
• No 10 Policy Unit 1991-92 
• Political secretary to Prime Minister John Major 1992-94 
• Senior consultant Bell Pottinger Communications 1994-98 
• Director Quiller Consultants 1998-2010; (a part of Huntsworth Plc) 
• Under-secretary of state Department for Education 2010-13 
• Leader of the House of Lords and Chancellor of the Duchy of Lancaster 2013-2014

Beyond that it is reportedly that he unsuccessfully attempted to resign as a minister in 2012, and recently ruled himself out as a candidate for European Commissioner, saying when asked

"Non, non, non. First, I don't believe I'm going to be asked. Secondly, I like it here. I quite like it at home, in the British Isles."

That's not the first time a politician has said something similar and ended up in that very position, though. Lord Hill is definitely well connected in the PR industry and knows the Conservative party. He knows the political system and the art of political public relations. Plenty of people say he's a 'fixer' who can work the corridors in Brussels - something which Cathy Ashton wasn't able to (partly because of her job which involved long absences from Brussels). It's too early to jump to conclusions.

Juncker: The next Economic and Monetary Affairs Commissioner will be a Socialist

UPDATE (14:15) - One possibility we have not considered in our original blog post is that European Commission portfolios can change. They can be split, broadened, and so forth.

However, at this stage it is quite hard to know whether and how this will happen. Hence, our reasoning is based on the existing portfolios.

ORIGINAL BLOG POST (13:15)  

Pieces are falling into place with regard to the composition of the next European Commission. Jean-Claude Juncker, who is waiting to be confirmed as new Commission President by MEPs in a vote next Tuesday, has just said that the next EU Commissioner for Economic and Monetary Affairs will be a Socialist.

Given the recent debate over EU fiscal rules and their 'flexibility', this sounds like a key pledge from Juncker to secure the backing of centre-left MEPs - since the Economic and Monetary Affairs Commissioner is responsible for enforcing such rules.

Now, two candidates for the post spring to mind instantly: former French Economy Minister Pierre Moscovici and Dutch Finance Minister Jeroen Dijsselbloem, both from their respective countries' centre-left parties. The decision will likely also depend on what happens to the Presidency of the Eurogroup of eurozone finance ministers - with Spain making no secret of its interest in the job.

Scenario 1 - Dijsselbloem becomes the new EU Economic and Monetary Affairs Commissioner

This looks very likely to happen if Spain secures the Presidency of the Eurogroup. German Chancellor Angela Merkel would not be keen to see Mediterranean countries holding the posts of ECB President (Italy), Eurogroup President (Spain), and Economic and Monetary Affairs Commissioner (France) at the same time.

This would also mean that France will push to secure another key economic portfolio for Moscovici: Internal Market, Competition or Trade. This would not be ideal from David Cameron's point of view, although the UK would be likely to get whichever of the bigger briefs France did not get.

Scenario 2 - Moscovici becomes the new EU Economic and Monetary Affairs Commissioner

This would probably mean that Dijsselbloem will stay as Eurogroup President. At that point, Spain could be 'compensated' with an important portfolio in the new Commission. According to the Spanish media, Miguel Arias Cañete - a former centre-right Agriculture Minister who is widely tipped to be appointed Spain's new Commissioner - would be interested in the Trade brief.

Under this scenario, the UK would possibly have a greater chance of securing the Internal Market or the Competition portfolio (both very relevant, as we explained here) - not least because France would no longer be a contender. That said, as we pointed out above, Germany is probably wary of this scenario. And the UK may well be concerned about France controlling the brief which has the most impact on the issue of the balance of power between euro 'ins' and 'outs'.

One to watch for the UK: Finland's Jyrki Katainen  

One more thing to bear in mind. Until today, former Finnish Prime Minister Jyrki Katainen was seen as a strong candidate to succeed his fellow national Olli Rehn as Economic and Monetary Affairs Commissioner. However, it now seems he will have to go for another portfolio. This could have important implications for the UK. Under a positive scenario, reform-minded Finland along with the UK could secure the Internal Market brief as well as the Competition portfolios. Indeed, France getting the Economic and Monetary Affairs portfolio could increase the chances of this happening. 

This is all quite speculative, and based on wishes Juncker expressed during his hearing with the centre-left S&D group in the European Parliament. National governments will play an important role when the time to assign portfolios in the new European Commission comes.

