Farage wraps up his European Parliament group faster than Le Pen...thanks to a Front National defector

Nigel Farage has managed to form a new Europe of Freedom and Democracy (EFD) group in the European Parliament. The group comprises 48 MEPs from seven EU member states. The anti-immigration Sweden Democrats and the Latvian Farmers' Union both joined forces with UKIP. But the story of the day is that the seventh nationality Farage needed to wrap up his group has been provided by...a French MEP who defected from Marine Le Pen's Front National.

Joëlle Bergeron (see picture) was elected to the European Parliament with Front National last month. However, according to her, she came under pressure to give up her seat to another member of the party deemed as more 'orthodox' and closer to Le Pen. A couple of days before the European Parliament elections, Madame Bergeron had raised a few eyebrows in Front National's leadership by speaking out in favour of giving immigrants the right to vote in local elections in France. She eventually decided not to step down as an MEP, but she quit Front National and joined UKIP's group.   

How these parties will coexist remains uncertain. For example, UKIP wants to quit the EU, and Beppe Grillo’s Five-Star Movement is a rather unpredictable quantity that doesn’t want to leave the EU and supports a financial transaction tax. Indeed, the fact that parties will be allowed to vote independently on each specific issue could help make the alliance more sustainable.  

As we noted in a recent briefing, European Parliament rules mean the EFD group - as all the others - will be entitled to millions of subsidies every year. According to our estimates, based on 2012 figures, Farage's new alliance could claim in total around €5.6 million a year - €3.8 million for the group in the European Parliament, and €1.8 million for the affiliated pan-European political party and foundation. UKIP is not a member of the latter two, so it will only be entitled to a portion of the money specifically devoted to the European Parliament group.

So Nigel was faster than Marine, but Le Pen still has a good chance of forming her own group. She was in Brussels yesterday for a meeting with her new allies, and Polish MEP Janusz Korwin-Mikke was sitting at the table (see picture) - most likely a sign that Poland's Congress of the New Right (KNP) is on board. This means Le Pen only needs one more national delegation to finish the job. Difficult, given that the deadline to register new groups expires next Tuesday, but definitely not impossible.  

You can't accuse Cameron of lacking principles while blaming him for taking a principled stand

There's something quite ironic going on in all this Cameron-bashing over Juncker. The charge against Cameron in Europe (and also at home) is often that he lacks principles. That he's pushed around by backbenchers or pursues narrow tactical personal or national interest.

Now that he has come out fighting for a principle - in this case whether powers should be arbitrarily transferred to Brussels and key decisions made by a fledgling transnational parliament with very limited democratic support, rather than democratically elected national governments and parliaments - he's being accused of blundering diplomacy.

Yes, of course, Cameron could have done things differently. But if he believes that the principle is wrong, can you blame him for, as he says, fighting "until the end". In contrast, Angela Merkel - who's a formidable power politician and who we have a lot of respect for in general - is flip-flopping like crazy over Juncker. And Matteo Renzi, the Italian PM, is busy striking back-room deals to let Italy off the hook on EU budget rules in exchange for backing Juncker.

On this occasion, Cameron wasn't even pushed around by his own backbenchers. In fact, Better Off Outers would probably love to see Juncker become President as it'll strengthen their cause. Also, some sceptics see this as a "pointless battle." So, Cameron seems to be taking a genuinely principled stance even if it comes with a political price.

In a sense, one could argue that, rather than the Spitzenkandidaten process falling victim to British politics, Cameron has fallen victim to German domestic politics.

Yesterday Handelsblatt's London correspondent Matthias Thibault sort of picked up on this theme arguing:

“We should thank David Cameron,” because, “at least we know where he stands – not only regarding Juncker – but also on the future direction of the EU. We still don’t know where the German Chancellor stands… But at some point she will have to decide, if, and how much, play-room she wants to give her British friend.”

So did a former judge at the German Constitutional Court, Udo di Fabio, who wrote last week in FAZ:

"The fact that there were candidates for the post of the Commission President is a fact created in the political realm, however with little proven resonance by the voters. This fact is neither legally nor politically binding for the Council’s suggestion [of the Commission President]."  

"Those who resent the British Prime Minister for having an opinion on personnel-related issues did not understand the system. Those who demand the British exit or approvingly accept it because the UK does not want to follow rules which are not to be found in the [EU] treaties want a different Europe than what is laid down in the treaties."  

"More centralisation in some areas is possible, but one has to soberly discuss the repatriation or a better separation of powers in areas such as labour and social law. Relevant proposals from the Netherlands or the UK should not be immediately viewed suspiciously as re-nationalisation programmes."     

When it rains, it pours – EU legal opinion puts UK on backfoot over revamped Liikanen rules

It’s not shaping up to be a great month for the UK government with respect to the EU – a pretty poor showing at the European elections, a looming defeat over the Spitzenkandidaten process and now, just to top it off, a troublesome legal opinion from the European Council legal service.

The FT and Reuters overnight reported on a leaked legal opinion from the European Council legal service which looks at the new rules on proprietary trading and the structural reform of the European banking sector published in January.

As a reminder, these proposals are the offspring of the Liikanen report and we covered them in detail here.

The wider political importance of these reforms relates once again to how much control the UK can retain over how to structure, regulate and, by extension, supervise its own banking sector (which, lets not forget, it continues to backstop alone) in light of further eurozone integration, which it cannot be part of. And whether the EU can be flexible enough to accommodate this.


The legal opinion, which Open Europe has seen, is a blow to the UK because it focuses on the specific article of the legislation which allows the UK and other member states which already have reforms aimed at overhauling or ring fencing their banking sector in place (such as the Vickers reforms).  The opinion notes that:

“The derogation mechanism established in Article 21 of the proposed Regulation is not compatible with the legal basis of the proposal, with the nature of the proposed instrument as defined in the TFEU and with the general institutional principles established in the Treaties.”

There are a number of justifications for this judgement given (these are the arguments of the council legal service not OE):

• Firstly, any derogation under the single market article (Art 114) should be “temporary” according to the treaty. Since the derogation seems to be permanent it falls foul of the treaty here.
• Secondly, allowing for exemptions here breaks Article 288 of the EU treaties because it stops the “general application” of a regulation across all member states. It also falls foul of the “uniform application” of regulations across member states.
• Thirdly, the legal service does not buy into the justification for the derogation, suggesting that the costs of changing legislation to meet EU rules would not be prohibitively high. This sets it apart from previous instances where objective justification has been given. Furthermore, the use of the derogation is reliant on member states making an application and does not rely solely on the Commission.
• Fourthly, the derogation only applies to countries where similar legislation has been passed before 29/01/14 – the opinion stresses that no justification is given for such a date and calls for more explanation. This cut-off date also means the exemption applies differently to certain countries which happen to already have passed their own legislation. On top of this, it only applies to certain credit institutions.
• Finally, since the exemption essentially allows national law to take precedence, it questions the primacy of EU law.

The legal services suggest a number of remedies including: allowing the derogation for a specific temporary time period, clearer justification for the cut-off date, adopting the legislation as a directive rather than regulation (allowing for greater national flexibility) or dumping the derogation altogether.

