French public opinion and Europe: Winds of change?

With the European Parliament elections approaching, the number of EU-related opinion polls is growing. Beyond the mere voting intentions, these surveys help get a clearer picture of how citizens see Europe in various countries.

Two separate opinion polls published in France over the past few days caught our attention. Just in case you don't read our press summary every day - France is a particularly interesting case, given that the anti-EU Front National may well win the most votes in the upcoming European Parliament elections.

The first poll, conducted by IFOP and published by French news site Atlantico over the weekend, found that 59% of French would be in favour of France "reconsidering the Schengen agreements [which created a passport-free travel zone in Europe] and restraining the conditions for the circulation and the establishment of European citizens on its territory."

A separate OpinionWay poll for Le Figaro and LCI found that, while a solid majority of French want to keep the euro, the number of those against a return to the franc dropped from 62% to 53% since April 2012. Also, the share of respondents who think EU membership is "a good thing" for France went down from 48% to 42% over the same period - again, still a relative majority.  

Interestingly, one of the questions in the poll was, "Which one of these feelings comes to mind when you think of the EU?" Well, 45% said 'disappointment', 18% 'hope' and 12% 'indifference'.

It would be exaggerated to claim that the French are turning their back on the EU, but the winds do seem to be changing somewhat, and the French electorate seems to be shifting towards a less idealistic approach to the 'Europe' issue. Looking at the bigger picture, this also highlights that, without sweeping reform of the EU, the risk is that voters will increasingly turn to anti-EU and anti-immigration parties - and potentially throw the baby out with the bathwater.

An increasing number of politicians across Europe have realised this, including in France. Rachida Dati, a French MEP from the centre-right UMP party, told our pan-European EU Reform Conference last month that the "disregard" of the EU elite for the citizens had to stop, adding that "it is the peoples that must impose their will to Brussels and not the other way around".

If EU law is followed, Scotland will join the EU just before Serbia

Our Director Mats Persson writes on his Telegraph blog:

The UK must be the first country, with the forthcoming Scottish and EU referenda, to simultaneously have an intense political debate about the difficulty or otherwise of both joining and leaving the EU. Traditional assumptions are being bent in all sorts of directions, with senior UK politicians approvingly citing EU Commission President Jose Manuel Barroso for suggesting it would be “very difficult, if not impossible” for an independent Scotland to join the EU.

Like Catalonia in Spain, rightly or wrongly, Alex Salmond’s case rests in part on the argument that "if we leave one club, we can safely join another." It’s an insurance policy against the uncertainty which is a such a killer in any referendum to change the status quo. So is Barroso right?

Iceland’s accession talks with the EU – which were terminated since the Icelanders turned cold on the idea – would, in purely legal terms, come close to those of Scotland. Iceland is part of the European Economic Area, and therefore almost an EU member. Scotland has been an EU member for 40 years. Both would face tricky negotiations, like protecting their fishing industries.

There are basically six steps (by my rough categorisation). Salmond’s biggest problem is that for half of these, each of the 28 EU states, including rUK and Spain, has a veto:

Step 1 – Scotland applies to join the EU: Under EU law, it would have to be an independent country to apply.

Step 2 – The European Commission “screens” Scottish law to see if the country is compatible with EU membership – this won’t be an issue.

Step 3 – EU governments decide whether to approve Scotland’s EU application. All EU states have a veto.

Step 4 – The EU and Scotland begin negotiations over individual EU policy areas. There are now 35 so-called “accession chapters” covering everything from the euro to employment law to the EU budget. Each country has a veto over the decision to both open and then to close every single chapter – ask Turkey how easy that has proven (read: Cyprus and France). It’s in these talks that Salmond would need to deliver on his pledge to get an opt-out from the euro, as well as replicating the UK’s special deals on the EU budget, crime and immigration and passport controls.

Step 5 – When the 35th chapter is agreed, the Accession Treaty with the Scottish terms of entry is drafted.

Step 6 – This Treaty must then be ratified by the Parliaments of each EU country and the European Parliament. If one says no, the deal falls.

Iceland officially applied to the EU in June 2009. In 2013, when the bid was dropped, it had completed about a third of the negotiations. So if the letter of the law is followed, Scotland might join the EU just before Serbia, several years from now.

However, in the EU, political expediency tends to trump the letter of the law. I suspect that, given the stakes, if the Scots do pull the trigger, the EU will engage in the kind of legal acrobatics that it’s proven so good at in order to fast-track an independent Scotland to membership, with or without a euro opt-out (though, as Andrew Lilico has pointed out, there might be a range of practical currency issues).

No matter what, it would be a mess. In truth, we have little idea what’s going to happen if Scotland goes independent. And I suspect that in itself undermines Salmond’s case.

What’s wrong with Finland?

That seems a strange question to ask. The country is a paid-up member of the eurozone core and is one of the few countries in the world to have a triple A credit rating from all three top agencies (S&P, Moody's & Fitch) and a stable outlook from all.

However, as the chart to the left shows (taken from the most recent Finnish Central Bank Macroeconomic bulletin) and today’s GDP data confirm (the Finnish economy contracted by 0.8% in Q4 2013) suggests all might not be well.

GDP growth has stagnated and is now teetering on the edge of slipping into its third recession in six years. But what has been causing this? The chart below on the right provides some insight.

The first point to note is the collapse in the electrical and electronics industry. This has been largely down to the struggles of Nokia. Formerly a dominant player in the telecoms market the firm has failed to adapt to the changing nature of the market, in particular the smart phone phenomenon, and has seen its market share, profits and share value eroded. The sector has also suffered knock on effects of the reduced global demand in the wake of the financial crisis, the threat of low cost emerging markets and the struggling domestic demand due to falling confidence.

