Braveheart: Aspiration or reality? Alex Salmond claims Scotland could join the EU in 18 months

Aspiration or reality?

Alex Salmond has today claimed that an independent Scotland's (iScotland) EU membership terms could "be finalised in 18 months" i.e by March 2016. There is an obvious political reason for wishing to play down the disruption caused by Scotland leaving the United Kingdom - Alex would not want to scare the Scottish horses - but even by the standards of political rhetoric this is quite a claim. Here is how it might or might not work.

Gordon Brown's is the only 
Scottish signature on the EU Treaties

We have explained before that an independent Scotland would have to rejoin the EU. For although Scotland is within the EU it is the UK that is the signatory to the Treaties - above the most recent UK signatory (Gordon Brown's) it clearly states "United Kingdom". (If in doubt see the definitive legal opinion supplied to the Scottish Government by Former EU legal Counsel Jean-Claude Piris here). So it is clear that an iScotland would have to join  (not even re-join) the EU. So how long would that take?

Well a lot more than 18 months if history is a guide. We have set it out before here but in brief Scotland would need to apply for EU membership, be independent to apply and then complete 35 chapters of accession negotiations. Once the Commission has cleared Scotland through that phase, Scotland would still need the unanimous approval of all 28 EU states (inc rUK) and the European Parliament's approval. This leaves a lot of unanswered questions. We have set some of them out here and again here but here is a recap of the more serious problems:

All in 18 Months?

1. Gain an opt-out from the Euro + Schengen border controls: All EU accession negotiations are based on accepting the full treaties. In iScotland's case Alex Salmond will come to the table asking for a UK-style opt-out from the euro, justice and policing laws and Schengen and the a share of the current UK rebate. These are all in the main body of the treaties. Without them iScotland would have passport controls on the English border, have to comply with rules governing the eurozone and be signed up to a growing body of EU criminal laws. Some EU members will object or want something in return.
2. Avoid a Spanish veto: Spain (and a number of other states listed in our table here) have an 'in principle' objection to secession. As Scotland would require their agreement to join this is a real problem, while not unsolvable has the potential to complicate matters. 
3. End negotiations with rUK: If Scotland were to opt to become independent it would enter into a long and fraught negotiation with rUK over the mountain of UK debt, assets, oil, currency, defence, passports and a whole range of other complicated issues. While this is going on the rUK will have want and be entitled to ensure that its negotiations with Scotland take precedence over iScotland's negotiations with the EU.

So could this all be done in 18 months of the referendum? Well as with so much of the independence debate, the reality is that all we have at this point are lots of 'known unknowns' and it is fair to say that if Scotland does vote for independence there will be a large item in Alex Salmond's inbox labelled EU membership...

#EUpriorities: Ensure the EU steers clear of decisions better taken nationally

As promised, here is the first of the cartoons accompanying our reform mandate for the new European Commission:

We believe that the EU must do more than merely pay lip service to the principle of subsidiarity, i.e. that the EU should not meddle in areas that can better be handled nationally (or locally).

The EU needs a dedicated Commissioner for subsidiarity (although we are open to a more catchy name, like "Common Sense Commissioner") who would be explicitly charged with reviewing both new and existing EU laws to ensure they are proportionate, add value, and could not be better handled at the national or local level. Any laws that do not meet these criteria should be scrapped.

Dutch Foreign Minister Frans Timmermans, who has been nominated to the new Commission and who  looks set to land an important post has strong reformist credentials to fill such a role and helped coin the maxim 'national where possible, European where necessary'.  

Our mandate (published in partnership with Open Europe Berlin) received some good media coverage in Germany today, with Die Welt featuring it on the front page of their economics section, along with our calculation that German taxpayers could save €32bn from the package of reforms that we propose:

With Juncker's full Commission line-up expected to be announced tomorrow or Thursday, stay tuned for more of our ideas in the days to come.

EU divisions delay sanctions on Russia, likely to focus on Rosneft

The EU last night finally reached an agreement on the latest round of sanctions on Russia, although the members agreed to delay implementation for a "few days" to allow time for the ceasefire to take hold and to reconsider the sanctions on the basis of whether the ceasefire holds or not.

This is despite the fact that by almost all accounts fighting has continued in Eastern Ukraine over the weekend and into today. However, for now, all those involved seem keen to maintain the ‘ceasefire’ and suggest the deal agreed on Friday remains in place.

First a couple of thoughts on why both sides are so keen to keep the deal in place, despite seemingly flagrant violations:

Ukrainian government: Kiev is keen to push for stability for a couple of reasons. The upcoming election is weighing on thinking and if it is ever to be seen as viable and legitimate it must take place during a calm environment. Kiev may see the ceasefire as first steps towards this. Furthermore, it seems unlikely to be a coincidence that Ukraine found a renewed vigour for the ceasefire just as the IMF warned that the prolonged fighting could lead to another $19bn bailout for the country next year. Lastly, Ukrainian forces had been suffering heavy losses as Russian forces became more involved and bolstered the rebels – this ceasefire allows Kiev to regroup and plan how to deal with this new resistance.

Russia and the pro-Russian rebels: The ceasefire came at a perfect time for Russian President Vladimir Putin – right in the middle of EU sanctions negotiations and NATO meetings – and played on divisions within the two groups. It turned attention away from what was happening on the ground in Ukraine and the potential Russian influence. It allowed the rebels to regroup and prepare to take back some more of the land they had lost in previous weeks. There also seems to have been an increasing shift towards Mariupol which looks to be a new strategic objective for the rebels.

From the EU perspective, while the official line is that they want to give the ceasefire time, the more likely influence is the concern around the economic impact of sanctions and the potential Russia retaliation. The talks over the past week have reportedly seen the reemergence of significant divisions within the EU over sanctions (although they never really went away).

While the official details are yet to be released, the sanctions have been widely reported. We discussed the options in detail here, but the key points are:

• Ban European financing with a maturity of over 30 days to Russian state-owned oil and defence firms. This will include Rosneft, Gazprom Neft and Transneft (the main oil pipeline operator). A large number of Russian defence firms are state-owned but few, if any, look externally for funding.
• Ban European companies from providing services to Russian firms which are associated with oil exploration and production (be it deep water, Arctic or shale).
• Expand the list of banned high-tech energy and dual use goods which cannot be exported by European firms to Russia.
• Reduce the allowed level of financing to Russian state-owned banks from 60 to 30 days.
• One option which is not entirely clear is a potential limit to the syndicated loans to Russian state-owned entities. This would essentially limit loans given by groups of banks (a fairly common practice used to spread the risk of lending over many parties).

Our initial feeling is that this will be a modest increase in the current sanctions. They remain very specific and targeted on a few state-owned firms, and particularly their access to European capital markets. They also remain only forward looking. Below are a few stats to give a feeling of the impact.

Above we have updated a graph we produced previously, which now shows which Russian state-owned banks, defence and oil firms have issued shares on the London Stock Exchange. In this instance, there is only one issuance to be added – the $10.65bn listing by Rosneft in 2006. Let's not forget that Europe gets around 35% of its oil from Russia, and while the global oil market remains much more fungible and varied than the gas sector, hitting Rosneft is probably the main story of these sanctions.

