Meet Podemos, the great newcomer of the European elections

The European Parliament elections have dealt a blow to Spain's traditional two-party system. Together, Prime Minister Mariano Rajoy's Partido Popular (PP) and the opposition Socialist Party (PSOE) won 49% of votes. In 2009, their combined score was 80.9%. No wonder Socialist leader Alfredo Pérez Rubalcaba has decided to step down following his party's poor showing.

But the big story coming out of Spanish ballot boxes is the success of Podemos (We Can), a new left-wing, anti-austerity movement that came from nowhere to become Spain's fourth largest party and win five seats in the new European Parliament.

And 'nowhere' really means 'nowhere' in this case. Podemos was officially registered as a political party in March 2014 - which makes its performance extraordinary. Its leader, 35-year-old Pablo Iglesias (see picture), is a Political Science professor but also a bit of a TV star in Spain. Interestingly, his parents called him Pablo so their son could bear the same name as Pablo Iglesias, the founder of the Spanish Socialist Party.

Factoids apart, we have been flicking through Podemos's European elections manifesto. The following bits give a good feel for what Podemos stands for in a number of policy areas:

• "Citizens' audit of public and private debt to find out what parts of it can be considered as illegitimate...and declare that those won't be paid back."

• "Creation of democratic and parliamentary control mechanisms for the European Central Bank...Creation of a European public credit rating agency."

• "Regain public control over strategic sectors of the economy: telecommunications, energy, food, transport, health, pharmaceutical and education."

• "Budgetary support for and increased development of public R&D centres, in order to favour the return of Spanish researchers and scientists from abroad."

• "Right to a basic income for each and every citizen, for the mere fact of being citizens" - which sounds a lot like the 'citizenship wage' advocated by the Five-Star Movement in Italy.

• "A moratorium on mortgage arrears for the first houses of families with difficulties in paying their loans back."

• "Increase the EU's social budget, and establish a levy on capital movements within its boundaries" - which basically means saying adiós to free movement of capital. Podemos also calls for a "bigger levy" on movements of capital from the EU to third countries.

• "Establishment of trade agreements among small producers in Southern European countries. Development of specific cooperation mechanisms among Southern European countries." On the other hand, Podemos wants to "abandon" negotiations over the EU-US free trade agreement (TTIP), and calls for a "substantial revision" of the existing EU-Latin America free trade deals.

• "A derogation from the Lisbon Treaty so that public services are exempted from the competition principle." 

• "Stop the use of Memoranda of Understanding" - which set out the conditions attached to EU-IMF bailout loans to struggling eurozone countries.

Call it left-wing, anti-establishment, anti-austerity (but clearly not anti-EU), the rise of Podemos is significant because - similar to what the Five-Star Movement has done in Italy - it can give Spaniards a channel through which they can voice their dissatisfaction with the political establishment (and the current eurozone economic policies), something which has been lacking at the peak of the eurozone crisis.

In an interview with today's El Mundo, Pablo Iglesias has refused to reveal whether he and his movement will stand in next year's Spanish general election. For now, though, it seems Beppe Grillo may just have found someone to work with in the new European Parliament.

Anti-system MEPs surge in the European Parliament: how will EU leaders respond?

Open Europe has today responded to the preliminary 2014 European Parliament elections results. Please note that these figures are based on a combination of final results and some projections so could still be subject to change. However, we do not consider any substantial swings likely.

Here are the key points:

• Share of anti-EU and anti-establishment vote is slightly higher than expected with such parties collectively on course to win 229 out of 751 seats in the new European Parliament (30.5%), up from 164 out of 766 seats in the current parliament (21.4%).
• European Parliament politics are set to become more unpredictable though the anti-EU and anti-establishment block remains incoherent and the two main groups will continue to dominate.
• The share of MEPs dedicated to free market policies drops, from 32% to 28.1%.
• Compared to 2009, overall turnout stayed flat despite more powers for MEPs in the Lisbon Treaty and the EU becoming a high-profile issue in the wake of the Eurozone crisis.
• Several anti-incumbent parties in the EP for the first time, ranging from Feminist Initiative in Sweden to Spain’s new leftist movement Podemos, founded as late as March 2014.

 The rise of anti-EU and protest parties on the left and right will make European politics more unpredictable but, paradoxically, it could also strengthen the resolve of the three mainstream groups to continue to vote for more Europe in the European Parliament, in order to freeze out the anti-EU contingent (click on the pictures to enlarge).

The temptation in Brussels and national capitals will be to view this as the peak of anti-EU sentiment as the eurozone crisis calms down and the economy improves. This would be a huge gamble. The make-up and reasons for the rise of these parties are complex, but it’s clear that the best way to cut off their oxygen is to show that the EU can reform itself and respond to voters. These elections are a clear warning: offer voters a polarised choice between more Europe and no Europe and sooner or later they will choose the latter.

David Cameron now faces a seriously tricky week. He has two main challenges. First, he will try to muster enough allies to block Jean-Claude Juncker, the front-runner for European Commission President, although it’s not looking overly promising. Second, he faces the dilemma of aligning himself with more nationalist parties to secure his party’s standing in the EP, which comes with the risk of alienating his natural allies on the centre-right who will be crucial in his bid to achieve EU reform.

EU leaders will meet tomorrow evening to discuss what to do next and how to negotiate with the new parliament. It might not be pretty.

#EP2014 - early impressions

The exit polls are now starting to roll in and there are already some interesting stories emerging.

Turnout looks on course to be similar to 2009. The estimate for 2014 is 43.11% versus 43% in 2009. In Germany, turnout has increased from 43% to 48%. In France, the early signs are that turnout is around 43%, slightly up from 41%. There is however somewhat of an east-west divide, with Poland's turnout down, 22.7% from 24.5%, Czech at around 20% and far lower than the 28% in 2009. Similarly, in Slovakia, turnout is an abysmal 13%. Italy's vote is also down a lot. UK turnout is estimated at 36%, up from 34%.

Regarding the race for Commission President, the centre-right EPP group looks to be the likely winner. In a worrying move for David Cameron, several senior German politicians, including close Merkel ally David McAllister and SPD Vice-Chancellor have gone on record tonight saying that the European Parliament's Spitzenkandidaten should get the job. Next week will be very tricky for Cameron.

France

In terms of the anti-EU/eurosceptic vote, Marine Le Pen's Front National looks set to achieve a clear victory with around 25%, even beating most expectations.  Francois Hollande's Socialists look set to slump to 14%.

Denmark

In Denmark, the anti-EU Danish People's Party are in first place, also with around 25%.

Greece

In Greece, anti-austerity SYRIZA look set for victory with  26-30%, while the neo-Nazi Golden Dawn are on 8-10%.

Finland

In Finland, we only have advanced voting data, but this shows the (True) Finns only getting 12.8 compared to the over 20% they were polling in the run-up. The Centre Party and national Coalition Party are tied on around 22%,

Germany

In Germany, Angela Merkel's CDU have topped the poll with 36%, while the SPD have done better than expected with 27%%. The anti-euro AfD look on course for six MEPs and, due to the Court ruling to drop the 5% threshold in Germany, the far-right NPD have also won a seat.