Similarly the large metals industry has also been hit by the global downturn and has struggled with price competitiveness. In particular the ship building industry would have been doubly hit by the struggles in global trade and is yet to truly recover.

It was previously said that Finland lived off its forests. This is no longer true, or at least it is no longer able to fully. The forest industry and the related wood, textiles and paper industry have struggled with changing technologies. Demand for paper and related products has fallen substantially as digital replacements grow and environmental concerns take hold. Again cheap emerging market products may also threaten in this area.

The combination of all this has been falling employment and an accompanied fall in domestic demand, keeping downward pressure on the economy. At the same time Finland is also beginning to run into the same demographic problem facing much of the developed world – the decline of the working age population and the increase in the number of dependants.

It’s clear that Finland remains a very strong and healthy economy. However, it is clearly undergoing some serious structural changes and may continue to post low growth figures for some time to come. Fortunately, public debt remains low at around 59% of GDP, while the deficit continues to be under control at 2.4% of GDP, and unemployment remains at just 8.1% despite recent increases. This should give the country plenty of space to conduct the structural changes needed.

That said, the case of Finland provides further evidence (as we have pointed out for Germany) that the peripheral eurozone countries aren’t the only ones undergoing significant changes.

#DEvote? Majority of Germans want to restrict migration

The Swiss referendum #CHvote to cap the number of EU migrants has sparked strong reactions across Europe. But would other European people vote differently if they were to be asked?

An Infratest dimap poll for Deutsche Welle from Wednesday suggests that a relative majority of Germans would like to restrict immigration as well. 48% say they are in favour of capping migration, while 46% are not. A very close call.  Note though, that the question was about "immigration" in general rather than "EU migration".

When broken down by party affiliation breakdown, it's clear where these views are most concentrated: 84% of Alternative für Deutschland's  supporters say they want a cap on migration. 51% of Angela Merkel's CDU/CSU say the same. Meanwhile, the Greens are least keen, with only 29% supporting the cap.

Courtesy of Deutsche Welle

In France, the picture might be even more distinct. A TNS Sofres/Le Monde poll recently showed that 34% of French “agree with the ideas” of Marine Le Pen’s Front National. Greens MEP Danile Cohn-Bendit estimates that 60% of French would vote in favour of limiting immigration.

The Balance of Competence Review: some interesting stuff but this is becoming a painful process for Downing Street

With little fanfare, the Government has today published the second round of Balance of EU Competences reports – now making it 14 reports published in total. We won't accuse the Government of seeking to bury the latest batch of reports in the week of the worst UK floods for decades or a major announcement on an independent Scotland’s inability to use Sterling. Rather, it probably wanted to get them out before parliamentary recess.

However, the reports are a mixed bag with the most controversial one - free movement of workers - still missing. While the individual reports contain tales of dissatisfaction with the status quo and EU over interference within policy areas, the reports remain largely descriptive. None of the reports draws any deep conclusions on the broader balance of power between Westminster and Brussels, which they clearly didn't set out to do.

Some of the other reports are far better than others. The Trade and Investment report is genuinely interesting, for example. While some disagree with the report’s conclusion that membership of the customs union and the single market represents the best option on offer for UK trade, the report does at least engage with the alternatives and key debates, such as whether the EU is trade diverting or creating and the fact that the European Parliament can be a liability in trade talks.

We agree that on trade grounds the UK is at the moment better off inside (a reformed) EU.

The Transport report expresses concern about EU action that “fails to take account of the distinct circumstances of Member States with peripheral geographic locations, such as the UK.” The Environment and Climate Change report also contained some interesting factoids. The House Builders Federation for example noted that “in some areas 85% of Community Infrastructure Levy is required for mitigation of the Habitats Directive 92/43/EEC, leaving little funding for schools and roads, commenting that this is disproportionate and unsustainable.” And that EU rules can add 18 months to the life cycle of a planning application.

These reports present a useful catalogue of the extent to which the EU now permeates almost all aspects of the UK economy and society, and the logical conclusions of the transport and environment papers is that we need to do more to maximise the EU's trade opportunities but also have some seriously effective mechanisms to fight over-regulation, such as "red" and "green" cards for national parliaments.

Still, the desire for these reports not to reach any ‘controversial’ conclusions, whilst understandable on one level, has created another problem for David Cameron. European partners, media and his MPs may eventually ask ‘Why commission a review that seemingly contradicts your own policy?’ And why seek change when the "evidence" shows that everything is all well apart from some problems at the margins. We still think the basic idea behind the BoC is sound but there's a problem with what this exercise has turned into. It's not so much an attempt to assess the balance of powers but a descriptive public consultation. In its attempt to avoid drawing conclusions, it is doing precisely that, even when the wider criteria against which to measure EU involvement - which should be the point of this exercise - is absent.

Consider the Culture, Tourism and Sport report. In places, it reads like a European Commission advert for EU intervention. For example,

“…Over the last 20 years a Media Programme has supported some highly acclaimed British films including This is England (Shane Meadows, 2006), The King’s Speech (Tom Hooper, 2010) and The Iron Lady (Phyllida Lloyd, 2011). In 2010, UK companies received €8.7m to support the production, distribution and screening of films in the UK, and over €6.7m was invested to boost the European cinema releases of over 40 British films.”