At the moment, there is still a decent chance of the UK securing a good porfolio despite the Juncker débâcle. One thing is clear, though: most other EU countries have already settled on high-profile candidates (note the numerous mentions of both former and acting finance ministers and prime ministers above), while the UK is yet to even decide on a clear shortlist of candidates. It is time to kick it into gear on this front.

Flexibility and sloppy translations: Could the discussion on EU fiscal rules still endanger Juncker's election?

The Bundesbank attacks Renzi: "He tells us what to do". This is today's front page headline of Italian daily La Repubblica. According to Italian media, Bundesbank President Jens Weidmann yesterday had a go at Italian Prime Minister Matteo Renzi for telling everyone else in Europe what they have to do.

Well, that's not quite what Weidmann said. The full speech is available here. And the exact quote is:

Italian Prime Minister Matteo Renzi, for instance, likens the EU to 'an old, boring aunt, who tells us what we should do.'

In other words, Weidmann was simply quoting Renzi. Quite different from what has been reported by Italian papers, although Weidmann did say in his speech that structural reforms "should be implemented, not only announced" - a Bundesbank Leitmotiv.

A case of 'lost in translation'. Still, Renzi hit back less than an hour ago during his joint press conference with outgoing European Commission President José Manuel Barroso in Rome:

#Renzi: The task of the Bundesbank is not to take part in the Italian political debate.
— Vincenzo Scarpetta (@LondonerVince) July 4, 2014

Sloppy translations aside, this episode highlights that there are some unresolved issues when it comes to what different eurozone countries mean by the 'flexibility' of EU fiscal rules. This may well spice up the European Parliament vote on the appointment of Jean-Claude Juncker as European Commission President, scheduled for 15 July.

A couple of Italian MEPs from Renzi's Democratic Party have said they want "clarity" from Juncker before supporting him. Similarly, the leader of French Socialist MEPs Pervenche Bérès told French daily Le Monde:

We are in a difficult equation. We criticise the [economic] policies of the right. But if we reject this candidacy, we will have no influence on the re-orientation of the policies that Juncker must pursue.

It is too early to tell how this story will end. Juncker is due to meet the centre-left S&D group on Tuesday precisely to discuss the priorities of the new European Commission. We will probably have a clearer idea after that. Indeed, one would assume that, if Renzi or François Hollande told their MEPs to vote for Juncker, MEPs would follow their leaders' instruction. Furthermore, the German and Italian governments are both playing down tensions.

That said, looking at the vote on Juncker in the European Parliament, the three groups expected to back him (EPP, S&D and ALDE) have 479 MEPs in total. The UK Labour Party already said it would vote against Juncker. If French, Italian and maybe Spanish centre-left MEPs did the same, along with the 12 Hungarian centre-right MEPs from Prime Minister Viktor Orbán's Fidesz party (who sit in the EPP group), support for Juncker would suddenly shrink to 389 MEPs.

The required majority is 376, so we would be looking at a much tighter vote. And it's going to be a secret ballot, which adds to the uncertainty. Time for Juncker to get worried? Maybe not yet, but he has already got a quite difficult job on his hands in pleasing everyone when it comes to using the 'flexibility' in the EU's Stability and Growth Pact to its full extent.

If Carlsberg did consolation prizes for 'losing' a 'Presidential' election...

Advocates of Pan-European Democracy, foremost among them the Socialist's 'Spitzenkandidat' Martin Schulz MEP wished to turn the recent European Elections into a quasi-'Presidential' election. The idea was that the 'winner' would be the 'lead candidate' from the leading political group. That turned out to be Jean-Claude Juncker, who is now the President-elect of the European Commission.

In the manner of a US presidential election, Schultz 'conceded' defeat. It might therefore come as a surprise that the self-proclaimed loser in the election has now been rewarded for his defeat by being given one of the other powerful EU presidencies - that of the European Parliament. Schulz was yesterday re-elected as EP President for the next two and a half years with the support of 409 out of the total 751 MEPs.

It's not entirely easy to find an equivalent to the EP President in national democracies: the position involves elements of the "Speaker" role, which exists in the UK, Sweden, Poland and Germany. Notably, the Speaker in these countries come from the largest group or is based on a nomination from the largest group (in the case of John Bercow, a Tory backed by Labour).