Sweden

In Sweden, the big winners are the Green Party, gaining 17.1%. The Social Dmeocrats are the biggest party while centre-right Moderaterna looks set to take a royal beating, only mustering 13%. The anti-immigration Sweden Democrats are on 7% and, in a massive upset, the Feminist Initiative also scored 7%.

Poland

In Poland, as expected, the ruling Civic Platform just edged ahead of Law and Justice with both parties getting over 30%. The centre-left SLD were a long way back in third on 9.6 just ahead of the anti-EU Congress of the New Right on 7.2% (whose leader said he wants to blow up the European Parliament).

Lots to chew on already then - we should have a fuller picture by 9/10pm. Stay tuned and follow us @OpenEurope.

Belgium's general election: Will we see another 541 days without a government?

This Sunday, on the same day as the European Parliament elections, Belgium will hold a general election, electing both new federal and regional assemblies to govern 11 million people. The key question is how strong the Flemish nationalist N-VA, which is already the biggest political party, will perform this time around.

Background

The N-VA, a "eurorealist"  formation, wants to reform the country, a mini-EU/Eurozone composed of Flemish and Francophones, into a confederation (although it favours splitting it up in the very long term). It became the biggest party in 2010, but was ultimately excluded from a federal government because it appeared impossible to wrap up a coalition deal with Francophone parties, resulting in 541 days without a federal government.

A coalition of six parties led by Francophone socialist Elio Di Rupo eventually emerged. One big issue was that the coalition did not enjoy support among the majority of Flemish MPs in the federal Parliament. European Council President Herman Van Rompuy, who has been Belgian PM himself, once warned that if such a government would ever be formed, this would be “dangerous for the existence of the state”. His party, the Flemish Christian-Democrats, have now pledged not to enter such a coalition again.  This Sunday, it will become clear how voters have judged this.  For more background on the complexities, we refer you to this comment piece by our resident Belgian expert. 

Post-election scenarios

Scenario 1: Business as usual (most likely)

Opinion polls are notoriously unreliable in Belgium, but suggest that, in the Flemish districts, the N-VA will improve on their 2010 showing, while the three traditional parties will remain broadly at the same level. If they again fail to command a majority of Flemish seats but, nevertheless, prefer to avoid complicated talks with the N-VA, the Flemish Christian-Democrats will need to break their promise, something which they may do if one of them becomes PM and the incumbent Elio Di Rupo is offered a job in the European Commission, for example. Di Rupo's Socialist Party is expected to suffer considerable losses, but would easily remain the biggest party in the Francophone part of the country.

Scenario 2: A federal government which includes the N-VA

Bart De Wever, the N-VA's leader, has himself indicated he's willing to enter a federal government and not make new demands to decentralise powers, if centre-right policies are implemented. The N-VA hopes this pressure may drive the Francophone socialists to return to their historic demands for more decentralisation (in his maiden speech to the Belgian Parliament in 1988, PM Di Rupo himself proclaimed that "there are no Belgians", while demanding "a confederal Belgium").

Such a federal government without Francophone socialists (who have been in power since 1988) but with Francophone liberals and Christian-Democrats is an unlikely scenario, also because this time around it would probably not command a majority of the Francophone seats in Parliament. However, if the N-VA does better than expected, this scenario could materialise.

Scenario 3: Prolonged stalemate 

Last but not least, there is the scenario of another one and a half years of stalemate, prolonged to an indefinite period without a federal government, which could result in negotiations on an eventual divorce. We rate this as very unlikely.

As you can see, it's complicated.

Dutch reformers hold ground as Wilders falters

We've already blogged about the Dutch #EP2014 exit poll but we thought we'd also break down the projected result according to the classifications we used in our recent briefing which forecast the composition of the new parliament. Rather than using the arbitrary and artificial EP political groups (which tell you little about what the parties actually believe), we classified the parties in three blocs - status quo/more integration, critical reformers, and the malcontents' block (see here for a detailed explanation of these classifications).

Here is how the projected Dutch result looks:

While we predicted that overall, there is a risk that the malcontents' bloc and the status quo/more integration parties could crowd out the critical reformers, the Netherlands could slightly buck this trend with the critical reformist parties - Dutch PM Mark Rutte's VVD party and the ChristianUnion - increasing their vote share.

This is encouraging although sadly it looks unlikely to be replicated across the EU given that Dutch politics is particularly fertile for reform minded parties.

What does Wilders' defeat in Dutch euro elections mean?

For various reasons that we don’t quite understand, most of the UK press has deemed it illegal to report on the exit polls from yesterday’s European elections in the Netherlands - with the exception of the Telegraph and the Guardian. The Netherlands is the only country to conduct exit polls ahead of Sunday night (10pm GMT roughly) when the results from all 28 EU countries are announced.

Geert Wilders’ Freedom Party (PVV) took a clear a beating. If the exit polls stand, the party will have dropped from 17% in 2009 to 12.2% this time around, translating into a loss of 1 seat (the PVV had 5 seats in the last parliament but one MEP defected). This is no doubt an unexpectedly bad result for Wilders.

Source: Ipsos

Wilders’ defeat has given rise to a hilarious conspiracy theory in Brussels that the UK media isn't reporting on the Dutch elections since the result doesn't conform to its alleged anti-EU bias. Apart from the fact that the BBC and others genuinely worry about breaking the law (even though it’s a ridiculous law) this is also a wrong reading of the results.

Wilders screwed up. His controversial comments about Moroccan immigrants caused him real damage. Three of his four sitting MEPs even refused to campaign as a result. But to see this as a victory for the EU status quo in the Netherlands is pretty heroic.

- The strongly Eurosceptic Socialist party gained an extra 3% of the vote, translating into 1 extra seat, which sees it overtake the established centre-left PvdA. Together with the PVV, these strongly EU-critical parties are set to win 22.2% of the vote.

- While it's difficult to know what to read into this result, the parties that we've dubbed “critical reformers” have done relatively well. Prime Minister Mark Rutte's VVD party maintained a respectable share at 12.3%, despite leading an unpopular government, while the Christian Union/SGP increased its share by a percentage point. 

- The two biggest victors are the D66 liberals and the CDA, which are vying for first place on just over 15% of the vote. These parties are clearly pro-EU - and D66 is doing a lot of good work in the EP - however, please do resist the temptation to see this as an endorsement for more EU integration. Firstly, the D66, the great winner of this election, called on a freeze for transfer of powers just before the election, prompting Foreign Minister Frans Timmermans to post on his facebook page "D66 is suddenly also 'very euro critical'". Meanwhile, the CDA vote of 15% is down nearly 5% on its 2009 vote. It would be just as plausible to see the D66 and CDA vote as anti-incumbent vote against the PvdA-VVD coalition government.

- Lastly, turnout in the Netherlands remained stable, but at an incredibly low 37%. With Europe so much more in the headlines over the last few years and the Lisbon Treaty giving MEPs more powers, why in the world hasn't turnout gone up dramatically if it's true that more EP powers and greater awareness will lead to greater voter engagement?