That a report drafted by the Department for Culture, Media and Sport with evidence submitted by various organisations drawn from the culture sector should conclude that the EU’s culture competence is “an important source of funding for the sector, as a driver for new creative partnerships, and as a vehicle for promoting the UK’s ‘soft power’” is hardly a surprise.

Some spending on warm and fluffy initiatives such as films may seem like no big deal. But this is one of the fundamental problems with this entire exercise. Because there is no one weighing these micro aspects of EU membership against a wider set of principles it tells us little about the wider UK national interest. I.e. this funding is simply money the UK has already handed over to Brussels and that surely, if these projects should be publicly funded at all, this should be a decision made by people far more accountable to UK taxpayers than EU officials?

The Balance of Competence Review process was meant to provoke debate about the impact of the EU on the UK writ large. Unless he starts a process of putting these individual reports into the wider context of his vision for the EU, this could become a painful process for David Cameron.

Italian PM Letta will resign: What happens next?

Italian Prime Minister Enrico Letta has announced he will tender his resignation to Italian President Giorgio Napolitano tomorrow. The dramatic development comes after Italy's centre-left leader Matteo Renzi addressed a meeting of his Democratic Party earlier today. A few minutes before Renzi took the floor, it emerged Letta would not be attending the meeting - a clear sign of where things were going.

The three key points of Renzi's speech were:

• Letta has done a great job, but it's time to give way to a new government (that Renzi will lead);
• Snap elections now would be too risky, primarily because the electoral law hasn't been changed yet;
• The new government will aim to stay in office until 2018 - when the current parliamentary term expires.

It now seems certain that the 'staffetta' (relay) will materialise - and we expressed our thoughts on the move in our previous blog post.

So what happens next? If you're regular readers of this blog, you should know the drill by now - but just in case:

• Letta will meet President Napolitano tomorrow, and will hand in his resignation;

• Napolitano will then have to consult all the political groups holding seats in the Italian parliament. The timetable is usually announced after the Prime Minister resigns, but we reckon it could happen over the weekend; 

• After the talks, Napolitano should give Renzi the mandate to form the new government - presumably early next week;

• After holding his own round of talks with other political leaders, Renzi should then unveil the list of ministers (we'd expect a rather substantial reshuffle from the current cabinet), and should be sworn in;

• After being sworn in, Renzi will have to face a vote of confidence in both houses of the Italian parliament - which, as things stand now, should be a mere formality. 

This is all you need to know to make sense of the latest political developments in Italy. For real-time updates, you can follow us on Twitter @OpenEurope and @LondonerVince.

EU approval process for GM requires better balance between innovation and democratic accountability

Yesterday saw a debate between the EU's Europe ministers regarding the approval of Pioneer 1507 - a strain of genetically modified maize which has been developed by US firm DuPont to be pest-resistant. This is a fascinating case which sees the clash between EU legal procedures and scientific evidence on one hand, and public opinion and green lobbying on the other.

Unbelievably, DuPont first applied for EU approval back in 2001, but due to the political resistance to GM in the EU, this application was deliberately kicked into the long grass despite six separate positive opinions from the EU's food quango, the European Food Safety Agency. The wider context is a climate of political hostility which has resulted in Europe falling far behind the rest of the world when it comes to biotechnology - aside from Pioneer 1507 only one other GM crop has been approved in the past 15 years. The result is that biotech companies such as BASF and Monsanto have already left the EU and others could follow suit, with the loss of jobs, investment and trading opportunities.

Following a legal challenge by DuPont, the EU's General Court ruled that the EU was breaching its own rules by not taking a decision. Opinion among member states was divided, with five states including the UK minded to vote in favour, four including Germany minded to abstain and the remaining 19 minded to vote against (a formal vote was not actually held). Despite the large number of member states opposing the approval, no qualified majority was reached either way.

Under the EU's comitology process, when the result is indecisive, the Commission can chose to push ahead with its original proposal, and its looks set to do so (in fact during the debate the Council's legal service indicated it would be legally obliged to).

This is undoubtedly a problematic situation. On one hand, it is good that the Commission is heeding the independent scientific recommendation issued by EFSA. As EU Health Commissioner Tonio Borg argued during the debate, member states should not pick and chose when to follow such advice and when to disregard it. On the other hand it is bad from a democratic perspective when the Commission forces through something opposed by a majority of member states and public opinion - the EU was rightly slammed for proposing to ban jugs of olive oil from restaurant tables following a similarly inconclusive vote.

The case therefore illustrates the need for more flexibility in the EU on issues where member states cannot agree and where public sensitivities need to be taken into account. As UK Europe Minister David Lidington argued during the debate:

"I've no wish to force any country that doesn't want to cultivate this variety of maize to do so... in the longer term the answer surely has to be some agreement under which we agree that those member states that want to have GM crops in cultivation are free to do it while those maintain a ban are free to do so as well."

Greater flexibility for member states to ‘go it alone’ in designing appropriate regulatory frameworks for GM was also one of the recommended in the recent Fresh Start report on the EU's impact on UK Life Sciences. This would be a good compromise - that way it would be down to national governments and parliaments to decide whether to allow cultivation of GM crops - and it would be down to national politicians in favour of this to show the requisite leadership to win over public opinion.

Italian government on the brink (again): Has Renzi's hour come?

‘Staffetta’ is the most used word in the Italian media these days. It literally means ‘relay’, and it refers to the

possibility of Prime Minister Enrico Letta handing over power to a new coalition government led by Matteo Renzi – the Mayor of Florence who was elected as the new leader of Mr Letta’s centre-left Democratic Party in December.