A quick peak at Rosneft’s latest financial statement also hints at why they are so concerned by potential sanctions that they have asked the Russian state for a loan of $42bn (around RUB 1,550bn). Out of RUB 2,179bn ($58.8bn) in loans and borrowings, around RUB 1,536bn ($41.5bn) is in the form of long term bank loans in dollars and/or euros. A significant portion of this is likely to have been provided from foreign banks, meaning Rosneft could face issues rolling over these loans. Furthermore, the amount they have requested almost exactly corresponds to their net debt levels (show in the chart below) with Rosneft even admitting that the main motivation for asking for assistance from the Russia state is to help finance its net debt amid the US and EU restrictions on its market access.

One final point to note here is that the sanctions on syndicated loans could be particularly important for a company such as Rosneft, not least because it is an instrument it has used previously, for example to help finance its purchase of TNK-BP.

 

As with all these sanctions while the direct impact could be limited it will further add to the indirect freezing of business between the West and Russia. Furthermore, Russia looks set to retaliate once again – with the idea of banning commercial flights from the West from Russian airspace being reheated. All of this could of course be offset by positivity if the ceasefire holds – but that remains a big if at the moment.

Attention new European Commission! This is how to save £200bn, kick-start growth and re-connect the EU with voters

This morning, Open Europe published a 'mandate' for the new European Commission - in short a series of proposals setting out what the Commission should - and shouldn't - be doing over its five year term of office. Our mandate idea was inspired by the reformist Dutch Foreign Minister Frans Timmermans, who last year proposed a 'European Governance Manifesto' in which national governments would identify a series of priorities for the Commission.

Our mandate, which we call on David Cameron and other EU leaders to adopt, contains a number of detailed proposals spanning a wide range of policy areas - from reforming the EU budget, increasing transparency and accountability to liberalising the single market in services - but its overarching theme is boosting the EU's capacity to create jobs and generate economic growth while ensuring the EU stays well clear of areas better handled nationally or locally. Our mandate would:

• Save European taxpayers £200bn (€252bn) over a seven-year EU budget period by re-targeting and slimming down flawed spending programmes,
• Cut the wages and perks of EU officials and scrap a number of EU quangos that add no value, saving taxpayers a total of £819m (€1bn) per year,
• Boost the EU economy by £236bn (€294bn) by making it easier to export services to other EU member states,
• Introduce a series of new checks on EU laws to ensure they boost jobs and growth whilst ending unnecessary EU meddling. 

With David Cameron's EU reform agenda often being accused of vagueness, having the Commission adopt such a mandate would be a big win. Of course this is not the limit of the reforms the UK ought to push for - our priorities relate to what falls within the Commission’s remit; many key issues will be debated between national governments with a limited role for the Commission. Although in the longer term we think EU Treaty change will be needed, all our proposals can be accommodated within the existing EU Treaties, so there is no excuse for foot-dragging.

We have commissioned George Roberts – an independent illustrator and animator – to draw a series of cartoons to accompany some of our key proposals. Over the next couple of days, we will be posting these cartoons on our blog along with a more detailed description of what the policy proposal entails and a discussion of why it is important.

In the meantime, you can read the press release here, the full mandate here and join the conversation on Twitter by using the hashtag #EUpriorities.

ECB surprises markets with interest rate cut and purchases of private assets: Round-up of reactions from around Europe

As we predicted might happen, the ECB surprised markets yesterday with the announcement of an interest rate cut and the purchases of private assets.

Open Europe’s Raoul Ruparel has a full analysis on his Forbes blog, where he concludes:

“In summation, Draghi surprised the markets with some bullish action. That said, I remain unconvinced that these programmes will do much to boost inflation, growth or even credit supply in the Eurozone. Importantly, the ECB is nearing the end of the actions it can take, and it is very aware of this. The onus has now once again been shifted to governments, with the expectations rising for action. For the first time since 2012, pressure is now really increasing for Eurozone governments to reassess the Eurozone’s institutional structures and take action to pool further sovereignty. Draghi may have come bearing gifts for markets but he came with further warning for governments.”

Needless to say, the fallout from the ECB's announcements has been widespread and varied. Below are some of the best reactions from papers across Europe. As one might expect, the German press was less than impressed with the policies unveiled by Draghi:

Die Welt’s Economics Editor Sebastian Jost describes the announcement as “Draghi’s last roll of the dice”, and claims that the ECB has demonstrated “an unusual passion for experimentation”. He also argues that “the ECB has now done pretty much everything which appears to be economically justifiable. Whoever wants a stable monetary union should hope that it does not go any further.”

Süddeutsche Zeitung’s Economics Editor Ulrich Schäfer describes the ABS as a “highly dubious innovation”, claiming that it resembles many of the financial products that contributed to the initial financial crash “when no-one could ultimately identify who had lent whom how much, and therefore who had assumed what risk.” He concludes that it is “ironic” that the ECB wants to give such products “renewed respectability”.

FAZ’s Economics Editor Holger Steltzner criticises Italy and France for delaying structural reforms in order to get more help from the ECB. He also argues, “Does the purchase of securities, which banks are struggling under the burden of, even come under monetary policy?...How can the ECB eventually return to normal? As soon as it increases interest rates, it will threaten itself with losses.”

Again as many would have predicted, the Mediterranean press took a more sympathetic view of Draghi’s decisions.

An editorial in Spanish daily El País argues that “the ECB hasn’t disappointed…[but] it’s equally necessary that the governments with sound public finances – and notably the German government – intensify investment and temporarily back greater flexibility in the necessary requests for public finances adjustment in the eurozone as a whole.”

The deputy editor of Spanish daily El Mundo, John Müller, makes an interesting point, “The enormous debt – both private and public – that has been amassed, is such a huge burden that it is surprising that no-one is addressing the problem seriously...Yesterday, Draghi only asked for help [from eurozone governments] in the form of fiscal measures and reforms, but not [in the form] of debt restructuring. In short, we don’t know if the monetary sorcerer has correctly identified the reason why we have lost the favour of the gods of growth.”

Columnist Jean-Marc Vittori writes in French business daily Les Echos that “the currency won’t be enough to save Europe”, and argues, “[There’s] no tenable monetary union without budgetary union. In a continent where the temptation to withdraw is growing, this appears to be a challenge. Nonetheless, it’s the condition for the survival of the euro.”

Italian Economics Professor Donato Masciandaro writes in Il Sole 24 Ore, “Draghi couldn’t have been clearer: the later the necessary fiscal and structural policies come, the less effective monetary policy will be…Such a decisive statement should make everyone reflect. The [European] Union is like a bogged-down machine. It has at least four traction wheels – currency, taxation, competition and labour – but only one of them is working. In such a situation, the machine risks going under.”