These results certainly present a mixed picture. Wilders' failure to translate his polling into votes is notable but whether this pattern will be repeated elsewhere (in France, for example) remains to be seen - and probably has much to do how badly his campaign went.

Hey Herr Schulz - what happened to your pan-European values?

UPDATE 12:50

.@OpenEurope on @MartinSchulz's new campaign ads http://t.co/ECWtV53G0f Tho I think they disagree with French veto over German flag waving
— Bojan Pancevski (@bopanc) May 23, 2014

Just to make clear, as Bojan Pancevski of the Sunday Times points out, it’s not that Schulz is playing the German card per se that we’re critical of – clearly Germany is within its right to pursue its interests like everyone else. It’s that Schulz has built his entire career and campaign on the notion that the nationalist interest is a dated (and indeed dangerous) concept.

--------------------

This is really odd - and painfully revealing.

In today's Bild - Germany's and Europe's biggest tabloid, which is up there with UK tabloids on the hit list of  Brussels spokespeople (Bild once urged the Greeks to sell their islands) - the Socialist's Spitzenkandidaten Martin Schulz has taken out an advert that comes conspicuosly close to pandering to nationalist instincts.

The ad reads:

Only if you vote for Martin Schulz and the SPD can a German become the President of the EU Commission.

The thing is, Schulz has built his career on bashing those who come even close to playing the 'nationalist' card in Europe - targets have included David Cameron and indeed Angela Merkel herself - claiming he hopes “national identities [will] melt away" and that the “The Nation State has reached its limit.” In today's Le Figaro he said he campaigns against "nationalism adorned with all virtues." And in a recent interview with Der Spiegel, Herr Schulz claimed that "nationality plays no role for me."

By all means, don't your let 'pan-European democratic values' stand in the way of scoring some desperate, last-minute points in a tabloid...

EU migration closes gap on non-EU migration into UK

The ONS has this morning published another set of updated migration figures. As always they make interesting reading with respect to EU migration - many eyes are on the figures for Romanians and Bulgarians in particular.

As the graph above shows, net immigration from the EU increased from 82,000 in 2012 to 124,000 in 2013. While non-EU immigration still accounts for a larger share of the total, the gap has narrowed significantly recently. This jump in EU migration has not been driven by an increase in one particular group, inflows from EU 15, EU 8 and Bulgaria and Romania have all increased.

Looking a bit deeper, it’s clear that these different groups of migrants have very different reasons for moving to the UK. As the ONS graph above highlights, the number of non-EU migrants moving to the UK for work has fallen steadily while those from the EU, and EU 15 in particular, have increased quickly. Furthermore, as the graph below highlights, work related reasons dominate EU migration but non-EU migration is now mostly driven by studying or family migration.

Perhaps the most interesting figure from all of this data though is the sharp rise in the number of Bulgarians and Romanians applying for national insurance numbers in the year up to March 2014 – which jumped by 7,000 and 29,000 respectively.  This is over the past year, not in a single quarter, so broadly fits with the previously released figures (which we analysed here) which showed that 29,000 workers from these countries had moved to the UK in the past year. So there's a gap between people from these countries who got a NIN on the one hand and who are working on the other. However, this doesn't necessarily mean that the 7,000 who make up the difference are on benefits (as the periods don't necessarily overlap).

In any case, as the ONS itself points out, the overall impact of removing transitional controls will not be clear for some time, will full data for 2014 not out till mid-2015. Still, Ukip and others are likely to run with these figures.

Sarko drops a bomb: At least half of EU powers should return to member states

Three days ahead of the European Parliament elections in France, former French President Nicolas Sarkozy has written a bombshell piece on Europe for French weekly Le Point and German daily Die Welt - calling for "at least half" of current EU powers to be handed back to member states.

Here are the key bits:

We need to look at today's European Union with lucidity. It can't work at 28 as it did at six, nine, or even twelve [member states]. I sincerely believe that there will be no alternative to a drastic reduction of the extent of [the EU's] competences. The situation today borders on the ridiculous and condemns us to powerlessness. 

[...]

Europe has ended up creating an administrative labyrinth, with the Commission and its departments, which indeed need to keep themselves busy. The result: hundreds of directives about the most various and often the most pointless issues. 

Today, we need to scrap at least half of [the EU's] current competences - which will have to be taken on by member states tomorrow. We need to regroup Europe's competences into less than ten basic priority policy areas: industry, agriculture, competition, trade negotiations, energy, research...

It would be unfair to use the Commission and its President as convenient scapegoats for our difficulties...That said, the [European] Commission should no longer have legislative competences because there’s a European Parliament, and it is only for it to legislate. 

On the eurozone vs EU-28 issue, Sarko writes:

Let's have the frankness to say that the myth of one Europe fell to pieces after the adoption of the euro by 18 of 28 [EU] countries. There's not one Europe anymore, but two. Furthermore, these two Europes today need to revise their strategies in different directions. More integration for the 18 [member states] that share their monetary sovereignty. 

[...]

At the same time, we need to stop believing the myth of equality of rights and responsibilities among all member states.

That means Sarkozy envisages a eurozone where bigger countries (especially France and Germany, ça va sans dire) have greater decision-making powers.

Finally, on immigration:

It is evident that we need to immediately suspend Schengen I [the EU's passport-free travel area] and replace it with a Schengen II, which member states could only join after they have previously adopted the same immigration policy.

On this blog, we've argued several times (see here and here) that the rise of Front National has pushed part of France's UMP, the main centre-right party, towards a more critical stance on the 'Europe' issue. It should be clear by now that David Cameron could find allies in France who could back his plan for an EU that does less, but does it better. 

However, the French presidential election is still three years away and, as we have said before, Cameron's biggest potential weakness is his 2017 deadline, which means some of his natural allies will not be in power to help him.

Does Russia’s gas deal with China change things for the EU?

News just out is that Russia and China have finally signed a gas deal, the negotiations of which have been going-on for a decade. (As the picture above, taken from a Gazprom investor presentation showed, this is something Gazprom has been targeting).

This is a pretty surprising turnaround given that every news outlet was reporting overnight that Russian President Vladimir Putin had failed in his attempts to finalise the deal in his current trip to China which ends tonight.

The key points of the deal are follows:

• The contract will be over 30 years and is unofficially estimated to be worth $400bn (19% of Russian GDP).

• It will see Gazprom supply up to 38 billion cubic meters (bcm) of gas to China per year from 2018. Once further pipelines are complete, this could be expanded to 61 bcm per year. As a comparison, over the past four years Gazprom has exported an average of 157 bcm per year to Europe (including Turkey).

• No official price has been revealed but the biggest sticking point has been that China believed Russia’s price demands were too high. It will be interesting to see if Russia gave in on this point.

• This deal has proved increasingly important for Russia as it looks to shift it’s away from relying on European demand for its energy exports.

What does this deal mean for the EU?

• In the short term, not too much. The economic links between Russia and Europe will continue to be significant and they will continue to be reliant on each other when it comes to energy (the former to sell the latter to buy).

• The deal will not be in place until 2018 and even then will only see Russia selling a fraction of its gas exports to China every year, exports to the EU could still well be two to four times the size.