The two are holding talks in Rome as we write this blog post, ahead of a key party meeting scheduled for tomorrow. Speculation is growing in some Italian papers that Mr Renzi already has a list of ministers in mind.

If the takeover does materialise, as looks increasingly likely if you scan the Italian press, a few points are worth keeping in mind:

• The change of government would not change the numbers in the Italian parliament, where no party holds a majority in the Senate, the upper chamber. Renzi may be able to muster wider parliamentary support than 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. 

• The handover of power would happen without an election, something which could backfire in terms of Renzi’s image vis-à-vis the electorate – not least because the Mayor of Florence has been clearly saying that he wasn’t keen on replacing Letta without a vote. 

• Therefore, a better option at this point might be to pass a new electoral law quickly and call snap elections. The electoral law currently being discussed is not perfect, but it would make sure that the winning party/coalition would secure a solid majority in both houses of the Italian parliament. It could be done in time for the beginning of Italy’s rotating EU Presidency on 1 July. Indeed, this would mean two months of political paralysis because of the electoral campaign. But despite all the good intentions, Mr Letta’s government has so far hardly delivered on the big reforms it was supposed to implement. Most importantly, at the end of the process Italy would have a government which has actually come out of the polls – rather than negotiations among party leaders.

When Ukip's recruitment sergeant number one came to town...

Update 15:00 Nigel Farage himself speaks:

After hearing Commissioner Reding admitting 70% of our laws are made by the EU I am willing to sponsor her doing a UK tour
— Nigel Farage (@Nigel_Farage) February 11, 2014

Update 11:50 - We've come across a video (h/t @hughbs) in which Reding very much stands by the 70%-80% estimate.

Update 11:15 - The Telegraph's man in Brussels, Bruno Waterfield, has gotten in touch to say that he asked Reding specifically about the 70% figure:

@OpenEurope I asked her about the 70% figure, she said EP 'co-decides' on 70% of all EU legislation rather than what she said
— Bruno Waterfield (@BrunoBrussels) February 11, 2014

However, at a similar event in Stockholm last year, she argued that:

"Did you know that 80% of Swedish laws are not Swedish laws? They are European laws that have been translated into Swedish legislation."

We've already examined this claim here, but it seems Reding is at best confused about the extent of EU legislation (worrying for an EU Commissioner) or being purposefully misleading.

UKIP's most effective recruitment sergeant?

Original post:

Where to start with Viviane Reding? She visited London yesterday as part of her so-called 'Citizens’ Dialogue' – which is neither about citizens nor a dialogue – and gave a very impressive performance. Somehow, she managed to offend absolutely everyone.

• The British public by questioning whether they "know what they are going to vote about" in a potential 2017 EU referendum, 
• The British media by suggesting it “completely distorts the truth” over Europe, 
• The British government by rubbishing large parts of its strategy, most notably on the crime and policing opt out and EU free movement, 
• Europhiles by suggesting that “70% of the laws in this country are made, co-decided, by the European parliament" (meaning that the share of EU laws, according to Reding, must be higher since not all EU decisions are made jointly with national parliaments) – a “euro myth” that ivory-tower types in the UK have spent years trying to “dispel”, and ironically, used as Exhibit A in their accusations of “misinformed media” (“6.8% of primary legislation” and all that),
• The Ukrainian protesters by praising their brave, pro-EU stance, and then later saying she has, unlike the UK, "never pushed for further enlargement" instead favouring deeper integration. 

So in short, the British are too ignorant to vote, British media all misinformed and 70% of UK laws are made in Brussels. As one person put it on Twitter, it’s hard to think of better “rocket fuel for those who want to quit the EU”.

Apparently, Reding got her bag stolen from her car while engaging in the “dialogue”. Fortunately, her papers, hopefully including the source for the “70% of all laws” claim, were left untouched.

Are MEPs about to take on the English legal profession?

English knights seeking to protect their estates were a driver behind 
the creation of English Trust law.

MEPs are set to vote this Thursday on the 4th Anti-Money Laundering Directive - which aims to shed light into who owns private companies. This sounds positive and innocuous and the sort of thing politicians, including David Cameron, often - and rightly - call for. But the devil is in the detail. Some MEPs are reportedly now proposing to extend this 'transparency' into Trusts as well as companies, which could have major impact on UK business.

Making a register of the beneficial owners of all private companies, based on millions of underlying arrangements, changing on a day to day basis, was already looking to be complex. But when it comes to Trusts, transparency runs into a serious intellectual and practical problems. Who is the beneficial owner of a discretionary trust? How do you report that a spouse has an interest in a property/company - something that may only become apparent in a divorce court?  Trusts encompass all manner of arrangements; trusts to protect children, trusts holding money pending a transaction, insurance policies, pensions, collective investment schemes etc. Without Trusts the UK's financial services industry would not be able to operate. Will MEPs really seek to have all this reported on a potentially public register? If it is indeed possible, reporting millions of ever changing arrangements could add a massive regulatory cost to everyone's financial affairs. Logic would dictate they would steer clear but lobbyists are already in full swing, pushing amendments that would radically increase the scope of the report.

This is also an important test for how the EU balances the interests of different member states. Trusts are a major innovation of the UK's, (particularly the English) legal system. Whereas continental legal systems traditionally tended not to look beyond the legal ownership of a property, the English legal system has taken a different approach, for better or worse dating back to the Crusades. Essentially, if you hand over the legal ownership of property to a relative in the expectation that you retain an interest (i.e when you come back alive from a Crusade) and it is not respected you could go to the King to receive justice - in the jargon you retained an 'equitable interest'. Other EU states have different set ups such as Stiftungs and Anstalts but these are not as widespread as UK Trusts.