As we noted previously, the target adoption date for these rules is January 2016 and there are plenty of negotiations still to come, as such this opinion, while a blow to the UK, is the not the end of the discussion by any stretch. As the remedies suggest, there are options open to the UK and others for adjusting these rules.

Furthermore, there are plenty of other controversies in the rules, such as how to properly define proprietary trading and how all the technical standards are defined. This one will run for some time still.

Farage suffers another defection: can he still put together a group in the European Parliament?

With the deadline for the registration of European Parliament political groups set to expire early next week (the European Parliament's equivalent of a transfer window), even the moves of individual MEPs can be decisive.

Nigel Farage suffered an unexpected blow yesterday, as Dutch MEP Bastiaan 'Bas' Belder (see picture) announced that he would leave UKIP's Europe of Freedom and Democracy (EFD) group and join the European Conservatives and Reformists (ECR) - the Tories' group.

This complicates things for Farage, who now needs MEPs from at least three more member states (other than UK, Italy, Czech Republic and Lithuania) to gain the seven countries needed to keep his EFD group alive.

Time is running out, but there are still a few options out there, including:

• The Sweden Democrats (who have also applied to join the ECR group); 

• German satirical party Die Partei; 

• Poland's Congress of the New Right (who are also in talks with Marine Le Pen);

• Bulgarian MEP Angel Dzhambazki of the Bulgarian National Movement (VMRO).

Meanwhile, there has been no news from the Le Pen-Wilders front this week. They also need two more countries to wrap up their group. Given that Farage and Le Pen have both ruled out joining forces with Golden Dawn, Jobbik and the German neo-nazi NPD, the room for manoeuvre is now narrower, and the two may well end up contending for the same MEPs. The next few days are going to be interesting.

Is the UK gearing up for a defeat on Spitzenkandidaten?

Our views on the Spitzenkandidaten should, by now, be clear. And just for the record, this goes back to our opposition to the Lisbon Treaty, which was the wrong Treaty at the wrong time, answering the wrong questions. So, again, forget Cameron; it's about principle, precedent and best democratic practice.

However, several stories and reports – including one in Le Monde this morning and Bruno Waterfield's piece in the Telegraph – suggest that Angela Merkel has instructed Herman Van Rompuy to nominate Jean-Claude Juncker as the new European Commission President at the next summit of EU leaders. This means that the issue could be put to a vote as early as 26th June. Remember this is decided by Qualified Majority Voting (QMV) meaning the UK doesn’t have a veto. At the moment, it’s unclear whether there’s a blocking minority to stop Junker.

This means that there’s a real risk of David Cameron being outvoted on a matter he has absolutely gone to war over.

Whatever the rights and wrongs of Cameron’s tactics, such an outcome will go down like a lead balloon domestically. Many will say “You want to negotiate sweeping reform in Europe and yet you can’t even stop a super-federalist from becoming Commission President.” It’ll also fuel mistrust between London and Berlin. It would be a tragedy if the two capitals were to fall out over a former Luxembourgish PM and an ambiguity within in a misdirected Treaty before substantial EU reform even makes it onto the agenda. Who are the winners? Well, Juncker for a start. The German SPD who have used this to corner Merkel at home. The minority cult of transnational democracy within the EU - where the European Parliament is the ultimate source of democratic decision making (many clever and sincere people support this concept, but it is a minority cult nonetheless).

Is the UK quietly preparing for defeat? Well, this is still very much an open race. The UK will probably vote against Juncker no matter what. However, it could now also be looking for deals. As we noted several weeks ago, anything short of the internal market portfolio in the next European Commission, and possibly some wider commitment to European reform, will likely fall short of what many in the UK will demand.

There’s a second question. The UK is doing everything to stop the principle of ‘Spitzenkandidaten’. This could mean ending up with someone London wouldn't normally have accepted, like Michel Barnier or someone similar.

If the UK manages to block Juncker, for example by moving him to European Council President instead and then getting Barnier instead, it still won’t look good despite the huge expansion of political capital. For Cameron, the next European Council between 26-27 June is shaping up to be the most important such gathering since the 2011 Council when he vetoed the Fiscal Treaty – if not more significant.

We told you it would be messy…

Russia suspends gas flow to Ukraine as talks fail to yield compromise

As has long been feared, negotiations between Russia, Ukraine and the EU over Russian gas supplies to Ukraine have ground to a halt.

Despite last ditch negotiations over the weekend a deal did not materialise and the two sides remain some way from reaching a deal. Ukraine is willing to pay a price of $326 per 1,000 cubic metres, however Russia continues to demand $385. Russia also insists that Ukraine owes debts of $4.5bn, of which it wants $1.95bn paid immediately. Reports over the weekend suggested Ukraine (pushed by the EU) was willing to offer a $1bn payment immediately – an offer which was swiftly rejected.

What does this mean for Ukraine?

• Reports suggest that Ukraine has sensibly built up sizeable gas reserves – around 14 billion cubic metres, enough to last the country until December. This reduces the immediate pressure on the negotiations.
• However, both sides are now playing hardball and have filed lawsuits at the Stockholm international commercial arbitration court. Russia is also refusing to countenance any further talks until a sizeable chunk of the outstanding debt is paid. The hope of a quick solution then seems to be fading

What does this mean for the EU?

• So far, the direct impact will be limited. Russia has said it will continue to transit gas through Ukraine to the rest of Europe and Ukraine is obliged to ensure all gas is delivered. This is vital given that Europe receives just over 30% of its gas from Russia, 16% of which comes through Ukraine (according to the EIA).

• That said, this assumes Ukraine will not siphon off any gas for itself (although as pointed out above it does have sufficient reserves), as it did back in 2009 when a similar situation arose. That time Ukraine's decision was driven by mostly by simple economic necessity. Even though it has sufficient reserves this time around it does not guarantee it will not adopt a similar approach. Any disruption in supply to Europe would force the EU to become more involved, possibly to the benefit of Ukraine – clearly, if the situation continues to worsen there may be an incentive for such action (although of course the political fallout in Europe would not be positive).
• In the longer term the indirect impact could be that this because another area of Ukraine where the EU has to become more involved. At the very least, future bailout funds could be primarily earmarked to prepay for Russian gas, something Russia seems intent on enforcing. This could either increase the cost or reduce the impact of the bailout.

In the end, despite the current intransigence of both sides, it remains in their interests to strike a deal. Russia seems to have the upper hand at the moment but equally Ukraine remains an important market for it and pushing the country further away may only exacerbate the original issue it took exception to – Ukraine moving closer to the EU.

However, this state of affairs only holds as long as the gas continues to flow through Ukraine. If this stops, then the volatility of the situation would increase significantly and the incentives would shift radically (as we have said before, neither side would want a breakdown in energy relations between the EU and Russia). This is the key point to watch in coming days and months.

A closer look at Juncker's "popular mandate" - is he really the People's President?

