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Thursday, January 31, 2013

Clarke's loose talk illustrates Government's predicament on EU crime and policing

Ken Clarke, as he is prone to doing, has let slip a morsel of information regarding the Government’s thinking on how to approach the 2014 EU crime and policing block opt-out, which, according to Theresa May last year, the Government is ‘minded’ to exercise.

Speaking to BBC Radio 4’s Today Programme, Clarke said that ministers will “opt back into” around 30 “essential” EU measures that will impact the UK’s justice system following a block opt out. We should note that Clarke was later slapped down by a senior Liberal Democrat source, who accused him of “getting ahead of himself.” There are ongoing negotiations between the Government and the European Commission about potential opt-ins or other arrangements.

However, Clarke’s assessment is broadly how the Government is likely to approach the issue – exercise the opt-out, which covers at least 130 EU crime and policing laws, and then seek to opt back in to a (yet to be determined/negotiated) number deemed vital to national security and the fight against cross-border crime. Or, as Clarke put it:
“We’ve actually just exercised a right that Tony Blair got after Lisbon to opt out of a whole lot of justice and criminal regulations – we’re going to opt back in to about 30 of them which are essential but…well over 100 can be dropped.”
This is going to continue to be a political hot potato for the Government, given that the major concern with opting back in to these measures is not necessarily the law itself (although in the case of an unreformed European Arrest Warrant it is) but the prospect of the ECJ gaining full jurisdiction over them – something that will continue to be deeply unpopular among Tory MPs and could make for an interesting vote(s) in Parliament.

As the Government has told an ongoing House of Lords inquiry:
“The practical effect of the ECJ gaining full jurisdiction in this area after the transitional period is that the ECJ may interpret these measures expansively and beyond the scope originally intended. This concern is compounded by the fact that the ECJ has previously ruled in the area of Justice and Home Affairs in unexpected and unhelpful ways from a UK perspective.”
The Telegraph write-up of the story notes another two potential flash points on this issue. The Commission is due to present proposals to amend Europol and Eurojust in the coming months – and the Government could be forced to either opt in, or out of these measures altogether. The Government is likely to want to opt in but, again, this is likely to be controversial, because it means removing them from the scope of the block opt-out and accepting ECJ jurisdiction.

In the wider context of David Cameron’s recent speech, police and criminal justice is an obvious candidate for a re-balancing of the UK’s relationship with the EU i.e. a deal that would return the UK to an arrangement based on intergovernmental practical cooperation with EU member states rather than an EU-wide system with the Commission and the ECJ as arbiters.

Reassuring his MPs that this is the eventual aim could make life less awkward (if not easier) for the Conservative part of the Coalition.

An untimely scandal in the making for Rajoy?

Spain's largest daily El País this morning splashed this and other pictures on its webpage (click to enlarge):

The paper claims it has seen hand-written accounting books held by Álvaro Lapuerta and Luis Bárcenas, who served as treasurers of Spanish Prime Minister Mariano Rajoy's Partido Popular (PP) between 1990 and 2009.

These books register donations made to the party by Spanish businesspeople. But most importantly, they seem to show that Rajoy himself and other senior members of PP were handed out sobresueldos (extra pay, bonuses) which were allegedly distributed in envelopes with cash - and therefore completely tax-free. According to the paper, Rajoy received sobresueldos regularly between 1997 and 2008.
Such allegations had already emerged earlier this year, and an internal investigation is currently under way. However, the documents published today could be the first concrete evidence of what may, if confirmed, trigger a big scandal in Spanish politics. The names in the books include not just Rajoy, but also, for example, Rodrigo Rato (former Finance Minister, who recently also appeared in court for the Bankia case).

The Secretary General of PP, María Dolores de Cospedal (whose name is also in the secret books) has just held a press conference from the party's headquarters in Madrid's Calle de Génova - perhaps to convey the message that this is a party, not a government issue. The gist of her declarations was: the documents are false, and we will take the necessary legal action to prove it.

Rajoy is not planning to speak to journalists for now. His first public appearance will therefore be on Monday, when a joint presser with Angela Merkel is scheduled. For the moment, a bit of background info could be useful for those who do not follow Spanish politics on a daily basis:
  • Luis Bárcenas served as PP treasurer until July 2009.
  • It emerged recently that he had up to €22 million deposited in various Swiss accounts. Reports in the Spanish press suggest that the money was moved from those accounts in 2009 (although to where exactly is still unclear), when Bárcenas was involved in another corruption scandal, the so-called Gürtel case.
  • Bárcenas himself has now told Spanish prosecutors that he brought almost €11 million of that money back to Spain, through the 'tax amnesty' introduced by Rajoy's government. The opposition Socialist Party has obviously suggested that the amnesty was made precisely to cover Bárcenas and others
Very sensitive stuff. And rather untimely, given that Rajoy is about to meet his EU counterparts for key negotiations on the next long-term EU budget. The quicker the investigation, the better for the Spanish government and Spain as a whole.  