Italian journalist Danilo Taino writes in Corriere della Sera, “[Italian Prime Minister Matteo] Renzi is a lucky guy, since no [Italian] Prime Minister ever got this sort of help from the ECB. This means, however, that [Renzi] won’t be able to ask for anything else from Draghi. The ECB President has reached the extreme limit – except for a difficult, potential government bond-buying programme. From now on, everything is in the hands of governments.”

One interesting take away, particularly from the articles from around the eurozone periphery, is that there seems to be a renewed push for measures such as further budgetary union and debt-pooling. It looks as though there is a growing acceptance of the limitations of ECB action, and the continued flaws in the Eurozone architecture – something which we have long warned of.

ECB preview - Dovish Draghi to double down on easing?

The European Central Bank (ECB) holds its monthly meeting in Frankfurt today - the day after ECB President Mario Draghi's 67th birthday.

As usual, Open Europe's Head of Economic Research Raoul Ruparel has published a preview on his Forbes blog, explaining what we may expect from today's meeting.

Here goes:

Following ECB President Mario Draghi’s dovish speech at Jackson Hole last month this week’s ECB meeting has taken on new importance. This has been further enhanced by the recent Eurozone inflation data which put annual CPI at 0.3% in August. The headline figure hides some of the story with core inflation actually rising to 0.9% (from 0.8%) but the ECB’s previous inflation forecasts have begun to look increasingly out of line with reality.

However, those expecting a big move are likely to be a bit disappointed. As I pointed out last month, it is almost nonsensical for Draghi to unveil new measures before his previous policies have been implemented. I am thinking specifically of the TLTROs (targeted long term lending operations) the first of which will only be conducted on 18 September. Any big announcement now could undermine the predicted take up of these measures – which clearly remain the ECB’s preferred approach for injecting further liquidity.

That being said, these measures are unlikely to make much difference since the conditions for passing liquidity on to the real economy remain very loose. They are also very unlikely to appease investors and markets which have now come to expect some significant new easing. The two key options which are on the table for this meeting are:

1. A further interest rate cut: Many will validly ask, what is the point in a further cut now? Of course it would have little to no economic impact, however, it would once again signal the dovish bias of the ECB. It would also signal a clear shift in the ECB’s position given that Draghi has previously said rates are unlikely to get any lower than current levels. It becomes another mechanism to express his commitment to further easing. There also remains scope to make the negative deposit rate more negative, although there is a cap on this since, at some point, it will be cheaper for banks to simply hold cash than deposits with the ECB.
    
2. Purchases of private sector assets – specifically Asset Backed Securities (ABS): The ECB has long telegraphed such action and it is the next obvious tool at its disposal. Whether or not it will be announced this month or in the coming months is a bit of a toss-up. It seems the ECB is not quite ready to implement it yet and has made a big song and dance about the need to adjust regulations and definitions of ABS, which are yet to fully take place. Whenever it is announced, implementation is likely to be later this year to allow the negative deposit rate and TLTROs to have time to work. I remain sceptical on the effectiveness of this policy, which I have analysed in detail on the Open Europe blog. Ultimately, the market for the transparent ABS related to SME loans remains very small in Europe and focused in the core countries rather than the periphery (where this money really needs to flow to). For example, in Q1 2014, of the €18.5bn in ABS issued, only €1.6bn used SME loans as collateral. The ECB maintains that it can and will help create the market in this area, yet with this measure having been forecast for some time, you would expect there to have been some market response already.

As with many of Draghi’s press conferences, all of this will be weaved into a dovish speech including a few key trigger words for markets – few other central bankers are as adept in their communication. As for full blow Quantitative Easing on sovereign debt, this remains someway off in my mind and hurdles remain high. Its use will ultimately be tied into developments in the fiscal and political sphere, as hinted at in Draghi’s speech (more detail on this coming in a future post). The ECB will be loath to unveil QE, which it fears can only buy time, without further commitment to reforms, a clearer fiscal approach and developments on the structure of the Eurozone which such changes will entail.

What further sanctions is the EU considering against Russia?

Given the recent escalation in Eastern Ukraine and the increasingly obvious Russian influence in the rebel forces, the EU looks set to impose further economic and financial sanctions on Russia.

EU ambassadors met yesterday to begin discussing the options and will meet again tomorrow in an attempt to finalise a package to send to EU leaders. They are expected to reach a decision by Friday.

Before we look at the options on the table, we should note that such agreement is not a forgone conclusion. As we have been pointed out repeatedly, there are significant divisions within the EU around sanctions. Slovakian Prime Minister Robert Fico  recently even threatened to veto another round of sanctions if they hurt the Slovakian economy. In short, many EU leaders seem to be becoming increasingly anxious about the economic impact of sanctions and the inevitable Russian retaliation – just see the concern around the Russian ban on EU fruit and veg.

All that being said, with the UK, Germany and France seemingly in favour of further sanctions – and pressure on Italy’s Foreign Minister Federica Mogherini to take a hard line ahead of taking up the role of EU High Representative for Foreign Affairs – the big states seem largely to be backing further action and willing to take on a larger share of the economic burden.

With all that in mind, here are the options that are being touted:

• Expanding targeted sanctions: This looks a done deal with further entities and persons involved in Crimea and Eastern Ukraine being subject to asset freezes and travel bans. The focus has tended to be on smaller firms and regime members directly involved. The measures would have a larger impact if Europe decided to sanction a higher profile firm (such as a state-owned bank), or a big name oligarch with ties to the regime.

• Expanding stage three sanctions: This seems the most likely option, with extensions made to the existing sanctions on finance, defence and energy sectors. This could take many forms but the main ones under discussion are – expanding the restrictions on financing for state-owned banks to any maturity above 30 days (currently 90 days), and expanding the list of banned energy tech exports and dual use goods to Russia.
  
  Other proposals under consideration include, banning a larger number of firms in these sectors from issuing debt in Europe and/or listing on European exchanges – initially this would be focused on state owned firms (of which there are many in Russia). The range in these sanctions remains large, so the impact is hard to judge. For the most part they will be focused on limiting medium to long term financing for state-owned firms. This will have a grinding impact on the economy, but as we have noted before, the Russian state does have resources at its disposal to aid firms hit by these measures.

• Banning syndicated loans to certain Russian entities: This remains a vague option, but could have a substantial impact since many Russian firms are reliant on external loans. For example, the private sector (excluding financial firms) have $142.5bn in outstanding external loans, a key source of financing for them. Given some European banks large exposure to Russia, any movement into this area of sanctions would likely be tentative and limited to very select entities (state-owned banks perhaps), under very specific terms.

• Ban on new purchases of Russian sovereign debt: this would see European entities banned from purchasing any newly-issued Russian sovereign debt. It would be quite a bold measure, and fears remain that Russia, a big investor in European sovereign debt, would retaliate in kind, something struggling eurozone countries would not want to see. In terms of impact, as the graphs above and below show, while Russia does have a sizeable amount of government debt to roll over in the coming year, the amount which is held externally is fairly limited. That said, this could well increase borrowing costs and reduce liquidity in Russia’s sovereign-debt market at a time when its economy is struggling and the state is being forced to take on an even larger role.  