However, the EP President has far more power, due to the way 'executive' and 'co-legislative' functions are distrubted in the EU between the Commission, Council and EP. Schulz effectively wields the EP's co-legislative power in talks with other institutions, over issues such as the EU's long-term budget for example. Such positions are most definitely associated with the "winners" in elections.

So if Schulz was a loser on both these counts, why is he still running the European Parliament?

The answer: transnational "democracy". The vote follows the formation of a ‘grand coalition’ within the European Parliament between the centre-right EPP, the centre-left S&D and the Liberal ALDE groups. In other words, in the spirit of pan-European democracy, some representatives from the main groups agreed amongst themselves who should become EP President. In the spirit of transparency, the vote was then put to the full European Parliament via a secret ballot (so we're afraid we can't tell you who actually voted for Schulz).

Yet another reason why the Spitzenkandidaten process has turned out to be a charade. This is Brussels politics, business as usual.

Would Cameron have been able to block Juncker if the Tories were members of the EPP?

No major party in the UK backed Jean-Claude Juncker, or any other 'Spitzenkandidat'. It is therefore fair to say that the UK electorate had no influence over the course of what some describe as an 'election'.

The counter-charge is that David Cameron is to blame because he 'left' the main centre-right group - the European People's Party (EPP).  Former Lib Dem leader Charles Kennedy made this point yesterday in the Commons - which was also alluded to by Labour MPs. If Cameron was a member, so the argument goes, he could have blocked Juncker's appointment as the candidate and then had some say over the 'election campaign' and associated deals. Critics are zooming in on the meeting of EPP-affiliated leaders in Dublin in early March, at which Juncker was selected (behind closed doors no less).

It may not be that simple though:

• The Conservative Party was never a member of the EPP. It was a member of the European Democrats (ED) that was linked to the EPP in the so-called EPP-ED. As such, the Tories didn't have offical 'voting rights' and therefore David Cameron would not have had a vote over Juncker's appointment. 
• It's also worth noting that the Labour Party, although being a member of the S&D group failed to block Martin Schulz as their group's Spitzenkandidaten.
• Likewise the Liberal Democrats failed to block Guy Verhofstadt as the ALDE candidate

There's an argument that Cameron could have used the political influence and clout garnered from being associated with the EPP to stop Jucnker, even absent a formal vote. However, other EPP leaders had limited influence on the EPP candidate. Sweden's Moderaterna were opposed but were over-ruled. Berlusconi failed to attend and Hungary's Orban was hostile.

In any case, we will never know.

The reason the Conservative Party left the EPP-ED is because they did not agree with the EPP's push for further integration. The wider problem for the UK political parties - and reform-minded parties in other countries too - is that their views are grossly under-represented in the main groups. This, in turn, links to to the fundamental problem with the European Parliament itself (as we argued here).

Note:

For the record this is how the EPP delegates voted to adopt Juncker, so Cameron's vote would have made little difference - but again, we won't know:

EPP delegate votes to adopt Juncker as candidate

Italy claims "great victory" over "looser" eurozone fiscal rules

UPDATE (11:30am) - In a separate interview with Quotidiano Nazionale on Saturday, Mr Del Rio explicitly speaks of a "great victory" for Italy at the EU summit.

Here's the full quote:

"The green light to flexibility is the great victory [...] One needs to acknowledge that, thanks to Italy, the work of the summit was not focused on names, but on what to do to move from the time of austerity [rigore] to the true implementation of the [EU's] Stability and Growth Pact. We really won a substantial battle."

ORIGINAL BLOG POST (9:50am)

It was bound to happen.

The battle to make EU fiscal rules more 'flexible' was one of the key issues on the table at last week's European Council summit. Italian Prime Minister Matteo Renzi and French President François Hollande were seeking to make their support for Jean-Claude Juncker conditional on a de facto loosening of the rules. So what was the outcome? Well, depends on who you ask. If you ask Renzi's people, this weekend saw a watering down of the rules.

Graziano Del Rio, Renzi's top aide (see picture), claims thus in an interview with today's Corriere della Sera:

Q: Italy comes back from Brussels with the rule of the 'best use' of the flexibility already provided for [by the EU Treaties]. Isn't that too little to speak of a Europe that abandons austerity and of a victory of the Renzi government?

A: No, it's not too little because it is precisely the lack of use of flexibility that has caused our most serious problems.