Forget Cameron. Forget the personal merits or otherwise of Jean-Claude Juncker. The question of who ought to become the next Commission President goes a lot deeper. Supporters of the 'spitzenkandidaten' concept say that it represents genuine 'EU democracy', and that since the national centre-right parties belonging to the European People’s Party (EPP) won the most seats in the European Parliament, Juncker has a “popular mandate” to become the next Commission President, and that therefore, national governments are obliged to nominate him at the European Council summit later this month.

However, Open Europe has compiled some figures which put these claims to democratic legitimacy into sharp context.

Click here to enlarge

Did Juncker really 'win the European elections?

Out of a total electorate of approximately 395 million people, 40.3 million (10.2%) voted for EPP affiliated parties. However, this falls to 38.4m (9.7%) when you take out Sweden and Hungary, where the EPP parties made a point of not endorsing the spitzenkandidaten process and/or Juncker’s candidacy in particular.

A handful people on twitter have predictably vented their frustration at the flaws within the UK's democratic system, trying to somehow show that, in fact, Juncker does have a strong public mandate after all. Arguments include that David Cameron himself was only on the ballot in one constituency and therefore is elected by some 33,000 people. This is of course silly. If we want to play this game, the Tories contest virtually every constituency in the UK and it was blatantly clear that if they emerged as the largest party, Cameron would become the Prime Minister. As we demonstrate below, in the European elections, even those voting for EPP parties did not know they were effectively casting a vote 'for Juncker'. In addition,. turnout in the last UK general election (65.1%) was around a third higher than in the European elections (43.1%). We can go on and on.

He was not even supported by a majority of EPP delegates

When Juncker was chosen as the EPP's official candidate at the group's March congress in Dublin he only received 382 delegates' votes, less than half of the 800 who were eligible to vote. 245 delegates voted for Michel Barnier instead, and 173 did not vote at all. There is no publicly available list of who the delegates were or how they voted.

Only around a third of voters knew Juncker was even in the race

In reality, far less than 9.7% can be said to have genuinely voted 'for Juncker' given that the majority (outside of his native Luxembourg) did not know that he was standing - or even who he was.

A poll commissioned by the Alliance of European Conservatives and Reformers immediately after the European elections found that unprompted, only 8.2% of respondents were able to name Juncker as one of the lead candidates, and only 8.8% were able to name the EPP or any other EU-level political party. When prompted, only 25.9% of respondents (33.9% of voters) were able to identify Juncker, and only 24.4% of respondents (30.8% of voters) were able to identify the EPP.

The poll also found that less than 30% of respondents (41.3% of voters, 17.3% of non-voters) were aware that their vote in the European elections indirectly supports one of the European political parties’ candidates as the next President of the European Commission. Only 1 in 10 of respondents (10.1%) endorsed this process, suggesting two-thirds of those aware of it did not.

An Emnid poll for Bild am Sonntag published two weeks before the elections found that even in Germany - where politicians and commentators have taken up his case with zeal - only 7% could identify Juncker as the centre-right’s leading candidate (13% among CDU/CSU voters).

This completely demolishes the argument that the majority of those who voted for national centre-right parties were aware they were actively casting a vote either for the EPP or for Juncker.

Grillo joins Farage, but UKIP's group in the European Parliament is not a done deal yet

Now it's official: Italy's anti-establishment Five-Star Movement will try to form an alliance with UKIP in the new European Parliament. Beppe Grillo launched an online survey of Five-Star members and activists on his blog yesterday, and 78% of votes went for Nigel Farage's EFD group.

The survey has drawn criticism from the Italian press, but also from some Five-Star MPs, for a number of reasons:

• Only 29,584 votes were cast, a microscopic amount when compared to the almost 5.8 million votes the Five-Star Movement won in the European Parliament elections;

• The survey only offered three options: EFD (UKIP's group), ECR (the UK Conservatives' group) or non-attached. Other groups that could have been more natural allies of the Five-Star Movement, notably the Greens and the European Left of SYRIZA and Podemos, were not included;

• The three options were presented on Grillo's blog in a way that appeared to privilege Farage's group. The description of the ECR was shorter and less enthusiastic in tone. As regards the non-attached group, the blog warned that being part of it would mean "limited or no influence on the legislative activities of the European Parliament", and would therefore prevent the Five-Star Movement from pushing its political agenda in Europe. A fair point, although it can also be quite difficult to impose your views if you are sitting in a group where no-one agrees with you on certain issues.

Still, the verdict of la rete (the internet) is sacred for Grillo and the alliance with UKIP will go ahead. It will be very interesting to see how this plays out. Although they both emphasise the importance of referenda and direct democracy, the Five-Star Movement and UKIP are not exactly soulmates. Energy policy, EU farm subsidies, financial regulation, the financial transaction tax, GMOs and the EU-US free-trade deal (TTIP) are all issues on which the two parties do not see eye to eye.   

Indeed, the deal between Grillo and Farage is that their parties will sit in the same group, but will vote independently. This could help make the alliance sustainable in the longer term.

So where does this leave Farage with the formation of his group in the European Parliament? The bad news for UKIP is that they still need two national factions to wrap up the group. At the moment, parties from five EU countries are on board: UK, Italy, the Netherlands, Lithuania and the Czech Republic.

On the other hand, though, Farage is now ahead of Marine Le Pen when it comes to the number of MEPs in the respective groups. Farage has 45 MEPs on his side, Le Pen only 38 (42 if you count the Polish KNP party, whose participation has not yet been confirmed).

Will Le Pen and Farage both succeed in putting together a group? And whose will be the largest one? We will likely get the answer over the next couple of weeks.  

Germany reacts to ECR vote "Britain knights AfD"

As soon as the news that Germany's anti-euro Alternative für Deutschland (AfD) had joined the Tories' ECR group in the European Parliament - as we predicted would happen - hit the Twittersphere, the German reaction has been swift and pretty condemning.

Although the vast majority of Tory MEPs voted against the AfD joining, they were outvoted by their partners in the ECR.  Nonetheless, the top line is that this is not going to go down well in Germany, and the Conservatives and David Cameron should brace themselves for a lot of backlash.

Germany's Die Welt leads on the home page of its website with "British Conservatives cooperate with AfD."

Leading financial daily Handeslblatt also leads with the story on its front page, with the headline, "Britain knights the AfD."

It is also front-page news on the website of Frankfurter Allgemeine Zeitung, under the headline, "AfD to be in a faction with the Tories in future".

Süddeutsche hasn't missed it either. On their front page, the story is written up as "The AfD docks with Cameron's Conservatives."

Spiegel also puts it on their front page, arguing, "Merkel forced Cameron to say no, but the European Conservatives thought otherwise: The AfD is now a member of their faction."

As we have argued before, Berlin is London's most important ally in achieving a reformed EU. And news of the AfD in the Tories' Conservative group could prove to be a major stumbling block in that process.

Anti-euro Alternative für Deutschland now likely to join Tories' European Parliament group - what will it mean for Anglo-German relations?

Relations between Berlin and London are potentially about to become a lot more complicated.

The Tories raised some eyebrows last week when they allowed the Finns Party and Danish People’s Party – two parties with controversial histories, but who, according to Tory MEPs, have cleaned up their act – to join their European Conservatives and Reformers (ECR) group in the European Parliament.