One option which doesn’t yet seem to be on the table is one which the UK has reportedly called for – banning Russia from the SWIFT network. This is not surprising, since it would be a big step and could almost amount to freezing out Russia’s financial sector from Europe – a move which the EU is clearly not ready or willing to make. We will analyse this in a future blog post.

One consideration that seems to be glaringly absent from these discussions is the consideration of how effective the sanctions have been so far. To be fair, Dutch Prime Minister Mark Rutte did call for such consideration ahead of last week’s EU summit. There are already reports of them having some economic impact (both on Russia and Europe), but clearly they have not caused a change in course or approach from Russia or in Eastern Ukraine. Europe would do well to consider why this is the case in order to fully judge and best optimise any future sanctions.

Furthermore, as we have noted countless times before, the end goal and medium to long term strategy of such sanctions and the wider approach to Russia and Ukraine remains unclear. Given that this crisis has already been going for 6 months, and shows little sign of abatin,g some longer term thinking would be welcome.

The CDU's 'AfD problem': too big to ignore, too controversial to team up with

Yesterday’s regional elections in Saxony saw Germany's anti-euro Alternative für Deutschland (AfD) score an impressive 9.7%  netting the party its first ever seats in one of Germany’s regional parliaments. The lead candidate of the Green party, Antje Hermenau, described the AfD result as an “earthquake” while AfD leader Bernd Lucke celebrated that they “finally arrived on the German party landscape.”

It is now up to German Chancellor Angela Merkel’s CDU party to find a new coalition partner after Saxony's FDP followed the national party in losing all its seats. The CDU's lead candidate and current Prime Minister of Saxony, Stanislaw Tillich, categorically excluded a potential coalition with the AfD describing it as a protest party that due to its inner turmoil was completely unfit to govern. He only waited until after the election result was announced to make this statement however, following a debate within the CDU which continues.

Commenting on the prospects for a CDU-AfD coalition, Bild columnist Bela Anda writes that if it were to enter into a coalition with the AfD,

“The CDU would saw off the branch on which it itself is sitting." 

A CDU-SPD grand coalition is therefore the most likely option although a CDU-Green coalition could also be on the cards.

So is the AfD 'Gekommen um zu bleiben' (here to stay)?

This is not only the title of a famous German pop song but now the question everyone is asking themselves. Regional elections in Thüringen and Brandenburg are coming up in two weeks and the AfD has a good chance of enter both regional parliaments. However, the party's objective remains winning Bundestag seats in 2017 having narrowly missed the 5% threshold in 2013. There will be another eleven regional elections before 2017 and the challenge for the party will be to keep the momentum going. The AfD leadership will no doubt remember the fate of the Pirate party in 2011 - polled at a spectacular 13% before plummeting into virtual non-existence.

In Saxony a large share of AfD vote came from ‘Sonstige’ (other parties) and ‘Nichtwähler’ (non-voters) which is typical for protest parties. But at the same time there is a considerable spread across most mainstream parties with the largest share coming from the CDU (34,000 votes).

This would be a particular headache for Angela Merkel’s party. The worst case scenario for Merkel is that the AfD becomes to the CDU what Die Linke is to the SPD - and indeed, some would say, UKIP to the Tories in Britain: too big to ignore, too controversial to team up with. This headache will become particularly severe if the liberal FDP's decline is irreversible, dooming the CDU to always have to look to the SDP (or the Greens), in turn making left-right coalitions more or less a permanent feature of German politics.

Headlines are all for AfD and UKIP, but the biggest shocker for traditional parties may come from Spain...

The surge of anti-EU, anti-euro and protest parties across Europe continues. Germany's anti-euro Alternative für Deutschland (AfD) is making headlines after winning 9.7% of votes in yesterday's regional elections in Saxony and securing its first ever seats in one of the country's regional parliaments.

In the UK, a Survation poll for the Mail on Sunday found that, following the defection of Douglas Carswell from the Conservatives to UKIP last week, UKIP is set to win the ensuing Clacton by-election with 64% of the vote - which would grant Nigel Farage's party its first elected MP.

However, the biggest shocker for mainstream parties seems to be coming from Spain. According to a new Sigma Dos poll for El Mundo, the anti-establishment (but not anti-EU) party Podemos would finish third in a general election with 21.2% of votes - only 1.1% less than the opposition Socialist Party. Being neck-and-neck with one of Spain's two traditional parties is an absolutely extraordinary result for Podemos, given that it was founded in March. The poll puts Spanish Prime Minister Mariano Rajoy's centre-right Partido Popular in the lead on 30.1% - a 14.5% fall from the 44.6% the party scored at the November 2011 general election (click on the picture to enlarge).

 
If you didn't read it at the time, here is a portrait of Podemos and its leader, Pablo Iglesias, that we published in the aftermath of the European Parliament elections in May - when Podemos came from nowhere to win five seats in Strasbourg. We noted:

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.

Indeed, looking at the latest polls, Podemos seems to be following exactly the same trajectory as Beppe Grillo's Five-Star Movement in terms of rocketing (potential) electoral support. And exactly as in Italy, the rise of a strong anti-establishment party may well force the centre-right Partido Popular and the Socialists to consider an unusual (and uncomfortable) 'grand coalition' if none of the two big traditional parties wins a majority in the next general election - due in November 2015.

While the speed of the rise of Podemos is certainly surprising, there has undoubtedly been a huge gap in the market for a protest party in Spain over the past few years - as we noted on this blog at the end of May. Despite sky-high unemployment, a struggling economy, a few political scandals and regional discontent, no party or movement had so far managed to shake the solid support for the two mainstream parties. But since Podemos entered stage, things seems to have changed. With a Catalan independence referendum potentially coming up in November and thoughts turning towards next year's general election, these are certainly interesting times in Spanish politics.

The Independent getting excited but do 100 Tory MPs really want to leave the EU no matter what?

The UK media has an insatiable appetite for ‘Tories split’ stories on Europe – mainly we suspect because it makes for an attention-grabbing headline - and Douglas Carswell’s defection is Christmas come early for many. True, the defection is a big deal which could have even bigger implications so fair enough.

However, off the back of his move, there are now far less credible stories cropping up. As OE Director Mats Persson argued on his Telegraph blog back in January:

 “There's a vicious circle at play here. The UK media never seems to get tired of Tory split stories. It only takes a handful of vocal backbench MPs to create a “Tory rebellion” headline. English being the lingua franca, European politicians and commentators read the UK press, drawing the conclusion that, this is really all about a party talking to itself about itself. The many good reform ideas coming out of the UK are dismissed as a matter of “domestic politics” – an image happily (sometimes dishonestly) conveyed by a whole host of special interests, including those who have invested personal prestige in the EU project and seek to maintain the status quo. Cameron, meanwhile, is seen as an unreliable partner, not in control at home. This perception is then fed back to the UK press, as a sign that Cameron is “isolated”, in turn hardening backbench opinion.” 