• For these reasons, it is unlikely to change the potential impact which EU sanctions would have on Russia. Although of course Russia remains relatively unconcerned by such threats when it knows of the huge divides within the EU on the issue.

• All that said, it is symbolically important and could have longer term impacts. It highlights Russia’s desire to move away from links with Europe. Combine this with Europe’s desire to increase energy security and the relations between the two sides could become increasingly cold and distant. Although, some countries due to geographical proximity (Bulgaria/Hungary) or due to long standing economic links (Germany) will surely continue to have good relationships with Russia.

• It also raises questions over future tie ups between Russia and China. Areas such as payments systems, broader financial markets, transportation and machinery have all been touted as sectors for potential cooperation between the two countries. Again while a long term issue, such ties up may concern the West since Russia and China are currently reliant on their exports in many of these areas. Both the EU and US will need to figure a clearer policy for how to deal with such changes, with the EU in particular in need of updating its policy towards its eastern neighbourhood.

Dutch PM Rutte talking a lot of sense

Dutch Prime Minister Mark Rutte talks a lot of sense in this interview with Dutch news site Nu.nl - and sets the scene for the inevitable bust-up with the European Parliament over the appointment of the next European Commission President. Rutte says:

The European Council has never committed itself to these candidates [the Spitzenkandidaten appointed by the various political families]. The whole election has been invented by European political groups.

The European Parliament does not nominate [the European Commission President], the Council does. The Parliament can then say 'yes' or 'no'. That will probably lead to fierce discussions between the Council and the Parliament, but we are not afraid of that.

Bring on the MEPs, then...

The Dutch Prime Minister used the same interview to reiterate how the next European Commission needs to get its priorities straight:

Why can't our architects still not work in Italy or France? [...] The [EU's] Services Directive is far from ideal [...] In the meantime, the EU is keeping itself busy with female quotas. Europe is even dealing with forest strategy and rules for websites. The EU shouldn't be touching this.

Making the case for an EU that focuses on facilitating trade and jobs, rather than meddling in all sorts of areas, in a concrete manner is key. Something we would like to hear more of, especially from UK Prime Minister David Cameron and British (and European) politicians.

What happens next after the European elections? Get ready for a royal punch-up...

With the European elections taking place on Thursday through to Sunday this week, it is worth considering what happens next. The proposed Spitzenkandidaten or European Parliamentary families’ candidates for European Commission President is set to make the post-election horse-trading and politicking more fraught than usual. As we warn into today’s Times this could have huge implications for the future of the EU and David Cameron’s reform agenda.And it will be nothing short of a royal punch-up.

The EU treaties are ambiguous about exactly how the next Commission President should be selected, but the Lisbon Treaty states that EU leaders must for the first time take “into account” the result of the European elections when proposing the new European Commission President. Ultimately, EU leaders retain the power to reach a compromise candidate among themselves, but the EP’s veto over the appointment could lead to a stand-off between governments and MEPs.

Here is a quick timeline to keep in mind – in effect there will be a three round selection process:

ROUND 1 – 22-25 May 2014: election days

27 May: Martin Schulz (currently European Parliament President and the Socialists’ Spitzenkandidaten), Jean-Claude Juncker, the centre-right EPP candidate, meet the other candidates over breakfast to discuss outcome of elections – presumably to put pressure on national leaders who will meet for dinner later the same day to appoint one of the MEPs' chosen men.

ROUND 2 – 27 May: EU leaders meet for dinner to discuss outcome of the elections – they will no doubt discuss whether to opt for a Spitzenkandidat or propose another candidate. Whether an alternative candidate would come from either the centre-left or centre-right will likely to depend on the outcome of the elections. However, it is unlikely EU leaders will be able to publicly select their candidate before the distribution of the political groups is known (see below).

June: formation of European Parliament political groups – this could be important because the post-election jockeying will determine the political groups’ distribution in the new parliament. If the result between the centre-right EPP and centre-left S&D is tight, as it is looking, picking up a few MEPs here and there from other groups could be vital in becoming the largest group.

The focus will also be on whether Marine Le Pen and Geert Wilders manage to put together a new far-right grouping and what the post-election scramble might mean for other groups such as UKIP’s EFD and even the Conservatives’ ECR group. To get the formal status of a political group it must consist of at least 25 MEPs, elected in at least one-quarter of the Member States (i.e. at least 7).

ROUND 2a – 26-27 June: EU leaders meet at European Council meeting. When the European Council has made its proposal for the Commission President, a period of negotiations with the Parliament on his/her political priorities and programme could take place.

1-3 July: EP constitutive session: MEPs officially take up their seats in the Parliament. Election of EP President (not to be confused with the Commission President), vice-presidents and quaestors

7-10 July: official EP political group meetings

ROUND 3 – 14-17 July: session of the Parliament – election of Commission President by a majority of MEPs. Should EU leaders’ candidate be rejected, the European Council, acting by a qualified majority, has one month to propose a new candidate.

Once the Commission President has been elected, the Council, in agreement with the Commission President-elect, adopts the list of commissioners designated (i.e. proposed Commissioners from each member state are assigned a portfolio).

September: hearings of designated European Commissioners. The Commissioners-designate appear before the parliamentary committee(s) relevant to their prospective fields of responsibility. MEPs do not have the power to reject individual Commissioners but, in the past, these hearings have led to candidate commissioners withdrawing or having their portfolio changed.

October (tbc): Vote on the full European Commission. The new European Commission must be approved en masse by a majority of MEPs.

So, given that both parts have an effective veto - echoing the Italian parliamentary system (that great constitutional model for getting stuff done) - this stand-off can last for a long time.

Regardless, it won't be pretty. 

Spanish banks' bad loans look set to weigh on the economy for some time

The Bank of Spain released its latest data on the level of bad loans held by Spanish banks today. For the first time since January 2013, the value of bad loans has dropped - falling from €195.2bn in Feb to €192.8bn in March. However, it has stayed roughly constant as a percentage of total loans (13.4%).

Symbolically, even a small drop in the headline value of bad loans may be seen as important, especially given that previous declines were down to the transfer of assets to the Spanish bad bank (SAREB), rather than any change in circumstances of the loans. If this is discounted, the value of bad loans has simply continued to rise.

That said, as the graph highlights, these loans remain at very high levels and well above the loss provisions held by banks. This continues to tell us that:

• Spanish banks will continue to deleverage for some time to come. This puts a dampener on any hopes that they will show any rapid increase in willingness to lend and take on more risk to help fuel any form of Spanish recovery. This thereby increases the risk that any recovery will be ‘creditless’, and therefore more likely to be limited and temporary.

• This data is quite timely, as it also highlights the obstacles which the ECB is going up against in these countries when it comes to encouraging banks to begin lending again, particularly to small and medium-sized enterprises (SMEs). With their balance sheets still weighed down by these loans, it seems likely that banks will continue to be reticent to take on significant new lending, even if the ECB does offer them cheaper long-term loans.

• Given that many of these loans still relate to the real estate and construction sector, they will continue to weigh on prices in these markets. This suggests prices could fall further (although this will vary significantly based on location and regional markets), while the political hot topic of evictions could return to the fore again in the future.