Q: So, during its semester of [rotating] EU Presidency, Italy won’t ask to raise the [EU's] deficit limit, the famous 3% of GDP? 

A: I don’t think that’s a rule set in stone forever, but we don’t want to be the ones who move it onto sand. No, we won’t ask to raise the 3% [deficit/GDP threshold]. That’s also to avoid suspicions and titters in Europe, keeping in mind that there are other countries that glaringly breach that limit – and even Germany has done it during a certain period of time.

Q: Excuse me, but what does this greater flexibility mean then?

A: It means that, when deficit is calculated, part of the spending is not taken into account, or, better, it is considered as flexible. The [EU’s] Stability Pact effectively becomes looser. It can be done for co-financing, that is the money Italy is obliged to spend to use EU funds. We’re talking about a figure around €7 billion a year. But there’s also the investment clause, that would allow [us] to leave out of the calculation spending with a high social impact […] We’re talking about a figure around €3 billion. In total, flexibility could be worth €10 billion a year, although it can’t be taken for granted that these two items can be added together.

Of course, everyone is talking about 'interpretation', and no-one will say the rules have been formally re-written. Still, this looks as if the Italian government is claiming they have managed to loosen EU fiscal rules, via a new interpretation. Spin or otherwise, Berlin and Frankfurt won't be entirely pleased.

The Juncker row: Will Cameron now be forced to say he's willing to recommend 'Out' in a referendum?

Could he merrily wave the EU goodbye?

There has been much said about David Cameron's supposed "threat" to leave the EU, reportedly delivered to Angela Merkel in a discussion over whether Juncker should become President of the EU Commission.

There are good reasons to doubt the specifics of the report, because the source probably had ulterior motives: to damage David Cameron's campaign to dislodge Juncker. The theory being, the prospect of a Prime Minister "making" a threat would so upset EU sensibilities nobody would dare stand with Cameron's campaign.

Having said that the story does have two elements of truth to it.

Firstly, all polling shows that EU reform is the decisive factor in determining whether Britons would vote to stay in the EU. David Cameron could easily have pointed out that Juncker's appointment - an obvious example of non-reform - would damage the chances of an 'In' vote. But is that a threat - or a fact? Possibly, if David Cameron was the only person planning to vote in his planned  referendum, but he is not. So, if it is a threat, it is a collective one from the British people.

Secondly, David Cameron has studiously avoided saying he could ever campaign for an 'out' vote - and been criticised for it in the UK. However, with Juncker's appointment, this is becoming a much more difficult position to sustain. If this continues, i.e. if the EU actively goes the wrong way, there would be a lot people in the UK saying it's not credible for him to say he would still recommend 'In'.  (Open Europe's Christopher Howarth set out some reason's earlier here.)

The outcome of the Juncker saga may be that Cameron has no choice but to say he's willing to recommend "Out". But hey, the nature of the referendum is that it won't be his choice anyway.

If Juncker is appointed as President of the EU Commission David Cameron will be one step closer to advocating an ‘out’ vote

Open Europe's Christopher Howarth wrote the following article on Conservative Home

Imagine you woke up in a state where the head of the civil service was elected – but not by you. Imagine a state where the top governmental positions were settled in deals in meetings to which your elected representatives were not invited. Imagine that this system had been introduced without your approval. Well, you may soon be living in it if Jean-Claude Juncker becomes President of the European Commission.

So what should David Cameron do? His options are limited; the UK lost the veto on this appointment under the terms of the Nice Treaty in 2001. He can vote against, but cannot prevent himself being outvoted.

This is a major problem on two levels. First, by appointing Juncker EU member states have conceded the precedent that the European Parliament is now responsible for selecting the Commission President. This will politicise the Commission, and make it subject to perennial Brussels political deals between MEP factions. Juncker’s route to power has been paved by a series of such contradictory deals cut firstly with the Christian Democrat EPP; then the Socialist S&D; then, reportedly, the Socialist Prime Minister of Italy and French President – and allegedly the German mass circulation Bild newspaper. Needless to say, this bears no relation to the results of the recent European Elections and is a straightforward power grab. It is a cession of power not authorised or even discussed in the UK Parliament.