A prime example is today’s Independent front-page, celebrating that “Up to 100 MPs will call EU exit regardless of concessions won by PM”. So one third of the Tory Parliamentary Party has already made up its mind on the EU? That’s a big claim. Cameron might as well throw in the towel now. It’s an over-cooked story, of course, as is usually the case, quoting exactly the same Tory MPs who have been quoted in stories like this since Magna Carta. The big headline number comes from “other eurosceptics” (hmmmm) who “predicted” that “between 50 and 100 Conservative MPs would make the same pledge” [out of the EU no matter what]. In other words, the number is plucked straight out of thin air.

There will no doubt be pressure on Tory MPs to clarify their position, but to go for “out no matter what” is a whole matter entirely. Still, this story will make it into embassy press clippings around Europe, and will probably also be re-produced in some foreign papers (100 is an impressive and conveniently round number). And voila, it has taken a life of its own. The Independent prides itself on taking “seriously our responsibility to maintain high editorial standards.” Well, we’re not impressed.

Tusk and Mogherini: Europe's new 'dream team'? Our initial thoughts

Europe's new 'dream team'?

As we noted in our previous post, Cypriot President Nicos Anastasiades had sort of spoiled the surprise. Anyway, now it's official: Polish Prime Minister Donald Tusk has been appointed new European Council President, and Italian Foreign Minister Federica Mogherini will succeed Baroness Ashton as the EU's foreign policy chief (aka High Representative for Foreign Affairs).

A couple of initial thoughts:
  
Donald Tusk 

Tusk has economically liberal and pro-free trade instincts. Most importantly from the UK's point of view, he comes from outside the euro area - and will therefore be sensitive to the concerns of non-euro countries when it comes to safeguarding the integrity of the single market, a point he made during his press conference:

#Tusk We've need to prevent Europe from dividing into euro/non-euro camps, I wouldn't have taken job if it involved new institutional split
— Pawel Swidlicki (@pswidlicki) August 30, 2014

Tusk also explicitly committed himself to ensuring the UK stays in the EU and endorsing (some) EU reforms:

#Tusk: We'll need solutions to the concerns of Great Britain, no one sensible can envisage the "black scenario" of an EU without Britain
— Pawel Swidlicki (@pswidlicki) August 30, 2014

That said, Tusk is also likely to oppose fundamental changes to EU rules on free movement; although he did say that so-called 'welfare abuse' can be addressed, as we've noted, for many the debate has moved on from the issue of 'fairness' to that of 'volume', something Cameron will be under huge pressure to place at the centre of his potential renegotiation. In the more immediate future, Cameron's early support for Tusk as new European Council President could increase the UK's chances of securing a big portfolio in the new European Commission.

Significantly, it has been confirmed that Tusk will also chair the summits of eurozone leaders - despite coming from a non-euro country. This looks like a big concession made, in particular, by French President François Hollande - who was reportedly sceptical of such an arrangement. Perhaps Hollande hopes that giving ground on this point can help him secure the key post of European Commissioner for Economic and Monetary Affairs for his former Finance Minister Pierre Moscovici.

Federica Mogherini

The resistance to Mogherini, put up by Eastern EU member states over the past few weeks, has clearly been appeased by Tusk's appointment as new European Council President. It was noteworthy that Herman Van Rompuy stressed that Tusk and Mogherini would "work closely together to secure Europe's interests and values".  

Italian Prime Minister Matteo Renzi, who has invested a great deal of political capital on Mogherini, seems to have achieved what he was looking for: a diplomatic victory in Brussels to sell to the electorate once back in Italy - where the big reforms are not going forward as fast as announcements, and the economic situation shows no signs of improvement. With the country in recession and deflation, it remains to be seen how much Italian voters will be impressed.

#Mogherini lands High Rep job, #Renzi scores EU victory to sell back at home. Not sure how much Italians will be impressed. #EUCO #EUtopjobs
— Vincenzo Scarpetta (@LondonerVince) August 30, 2014

As we noted in our recent flash analysis, the role of High Representative is less crucial from the UK's point of view - as foreign policy remains primarily a national competence, with every EU member state having a veto. However, in light of the various geopolitical challenges facing the EU (and its neighbourhood), it is possible that Mogherini will play a greater - or at least more visible - role than her predecessor.

"I understand that Tusk it's OK": Has the Cypriot President just spoiled it all?

As we wrote in our round-up of EU leaders' doorsteps, Polish Prime Minister Donald Tusk is the favourite for the European Council President post but it was not yet a done deal. However, have we just inadvertently had confirmation that Tusk has landed the job?

Watch this video from around 16:30 in:



Cypriot President Nicos Anastasiades tells outgoing European Council President Herman Van Rompuy:

"We have news, I understand that Donald [Tusk] it's okay."

And Van Rompuy replies:

"Yes, but keep it."

That sounds like a bit of a spoiler, but we will keep following the summit and provide you with real-time updates on Twitter just in case there are any last minute surprises.

EU top jobs summit has kicked off: here is a round-up of doorstep declarations

EU leaders have all arrived in Brussels for today's summit. There are two big issues on the table: the appointments of the next European Council President and High Representative for Foreign Affairs; and the worsening situation in Ukraine (although the situation in the Middle East is also bound to come up).

Here's a round-up of what EU leaders said upon arrival. Let's start with the assignment of the remaining EU top jobs. Italian Foreign Minister Federica Mogherini and Polish Prime Minister Donald Tusk are the frontrunners for the posts of High Representative and European Council President respectively. However, Mogherini's appointment looks more like a done deal than Tusk's - at least from EU leaders' doorstep declarations:

#Hollande: Support of centre-left leaders to #Mogherini is guaranteed [acquis]. I think she will be the next EU High Rep. #EUCO
— Open Europe (@OpenEurope) August 30, 2014

#Hollande thinks #Mogherini will be new High Rep, says "consensus solution" needed for new #EUCO President. He didn't name Polish PM #Tusk.
— Vincenzo Scarpetta (@LondonerVince) August 30, 2014

Brief doorstep statement from #Merkel: We should be able to decide on #EUtopjobs and we will discuss Ukraine, it should be an exciting #EUCO
— Pawel Swidlicki (@pswidlicki) August 30, 2014

Belgian PM Di Rupo says there are "several quality candidates" for #EUCO President.
— Vincenzo Scarpetta (@LondonerVince) August 30, 2014

Finnish PM #Stubb: I don't usually bet, but I would put my money on #Mogherini and #Tusk. #EUCO
— Open Europe (@OpenEurope) August 30, 2014

Enda Kenny: Increasingly evident that the Italian candidate [#Mogherini] will be appointed as High Representative #EUCO #EUtopjobs
— Pawel Swidlicki (@pswidlicki) August 30, 2014

Swedish PM Reinfeldt: If Socialists want #Mogherini, deal will have to be balanced to reflect other interests, other parts of Europe #EUCO
— Pawel Swidlicki (@pswidlicki) August 30, 2014

Mogherini has travelled to Brussels herself, and has met European Commission President-elect Jean-Claude Juncker - possibly a further sign her appointment is drawing closer. Tusk walked into the European Council building without saying a word, although reportedly with a smile on his face.