Labour finally wake up to the fact there is a European election next week

Do Ed Balls and Ed Miliband see eye-to-eye on the EU?

Anyone following Labour's election campaign up until now would be forgiven for thinking the party was fighting a general election as opposed to a European one - any references to Europe were hard to come by. However, Shadow Chancellor Ed Balls has emerged with a hard-hitting piece in yesterday's Evening Standard in which he argues that:

"Europe needs to work better to respond to public concerns, deliver better value for money for taxpayers and secure rising prosperity."

"First, we need the EU to be better focused on creating jobs and growth. An EU Commissioner focused on growth, and an independent audit of the impact of any new piece of EU legislation on growth, would be key to helping re-focusing the Union on this key task. And we need to drive forward the completion of the single market in digital, energy and services."

"Second, our reforms will help ensure that EU citizens seeking work here contribute to our economy and society. So we will extend the period of time that people from new member states have to wait before being able to come to the UK to look for work. We will work to stop the payment of benefits to those not resident in this country, consult on changing the rules on deporting someone who receives a custodial sentence shortly after arriving in the UK, and have called on the government to double the time that an EU migrant has to wait before being able to claim the basic Job Seekers Allowance."

 "And third, any agenda for change in Europe must also address people's concerns about how power is exercised at a European level. So we have called for national parliaments to have a greater role in EU decision making by being able to 'red-card' any new EU legislation before it comes into force; for serious reform of the EU Commission."

This commitment to reform is very welcome, even if this is merely a re-statement of existing Labour EU policy. It's worth noting that these reforms are not a million miles away from David Cameron's own priorities for EU reform - especially the further restrictions on EU migrants' access to benefits and the red card for national parliaments. Yet more evidence - as we've pointed out before - that tone and rhetoric aside, there is a surprising degree of consensus among the main parties when it comes to the substance of EU reform. 

As the New Statesman's George Eaton pointed out recently, there is a lot of frustration within Labour over how to deal with the EU question:

"Other shadow cabinet members complain of the party's failure to promote its commitment to reform the EU, which they regarded as a quid pro quo for Miliband's refusal to guarantee an in/out referendum under a Labour government."

It appears that Ed Balls is among the Labour heavy hitters keen to address this disparity.

The Farage Paradox: UKIP on the rise but so is public support for EU membership

Poll watchers in the last few years would have seen many polls showing a majority of Brits would vote 'out' in a referendum of the UK's membership of the EU. In the last few months this trend has been slowly reversing, and a new Ipsos-MORI poll out today shows that if a referendum were held right now, 54% would vote to stay in - the highest support for the EU for a few years - and 37% would vote to leave.

Why is this the case? The most obvious factor is the improving economic situation in both the UK and (most of) the eurozone. Another factor could be that as the EU debate has become more prominent, it has forced people to consider the issue and come down on one side or the other - it is notable that only 10% say they don't know how they would vote.

Likewise, the concerted focus on EU reform primarily by the Conservatives but also to a lesser extent by Labour and the Lib Dems may have reassured voters that the EU may be moving in the right direction. This has also involved much sharper and clearer communication by David Cameron of what kind of EU reforms he will prioritise, as well as high profile interventions by EU politicians calling on the UK to stay in and emphasising the UK's importance to the EU.

The irony is that the upswing in support is happening at exactly the same time that UKIP is riding high in the national polls and could well come first in next week's European elections, and UKIP leader Nigel Farage was widely seen as having beaten Nick Clegg in the EU debates. These figures lend credence to the theory put out by some including British Future's Sunder Katwala that while Farage is effective at maximising the UKIP vote, his message and rhetoric, including the overwhelmingly negative focus on immigration, is actually a turn-off for potential supporters of a UK exit (Douglas Carswell has also made this point).

The gates are open but so far no flood

Official data from Office of National Statistics published this morning shows that the number of workers from Bulgaria and Romania have dropped from 144,000 to 140,000 since transitional controls were lifted for workers from the two countries on 1 January 2014. As we said all along, not quite the opening of the floodgates that some had predicted.

Nevertheless, this still represents an increase of 29,000 workers from Bulgaria and Romania year-on-year. And the quarterly numbers do not present a full picture on which to judge any longer-term change or pattern.

More broadly, the data shows that, while coming from a low base, EU employment has driven quite a lot of the recent increase in employment. In total, the number of  employed in the UK has increased by 741,000 year-on-year. Migrants from the Central and Eastern European 'EU 8' countries only account for 2.3% of total UK employment but, over the past year, workers from these countries have accounted for 15.5% of the increase in UK employment (see graph below).

It remains to be seen whether these figures will have any effect on the political debate about migration in the UK, particulalry from the EU. Annual migration (rather than employment) figures released later this month (potentially on European election day) are expected to show that EU migrants from the EU will outnumber migrants from non-EU countries for the first time - which has the potential to be politically explosive.

The European Parliament - a failed experiment in pan-European democracy?

In a new report published this morning we assess the track record of the European parliament and conclude that it has failed as an institution on a number of fronts. Although many individual MEPs work hard and conscientiously for their constituents, the European Parliament as a whole has failed to gain popular democratic legitimacy. Still, given that the EP now has a lot of power to decide law that impacts on people's every day life - from working hours to browsing the web - there's a lot of reason to vote in the European elections.

Here are the key findings:

• Turnout has fallen despite an increase in MEPs’ powers: While the use of ‘co-decision’, under which MEPs have equal status with national ministers in passing EU legislation, has more than doubled during the last two decades – from 27% to 62% – turnout in European elections has fallen from 57% to 43%. Yes, yes, correlation not causation (as the old twitter cliché goes) but point is: if the EP was effective in closing the democratic deficit, we would see exactly the opposite trend. 

• There is no correlation between voter turnout and knowledge of the European Parliament or interest in EU affairs: A common explanation for low turnout in European elections is a lack of public knowledge of EU politics and the EU institutions yet this is not borne out by our research. For example, in Romania 81% and Slovakia 79% of people say they are aware of the European Parliament but only 28% and 20% turned out to vote in 2009.

Likewise, low turnout cannot be explained by a lack of interest - in the Netherlands, 61% say they were interested in European affairs – the highest in the EU – yet the turnout of voters at 36% is one of the lowest.

• The main party groups in the European Parliament agree with each other three quarters of the time: It probably won't come as a surprise to anyone who watched any of the 'debates' between Martin Schulz and Jean-Claude Juncker that, despite representing national parties of different political traditions, the centre-right European People’s Party (EPP) and centre-left Socialist and Democrat (S&D) party families voted the same way 74% of the time in the 2009-14 parliament. Meanwhile, the average majority in co-decision votes in the 2009-14 parliamentary term is over 75% – the highest it has ever been. In effect, this denies the voters the very same choice the EP is meant to boost. 

• In 2012, the European Parliament spent €85 million on fostering a common European political identity through the party groups in the European Parliament and their affiliated pan-European parties and political foundations outside the parliament. This is only part of a budget that has been spiralling out of control - up from €1.4bn in 2008 to around €1.75bn in 2014.
  