What will happen? Well there are signs that some MEPs are aware of the problem, the EPP for one seems to be against, but David Cameron's ECR group (perhaps to save him embarrassment?) seems, for now at least, curiously undecided about coming out against these ideas.

This is not to say the English legal system should be exempt from transparency, but rather than EU politicians of all colours need to be acutelyy aware of the unintended consequences of regulating 28 different legal systems - with practices sometimes dating back centuries - with one broad brush.

Europe responds to the Swiss referendum - and it ain't pretty

We suspect the reverberations from the decision in the Swiss referendum to cap the number of EU migrants might be felt for some time (we look at what the long term implications could be for the UK here). The Swiss case is interesting because unlike the debate on migrants from Central and Eastern Europe in the UK, Germany and the Netherlands, it primarily affects citizens of the wealthier member states, primarily Germany, France and Italy. Here are some immediate reactions from around Europe.

The tone from the Berlin has been quite tough with Steffan Seibert, Merkel's spokesperson commenting that:

"The government takes note of the result and respects it but it is also the case, in our view, that it throws up considerable problems... It's in our interest to keep EU-Swiss relations as close as possible."

Foreign Minister Frank-Walter Steinmeier (SPD) added that "I believe that with this result Switzerland has harmed itself". He also dusted off the classic line so beloved of his predecessor in the post:

"there can be no cherry-picking when it comes to the EU" 

The new FDP leader Christian Linder echoed this sentiment arguing that "The Swiss are taking from the European buffet only that what they want" (which is kind of the point of a buffet). Interestingly however he added that he was "open-minded" about having more referenda in Germany.

Meanwhile Alternative für Deutschland leader Bernd Lucke didn't explicitly argue for capping EU migration although he struck a different tone compared with the established German parties, arguing that:

"Irrespective of the result of the Swiss referendum we can also achieve in Germany an immigration law which is based on qualifications and he ability to integrate while preventing benefits migration... If necessary we could have such referendums [in Germany]."

The least diplomatic response came from Ralf Stegner, leader of the SPD faction in Schleswig-Holstein who took to twitter to describe the Swiss as "crazy".

Die spinnen, die Schweizer!
— Ralf Stegner (@Ralf_Stegner) February 9, 2014

The response in France has also been quite tough with Foreign Minister Laurent Fabius arguing that:

“This is bad news for Europe and the Swiss, because Switzerland will be penalised from withdrawing into itself... There’s a so-called ‘guillotine clause’ establishing that if one of the elements [of the Swiss-EU bilateral deal] is put into question – in this case, the free movement of workers – everything falls down. Therefore, this means we’ll have to renegotiate […] This means we’re going to reconsider our relations with Switzerland.”

Former French PM Fillon (UMP) was commented that:

“It would be totally incomprehensible if Switzerland put a barrier to the access of cross-border workers… On the other hand, that [Switzerland] wants to reduce the overall number of foreigners on its territory is a perfectly natural demand.”

Italy's Foreign Minister Emma Bonino said that:

“The impact [of the Swiss referendum] is undoubtedly very worrying, with regard to both Italy and the other agreements with the EU.” 

Matteo Salvini, the leader of Lega Nord, said:

“Hurrah for Switzerland’s democratic referendum. We’ll propose one in Italy, too.”

However, his fellow party member Roberto Cota – the governor of Piedmont – voiced concern over the future of cross-border workers from his region, claiming that:

“Respect is needed, because we’re talking about honest and regular workers. Together with [Roberto] Maroni [the governor of Lombardy, another senior Lega Nord member] we’ll request a meeting with [Italian Prime Minister Enrico] Letta on this issue as soon as possible.”

UK Foreign Secretary William Hague was quite restrained, commenting that he did not want to prejudge the results of the negotiations, adding that:

"We will be mindful of the position of 40,000 British nationals who work in Switzerland".

Irish foreign minister Eamon Gilmore warned that “We are seeing signs of the rise of the far-right in Europe” while the Luxembourgian foreign minister Jean Asselborn has been the most outspoken, claiming that the vote has put the Swiss in “good company” with people such as Marine Le Pen, the leader of the French Front National.

There have also been some strong responses coming out of Brussels with EU Commission spokeswoman Pia Ahrenkilde-Hansen commenting that:

"The message is clear today: free movement of people is a sacred right for the EU... This will clearly have implications for the rest of the agreements [with Switzerland]."

EU Justice Commissioner Viviane Reding, never knowingly understated, argued that "the single market is not a Swiss cheese. You cannot have a single market with holes in it" which is a silly statement given that the Swiss trading relationship actually is a bit like a Swiss cheese, with patchy market access in services, for example.

The response from MEPs is also interesting as they might have a say in the negotiations (although this is a bit of a grey area). While EP President Martin Schulz was relatively restrained, other senior MEPs were quick to stick the boot in.

Disappointing Swiss referendum will lead to disadvantages for CH in new negotiations with EU. #abst14 #CHvote
— Hannes Swoboda (@Hannes_Swoboda) February 9, 2014

So a lot of posturing. These negotiations will be very, very interesting...

EU immigration: Why Ukip should pay close attention to what happens next in Switzerland

Our Director Mats Persson writes on his Telegraph blog:

In a referendum yesterday, the Swiss voted by a narrow margin in favour of restricting immigration from the EU. Switzerland is not an EU member but via around 100 agreements, Switzerland is partly integrated into the EU, including in the contentious area of free movement of workers.