Even more eyebrows could be raised soon as it now looks highly possible that Alternative für Deutschland (AfD) will also join the ECR.

A vote amongst ECR MEPs is imminent. Number 10 isn't keen at all on the idea, but doesn't actually have a veto over who joins. That’s entirely down to a vote amongst the actual MEPs in the group, with a simple majority needed to approve new applicants.

Number 10 will probably try to make Tory MEPs vote against AfD, but the Tories account for only 19 of 55 ECR MEPs. Most non-UK MEPs will likely vote in favour of allowing AfD to join. This means Number 10 is effectively powerless, short of removing the whip from Tory MEPs or withdrawing from the ECR altogether. Cameron could try to hit the phones to the national leaders of the other parties to try to get them to convince their MEPs to vote against AfD. If successful, he could maybe still block AfD joining.

If AfD joins, it will be explosive. The party would bring seven MEPs to the ECR group, allowing it to potentially overtake the liberals, ALDE, as the third-largest group in the European Parliament (unless ALDE also gets some new recruits). An enlarged ECR would attract additional cash and staff, as well as more important committee posts. Also, the group may well become a more influential voice by virtue of being bigger, and therefore much harder to ignore. It can serve to put significant pressure on the European People's Party (EPP) in particular. You can’t blame Tory MEPs for seeking to maximise their influence.

Also, the ECR strategy appears to involve a concerted effort to strip UKIP's EFD group of its member parties, leading to the its collapse, depriving them of cash and demolishing their platform. Denying them the DPP, the Finns and AfD as members (assuming AfD would even want to join Farage) is a key part of the strategy – which seems to be working so far.

However, with AfD, as with the DPP and the Finns, there’s a big trade-off here: numbers versus image. With the Nordic parties, it was the risk of turning off allies on the liberal right, who are vital to achieving EU reform.

With AfD, it’s all about Angela Merkel. She doesn't deal with AfD. In fact, she barely acknowledges its existence. She once said,

"We consider a collaboration [with AfD] to be out of the question."

Merkel wasn’t happy when Cameron left the EPP-ED group to form the ECR in 2009. Now, joining forces with her arch-enemy will be like chucking a tank of fuel onto the fire. It will also surprise Berlin, since Number 10 has previously ruled out this possibility. In fact, only in February he said:

"In terms of the parties that are going to join that, we have a sister party in Germany, the CDU/CSU. We’re not looking for a new sister party. So I don’t anticipate that situation arising at all."

With AfD, the Independent Greeks (interesting to see whether the two of them will get along) and 'Germany-wary' Law & Justice, the new-look ECR could perceived by some in Berlin as outright anti-Merkel. It's hard to see how this will help Cameron's 'stop Juncker' campaign.

But is it a deal-breaker for a wider Anglo-German bargain on EU reform? Well, to some to some extent the European Parliament follows its own logic. And by having Tory MEPs vote against AfD joining, Cameron will seek to convey a “I did what I could” approach. Indeed, if the plan is for the ECR to become a vehicle for pushing a reformist agenda, there was always going to be a time when the group was no longer going to be “owned” by David Cameron.

Here's a second big potential risk though: yes, these parties share a basic scepticism of current EU. However, parties like the Danish People's Party, Finns Party, Law & Justice are, at best, lukewarm on issues like free trade, reflecting their social democratic core for the first two, and the small 'c' conservative base of the last one. Even AfD has come out against the EU-US trade deal - TTIP - as currently proposed. Remember, TTIP is one of the key items in Cameron's reform package. So, much like the AfD itself, there will be a massive struggle within the ECR over whether it wants to be a solid force for EU reform and free trade or a catch-all sceptical block with a penchant for populism, protectionism and illiberal economics.

You can say that Cameron has no control over his party, or you can say this is an example of a type of devolved democracy (if you’re a federalist, ‘European’ democracy over national politics: this is the system you want) but only time will tell whether this trade-off will be worth it for the wider goal of sweeping reform in Europe.

Merkel and Cameron won't run out of conversation topics any time soon...

EU spending to go up by only 1.3% next year (well, only if you buy the Commission's spin)

The European Commission has this afternoon put out its draft EU budget for 2015 which proposes total new spending commitments amounting to €145.6bn and €142.1bn in actual expenditure. The accompanying press release proudly proclaims that:

"The proposed increase of 2.1% in commitments and 1.3% in payments is virtually absorbed by the estimated inflation rate for 2015."

A below inflation increase would amount to a real terms cut which would be welcome but is that really the case?

The 2014 budget as signed off by member states and the European Parliament sets the level of payments at €135.5bn, so in actual fact the Commission's proposal constitutes a 4.9% increase, not 1.3%. So what accounts for the difference?

Well, a couple of weeks ago, on the 28th of May to be exact, the Commission proposed to retroactively top up the budget by €4.7bn in order to

"cover legal obligations in research and innovation, education and support for small and medium-sized enterprises. Higher reimbursement claims from Member States in cohesion policy have to be addressed as well as the difficult situation in the Ukraine."

This €4.7bn would come from a mixture of spare cash from the 2013 budget and income from fines levied by the Commission on companies breaking EU law as well as fresh funds from member states. However, this top-up still needs to be signed off by member states (the decision will be taken under QMV) so it is disingenuous to tack it onto what has already been agreed and present it as a lower overall increase.

Ultimately, the top-up itself is not completely the Commission's fault - member states often submit higher claims than the agreed budget allows, forcing the Commission to retroactively top the budget up (this annual ritual is as depressing as it is predictable). However that does not justify the Commission putting such dubious spin on the issue. This kind of stuff doesn't help in boosting citizens trust in EU just after the European elections produced a record strong showing for anti-EU parties.

Has Marine Le Pen put Farage's European Parliament group out of business (and out of pocket)?

UPDATE 16:10 - A spokesperson for Lithuania's Order and Justice told EUobserver that the party "hasn't had any discussions" with Marine Le Pen on a possible alliance. This confirms Le Pen remains at least one party short of forming a group in the European Parliament (see previous update). 

UPDATE 14:05 - We are still waiting for an official confirmation that Marine Le Pen has managed to put together her new group in the European Parliament.

In the meantime, though, it seems the two Lithuanian MEPs from Order and Justice have denied reports that they are going to join forces with Front National. This would leave Le Pen's group one party short of the required number. A Lega Nord spokesman quoted by Die Presse admits that "final discussions are still under way", but still expects Le Pen to officially announce the creation of the group later this afternoon.

ORIGINAL BLOG POST  

It looks like there could be a winner in the contest between Nigel Farage's UKIP and Marine Le Pen's Front National to gather as much support among the fringe parties elected to the European Parliament in order to be able to form (or in UKIP's case maintain) a parliamentary group. Although there has not yet been any official confirmation, Giovanna Pancheri - the Europe correspondent of SkyTG24 - broke the news on twitter yesterday evening that the Polish KNP party (led by Janusz Korwin-Mikke) and the Lithuanian Order and Justice party had agreed to join Le Pen's new European Alliance for Freedom Group. 