  
  

So those are some of the key problems - what about the solutions? While there is no quick easy fix to what is a complex and multi-faceted problem, the single most effective remedy would be to return democratic accountability closer to voters by boosting the role of national parliaments in the EU decision making process and not repeating the mistake of giving more powers to the European Parliament.

This would involve national parliaments being able to group together to block proposed EU laws and amend or repeal existing rules (see here for more details on this). In parallel, the European Parliament should be stripped of its right to increase the EU budget as it is national parliaments that are responsible for raising the revenue. In addition, MEPs should not be able to veto EU trade agreements agreed by national parliaments.

Meanwhile, the €85 million spent on fostering a common European political identity through the party families in the parliament and their affiliated pan-European political parties and foundations should be cut. The 2009 reforms to MEPs’ allowances should be completed by requiring all allowances, such as the general expenditure allowance (worth €51,588 a year) which is vulnerable to misuse, to be conditional on the production of receipts.

Have borrowing costs in the eurozone periphery come down too far, too fast?

Over on his Forbes blog, Open Europe’s Raoul Ruparel asks: is there a bond bubble in peripheral Europe? The thurst of his answer is that, while there are good explanations for why costs have come down so far and so fast, they could certaintly have side effects, not least because people misinterpret the reasons for the move. The full post is here, but below are the key points:

What is driving this and is it a bubble?
There are three key factors at work here:

1. ECB President Mario Draghi’s promise to do “whatever it takes” to protect the euro combined with the unlimited bond buying policy of Outright Monetary Transactions (OMT) has driven borrowing costs down since mid-2012. This effect has been amplified by the expectations of further ECB easing, particularly some form of Quantitative Easing (QE), which would bring yields down even more.
2. There has been some success in terms of eurozone reform, particularly with the successful end to the Irish and Portuguese bailouts as well as these countries’ return to the markets, along with Greece. The eventual agreement on banking union and other aspects of trying to correct the structural flaws in the euro (although I believe it is far short of what is needed) has also contributed to the positive sentiment.
3. Possibly the most important factor though is the very low inflation in the eurozone (and even deflation in some countries). Over the past six months this has pulled the borrowing costs across the eurozone down.

This final point is driven home by looking at the rough and ready version of the ‘real yield’ on ten year debt in Europe (10yr yield minus HICP inflation). As the graph below highlights*, when this is done the UK actually borrows at a real rate which is 2% below Ireland’s.

Could this present a problem? (Hint: Yes)
While the process of collapsing bond yields in peripheral Europe is explainable it does still present some serious causes for concern.

• The huge demand for peripheral bonds does seem to have gone too far with respect to the economic fundamentals of these countries. Debt levels have continued to rise – exacerbated by low inflation – while many countries are barely posting any economic growth.
• More concerning though is that this creates very perverse incentives. Many governments can already be seen professing the success of their policies, citing falling borrowing costs and buoyant financial markets. In reality, these are much more down to the ECB and inflation effects mentioned above.
• The risk is that complacency seeps in (some of which can already be seen) and that the reform process in these countries stalls. Italy and France are prime examples of this. While the European Commission does have additional powers now to encourage further reform, when push comes to shove there is little it can do to force reform on an unwilling political class and population, particularly one with low borrowing costs.
• As detailed here, the banking union looks insufficient to break the sovereign banking loop in the eurozone. The efforts to improve the structure of the eurozone have slowed, the risk is they will grind to a halt until the threat of a crisis returns.
• The performance also looks strange relative to countries such as the US and UK which have always borrowed in their own currency for which they are solely responsible and have clear fiscal and central bank backing. Even with the changes to the euro structure and the ECB promises it’s hard to say that, in another crisis, the same issue wouldn’t arise with regards to a comprehensive lender of last resort (let’s not forget, the OMT comes with plenty of conditions and is limited in scope). Even though accounting for the inflation impact, the difference in risk between peripheral eurozone countries and the likes of the US and UK does seem to be being underestimated.

Ultimately, the crisis highlighted that too much price convergence without economic convergence and reform in the eurozone can actually be a bad thing, with resulting perverse incentives and negative outcomes. While the price action in peripheral bonds might not yet count as a ‘bubble’, investors and politicians would do well to remember these lessons when interpreting the record low borrowing costs.

EU states struggle to find common ground for sanctions on Russia

As we laid out in our Divided We Stand briefing, agreement among the EU 28 on how to respond to Russia's role in the Ukraine crisis is not easy to come by. And if the doorstep remarks of EU Foreign Ministers arriving in Brussels this morning is anything to go by -- that trend won't be changing any time soon.

UK Foreign Secretary William Hague, urged the EU to begin preparation of broader ('Stage Three') economic sanctions saying:

"I hope...we will continue and intensify our preparations for a third tier of sanctions, and other additional sanctions if the circumstances require it."

He was echoed by Lithuania's Foreign Minister, Linas Antanas Linkevičius, who said that Stage Three sanctions were necessary to send a 'clear signal' to Moscow, adding that unrest in Eastern Ukraine was due to "Russian-sponsored insurgency."

Meanwhile, Austrian Foreign Minister, Sebastian Kurz, took completely the opposite line arguing that the red line for Stage Three of sanctions had not been reached.

"We should definitely not, at this point, move to Stage Three [of sanctions]...We are definitely not on Stage Three of economic sanctions, and in my opinion, this is good."

On where the red line would be to step up the EU's response, Kurz argued:

"[The EU agreed that] the third step of sanctions would be unleashed if Russian troops moved into Ukraine...economic sanctions would not just hurt Russia, but they would definitely hurt us too...If we went a stage further on sanctions with every provocation, then we would already be at war."

Luxembourg Foreign Minister Jean Asselborn found himself somewhere between the two, although he remained very cautious on sanctions:

"The referendum has no legal basis so we can’t burn too much energy on this… President Putin clearly spoke out last week that the referenda should be delayed…So we will see. I think Russia is starting to think about what the big problems will be… I think Russia will return from the brink. We will not have the sanctions as the main point today."

Once again then, as Russia essentially endorses the result in the self-rule referendum in Eastern Ukraine, the EU struggles to find a clear line on how, if at all, to respond to recent events.

Timing, not substance, is the biggest obstacle to David Cameron's reform agenda

Our Director Mats Persson writes on his Telegraph blog:

In a recent Sunday Telegraph article that received surprisingly little attention at the time, David Cameron came close to setting out a “shopping list” of what he wants to change in Europe. He outlined seven areas, though they were more principles than policies: powers flowing back, a beefed-up role for national parliaments, less regulation and more free trade, limiting the influence of European judges (possibly opting out of the ECHR, which is not an EU institution), tightening welfare benefits for EU migrants, tougher controls on future EU accession countries and no more “ever closer union”.

Nick Clegg – in a strange kind of way – has almost endorsed the plan, saying that "Now [Cameron] doesn't even talk about repatriation, instead proposing a mild seven-point plan, most of which wouldn't even require treaty change." European Commission President Jose Manuel Barroso has said that the EU wants to "cater" to the UK without "threatening the Union’s coherence" (though he was all over the place on EU treaty change). And in the Financial Times this week, Jean-Claude Piris, former legal guru of the European Council – the key decision forum for EU leaders – concluded that Cameron's changes could pretty much be done without actually changing the EU treaties.