Ukip’s Nigel Farage has been quick to stick the boot in, calling the vote "wonderful news for national sovereignty and freedom lovers throughout Europe." Equally predictable, Vivanne Reding – Vice President of the EU Commission – said that while "we respect the democratic vote of the Swiss people… The single market is not a Swiss cheese. You cannot have a single market with holes in it."

Which is a silly statement. One of the basic flaws with the Swiss trading relationship with the EU is precisely that it suffers from holes, including patchy market access in areas such as services, making it a sub-optimal model for the UK to follow. But Reding’s comments still highlight what an important test case this will be of the feasibility of the pick and mix relationship with the EU from outside, which the UK might have to adopt should it leave the EU.

Here it gets tricky. The Swiss-EU agreement on free movement was part of a bundle of agreements known as Bilaterals I, which also covered six other areas including market access for various Swiss exporters and firms, from trade in agricultural products to civil aviation. Crucially, it contains a "guillotine clause: which says that that the contents – including the market access – can only take effect together: if one of the agreements is terminated, the others would also cease to have effect. This sets Bern up for very difficult talks with Brussels. If the EU wants to play hardball, it could scrap the entire agreement.

There are a huge number of issues captured in the Swiss vote: support for immigration in Europe, the risk for an open economy in erecting new barriers to the world (think labour costs), how the EU responds to referendum results and much more. However, for the UK the implications are clear. If this escalates into other areas of Swiss-EU trade, including restricted market access, many in the UK will argue that a “pick and mix” deal with the EU will be hard to pull off. If, on the other hand, Switzerland was able to renegotiate its relationship to impose some form of restrictions on EU migration, however minor, those who favour UK exit would no doubt see it as a politically palatable precedent.

The Swiss referendum question doesn't specify what shape the immigration quotas would take, but only instructs the Swiss Parliament to draft legislation addressing the issue within the next three years. Much can still happen. However, no matter what, the EU will most certainly negotiate any revised deal with one eye firmly fixed on London, worrying about giving the Brits ideas. And for anyone with even the slightest interest in Britain’s future place in Europe, this is a key one to watch.

Switzerland's free movement referendum could provide key test of what life outside the EU is like

On Sunday the Swiss electorate will be asked to vote in a referendum on whether to impose migration quotas on European Union and European Economic Area nationals – a system the country currently uses for non-EU/EEA migrants. The referendum question doesn't specify how large or what shape the quotas would take, but would instruct the Swiss Parliament to draft legislation addressing the immigration issue within the next three years.

Ahead of Sunday’s vote, it is looking very tight with 43% expected to vote in favour of the quotas and 50% against, according to a recent poll by GFS.Bern. If the referendum result goes in favour of introducing quotas, not only would it potentially end free movement between Switzerland and the EU as we currently know it, there could be much wider ramifications for the Swiss-EU relationship that would provide a landmark test case.

The Swiss-EU agreement on free movement was part of a bundle of agreements known as ‘Bilaterals I’, which covered six other areas including the Mutual Recognition Agreement, which simplifies the admission of Swiss products in to the EU market, trade in agricultural products and civil aviation (other aspects of Swiss-EU relations are governed by a 1972 free trade agreement and there is also a Bilaterals II – in total there are 20 main and 100 subsidiary agreements in place). Crucially, Bilaterals I contains a ‘guillotine clause’ stipulating that the contents can only take effect together: if one of the agreements were not to be prolonged or terminated, the others would also cease to have effect.

Nothing will happen immediately on Monday morning, irrespective of the referendum result, because if the Swiss government is mandated to impose quotas it would have to decide what form this would take. Nevertheless, it would set up a very difficult negotiation with Brussels, which, if it wants to play hardball, could scrap the entirety of the rest of the agreement.

Now, it is not difficult to see why this could have consequences beyond Switzerland's relations with the EU (some would argue, it will also be another test of how the EU responds to referendum results). But, should the row escalate and other aspects of Switzerland's trade cooperation with the EU be cut off, many would argue that it illustrates that a pick and mix UK relationship with the EU from outside (particularly a carve out from EU immigration that UKIP would favour) would be difficult or impossible to pull off. If, on the other hand, Switzerland was able to renegotiate its relationship to impose some form of restriction on EU migration, however minor, this would give those who favour UK exit an important precedent to point to.

For this reason, we suspect the EU will take a very hard line with the Swiss government if the Swiss people vote for quotas on Sunday.

German Constitutional Court believes ECB bond buying is illegal, but asks ECJ to rule first

Hanging up their robes? Ball is now in ECJ's court

As has been widely reported this morning there has been some surprising news out of Karlsruhe with regards to the ECB's bond  buying programme and its legality.

Our full take is here, with the summary below:

Summary: The German Constitutional Court (GCC) – Bundesverfassungsgericht – has referred several questions surrounding the ECB’s Outright Monetary Transactions (OMT) programme to the European Court of Justice (ECJ). It is evident that the Court believes the OMT is illegal and incompatible with EU and, therefore, German law. However, the Court only has jurisdiction to rule on matters of German domestic law. It therefore argues that it must refer the key questions to the ECJ – the body which interprets EU law – given that the ECB’s mandate and any overstepping of EU treaties is obviously a question about EU law.

The ECJ is likely to side with the EU institutions and rule that the OMT is compatible with EU law, with the GCC likely to therefore say its hands are tied. Still, the decision throws new uncertainty into the fragile eurozone economy and could hamper the recovery. The GCC may also, in its interpretation of the OMT’s compatibility with German law, insist in new red lines - potentially limiting the level of purchases. This itself would severely restrict the role of the ECB. 