Beyond the principle and the person, Juncker’s appointment presents a strategic headache for David Cameron and his Europe policy. The assumed policy is to provide enough tangible evidence that the EU can reform to allow Cameron to advocate an ‘In’ vote in his promised 2017 referendum. In doing so, he has bet the farm (or the UK’s EU membership) on his belief that other member states, notably Germany, will wish to bail him out. Juncker’s appointment is a clear message that he cannot always rely on his fellow leaders to see him through when they come under their own domestic pressure.

So what should Cameron do? He could take being outvoted on the chin, hope for some consolation prize and pray that, next time, EU leaders will help him to deliver change. This is a risky approach. An alternative would be to send a direct message to his fellow leaders that he is not just in favour of EU reform but also believes that it is fundamental to the UK’s continued membership. Cameron could say that if the EU continues in the manner of Juncker’s appointment he will have no choice but to advocate an Out vote.

This would be interpreted as a threat, and be greeted by a wall of hostility in Brussels – but it would have the benefit of being true. It is not an idle threat. Cameron’s plan to base his referendum on the potential for EU reform was the right one, and one from which he cannot back down. Nor can he back the UK’s membership come what may. If he tried to pull the Harold Wilson trick of presenting a few concessions as a major triumph, he will be found out. After over 40 years of EU membership, a cynical British public will not be fooled. Remembering that Cameron was unable to block Juncker will not help in this regard. Cameron has to succeed in EU reform if he is to advocate an ‘in’ vote – it is time others in the EU began to realise that and act accordingly, or it may be Out by default.

From democratic revolution to "back-room massacre": Is Germany's press already suffering from a Juncker hangover?

Many of us have been there. Waking up on a Sunday morning. Head sore. Mouth dry. And not entirely pleased with our behaviour the previous night. "What was I thinking" type of thing.

It seems like German media is there too over the, by now, highly-likely appointment of Juncker as a the next European Commission President. As we've argued before, no one particularly wants Juncker, but due a series of coinciding factors in the randomness that is EU bargaining, here he is. A significant chunk of the German commentariat - for reasons relating to the German conflicted political consciousness - have been the most vocal supporters of Juncker via the Spitzenkandidaten process. Cameron has been pitted against Germany.

Except that a whole host of Germans were uncomfortable with the Spitzenkandidaten all along. As the moment of truth draws closer, influential German commentators are waking up to smell the coffee (to continue the hangover analogy).

And they're going hard.

Today Handelsblatt's leader, by its international correspondent Torsten Reicke argues, "Juncker's victory is a defeat," and that the tussle over the EU top jobs is "grotesque." He writes: 

Hardly anyone considers Juncker to be the right candidate for the right time. The opposite is true. The almost 60-yr old eurocrat is symbolic of a Europe of elites, which the citizens turned their back on in the [European Parliament] elections in May. 

Both in terms of substance and style, Juncker's European politics represent "more of the same," and [they] subscribe "more Europe" to deal with every problem...[But citizens] definitely do not want "more of the same. Whoever wants the new Commission to change course, ensuring a better balance in the tug-of-war between the national parliaments and Brussels cannot be satisfied with [Juncker's election].

Reicke also points out that Germany will lose a vital economically-liberal ally if there is Brexit. This fear has been heightened as Italy and France have been trading support for Juncker in exchange for a loosening of the EU's fiscal rules. As Reicke writes:

Juncker's appointment takes the UK one step closer to Brexit. This would be a disaster for Britain, but also for Europe. Without Britain we will not be able to maintain a liberal economic outlook, but more importantly, [we’ll also lose] political clout on the world stage.

By allowing Juncker to win the job, Reicke continues, that a dangerous precedent is being set: formalising a power-grab by the European Parliament at the expense of the European Council. Reicke concludes that Merkel "will be responsible if Europe allienates itself further from citizens with the election of Juncker."

Similarly, Süddeutsche’s Foreign Affairs editor Stefan Kornelius points out that:

This is what a perfect political trap [by the European socialists] looks like. Nobody should blame the British David Cameron for the conflict: those raging in anger are, of course, not loved. But at least he speaks frankly from his heart. What started as a democratic exercise four weeks ago now ends in a real backroom massacre. This can only further damage the European institutions and the people working for them.

He continues:

The honest answer is: these elections have only produced losers so far. So it doesn't appear to bother the Socialists to wade-in even deeper. The Conservatives are stuck with an unloved Spitzenkandidat for who's election they will still have to pay a price.