For Cameron, this is a double-edged sword. Sceptics at home already see Cameron’s starting position as a “sell-out” – mere presentational changes that will allow him to recommend a “Yes” vote in the 2017 referendum. This is a premature accusation as there’s a huge range within the Sunday Telegraph piece, from token reform to sweeping changes.

Cameron could cobble together a decent package without changing the EU treaties. First, areas like toughening up rules on access to benefits, removing trade barriers, signing free trade deals or scrapping red tape – key planks in Cameron’s renegotiation agenda – just fall under normal Brussels decision-making (which doesn’t meant it will be easy. Think European Parliament). Secondly, “repatriating” powers wouldn’t necessarily require EU treaty change but could still be meaningful, for example devolving the EU’s irrational regional policy (saving UK taxpayers £4bn over an EU budget period) or exemptions from maddening working time rules for the NHS.

Finally, the EU specialises in legal acrobatics. When pushed – say when the bloc’s second largest economy risks leaving – it can be amazingly creative. For example, it created a €440bn bailout fund out of thin air and via so-called political agreements, the Danes got four surprisingly effective opt-outs after having rejected the Maastricht Treaty in 1992, which were incorporated when the next EU treaty came around. Something similar can be done for some of the reforms currently being discussed, including giving national parliaments the right to block or revise EU laws.

So it's right that Cameron seeks to maximise the reforms that can happen without EU treaty change. However, not only would a Treaty change be a form of political insurance to the Tory party and public that things have changed but it's also needed since the treaties simply aren’t fit for purpose. With a more integrated eurozone, we need new organisational principles and practical measures to avoid the EU becoming the eurozone, while allowing powers to flow back to countries that wish to be less integrated. A 2017 referendum should be the start of a slimmed down, flexible Europe, not the end destination. A quick and dirty solution will only bring us back to where we are today – and could well generate a referendum result too close to call, solving nothing.

Ironically, the strongest and most plausible contender for a Treaty change is one measure that Cameron – oddly – didn’t mention in his piece: safeguards against the Eurozone writing the rules for the rest of Europe, which will also effectively kill the notion of "ever closer union". Exactly how this principle will be organised needs careful thought (ideas here), but it’s highly desirable that this principle is firmly enshrined in EU law.

Since it’s the eurozone that is now changing the rules via banking union and other measures, not the UK, Cameron would be given a fair hearing in national capitals on this point. It is conducive to a "grand bargain": the Germans and French solve their catch-22, agreeing to beefed up supervision in the Eurozone in return for Berlin underwriting the euro, while the British ask for safeguards against Eurozone stitch-ups in return for nodding through EU treaty change at 28 (which Berlin still prefers). In this scenario, it’s the German-led EU treaty change that may trigger a referendum in France, not the UK’s.

It's whether it can be done before 2017 that remains the biggest question.

Meet the man who wants to blow up the European parliament

In our recent briefing ahead of the European elections, we estimated that anti-EU, protest and anti-establishment parties of various forms are set to increase their share of the vote and their number of seats in the European parliament.

One such party building up some impressive momentum as polling day approaches is the Polish Congress of the New Right, led by the mega-eccentric, bow-tie aficionado 71-year old Janusz Korwin-Mikke. A few weeks ago the party was polling at 2/3% but in recent polls the party has consistently been at or above the 5% minimum threshold, a result which would give it 3 MEPs.

The party is an odd mix of extreme libertarians and nationalists and Korwin-Mikke himself has been around Polish politics since the fall of Communism without much success. Unlike most parties in Poland, the New Right is strongly anti-EU with Korwin-Mikke describing the Commission as "bastards and Communists", and saying that:

"We are going to the European Parliament to show what a nonsensical institution it is. It's not possible to achieve anything sensible there".

In a speech a couple of weeks ago Korwin-Mikke said that the party would go into the parliament in order to detonate a bomb inside it, while one of his MEP candidates claimed that "the European Parliament is a brothel, a role for which it is ideally suited". On the surface, the party bears many similarities to UKIP and the party may want to join UKIP's EFD group in the EP. However, such an alliance is unlikely given that Korwin-Mikke's views make former UKIP MEP Godfrey Bloom appear like Polly Toynbee. For example, his long-standing view is that women should not have the right to vote as they do not "understand politics" and tend to vote for pro-welfare parties.

However, even the party does make it into the European parliament - Polish polls have proved notoriously unreliable in the past - it will not have any wider implications for Poland's membership of the EU where support is among the highest in the whole EU. It could make plenary sessions in Brussels and Strasbourg more interesting though....

European businesses (not so much the City) start feeling the pain of the squeeze on Russia

As we noted in our Battle of Londongrad briefing, while the exposure of the City of London to Russia has been overdone, there are plenty of other sizeable exposures in Europe which could have people worried with regards to the stand off with Russia. Well, in fact they are worrying people and dividing the EU, as we highlighted with our scale showing the divisions on pushing sanctions on Russia.

This week has seen a spate of businesses issuing warnings over potential losses in Russia. The WSJ has a good round up here, but the key ones are:

• Société Générale, one of the largest French banks, announced that it took a €525m write-down on its business in Russia. The loss reduced its first quarter profits by 13% and saw its stock price dip by a couple of percent (since recovered). As we noted, the exposure of French banks to Russia at $51bn is quite sizeable and could certainly cause problems if sanctions were expanded. The FT reports that the bank could face a €5.2bn loss if it was forced to write off its Russian investments.
• Danish brewer Carlsberg has also prepared for the impact as it cut its profit and sales forecast due to uncertainty in Russia, a market which accounts for 40% of its sales and profits. It also posted a 14% decline in first quarter net revenue in Eastern Europe because of the crisis.
• Even though issues for the financial services sector are conspicuously absent (consistent with our findings), other UK businesses were feeling the pinch, with UK based Imperial Tobacco saying that its sales in Russia have declined by 7% in the past six months and that it expects the figure for the entire year to be around 10%.
• More generally plenty of businesses are facing declining sales and preparing for potential losses on investments in Russia, from the world’s largest brewer Anheuser-Busch InBev and Unilever PLC to smaller tech companies hit by the US arms embargo.

Russian President Vladimir Putin’s comments last night, which suggest a quite significant softening in his position, will certainly ease this pain somewhat and provide some light at the end of the tunnel (assuming his position has actually softened, which is another whole discussion for a separate post). That said though, the outlook for the Russian economy whether broader sanctions become reality or not if far from pretty (graph below from IMF forecasts).

One way or another Russia seems unlikely to be the growth market in the next few years that it was before the financial crisis.

So, Nick, how many laws come from Brussels?

In the first IN/OUT Europe debate between Nigel Farage and Nick Clegg on 26 March, the leader of the Liberal Democrats claimed that the percentage of UK laws coming from the EU was 7%, citing research by the House of Commons Library.

This created much debate at the time, particularly as Nigel Farage claimed that figure was actually 75%, quoting the long-standing UKIP supporter Viviane Reding.