Markets, while briefly spooked, seem to have broadly recovered, whilee the euro remains slightly weaker. This doesn't seem to have had much impact, with many coming round to the view that the OMT will remain practically usable until the ECJ almost inevitably fully approves it.

The broader fallout is interesting, as this case has often been cited as one of the remaining risks in the eurozone. Despite the GCC's strong objections to the OMT, this could end up actually bolstering the ECB's position.

More generally as well, it does raise questions about Germany's role in monetary policy and the GCC's role. On EU related issues it is ultimately bound by the ECJ's interpretation of EU law. Furthermore, we can't help but feel that the Court has tried to somewhat dodge this very difficult and politically sensitive decision. It also suggests Germany may be struggling to fulling impose its will over monetary policy - although it clearly remains very powerful and many would argue continues to hold action such as asset purchases at bay.

Nonetheless, plenty of food for thought and an interesting shift in the dynamic of the eurozone.

All hail Angela Merkel – No 10 goes all out for the Chancellor

Painting in the Royal Gallery - the Duke of Wellington with Field Marshal Blucher at the Battle of Waterloo - harking back to an earlier age of Anglo-German cooperation.

Angela Merkel will visit London on 27th February, in what will be, no doubt, a much hyped affair. Though the details are yet to be confirmed, in addition to meeting David Cameron and the Queen, Merkel could also “be given the rare privilege” – as the Telegraph’s Chris Hope put it – of addressing both Houses of Parliament at the Royal Gallery, perhaps in an attempt to rekindle the spirit of the early 19th Century when Anglo-German cooperation was the norm (see painting).

 

The last head of government to address the Royal Gallery was apparently Nicolas Sarkozy – then French President – in 2008. We suspect that for Merkel this is more a case of “business as usual” rather than “privilege” but in any case, it’s significant.

There’s no doubt that the Tory leadership hopes for encouraging signs from the Chancellor, following Francois Hollande’s predictable comments last week that EU treaty change “is not a priority” (which nonetheless generated headlines). Far worse for Cameron et al was that the German Foreign Minister Frank-Walter Steinmeier proved such hard work when he was here on Monday – holding a rather awkward press conference alongside William Hague, which included some tempered language on Treaty change (which even came close to contradicting the German Coalition agreement).

As we’ve noted before, the German Grand Coalition isn’t a deal-breaker for Cameron’s plans but it does mean a lot more work. In contrast to the Steinmeier visit, which was barely publicised (most lobby journalists - the parliamentary correspondents who often set the agenda in UK press - were unaware of the meeting instead basing their write-ups on the news wires, which arguably triggered even worse headlines for Hague / Cameron), the Government will go all out for Merkel.

As we’ve argued since the start, Merkel holds the key to a new settlement in Europe, so No 10 is right to step it up. However, at the same time, it must be wary of not being seen as desperate – Merkel is by far the most important leader in Europe, and the big Europe questions are decided by the Kanzleramt and even the Finanzministerium, not the Auswärtiges Amt. Nevertheless, the strategy cannot entirely rest on Merkel, also keeping in mind that this is her last term, with her potentially getting weaker closer to the end.

Merkel’s visit will mark the start of a fresh attempt by No 10 to court EU leaders (read: explain to Europe what in the world Britain actually wants to achieve apart from creating emergency headlines to appease backbenchers). It won’t be a day too early. 

BILD up in arms about Greek bailouts once again

This is the front page of Germany’s (and Europe’s) largest  newspaper Bild. The headline reads:

“Greeks richer than us! ...But [the German] government plans new billions of aid.”

Now this is not exactly a surprising or rare occurrence – we have pointed out the tabloid's concern with the bailouts and other eurozone crisis actions before.

The story is based on the ECB wealth survey published last year. But as as we detailed on the blog at the time, the survey is actually quite misleading since it is based on old data and distorted by the much higher home ownership in peripheral Europe than in Germany. It also misses the point that tapping into such ‘wealth’ would be incredibly difficult.

In any case, with Greece continuing to struggle, even while the rest of the eurozone posts some positive results, the chances are that further assistance will be needed at some point. This remains a tricky proposition in Germany (and Greece, given the strings attached, we might add).

German Foreign Minister welcomes discussion on EU Treaty Change

German Foreign Minister, Frank-Walter Steinmeier, is visiting his counterpart, William Hague, in London today. Although the visit doesn't seem to have received much media coverage, we've just been at the press conference, and Herr Steinmeier had some interesting things to say. Unsurprisingly, Steinmeier said he wanted the UK in the EU.

Further Eurozone integration

Steinmeier said that the UK could play a pivotal role in making the EU more effective and competitive, but he also said that it was important not to "backtrack on European integration", but it was not clear if he was referring to Eurozone integration – which the UK actually isn’t against. Hague opened the press conference, saying that both government agreed to work together to ensure a "fairer system" to all Member States in the EU.

Repatriation of Powers 

Steinmeier also made clear that the EU should govern on the "big questions" - that it should rule where it is most effective. In this context, then, he said that there should be a further discussion on which competences would be best regulated on the national level. It was unfortunate that we didn't get a chance to ask Herr Steinmeier to comment on CDU's draft European Parliament election manifesto, which Handelsblatt reported on today as explicitly saying:

“A repatriation of competences to the national level should be possible.” 

Treaty change

The German government – particularly the CDU/CSU wing continue to insist on Treaty Change in some form to provide more central control in the eurozone over spending. At the same time, Cameron wants a Treaty Change to institutionalise flexible integration including the possibility to pursue “less Europe”. The idea is to combine the two in a new grand bargain. Remember, last week French President Francois Hollande restated that Paris didn’t see Treaty Change as a “priority” for fear of a referendum (which would be politically hard to avoid due to the German-style Treaty Change, not the British one). This created headlines in the UK.