Along with the FN, Geert Wilders' PVV, Belgium's Vlaams Belang, Austria's Freedom Party and Italy's Lega Nord, the EAF has enough member states to qualify for an official group. In total, the group will have 44 MEPs (24 of which are from the FN). Having a group means additional staff and funding, a high profile platform in the parliament, and possibly the right to some committee posts.

This means that, as Open Europe predicted a couple of weeks ago, UKIP's Europe of Freedom and Democracy (EFD) group looks in serious trouble having lost the Danish People's Party and the Finns party to the ECR and Lega Nord and now also Order and Justice to the EAF.

In theory, the EFD could yet survive if it holds onto its Dutch MEP, as well as getting Beppe Grillo's Five Star Movement on board (which may prove difficult given its activists will have the final say), the Sweden Democrats, and a couple of other small parties and independents. If it manages to get MEPs from six different member states, it could also potentially secure a special dispensation under EP rules, but this would require the consent of the other group leaders (not sure we would fancy Farage's chances!). While being forced to sit without a group would hardly be disastrous for UKIP politically, given that it has its eyes set on Westminster, losing millions of euros, a bunch of staff that can be used for campaigning and a high profile platform from which to attack the EU would hurt. Ukip better get busy searching for more donors. 

However, despite Le Pen's apparent success in emerging as the figurehead of the main anti-EU group in the EP, there remain a number of questions over the EAF's durability. For a start, the PVV have made clear their unhappiness over Jean-Marie Le Pen's recent anti-Semitic outburst (which is splitting the FN), while the addition of the highly volatile Korwin-Mikke could alienate more 'moderate' MEPs within the group.

MEPs' great hope for more EU democracy and transparency to be decided by... a secret ballot

Own-goal alert.

When selected as the Socialists' candidate for the European Commission President, Martin Schulz claimed that:

“I want to be the first President of the Commission who is not the result of a backroom deal in a Brussels office."

This is the main argument advanced by supporters of the spitzenkandidaten process (including by the current front-runner, Jean-Claude Juncker) i.e. that having the Commission President nominated by the largest political group within the European Parliament is more transparent and democratic than the previous process whereby EU leaders agreed the Commission President amongst themselves. For the first time, voters would be able to directly determine who would get this crucial post., and be able to hold politicians to account for their choice.

However, when the Parliament itself comes to vote on the appointment, as per its rules of procedure, the vote is held by, wait for it, a secret ballot: 

Rule 105 : Election of the President of the Commission

1. When the European Council proposes a candidate for President of the Commission, the President shall request the candidate to make a statement and present his or her political guidelines to Parliament. The statement shall be followed by a debate.

The European Council shall be invited to take part in the debate.

2. Parliament shall elect the President of the Commission by a majority of its component Members.

The vote shall be taken by secret ballot.

Although this is not a new development - Barroso was confirmed by secret ballot - this time it was supposed to be different. It is hard to stress just how absurd it is for MEPs to decry a "stitch-up" by national leaders and then refuse to allow themselves to be subjected to scrutiny. If the idea is to make the appointment process more transparent and to 'put voters in charge', how can voters hold their MEPs to account when they do not know how they voted? How will - for example - Labour voters know if their MEPs will follow the party line and vote against Juncker should he emerge as the European Council's preferred candidate?

For all the laudable talk about democracy, transparency and accountability, critics will be forgiven for thinking that this is about the European Parliament trying to carve out more power and influence for itself within the EU structure. Yet another reason to drop the spitzenkandidat charade and allow national leaders - who have a much stronger democratic mandate - to make this decision.

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

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

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

So what will be discussed?

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

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

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

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

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

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

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

Renzi: Italy won't support Juncker if EU policies don't change

Swedish Prime Minister Fredrik Reinfeldt has invited Angela Merkel, David Cameron and Mark Rutte to his summer retreat in Harpsund to discuss the future of the EU and, most likely, the appointment of the next European Commission President. The two-day meeting has already been branded by the German media der anti-Juncker Gipfel (the anti-Juncker summit).

Meanwhile, at the opposite end of Europe, Italian Prime Minister Matteo Renzi has made his clearest statement to date on Jean-Claude Juncker as the next European Commission President.

He told a conference in Naples yesterday:

"The EPP wants to put forward Juncker? Fine. What is Juncker planning to do over the next five years? Someone who wants to continue with the policies of the past few years will not have our consent."

During his election campaign, Juncker has made clear he is not keen to relax budget discipline. And he has backtracked on Eurobonds, of which he used to be a warm supporter. In other words, not your ideal candidate if you're sitting in Rome (or Paris, we would add).

Even more so for someone like Renzi, who has built up a reputation as 'il rottamatore' - the 'demolition man' of the old political establishment. Now, Juncker can be described in many different ways, but 'new' is definitely not one of them.

Italy is also due to take over the rotating EU Presidency on 1 July. Therefore, Renzi may want to avoid pulling his weight behind a candidate that would not be able to gather consensus in the European Council of EU leaders.  

True, we shouldn't see yesterday's remarks as a definitive 'No' to Juncker from Renzi. The priority for the Italian Prime Minister is to make sure the next European Commission changes its tone on economic policies and grants his government some budget leeway to continue the reform process.

However, this remains a very interesting development. Remember: UK, Sweden, the Netherlands, Hungary and Italy could constitute a 'blocking minority' in the European Council...

ECB acts as expected, now the waiting game begins

For anyone following twitter yesterday around the ECB’s announcement and press conference it would seem as if we have just had another ‘whatever it takes’ moment (when ECB President Mario Draghi promised to backstop the eurozone).

However, stepping back for a moment and it becomes clear that the ECB acted more or less as expected and some would argue has done the minimum necessary to retain its credibility and not be labelled an ‘all talk’ institution.

Sure, the package of measures looks more impressive when strung together but as we discussed in detail here and here, few if any of them address the crux of the problems in the eurozone which are depressing inflation and growth (delayed impact of internal devaluation, rebalancing of various economies, recapitalisation of banks and the breakdown of the eurozone’s cross border financial system).

All that said, there were a few more subtle and interesting takeaways from Draghi’s press conference.

Unanimous support is impressive but unlikely to apply to further easing
Draghi stressed that the support for this entire package of measures was unanimous. This is quite surprising given the previous Bundesbank opposition and does add weight to the strength of the decision. That said, just because unanimity was agreed here does not mean it can be easily translated into support for much stronger action such as asset purchases. In fact, Draghi’s hesitancy to talk about such a programme in more depth and the ECB’s willingness to push ahead with one suggests a lack of consensus on the issue. Furthermore, the outcry in Germany has already begun and will likely make central bankers think twice about stronger easing action.

Draghi insists the ECB is not “finished”, but its mighty close
Over the past year, Draghi has waxed lyrical about all the tools at his disposal and we have analysed them all in detail – see here. However, with this package of measures he has come close to emptying his toolkit – he admitted as much on the rate side saying that, for all “practical purposes”, the lower bound has been reached.