We are no stranger to this debate having written a number of times about the futility of estimating the proportion of EU laws implemented in the UK, and the differing claims. However we were surprised to discover that Nick Clegg himself is no stranger to this debate. Here he is writing in 2003:

Probably half of all new legislation now enacted in the UK begins in Brussels. The European parliament has extensive powers to amend or strike down laws in almost every conceivable area of public life.

And in case that was an accidental slip of the keyboard, here he is again speaking in 2004:

Well over 50 per cent of all new laws in the UK now emanate from Brussels and are processed by Parliament and that MEPs are now arguably some of the most powerful legislators in Europe.

That people - usually depending on ideological disposition - give wildly conflicting estimates about the share of EU laws is old news. Radically conflicting estimates from the same person is something new, however.

Bonjour Monsieur Cameron, there are potential allies on EU reform on the other side of the Channel

Henri Guaino, a French MP from the centre-right UMP party and a former special advisor to President Nicolas Sarkozy, has an interesting interview on Europe in today's Le Figaro. Here are some key excerpts:

Q: What is the European Union, according to you?

A: The EU is France, Italy, Germany, Spain, Belgium...The [European] Commission, Parliament, Court of Justice are just institutions at the service of the states and the peoples of Europe. It doesn't make sense to speak of a general interest of the EU that transcends the interests of these peoples and these states. Institutions never transcend anything.

Q: Europe is peace...

A: It's not the EU that created peace, it's peace that created the EU, and the idea that one guarantees peace on the continent by weakening the states is a dangerous one: for years, the weakening of states has been going hand-in-hand with the rise in Europe of populism, extremism and social tensions. Let's be wary that the federalist dream doesn't turn into a nightmare.

Q: Are the European institutions in need of reform?

A: The institutional Meccano has hit its limits: every reform has just given birth to a bit more bureaucratic monster. There are only two democratic institutions: the [European] Council of heads of state and government, and the [European] Parliament. The Council is more democratic than Parliament because heads of state are more accountable to their fellow citizens than MEPs. It is not certain that democracy has gained a lot from shifting from an assembly composed of delegations from national parliaments to a directly elected assembly. But if there were only one decisive reform to be made, it would be to eliminate the prerogatives of the European Commission and turn it into an administration under the authority of the Presidency of the Council.

On subsidiarity, Monsieur Guaino said:

[Subsidiarity] is working the wrong way round. The EU tends to leave to member states what it can't do. On the contrary, it needs to be asserted that the EU is only destined to do what member states can't do. This principle must allow member states to take competences back from the EU, which has too many.

He also suggested that the principle of 'variable geometry' (in plain English, different levels of integration within the EU) should be "applied systematically".       
 
Finally, asked whether the EU "contributes to making politicians look increasingly powerless", Guaino replied:

Yes...The EU has buried the historical, geographical, cultural and demographic realities underneath the rules, the bureaucracies and the procedures. But realities always avenge themselves when they are ignored.

To put this interview into context, Henri Guaino belongs to the same party as pro-integration MEPs such as Alain Lamassoure or Joseph Daul - which illustrates that 'Europe' is an issue that cuts across parties in a number of countries, not just the UK. Secondly, David Cameron may have allies in unlikely places, which if cultivated could prove helpful in a future negotiation.

The anti-EU vote: Spot the difference

Question: What's the difference between these two opinion polls for this month's European elections?

Answer: Ok, the percentages in the bottom graph are slightly higher, but there is a striking similarity.

The top graph plots the front runners in the French European elections: Marine Le Pen's Front National, the centre-right opposition UMP, and Francois Hollande's governing Parti Socialiste.

Meanwhile, the bottom graph plots the latest European election poll results for UKIP, Labour and the Conservatives.

There is always a tendency to see the anti-EU/government/establishment phenomenon as unique to one's own country. These European elections are likely to prove otherwise.

Swedish and Dutch patience running out over proposed FTT?

EU finance ministers met today, with the financial transaction tax (FTT) once again topping the agenda.

They were presented with a new proposal or brief under which the 11 countries pursuing the FTT under enhanced cooperation could move forward. The plan involved significantly amended terms and (again) suffered from a significant lack of detail:

• The scope will be “limited” to “shares and some derivatives”, according to German Finance Minister Wolfgang Schäuble – suggesting bond markets and probably repo markets will be exempt. The level of the tax on shares could be cut from 0.1% to 0.01%.
• This will form part of a “step by step approach”, suggesting the tax will be expanded in the future.
• Non-participating countries will be fully informed on all future FTT discussions.
• The FTT will not be introduced until January 2016.
• It is unclear whether Slovenia will participate in the FTT anymore, given that it did not sign the recent statement on the issue due to domestic problems and uncertainty around its government.
• Reuters reports that the revenue from the adjusted tax is expected to be about a tenth of the original forecasts – putting it at €3.5bn.

Those outside the proposed FTT zone showed quite significant hostility to the process of enhanced cooperation (as it has been conducted in this case) and continued to warn of legal action. UK Chancellor George Osborne said:

“The FTT that people have talked about is not a tax on bankers, it’s a tax on jobs, investment and people’s pensions.”

“Here we have a situation where 11 member states are working up their proposals largely in secret, I do not know how involved the Commission is in this or not. Then as we start our discussions here we get a piece of paper handed to us all by the 11 member states saying this is what we have agreed.”

“We will wait to see the final text of the proposal, but we will not hesitate to [legally] challenge an FTT which has extraterritorial impacts, that damages other member states, including the UK, or that damages the single market.”

Osborne was notably annoyed by the fact that the one page sheet on the new proposal was presented to the other EU ministers only five minutes before the meeting. His position was strongly backed by Swedish Finance Minister Anders Borg, who said:

“Even if this is a rather narrow proposal, there is a clear risk of a slippery slope toward a broader proposal with much more harmful effects on growth, and particularly on the capital markets.”

“The burden of proof is on the countries that want to enter the enhanced cooperation to prove, beyond a reasonable doubt, that those not participating are not harmed by this measure.”

“We did not support the U.K. when they started this legal case; we are much closer to doing that, because the process has not been satisfactory during these last few months…I’m very disappointed in the process.”

While even Eurogroup Chief and Dutch Finance Minister Jeroen Dijsselbloem warned:

“The impression I get is that, you [meaning the 11 FTT countries] have found a very, very small common ground, which is still very vague on the basis for the tax, when it will actually take place, on what products etc. but you have decided we must come out with something before the elections. That’s fine, but please also respect that we’d like to know a little more.”

“I don’t think that there is any basis at the moment for the Dutch government to consider joining, certainly not on what we have here… I’m a little disappointed in the way the process is going at the moment.”

All in all then, while there is talk of progress on the FTT, its scope has been slashed as expected, while the time line has been pushed into the long(er) grass. The process under enhanced cooperation has taken a public hammering, while it remains clear that those involved are struggling to find any clear agreement.

However, the fact that the Swedes and Dutch have expressed their anger so openly highlights that this will continue to be politically fraught. In addition, that the 11 countries seemingly want to reserve the right to expand the FTT in future, means this still has a way to run and future legal challenges are a genuine possibility.