Meanwhile, it seems no decision will be made on the name of the next President of the Eurogroup of eurozone finance ministers:

#Spain's PM #Rajoy says new €-group President won't be appointed today. He's hoping for Finance Minister Luis de Guindos to bag job. #EUCO
— Vincenzo Scarpetta (@LondonerVince) August 30, 2014

As regards Ukraine, a few EU leaders stressed the need for a reaction if Russia does nothing to de-escalate the situation. However, the emphasis has significantly differed from one leader to another: 

Lithuanian President #Grybauskaitė says #Russia "is practically at war with Europe", and calls for "full arms embargo" against Moscow. #EUCO
— Vincenzo Scarpetta (@LondonerVince) August 30, 2014

David #Cameron: Situation in #Ukraine "completely unacceptable", and "consequences must follow if that situation continues". #EUCO
— Open Europe (@OpenEurope) August 30, 2014

#Hollande: There will certainly be a request to the European Commission to prepare new sanctions on #Russia. #EUCO #France
— Open Europe (@OpenEurope) August 30, 2014

Finnish PM #Stubb: Further sanctions on #Russia will be needed absent de-escalation, but we also need to keep dialogue open. #EUCO
— Open Europe (@OpenEurope) August 30, 2014

And that's all for the moment. The summit is under way, and we will continue monitoring it. Follow us on Twitter @OpenEurope, @pswidlicki and @LondonerVince for real-time updates and analysis.

EU top jobs: will Matteo Renzi and Mrs. Tusk get their way?

Herman waves goodbye to the European
Council Presidency - who will succeed him?

As we laid out in our flash analysis yesterday, the outcome of tomorrow's EU 'top jobs' summit is looking increasingly predictable. Italian Prime Minister Matteo Renzi's efforts to force his Foreign Minister Federica Mogherini into the High Representative post look set to pay off (with Merkel deciding to keep her powder dry for the almighty scrap over the Economic and Monetary Affairs portfolio). Spanish Europe Minister Íñigo Méndez de Vigo this morning tweeted that Mogherini is the "clear favourite" to take over from Baroness Ashton.

Hence, the flip side of the High Representative post going to the relatively dovish Italy seems to be the European Council President post going to a Central and Eastern European member state, with Poland's Donald Tusk (who has been officially endorsed by David Cameron), Latvia's Valdis Dombrovskis and Estonia's Andrus Ansip all in the mix. Tusk himself is staying tight-lipped, with the Polish government's spokeswoman this morning claiming that he had not yet made up his mind - a notable change of emphasis from Tusk's previous outright denials. Somewhat amusingly, Gazeta Wyborcza reports that the person responsible for potentially changing the Polish Prime Minister's mind is...his wife. Mrs Tusk allegedly thinks the post will mean "[more] prestige, [more] money and less pressure."

Of course, with it being the EU, a last minute surprise cannot be completely ruled out, and as in 2009 we could end up with some completely unexpected names that had not been on the radar. However, given the severity of developments in Ukraine - and also in the Middle East - there will be pressure on EU leaders to take concrete measures instead of wrangling about personalities.

EU leaders will also debate the allocation of key posts within the Commission, and Cameron will be pushing for the UK nominee Lord Hill to get an important economic post like internal market or competition, although these are not set to be announced at least until September 8th.

To follow tomorrow's developments live make sure to stay tuned to @OpenEurope, @LondonerVince and @pswidlicki.

Douglas Carswell defects to UKIP: A Clacton by election could change the general election result

Douglas Carswell was until this morning the Conservative MP for Clacton on the Essex coast. He has now resigned from the Conservative party, joined UKIP, and says he will resign his seat in order to contest it as a UKIP candidate in the resulting by-election.

His resignation is not a total surprise as it follows a long period as a critic of the Conservative Party's direction and of David Cameron in particular. Carswell's criticisms are not limited to the Conservatives and not limited to Europe - he has developed a critique of British politics generally -  but Europe is among his key complaints.

In his resignation speech Carswell questioned David Cameron's commitment to EU reform accusing him of aiming to do the bear minimum necessary in order to secure an 'in' vote, while Carswell's view of a satisfactory renegotiation seems more akin to associate membership. He says this is a classic example the political class not being straight with the electorate and his reason to quit. The Conservative leadership for their part will feel aggrieved that having set out a 2017 referendum on EU membership they are rewarded with Carswell's 'ingratitude' - recriminations will run and run.

Carswell prides himself on having a large following locally and Clacton itself, it has been argued, is  the "number one most demographically favourable seat in the country for UKIP" according to Goodwin and Ford's Revolt on the Right. He therefore has a fighting chance of winning the seat. So what could happen?

Firstly, it is unclear whether the Conservatives will allow the by election to go ahead - they have to approve the writ being moved and could argue that with an election already scheduled the people of Clacton can wait until May 2015. However, if it is called, the stakes could not be higher.

For the Conservatives to hope to win the 2015 general election they need to minimise the UKIP vote. The best way to do this is the classic 'squeeze'. In a first past the post election they will say there is no point voting for a third placed party - i.e UKIP. This will be very effective. However Carswell's by-election could change voter's calculations - and set a hugely important electoral precedent one way or another:

• If Carswell wins, UKIP can then tell voters everywhere that voting UKIP gives a genuine change of producing an MP. This could be catastrophic for the Conservatives and may deprive them of a number of seats, to other parties mostly, but conceivably to UKIP as well.
• If Carswell loses, the result will be equally disastrous for UKIP. The Conservatives can use it to show that even in one of UKIP's best constituencies with one of their biggest names they can not win a seat - so why waste your vote in May 2015 will be the refrain.

UKIP does not just take votes from the Conservatives, they also gain a lot of their support from Labour, non-voters and even the Lib Dems. However, Carswell by taking on his former party will polarise the debate again into Conservatives/UKIP, something perhaps both parties may wish to avoid. This could be a foretaste of 2015.

In any case, a Labour victory would most likely mean that the In/Out EU referendum Cameron has promised won't happen, as Ed Miliband looks determined to stick to his promise not to offer a straight vote. It would be a tremendous irony if Carswell's defection - Carswell, remember, having campaigned tirelessly for an EU referendum and more direct democracy - would in the end deny the UK public an EU referendum and more direct democracy.

Latest UK migration statistics likely to further turn up political heat on EU migration

The ONS has this morning released its latest long-term UK migration statistics and they are likely to increase the intensity of the spotlight on EU migration - if that was possible. The headline statistics are:

• 560,000 people immigrated to the UK in the year ending March 2014, a statistically significant increase from 492,000 in the previous 12 months. Two-thirds of the increase is accounted for by immigration of EU citizens (up 44,000 to 214,000).
• 28,000 Romanian and Bulgarian citizens immigrated to the UK in the year ending March 2014, a significant increase from 12,000 in the previous 12 months.
• This contributed to overall net migration rising to 243,000 from 175,000 the previous year, way over the totemic 100,000 figure targeted by Conservative ministers.
• It is also interesting to note that the decline in non-EU migration (the part the Government can control) seems to have stopped. The latest estimates for the year ending suggest that 265,000 non-EU citizens immigrating to the UK, a slight increase but not a statistically significant change, from 246,000 in the previous year. Net migration of non-EU citizens increased from an estimated 145,000 in the year ending March 2013 to 162,000 in the year ending March 2014.