Meanwhile, Die Welt’s Henryk Broder writes that  he "wants his vote back," arguing that current haggling over the EU top jobs shows that the EP elections were: "Not about peace, democracy and jobs -- they were about the spoils of power." He continues:

What were the European elections about? If you believed the slogans of the parties, they were about a Europe of opportunity - not unemployment; a Europe for citizens, not for money; a Europe of democracy -not paternalism. And naturally for the "European Peace Project"... But in reality, they were about something completely banal: posts and power-plays, to forward the career of two eurocrats, who are partly responsible for the situation in which Europe finds itself, and therefore, especially qualified to continue with this tone and direction.

It's completely irrelevant whether Schulz becomes the President of the Parliament, or Juncker becomes the President of the Commission, or vice versa. Or even if they both take over the management of the Brussels brassiere - Schulz on even and Juncker on uneven days. The "elections" were a hoax, the ensuing-struggle is the same. That is why I want my vote back.

Even Bild, who were campaigning to instill Juncker, seemed to semi-endorse Danish PM Helle Thorning-Schmidt last Friday, with the headline: "Why isn't this fantastic Dane becoming the Head of the EU?" and continuing that her appointment "would end the tussle over Juncker."

Sore head indeed.

Names are a consequence of things: Renzi outlines his own road map for the next European Commission

Nomina sunt consequentia rerum. Names are a consequence of things. Italian Prime Minister Matteo Renzi quotes Emperor Giustiniano and Dante Alighieri to open the paper he wrote together with Europe Minister Sandro Gozi, outlining Italy's priorities for the next European Commission.

The document has been published by Europa, an Italian daily close to Renzi's Democratic Party. And it's in English, so you can read it in full here.  

Here are some interesting bits:

The election to the European Parliament, the constitution of the new Commission, the designation of the new President of the European Council mark the beginning of a new political cycle. We can turn it into a fresh start for Europe. Nothing could be worse than [to] roll out with an inter-institutional wrangle over the top European jobs. This would be utterly incomprehensible to European public and irresponsible in the light of the huge challenges ahead. 

Therefore, as we already wrote on this blog, Italy is not keen to start its rotating EU Presidency with a big fight on top jobs.

On eurozone fiscal rules and structural reform, Italy's position should be clear by now: more flexibility on deficit and debt reduction to facilitate the reform process. The document says:

Fiscal consolidation is still challenging in spite of the unprecedented efforts, because of subdued growth and very low inflation...Benefits from reforms in terms of growth and jobs take time to materialise...The European economic framework should back reforms agendas in member states and strengthen incentives for reforms.

On growth and competitiveness, Renzi sounds very sympathetic to the UK's position:

The full potential of the internal market also needs to be exploited, including in the field of services and energy. We should move towards a real single market for electronic communications and on-line services. Improve the quality of EU legislation, reducing EU regulatory burden...More generally, the implications for growth should be factored-in in all legislative proposals and discussions.

The Italian Prime Minister also has a few ideas on how to reconcile voters with the EU:

We need to give a better sense that the EU institutional setup is at the service of European citizens' needs...EU institutions can already adopt some practical arrangements to improve their capacity to deliver. In this respect, the possibility of creating clusters of Commissioners, one for each European priority, should be seriously taken into consideration. 

And then on EU migration policy, another big priority for Italy:

We need to promote a more proactive role of the EU and more integrated policies in the fields where they have a clear added value. Immigration and asylum is clearly one of those fields, In one word, we need to promote an authentic Common European Migration Policy.

Therefore, the bottom line of Renzi's road map is:

The job description for the EU top jobs stems from this outline. Italy will support leaders that share our views on the future of Europe and are determined to foster the above priorities. 

As we previously noted, Italy can play a key role in the appointment of the next European Commission President - especially if EU leaders hold a vote at this week's European Council. Renzi is not against the principle of Spitzenkandidaten being chosen by the main pan-European political families, and has never given signs of having a 'personality problem' with Jean-Claude Juncker. Therefore, the key will be whether the Italian Prime Minister considers Herman Van Rompuy's vague list of priorities and Angela Merkel's very timid 'opening' on eurozone fiscal rules as a sufficient guarantee that Italy's concerns and requests will be taken into account by the next European Commission.