True, he has pulled out many of the smaller tools and retains the big sledge hammer of asset purchases (Quantitative Easing through buying either private assets or government bonds) but the bar to take such action remains high and gaining support for it remains a huge challenge. Pushing the deposit rate further into negative territory is also unlikely to work as banks will simply begin hoarding hard cash – this of course has some cost in terms of storage and security but it will not be more than a fraction of a percent. Finally Draghi stressed that this package could take some time to have any impact, between three and four quarters (9 – 12 months), suggesting that the ECB is now in wait and see mode as the emphasis falls on governments and the bank stress tests to help push along the economic recovery.

Impact of long term lending operations relies on cross border lending being revived
As the useful chart to the left shows (from Morgan Stanley via FT Alphaville) the amount which banks can borrow is again limited in countries which need it (the periphery) due to their already underdeveloped markets in lending to small and medium sized businesses. The technical structure for the TLTRO (pronounced Tel-tro) does allow for them to borrow more if they lend more but this will take some time. Ultimately, the target seems to be to encourage banks in the core to lend to banks and businesses in the periphery – this fits with the theory of the negative deposit rate which should encourage a search for yield. Rebuilding the cross border system in the eurozone remains a huge task.

Another potential question which arises is whether the end of sterilising purchases made under the Securities Markets Programme (SMP) will raise any legal issues or challenges in Germany and whether it will impact the judgement of OMT sterilisation.

In the end, the ECB has made its play and will likely now give it time to pan out. It will continue to provide dovish statements and may even talk up asset purchases in the future but it will urge patience in waiting to see if these measures have the desired impact.

ECB to ease policy but impact could be limited

Over on his Forbes blog Open Europe’s Raoul Ruparel provides a preview for tomorrow’s ECB meeting at which some action to ease monetary policy is expected.

In specific terms he sees the ECB taking the following action:

1. Cut the main interest rate to 0.15% (from 0.25% now).
2. Cut the deposit rate to -0.1% (from 0% now). This will be an unprecedented move.
3. Announce a new Long Term Repurchase Operation (LTRO) focused on boosting lending to small and medium sized businesses. The term of the LTRO will be between 3 and 5 years, rates will be reduced if banks provide evidence of a pick-up in lending (see below for a useful Nomura graphic on this).

It could also decide to end the sterilisation of the Securities Market Programme purchases, creating a liquidity injection of €164.5bn and loosen collateral rules further. The ECB will likely keep asset purchases (both of private assets and government debt) in reserve but will likely reiterate that such action remains possible as part of a broader dovish statement from Draghi.

Despite some of these moves being unprecedented Raoul forecasts that the impact could be limited. This is for three reasons. First, much of it has been priced in as the moves have long been expected. Second, the impacts of a negative deposit rate and targeted LTRO are far from certain. Finally because it does not address the key problem, as he notes:

As the chart below shows (courtesy of SocGen) the biggest problem facing the eurozone financial system at the moment remains the discrepancy in lending rates to businesses in different economies. The knock-on impact of this is limiting credit in countries where the economy needs it and where it is needed to help drive inflation and growth.

It’s not clear that the rate cut, negative deposit rate or the LTRO will help close this gap. Fundamentally this gap is driven by a few factors which these issues do not address:

• Banks continue to deleverage and overhaul their balance sheets. The ECB’s Asset Quality Review and the bank stress tests are in the process of trying to put banks on a surer footing but until they are all done and dusted this process will weigh on banks actions.
• Cross border lending system in the eurozone remains fractured. Banks and investors on the whole are still not willing to lend and invest heavily in the peripheral economies. This stops the excess liquidity in the stronger countries filtering in the weaker ones. While negative rates will seek to encourage such movement by pushing a search for yield it is unlikely to override concerns over risk and the desire for safe assets.
• As recent ECB bank lending surveys highlight the problem is not just on the supply side but also the demand side. The economic overhaul, reform and rebalancing on many of the eurozone economies (both in the core and periphery) is an on-going process. Not only does this itself limit demand but it highlights that lending must be to new sectors and new drivers of economic growth rather than helping to simply prop up older sectors (here I am thinking for example in Spain of lending to new services rather than to the old real estate and construction sector).

Der Spiegel not all pro-Juncker: 'He is no friend of the Germans'

Germany's Spiegel (magazine and online news agency), has been vocal in its criticism of David Cameron for
his objection to Jean-Claude Juncker as the next Commission President, on the premise that he is blocking the democractic choice in Europe.

Spiegel's editing director, Nikolaus Blome wrote a piece for today's FT arguing that:

To many member countries, backing Mr Juncker has become a strong symbol for promoting democracy and transparency in Europe. The British government would be ill-advised to laugh at this sentiment.

However, scratch beneath the surface, and you will find that even in Germany, Juncker's is a troublesome prospect. Spiegel columnist and editor, Jan Fleischauer, today argues that, "Juncker is no friend of the Germans".

Fleischauer continues:

Or better said, Juncker is only a friend of the Germans, so long as they continue to pay for the debts of their neighbours without grumbling too loudly about it..[He] is one of those people who dream of making the monetary union a debt union.

Fleischauer points out that at the the height of the eurocrisis, when the German government was hesitating before providing more bailout money, Juncker said:

This is part of the problem, to behave as though Germany is the only virtuous country in the world that has to foot the bill for all other countries. This is highly offensive to the others.

When the German goverment insisted on stricter budgetary discipline in peripheral countries, Juncker's interjection was:

Why exactly does Germany constantly allow itself the luxury of formulating domestic policy in all euro-related questions? Why does Germany treat the eurozone as a subsidiary?

And on eurobonds, which Germans have pretty much ruled out, Juncker said:

This approach, building taboo-zones in Europe, and not engaging with the ideas of others, is a very un-European way of doing European business. Germany is thinking a bit simplistically there.

Fleischauer then challenges the premise that Juncker is the 'democratic' choice, arguing that his bid for Commission President was "fraudulent" from the very start. He adds: 

What one could call a rigged game anywhere else, is called democracy in Brussels: First, one makes citizens believe they can vote on something, that in reality, is in the remit of the heads of [national] governments. When [government heads] subsequently insist on their right to ignore the self-nomination of the candidates, then it is painted as neglecting the vote of people.

Fleischauer concludes that, “The only person who can come between [Juncker and the Commission Presidency] is the German Chancellor…One can only hope that [Merkel] says no to Juncker.”

Meanwhile, Bild, Europe's largest tabloid that actively came out in favour of Juncker's presidency, strikes a more nuanced tone today, writing that Merkel didn’t agree on the concept of ‘Spitzenkandidaten’ “from the start,” because she knew “there would be “no agreement” in the Council. The piece adds that Merkel could ultimately “live” with Juncker in the post, because:

 The head of the Commission dances to the tune of the heads of the member states: not vice versa.

Interesting stuff then, showing that even in Germany, neither Juncker nor the process of his selection are universally endorsed.

German media turn on Cameron over Juncker - but what are they arguing for?

We pointed out on Friday that a powerful coalition between media and politicians was forming in Germany in support of Jean-Claude Juncker becoming the next Commission President and the Spitzenkandidaten experiment more generally. More worryingly for Cameron, he has emerged as the pantomime villain of the piece due to his opposition to both.