Source: ONS

These estimates show that 54%, 30% and 14% of total EU immigration was accounted for by citizens of the EU15 (the 'old' EU member states), EU8 (central and eastern member states that joined in 2004) and EU2 (Bulgaria and Romania) respectively. Overall net migration of EU citizens was 131,000, a statistically significant increase compared to 95,000 in the previous year.

This highlights, once again, that a large part of the recent increase in EU migration is being driven by migration from the more established EU member states, presumably a large number of them looking for an alternative to the high levels of unemployment in the countries worst affected by the eurozone crisis.

In contrast, migration from the 2004 accession states has been relatively stable. Net migration from these countries was 41,000, not a statistically significant increase compared to the 34,000 in the previous year. For Bulgaria and Romania, it looks as though the ending of transitional controls on access to the UK labour market in January 2014 could have had some impact with a 12,000 increase in migration on the previous year (although we should be careful since this data mostly reflects 2013), and almost 80% of EU2 citizens arriving for work-related reasons.

Yesterday saw the German government announce tough new domestic rules on EU migrants' access to benefits, which closely mirror those announced by David Cameron late last month. Downing Street has welcomed the German proposals and added, "Clearly there is now a case for looking at other things we want to do where we may need to change the [EU] rules". The question now is whether Cameron can muster enough European support to change the EU rules in this area sufficiently to satisfy public and political opinion in Britain.

It says it won’t accept a “gentlemen’s club” but how gender-balanced is the European Parliament itself?

Jean-Claude Juncker and his people have rightly expressed concern over the lack of female European Commission candidates put forward by member states. It’s raining men in Brussels as we put it recently.

Never slow to jump on a bandwagon, certain MEPs are now digging in as well, threatening a veto (remember the European Parliament has to approve the new Commission) should Juncker’s Commission not include enough women.

The European Parliament’s President Martin Schulz – the guy, remember, who lost to Juncker – said

"The European Parliament is very concerned that at present virtually all the potential candidates whose names are circulating are men. The European Parliament will not accept a gentlemen’s club." 

The head of the liberal ALDE group, Guy Verhofstadt – a man known for his strong views – added

"As liberals, we cannot support a commission with too few women."

Meanwhile, the head of the Socialists in the EP, an Italian gentleman named Gianni Pittella, said

"We will not support a European Commission with fewer women than today." 

Fine, these three men have a point. But let’s throw back the question: how gender-balanced is the European Parliament itself? Well, a rather mixed bag it turns out – with some depressing stats in particular:

• 20% of members in the Conference of Presidents – EP group leaders plus the EP President, i.e. the top dogs – are female 
• 22% of the leaders of the EP’s political groups are female 
• 37% of MEPs are female 
• 45% of the EP’s committee chairs are female (encouragingly up from 36% in the last Parliament) 

So whilst not exactly Whites or the East India Club – hardly a great beacon of gender balance either. As that old saying goes, start with the man (errr) in the mirror.

Sweden set for a lurch to the left - and further gains for anti-immigration party

The Swedish elections take place on 14 September. As polls stand, the sitting centre-right coalition government, "Alliansen" - the Moderates, Centre Party, People's Party and Christian Democrats - look set to lose to a leftist coalition of some sort. The big question might be who the Social Democrats - the biggest party in the polls - decide to rule with: the Green Party is the most likely partner, but the Left Party could be in the mix too.

There's even talk of the Social Democrats reaching across the aisle to form some sort of 'grand coalition' - which would break with tradition. It may not be that easy for the Social Democrats to agree economic policy with the Greens and Far Left, both of which are, well, pretty far to the left. In the latest Ipsos poll, the three left parties together muster 50.4%, whilst Alliansen is on only on 35.6%.

A poll of polls for daily Expressen has a slightly stronger showing for the centre-right but the broad picture remains the same: absent an upset, Sweden looks set for a centre-left government following eight years of centre-right rule.

At the same time, the anti-immigration Sweden Democrats have gained steadily in the polls, and it is now the fourth most popular party in the country on 10.3% (it made the Parliament for the first time in 2010, on 5.7%) according to the poll of polls - breathing down the neck of the Greens, on 10.8%. This despite Swedish media really having turned up the heat on the party over the last few years - often deserved but at times hysterically and counter-productively (the Swedish establishment hasn't quite yet grasped the 'metropolitan elite is ganging up on us' narrative that is doing so much for anti-establishment parties across Europe).

That's worrying news for those of us who want Sweden to remain a liberal and outward-looking country.

'Erm...Brussels we have a problem' (Or "If EU did satellites..." Part III)

This week has seen the latest farcical episode in the EU's foray into space. The independent European Space Agency (ESA), which is based in Paris and is building the so-called Galileo satellite navigation system for the EU, was left with egg on its face after the two latest satellites for the system were launched into the 'wrong' orbit. In total, the project has now launched six satellites - two are in the wrong orbit and one, it emerged previously this year, isn't working.

Bad in its own right, but forgivable. We're dealing with some pretty advanced technology after all. Except, as we have chronicled before, this project has been absolutely bedeviled by unfortunate incidents, delays, infighting, poor planning and all sorts of other problems.

To re-cap:

Massive cost-overruns: The cost of completing the project and running it for 20 years (including maintenance) was under the original estimates (from 2000) €7.7 billion, of which only €2.6 billion was to be borne by taxpayers and the rest by private investors. In 2007, following the collapse of the private-public partnership, this cost had risen to € 11.8 billion, all of which was to be borne by taxpayers. In the autumn 2010, leaked information suggested that the cost had risen to a staggering €22.2 billion – again with the entire bill footed by taxpayers. But, it didn't end there…

The Commission all over the place on numbers: In 2010, Industry Commissioner Antonio Tajani denied new cost over-runs, saying “I don't know where these figures come from.” He insisted that the deployment budget (which is only part of the cost) remained at €3.4 billion (not €5 billion as the leaked info suggested). Only a few months later, in January 2011, however, Mr. Tajani and the Commission admitted that Galileo needed not just another €1.5-1.7 billion as was thought in 2010, but an extra €1.9 billion of taxpayers’ cash to cover the booming deployment cost – taking the deployment cost above €5 billion. At the same time, the Commission put the annual operation cost at €800 million (not €750 million as assumed in the 2010 estimate). This means that even €22.2 billion for deployments and running cost was an under-estimate.

Tajani has since announced what he calls “savings” of some €500 million on the huge cost overrun, but frankly, at this point we simply don’t trust any of the numbers coming out of the Commission on this one.

Taxpayers getting hammered: The cost for taxpayers for deployment plus 20 years’ worth of running cost may well have increased by some 750% - from €2.6 billion to somewhere in the region of €20 billion+. Shocking.