Renzi has now set out a pragmatic negotiating stance ahead of complex discussions. He has also produced a clear metric by which to judge his success or failure. Even if you do not agree with everything he is calling for, such clarity is welcome. 

Is this really the best EU leaders can come up with?

The continuing furore over whether Jean-Claude Juncker will this week be crowned European Commission President has diverted attention away from the important issue of what he, or whoever else eventually gets the job, will be expected to do.

Like most others, we have seen a copy of a draft statement from EU leaders, expected to be announced at the conclusion of this week’s summit, setting out a “strategic agenda” for the EU for the next five years.

Safe to say, it is a very mixed bag. The preamble starts off with some reassuring words about subsidiarity:

“In line with the principles of subsidiarity and proportionality, the Union should only act when together we can achieve more than individual countries on their own. It should show self-restraint in exercising its competences when member states can better achieve the same objectives.”

There is another passage that – presumably as a consequence of the Euro elections results – warns against making promises the EU cannot keep:

“The credibility of the Union depends on its ability to ensure that its institutions follow up on decisions and live up to commitments.”

However, some of the subsequent action points seem to interpret both these points very liberally. For example, EU leaders look set to pledge to “further reduce early school drop outs” and “improve educational outcomes.”

Clearly, the futures of young people in Europe is of huge importance, but surely this is a matter for national governments - what will the 'EU', in the narrow sense, do in terms of policy to help school drop outs?

Similarly, the document talks of making “our social protection systems fit for the future”, an area of public policy explicitly reserved for national governments. What happened to the Dutch mantra “Europe where necessary, national where possible”? The next five years risk starting off with the same hollow commitments and lack of focus – responsibilities should be clearly divided and it should be clear where member states and/or the EU will take the lead.

Meanwhile, as Bruno Waterfield notes, there is limited reference to the reforms David Cameron has been arguing for. On national parliaments, the language is pretty vague:

“A greater place should be given to national parliaments, including by strengthening their means of participating in the debate and making their voice heard in the decision-making process.”

There are some more positive elements for Cameron, such as a commitment to “complete negotiations on international trade agreements, including TTIP, by 2015” and tackling “at all levels” the abuse of labour mobility.

One important inclusion is that the document follows the lead set out by UK Chancellor George Osborne and German Finance Minister Wolfgang Schaueble in the FT recently, by calling for:

"The integrity of the single market and openness towards non-euro EU countries should be preserved."

How exactly this will be done is unclear but the formal acceptance of the euro vs. non-euro split as an issue is at least a start.

That said, there is also an extended list of foreign policy commitments, such as "promoting stability", strengthening a common defence policy, etc, which could have been copied and pasted from any such document from the last 15 years.

All in all then, this is not an inspiring first draft. Much work needs to be done to improve it.

Juncker's appointment would bolster the Outist line that EU is unreformable

In a letter to the Telegraph today, Open Europe's Chairman Lord Leach notes:

This dispute is largely the product of the wording of the Lisbon Treaty. One part states that the election of the Commission President is the joint responsibility of the European Parliament and the European Council; another that the European Council shall “propose” a candidate to the parliament for election.  

David Cameron was entitled to take seriously the widespread support on the Continent for his speech last year in which he spelled out the need for EU reform. He was also entitled to assume that the selection process would be led by elected leaders of member states, rather than dictated by the largest “political group” in the European Parliament. The absurd portrayal of Mr Juncker as the champion of pan-European democracy is a cloak for German indecision and the failure of nerve of several EU leaders in the face of the European Parliament’s ambition to replace national democracies with its own ersatz alternative. Mr Juncker’s appointment would be a bitter blow to the pro-European cause in Britain, bolstering the Outists’ line that the EU is unreformable.

Could France and Italy provide Merkel with an excuse to drop Juncker?

The appointment of Jean-Claude Juncker as next European Commission President is often boiled down to a stand-off between David Cameron and Angela Merkel. And it looks increasingly likely that there will be a vote on Juncker as early as at next week's summit of EU leaders. He is still the favourite to land the job.

However, Juncker's road to the Berlaymont building is unlikely to be incident-free, and a degree of unpredictability remains.

Over the past few days, France and Italy have made clear that their support for any candidate to the European Commission Presidency is tied to a substantial change in EU economic policies. French Europe Minister Harlem Désir held talks with his Italian counterpart Sandro Gozi in Paris yesterday, to refine a common strategy. Furthermore, France will host a mini-summit of the seven centre-left EU heads of state and government tomorrow, to discuss their priorities for the new European Commission.