What's interesting though is that German commentators seem to argue more against Cameron than in favour of Juncker - who, we suspect, most of them realise that the idea of Juncker as the saviour of European democracy isn't entirely intellectually sound. A widely reported pre-election opinion poll for Bild showing that only 7% of Germans actually knew Juncker was a candidate, is no longer cited.  Here is a round-up of some of the key pieces from the past few days:

On Friday, the big news was the endorsement of Juncker by Axel Springer (the parent company of Bild and Welt). In a piece headlined “Juncker has to become President", the group's chairman Mathias Döpfner wrote:

“Are the results of the elections in Europe the sovereign decision of the citizens that politicians ought to implement? Or are they a form of non-binding suggestion that in the backrooms of powers can be interpreted and then gladly twisted into something opposite?”

"The issue is clear: Europeans want Juncker as the EU president. Schulz got the second-best result. A third [candidate], who didn't stand for election, can't be allowed to get the job. Otherwise that would make a farce out of democracy. You may get away with something like that in the DDR or in far-right banana republics. But not in the EU. Otherwise it will abolish itself."

In another comment piece on Saturday titled “Merkel must keep her word”, regular Bild columnist Ernst Elitz - who has often been critical of EU over-reach argued that :

“Before the elections it was clear: The Commission President will be decided by the voters and the EU Parliament. Afterwards some national leaders don’t want to hear about it anymore.”

On Monday, Handelsblatt’s Brussels correspondent Thomas Ludwig argued that:

“Whoever listens to the Brits in the debate about the personnel for Europe’s top posts is allowing the notorious spoil sport to take charge of the game... “It is impudence that the British Prime Minster David Cameron called the vote of the people an ‘unnecessary restriction’ for the political manoeuvring in the personnel poker. What kind of democracy understanding is that!”

Die Welt's Brussels correspondent Florian Eder - another German journalist and commentator who is often sensitive to the need for EU reform - also had a piece on Monday in which he argued that:

"It would in any case be a risky move [for member states to put forward an alternative candidate] which would delight the strengthened anti-Europeans that David Cameron and Francois Hollande want to keep at bay. The sceptics could already by the first vote get that which they could never achieve alone: a hamstrung, institutionally paralysed EU. Is that supposed to make sense?" 

"the European Council is by no means set against Juncker. Many of its members, including social democrats, have come out in support of the Luxembourger. That was how it had been agreed: the election winner would become Commission President. Cameron is voting against this as he blames his defeat at the European elections on the EU, which should show consideration towards him and his party interests... whoever blocks Juncker is duping the voters who believed in a political promise."

German magazine Spiegel went the furthest, with its English-language version publishing an editorial yesterday entitled "Decision Time: Britain must now decide if it will stay in Europe", which argued that:

“The EU cannot allow itself to be blackmailed by the British for another three years and refuse to give the people of Europe what was assured to them before the election - that they could use their vote to determine the next president of the European Commission. If the EU doesn't fulfill that promise, it will lose all credibility and acceptance… Britain is important to be sure. But the choice between a more democratic EU and Britain's continued membership is clear. Europe must choose democracy.”

There are a others who take a more nuanced tone. For example FAZ’s Brussels correspondent, Werner Mussler, points out that:

“The future of democracy in the EU does not depend on whether [the European Commission President] is called Jean-Claude Juncker, Martin Schulz or something else.” 

Is Merkel lining up Lagarde as an alternative to Juncker?

There is an interesting report from Reuters this evening. According to unnamed sources, during a private meeting, German Chancellor Angela Merkel asked French President Francois Hollande whether he would be willing to back IMF Chief Christine Lagarde as the new Commission President.

As Alex Barker from the FT has pointed out, this may refer to a conversation taking place before the European elections, which would, of course, make the story far less interesting. 

Lagarde’s name has been bandied around before but has always been considered an outsider. 

If there's truth in the report it would obviously be very good for the UK and David Cameron, who is a big fan of Lagarde (along with many others). Number 10 will also be hoping that this is Merkel’s first action to try to move away from Jean-Claude Juncker. While she has never been entirely keen on him, she has come under severe domestic pressure. Having a clear, credible alternative ready, such as Lagarde, would certainly help. That said, Merkel's spokesman has already come out to reject the report and reaffirm support for Juncker.

In any case, there remain a number of hurdles to her becoming the new Commission President over the current front-runner Juncker:

• It’s not clear yet if she wants the job. Sources suggest she has not ruled it out but her position as Head of the IMF remains an illustrious one and would be hard to walk away from.

• As Reuters notes, Hollande did not give a clear answer on whether he would back Lagarde. It would be a big ask given that she is from the opposition UMP party and Hollande could well fear it would make him look weak. If he accepted her it would be giving up the chance to appoint his own French commissioner who would likely still have a high level job within the new Commission. On the other hand, rejecting the opportunity to have a French head of the Commission may not play well with the French public.

• Europe will be loath to lose the IMF’s top job and may not retain it. After the Dominique Strauss-Kahn incident there was a sizeable fight over whether Europe should retain the position, with emerging markets stressing that the whole management system of the IMF is outdated given their increased size and relevance for the global economy. If Europe lost control at the top of the IMF it might find it hard to stop a sizeable overhaul of the whole institution, which has been coming for some time. It would also be the second time in recent history that France has walked away from the IMF’s top job – not a tag any country wants to wear.

• The European Parliament (EP) could still block her and may well do given its fierce desire to see the Spitzenkandidaten process upheld. On the other hand, they have also pushed for diversity and as a renowned female European politician, and a strong candidate, it could be difficult for the EP to vote her down.

It may also be questioned whether she will get support within the European Council. Those who support Juncker could still put together a blocking-minority but this would be difficult if she had support of most of the large countries.

Therefore, Lagarde remains a case of wishful thinking at the moment. But, as we've said before, this is still anyone's race so never say never...

Pressure increases on Cameron and allies as Merkel ratchets up support for Juncker

As we have noted before, for all the talk over the next Commission President, it remains anyone’s game and there are a number of candidates in the running.

Everyone's now watching the mixed and vague position of German Chancellor Angela Merkel. To our mind, here is how her position has evolved:

• 7/8 March 2014 - Lukewarm backing for Juncker as EPP candidate.
• 27 May 2014 - Reiterates that as per the EU Treaties both the EP and the European Council need to agree, adding that it could be Juncker, but it could also be someone different. 
• 30 May 2014 - Comes under pressure from German media and coalition partners and offers some more explicit backing for Juncker towards the end of last week.

This has now moved a step further on with Merkel saying the following in a speech in Berlin:

“I can only repeat what I already said: I am working in all talks I’m leading so that Jean Claude Juncker gets the necessary majority in the [European] Council in order to be able to become the next Commission President.”

“In addition I am working for such a decision even when taken controversially – you know the necessary majority; it is a qualified majority – to take place in a European spirit. ‘European spirit’ means that one always has to work on achieving the highest level of agreement.”

To date this is probably the strongest backing she has given Juncker and importantly it implies she is actively working for a majority in the European Council to support him and would take a 'controversial' decision. As is her nature, she adds a crucial qualification: she prefers a consensus.