Delays: Originally Galileo was to be finished by 2008 – a date that was subsequently pushed back several times due to a series of delays, disruptions and other embarrassments. Between July 2005 and December 2005, the project came to a complete halt as member states and the private investors argued. According to the European Court of Auditors, these six months of doing absolutely nothing added an extra €103 million to the cost of the project. Encouragingly, the project managed to make up some time and the satellites were launched this year. However, with only three of the four previously launched working and this latest setback, the performance of this project leaves a lot to be desired to say the least.

Public-private partnership flawed from the very start: As the European Court of Auditors concluded in a damning investigation, the original public-private partnership proposal was “unrealistic” and “inadequately prepared and conceived.” Symptomatically, the private investors withdrew due to fears over the cost of the project spiralling “out of control” and that they wouldn't outweigh the benefits.

The original estimated benefits delusional: In 2006, the Commission estimated the market for Galileo as potentially consisting of 3 billion receivers and revenues of some €275 billion per year by 2020 worldwide – in addition to potentially leading to the creation of more than 150,000 high qualified jobs in Europe alone. The European Space Agency and others have estimated 3.6 billion users by 2020. These are such delusional assessments that it’s hard to know where to start. Indeed, a 2010 report from the German government admitted that "All in all, it is assumed, based on the currently available estimates, that the operating costs will exceed direct revenues, even in the long term.” And according to American diplomatic cables, released by WikiLeaks, Berry Smutny, the CEO of OHB Technology, a company that has a £475 million contract to build 14 Galileo satellites, is claimed to have said: “I think Galileo is a stupid idea that primarily serves French interests.”

The Indian, Chinese, Russian, Japanese, American markets already crowded: One of the reasons why the idea of “3 billion users” is so ridiculous is that all major players already have, or are in the process of acquiring, their own satellite navigation systems. The newly-redeveloped Russian “GLONASS” system has already been launched, and the Chinese are developing their own Compass/Beidou system (not a global endeavour, but set to deprive Galileo of revenue in China). India’s equivalent technology, IRNSS, will be operational within the next two years. Japan has one too and the US is soon to boast a new generation GPS System (though to be fair, that too seems to be delayed) – GPS being what most people happily use in Europe anyway. Where in the world is Galileo going to get its 3 billion users? Is there a better of example of how the EU is falling behind in the 'global race'?

The Chinese have nicked the frequency: In 2003, China agreed to invest €230 million in the project but pulled out after disagreements. Lo and behold, the Europeans noted that the Chinese government was a little too interested in the security related aspects of the project, and got cold feet. But only after Beijing got its hands on some very useful information. So while Galileo was falling behind schedule, the Chinese were developing Compass/Beidou. Chinese officials told the International Telecommunications Union, the United Nations agency that allocates radio spectrum frequencies for satellite use, that China plans to transmit signals on the wavelength that the EU wants to use for Galileo. In other words, the EU is now in the absurd position of having to ask China's permission to run its secure 'encrypted' signal on Chinese frequencies.

All in all, Galileo has had a sorry history right from the very start. And we suspect we haven't heard the end of it yet...

Handelsblatt: France is the new sick man of Europe

The front page of Germany financial daily Handelsblatt today depicts France as the sick man of Europe, warning that "a once proud nation faces economic decline." Of course warnings of French decline have been made before - notably the famous ticking baguette bomb on the front page of the Economist a couple of years ago - but it is striking that the German press is increasingly reflecting these concerns.

The front page trails a detailed eight page feature which the paper introduces by arguing that:

"Our most important neighbour is mired in crisis. France risks falling behind when it comes to its budget, its labour market and its industry. However, the country could be successful if only it stops making itself smaller."

The timing might be slightly ironic given that the French economy 'outperformed' the German economy in the last quarter - albeit by staying flat as Germany contracted by 0.2%. Handelsblatt has itself warned that Germany was "no longer a champion" but the German economy is still pretty robust, and should bounce back quickly, while France's problems are much more deeply entrenched.

The SNP embraces EU reform - but is it trying to have it both ways on treaty change?

Ahead of next month's crucial Scottish independence referendum, the Scottish government has put out its own paper on EU reform, designed to position the SNP on the pro-reform as opposed to the status quo side of the debate. The report has generated very little coverage (our daily press summary being the exception). It's a mixed bag but contains some worthy ideas - we look at the key points below:

Reconnecting European citizens with the EU

The paper notes that "it is important that the EU institutions and the Member States recognise and respond to the challenges to the EU’s wider legitimacy". Its suggestions include:

"the Scottish Government considers that greater observance of the principle of subsidiarity, is one of the key means of maintaining the democratic legitimacy of the EU… it is essential that the procedure for monitoring subsidiarity by national parliaments is extended further to give an enhanced role for both sub-national and local parliaments."

Cutting red tape and EU "competence creep"

The paper notes that warns that “much more remains to be done” to alleviate concerns about EU “competence creep” and excessive “red tape”, and to “restore a balance between the burden of EU legislation and the benefits expected to derive from its implementation.” It adds that:

"the volume and complexity of the EU regulation affecting businesses in Scotland can pose a significant administrative and financial burden on them (particularly SMEs) and is threatening their ability to recover from the economic and financial crisis."

Its recommendations include:

• Consistent regulation - greater adherence to the framework set by the EU Treaties with less ‘competence creep’ without formal amendment of the Treaties,
• Increased flexibility to the member States when incorporating EU law into domestic legal systems and greater use of exemption schemes, in particular for SMEs,
• Further developing the impact assessment tool and applying it at each stage of the EU legislative process where prospective legislation is subject to significant amendment by the Council and/or European Parliament,
• Focusing on overall principles rather than detailed prescriptive measures,
• An increased review of legislation which is no longer appropriate for today’s climate.

The above are good suggestions - indeed ones which Open Europe has been advocating for a while now (see our 2011 report on European localism and our 2010 report on EU over-regulation for example) but as always, the question is how to translate this into practice. 

Still, the report has some pretty big gaps - for example, it barely mentions the EU budget despite this being in radical need of reform (for example, contrary to common perceptions, Scotland would benefit from devolving regional subsidies back to the national level). Likewise beyond some general praise for EU free movement, the report does not discuss whether changes are needed to rules around EU migrants' access to benefits. In some places, the report calls for more protectionist measures at the EU level, such as amending procurement laws to ensure that contractors to pay the living as opposed to the minimum wage. 

The SNP is also keen to distance itself from David Cameron's EU policies and says that changing the EU Treaties is "neither necessary nor desirable". The party claims that its reforms can be accommodated within the existing Treaties. Whatever the rights and wrongs, this is slightly ironic given that Scotland's potential accession to the EU as an independent country rests squarely on the EU Treaties being opened and changed: not only the accession itself (to which all other member states would have to agree) but also to get the opt-outs from the euro and Schengen that the SNP says it wants.

It's also ironic since if SNP has its way, it could deliver the kind of opening of the Treaties that the Tories are hoping for.