The proposal Paris and Rome have been working on is clear: growth-enhancing investments and the cost of structural reforms should no longer count as deficit under EU rules. Merkel has so far resisted the proposal, but Vice-Chancellor Sigmar Gabriel - of the SPD - has come out in support of giving more budget leeway to countries that undertake a wide-reaching reform process.

Unlike Cameron, neither French President François Hollande nor Italian Prime Minister Matteo Renzi seem to have a personality problem with Juncker. Nor have they openly criticised the principle of Spitzenkandidaten. But there is a chance they could end up on the same side of the debate, although for different reasons.

There are many factors at play here. But if Hollande and Renzi push it too far and make it clear that the price of their support for Juncker is a weakening of the eurozone's fiscal rules, they could provide Merkel with an excuse to drop Juncker, sacrificed on the altar of German budget discipline. That would make such a decision more acceptable to the German public, surely?

What happens when four EU leaders get into a rowing boat?

Swedish PM Fredrik Reinfeldt is today hosting David Cameron, Angela Merkel and Dutch PM Mark Rutte, in Harpsund, Sweden - a recreational estate for Swedish PMs throughout the years. The summit apparently features a trip on the "Harpsundsekan" - a worryingly small rowing boat. The tradition involves various world leaders holding on for life and limb in the boat, and was introduced by Tage Erlander, Swedish PM in the 1960s. Nikita Krushchev, Willy Brandt and Kofi Annan have all been in the boat.

Merkel has already had the dubious honour of going on a trip with Reinfeldt in 2008. It should be said that getting four people into any rowing boat is actually a bit of a mission. Given that Rutte is 6'4, Reinfeldt 6'2 and Cameron not a small guy either, this will require some focus.

So what will be discussed?

Well, the summit was decided ages ago and pre-dates the ongoing Juncker row. Initially, the idea was that the leaders of the EU's most competitive economies were going to meet in order to hammer out the priorities for the next European Commission in particular and the EU in general, with a focus on the jobs and growth agenda.

Reinfeldt has said that there won't be any "discussions about personalities" at the summit, but no one really believes that. It'll probably be a mixture of the two. If Cameron can get a better idea of whether Merkel can find a away out of the corner the SPD has pushed her into (a very rare occasion) over Juncker, as well as some reasonably concrete commitments on EU reform, linked to the mandate for the next Commission, he should be happy.

Is it wishful thinking to see this as the "EU reform quad"?  If they could speak with one voice, it would no doubt be a very powerful group which would be hard to ignore. Together with Finland, they are the only EU countries on the World Economic Forum's list of the top 10 most competitive countries in the world. They also account for 41% of the gross contributions to the EU budget (much more if we count net).

The four leaders formed a formidable alliance in February, achieving the first ever cut to the EU's long-term budget. Sweden's Reinfeldt has been very helpful to Cameron on numerous occasions, including shooting down a bunch of proposals for financial regulations. In those EU budget talks, Stockholm deliberately positioned itself further out than London so as not to isolate the Brits. Reinfeldt was also quite helpful after Cameron's "Bloomberg speech" (in contrast to the Swedish Foreign Minister, Carl Bildt). If Juncker is stopped, it'll be in no small part due to Reinfeldt's willingness to stick his head over the parapet, giving Cameron much needed political cover. However, Reinfeldt will probably lose the Swedish elections in September, meaning Cameron will have to negotiate with a centre-left coalition ahead of the potential 2017 referendum.

Likewise, Rutte was key in the EU budget talks and the Dutch have very much emerged as the thought leaders on EU reform, not least when it comes to the role of national parliaments in the EU. In fact, the Hague has been more vocal on many occasions than London itself. Encouragingly, EU reformers in the Netherlands did better than expected in the European elections in May.

As for Merkel - well, we've written endlessly on the need for Germany to row behind EU reform. As the debate over Juncker shows, the country is currently embroiled in a hugely complex debate about how Europe should be governed, and what role Germany should play within it. The Juncker episode was Cameron's first real encounter with Germany's grand coalition politics. It won't be easy.

What's clear is that if Cameron is to achieve the sweeping change needed for the UK to stay in the EU, these four countries will have to be able to agree a common position.