As we pointed out in our previous post, Prime Minister David Cameron will need to get one more large country on side if he is to block Juncker. Germany is looking less and less likely, not least because Merkel would actively annoy her coalition partners and much of the media if she ends up blocking Juncker.

Her speech continues to include nods to Cameron and shows signs she still wants to keep him close and involved in the discussions. Did Merkel intend for this to happen or is this the point when one of her trademark broader strategies - in the this case qualified support for Juncker before dropping him as part of a wider deal - has finally backfired.

This is genuinely an open question - we suspect that anyone claiming to know the answer to that question at this juncture is a bit economical with the truth.

France comes under fire in latest European Commission economic assessment

The European Commission has just released its latest round of country-specific recommendations (the Commission’s advice on how the country can boost economic growth and maintain stable public finances).

As with the broader economic state of the eurozone, the recommendations are a bit of a mixed bag. There are some positive assessments of the peripheral countries, but also warning over continuing problems with high debt levels and high unemployment.

We would argue that there is also still too much complacency on the former and not enough urgency on the latter points. Below, we've picked out some of the more interesting points for the big four countries.

FRANCE
The European Commission’s assessment of the French economy is quite damning, given the context of a supposed economic recovery. The Commission says that the “level of detail of the fiscal consolidation measures is insufficient” to ensure France meets its targets and that the economic forecasts used for 2015 are “slightly optimistic” and the planned savings are “very ambitious”.

The Commission also takes aim at areas of the economy which the Socialist government will not be too pleased with, specifically arguing that “sizeable short-term savings cannot be achieved without” curbing health and pension costs through reforms of both sectors. The report also hits out at French labour costs, warning that they reduce “firms’ profitability”, and its ranking in surveys of business environment which has “deteriorated” not least due to regulation which hampers growth of small business in France, the significant number of protected professions and the high overall tax burden.

Therefore, the European Commission calls for action on all these areas. Ultimately, the report does a decent job of highlighting the on-going flaws in the French economy and the lack of strategy displayed by the French government. While it has taken tentative steps towards reform in some areas others fly under the radar while the government does not yet seem to have fully bought into the reforms it has laid out for the coming years.

GERMANY
The recommendations for Germany feel very familiar with early comments regarding its current account surplus. Specifically the report calls on Germany to:

“Improve conditions that further support domestic demand, inter alia by reducing high taxes and social security contributions, especially for low-wage earners.”

However, there is not an extensive discussion and the report focuses on other areas which include some interesting recommendations such as “more ambitious measures to further stimulate competition in the services sector” (something we have long advocated) and “more efficient public investment in infrastructure, education and research”.

ITALY
The European Commission seems to have doubts over Italy’s latest budget forecasts labelling them "slightly optimistic.” “The achievement of the budgetary targets is not fully supported by sufficiently detailed measures, in particular as of 2015”, the Commission continues. This will certainly revive the domestic debate between Italian Prime Minister Matteo Renzi and his critics, who argue that there is not enough money to cover for the tax cuts for workers and businesses recently announced by the Italian government.

On labour market reform it notes, “Globally, the Italian labour market continues to be marked by segmentation and low participation…Therefore, the limited steps taken so far need to be extended.” Here, the recommendation is to “assess the need for additional action” by the end of the year. Another long-running issue in Italy is services liberalisation. According to the Commission, “There are still a number of bottlenecks to competition (reserved areas of activity, concession/authorisation schemes, etc.) in professional services, insurance, fuel distribution, retail and postal services” – and these need to be removed.

Interestingly, the European Commission also notes that “one of the key levers to improve the implementation performance [of Italy]…lies in enhanced coordination and a more efficient allocation of competences among the various levels of government”. This reform is already on Renzi’s radar. Still, we’re not sure how well this specific ‘suggestion’ will go down in Italy, given that it touches on a politically sensitive issue – the distribution of powers between the central government and the regions, which is laid out in the Italian constitution

SPAIN
The European Commission finds Spain’s budgetary forecasts “broadly plausible for 2014 and subject to downside risks in 2015”. However, “for 2016-2017, the GDP growth rate in the [Spanish government’s] programme seem somewhat optimistic.” Similar to Italy, the European Commission’s recommendation to Spain is to “reinforce the budgetary strategy as of 2014, in particular by fully specifying the underlying measures for the year 2015 and beyond.” 

Although the European Commission acknowledges that Spain’s labour market reforms have gone some way in ensuring greater flexibility, limiting job losses and reducing the number of dismissals challenged in court, “Segmentation remains an important challenge for the Spanish labour market, the number of contract types remain high and the gap between severance costs for fixed-term and indefinite contracts remains among the highest in the EU even after the reform.” Furthermore, “the inadequate labour-market relevance of education and training and the high proportion of unemployed without formal qualifications contribute to the high youth unemployment rate, as well as to long term unemployment.” Therefore, the European Commission recommends that the Spanish government “enhance the effectiveness and targeting of active labour market policies, including hiring subsidies” and “reinforce the coordination between labour market and education and training policies.”

Some variance from country to county but a couple of clear themes can be found here. Much more work needs to be done on labour market reform and improving the business climate. On top of this the forecasts continue to be optimistic. Plenty of work to be done on many fronts then. 

The battle for a blocking minority: How do you stop a careering Junckernaut?

Not reflective of all EU opinion?

David Cameron is not without allies in his battle to stop Jean-Claude Juncker becoming President of the European Commission but are there enough votes to block him?

Well firstly, although the European parliament has a veto - it is the European Council (the member states) that first need to propose a candidate. David Cameron's best bet to block Juncker is therefore to form a blocking minority under so-called Qualified majority Voting (QMV) in the European Council. Here is how the votes stack up.

Under the current rules each of the 28 EU members is assigned a number of votes (the UK has 29). A smallest blocking minority weighs in at 93 votes. The European Council has its own calculator here allowing you to simulate the votes.

At the moment there are three states certain to attempt to block Juncker. The UK (29 votes), Sweden (10 votes) and Hungary (12 votes). They therefore have only 51 votes - 42 votes short.

There area a number of ways the remaining votes could be made up - the Netherlands (13 votes) is reportedly wary of Juncker, but it is increasingly clear that another big state needs to join the UK. Italy's Matteo Renzi isn't overly keen and France might try to play poker to get its own candidate in a key position, at Juncker's expense. Both Italy and France have 29 votes - one of them would be enough to muster a blocking minority.

Composition of possible blocking minorities under QMV

While there is a small club of avowed Juncker enthusiasts including Poland, Spain, Austria and Ireland, the majority of member states are likely hedging their bets and will go with the prevailing wind. The key point to remember is that the debate over the post of Commission President is part of a wider debate about the make-up of the next Commission so individual member states' positions on Juncker will also be largely determined by their prospects for other key portfolios.

Also, it's very rare that EU leaders actually vote - the prevailing form of decision-making in the European Council (formally and informally) is unanimity. Merkel will want to give the impression of consensus. Having Cameron outvoted - and publicly humiliated - would rank as one of the most dramatic events in the EU in recent memory. 

This remains anyone's game.