Steinmeier said that discussions over Treaty Change are far more nuanced than a polarised vision of Britain on one side asking for the all the Treaties to be opened up, and France on the other, resisting any such discussion – which is exactly what we’ve said. In fact, Steinmeier said he "welcomes a debate" and is "not against discussing an adaptation of the Treaties." He added that there’s a debate raging in Germany at the moment over how to put Eurozone integration on a constitutionally and politically sound footing.

However, he also said that Germany and Britain aren’t completely aligned over Treaty Change, and, somewhat uncomfortably for Hague et al, argued that any major revision to the Treaties along the lines of what the UK is calling for, should perhaps be deferred until the eurozone stabilises further.  "It's not just to do with the UK and Germany that some things are stalling," said Steinmeier.

When asked the crucial question whether he believed that Treaty Change would coincide with David Cameron's 2017 timeline, Steinmeier said it "was too complicated a prognosis" to be able to give a straight answer.

Free movement 

Steinmeier said that the Bundestag has set up a working group to present solutions on how square sensible rules on access to benefits with free movement. He said that the debate in Germany on free movement – while it was definitely was an intense debate - was in "sensible boundaries", a nod to the UK press and its handling of Romania and Bulgaria.

Are further falls in inflation putting more pressure on the ECB to act?

Friday saw the release of the flash estimate for annual inflation in the eurozone in January. It dropped further to 0.7% - well below the ECB’s target of 2%.

The initial reaction was that this will increase pressure on the ECB for action at this Thursday’s Governing Council meeting. While that is true on the surface its worth keeping another couple of points in mind.

• As the graph above shows (click to enlarge), much of the recent decline has come from changes in energy and food prices. Core inflation, excluding these two factors, has been relatively stable since October and has been on a gradual decline since spring 2013.
• Now of course, many will point out that energy and food are important components of real world costs and therefore should not be discounted. This is a valid point, but here we are looking for insight into how the ECB takes its decisions. Generally, the ECB will be less concerned over short term moves in energy and food prices and is therefore less likely to take action off the back of this.
• The main part of the decline took place last year and has been happening for some time – this is likely already accounted for in the ECB easing efforts.
• While the inflation data may not push the ECB to act, there are plenty of other concerns. The turmoil in Emerging Markets could push the ECB to provide an additional liquidity buffer against any shocks. While this morning’s PMI manufacturing data was actually very positive for the eurozone, data on lending to the real economy and growth of the money supply is less so.

As we have suggested before, some further easing is looking likely. The real question is when and how? The data suggests to us that the ECB will wait until its March meeting and its updated inflation forecasts to make a judgement – but then again it went a month earlier than expected in November.

As for how, the most likely tools remain some form of targeted LTRO and/or purchases of bank loans but both programmes would require significant work and have numerous shortcomings, as we have already noted.

Rückführung alert: CDU says repatriation of EU powers must be possible

This is interesting from today’s Handelsblatt. The paper has apparently seen the CDU’s draft manifesto ahead of the European elections. As a reminder: the CDU is Angela Merkel's party, which, along with its sister party, the CSU, won a landslide with 41.5% of the vote in the last federal election. It's what you would call the very definition of mainstream. 
 
The CDU manifesto calls for an “an effective regulation brake” with decisions needing to be “effective and more transparent.” Interestingly, the CDU manifesto suggests that the European Commission should be required to scrap an EU law if a majority of national parliaments says it could be handled better at the national or regional level . This seems to be very similar to the idea of a “red card”, which we long have argued for and which Dutch Foreign Minister Frans Timmermans, for example, has championed.

Perhaps even more interestingly, according to Handelsblatt, the CDU draft manifesto  also explicitly states that:

“a repatriation of competences to the national level should be possible.”

This is significant since German politicians tend to avoid using the word “repatriation” – or Rückführung – since it has strong connotations, instead preferring a range of other more guarded expressions including Dezentralisierung, Regionalisierung, Übertragung, Subsidiarität and Verhältnismäßigkeit.

Handelsblatt’s take on this is that that the :

“CDU is reacting to growing euroscepticism in the country” including to anti-euro party Alternative für Deutschland (AfD).

However, the take of CDU's campaigners is (as to be expected) that the party is simply becoming more realistic - which is a neat way of putting it:

 
Meanwhile, the Today programme has an interview with Hans-Olaf Henkel – formerly the head of the BDI (The German equivalent of the CBI) – now with AfD.

Henkel argues that though he wants return of EU powers, he also wants Germany to stay in the EU. Today's take on this is that "British sceptics may be disappointed" if they look to Berlin, concluding that “Even the German sceptics are not very sceptical when compared to their British counterparts.” Now, this isn't necessarily right nor wrong -- but just not very insightful.

• First, as we’ve argued before, the main clash in Germany is not between the “pro-European” and “anti-European” schism that the BBC is constantly looking for, but rather between two key pillars of post-WWII Germany: Europe and sound money.
• Secondly, is the BBC saying that the definition of “Eurosceptic” is now wanting to leave the EU?  If so -- it will have made a lot of "Better Off Outers" very happy. However, that also means that it can no longer use the "Eurosceptic" label for a whole of host of other actors, including large chunks of the current Conservative government which, irrespective of the rights or wrongs, want to stay in a reformed EU.

This isn't becoming too complicated for black-and-white labels, is it?