The EU budget veto threat festival kicks off again

Remember our EU budget 'veto team'? Well, the next European Council summit - entirely devoted to negotiations over the 2014-2020 EU budget - is only one week away, and the sequence of veto threats may have just begun all over again.

Guess who fired the starting gun (clue: not David Cameron)? It was Italy's outgoing Prime Minister Mario Monti. He told a conference in Brussels yesterday,
“There would be no coherence between what everyone is saying about the need for growth and the adoption of an inadequate [long-term EU] budget…The orgy of cuts that certain countries want to apply is inconsistent. Therefore, I’m not sure that it would be irresponsible for a country to disagree with a budget proposal which is inadequate.” 
That is, a veto threat, Monti-style. This has just started, so keep following us on Twitter @OpenEurope for real-time updates.

Wednesday, January 30, 2013

The FTT debate rumbles on...

The FT reported today on the latest draft proposals for the EU financial transactions tax (FTT), which is proceeding under enhanced cooperation with 11 countries taking part. These are the highlights from the FT's report (since we are yet to get our hands on the draft proposal):
  • The FTT is expected to raise up to €35bn.
  • It will apply to any share, bond or derivative issued within the participating area or "with a clear connection to a participating member state" in an attempt to restrict relocation to avoid the tax.
  • Target introduction date of January 2014.
Although the basic structure is the same, the most potentially controversial element is the extension of the scope of the FTT to apply to any share, bond or derivative "with a clear connection to a participating member state." This means that financial instruments which are traded outside of the participating countries could still be caught by the tax. This throws up a number of important questions and potential problems:
  • This could ultimately result in participating governments imposing taxes within other government’s jurisdictions. This goes further than just other EU countries.
  • It is not clear to where the revenue would flow (to the government where the trade is located or back to the FTT participants?) or how it would be enforced at a global or EU level. (This also seems to add massively to the complexity, a reduction of which is a cited benefit of the FTT).
  • Surely, there are questions regarding how this cuts across the single market. As the press release on enhanced cooperation notes, the FTT will “respect the rights, competences and obligations of non-participating Member States” – stepping on the rights of non-participating government to determine which taxes are applied in their sovereign territory does not seem to fit this description. Some of the non-participating members could certainly be unpleasantly surprised and may well have some complaints to lodge.
  • The new clause (to stop capital from flowing outside the FTT zone) seems to go against the key EU principle of free movement of capital in spirit, if not in law.
  • For those involved, the tax will likely have some impact on their borrowing costs (for both governments and firms based in these countries). It will also increase the cost of instruments used to hedge against risk in these countries (certain derivatives). This may not be massive but will come at a time when it is not needed.
We do not know what form the final proposal will take but, if the reports are accurate, this FTT could not only pose practical difficulties of enforcement but also cut across the single market.

Update - 18:07 30/01/13:
 The FT has flagged up to us that, under latest proposal, the rules will only apply to exchange traded derivatives rather than all (over the counter) derivatives. This certainly makes the collection and policing of the tax easier and may limit any distortion on derivatives market somewhat. We'd note though that the general enforcement of the tax across borders and particularly outside the EU will remain tricky.

Tuesday, January 29, 2013

A view from France: "Long live Europe without the UK!"

Last week, we noted how the German media's reaction to David Cameron's Europe speech had been cautious, but receptive. Unsurprisingly, the French press has been much less receptive to the British Prime Minister's call for a reformed EU. In today's Les Echos, Jean-Marc Vittori pulls no punches:

The headline is, “Long live Europe without the UK!”. Here are the key sections:
“The British have always considered the EU as a big market… [Since their EU entry] they have favoured everything which could expand this market. They have supported all the enlargements which took the EU from six to 27 members. They backed the strengthening of competition rules (which was a good thing).”


“At the same time, they have consistently resisted everything that went beyond that. They dug their heels in on the institutional reform made necessary by the enlargement itself (a business or a family dinner do not work the same way with six or 27 people). They resorted to opt-outs to escape the common policies – the single currency, of course, but also the Schengen security area, the Chart of Fundamental Rights and judicial cooperation.”

“And it’s not everything. The British act as ‘free riders’, as clandestine passengers. They have benefited from European monetary stability in normal times, and from the devaluation of their currency in times of crisis (during the early 1990s and over the past few years). They also know, better than others, how to have the [legislative] projects favourable to them passed in Brussels.”


“Nowadays, the eurozone can't just be a market and a currency. After the shake-ups of the last three years, it has (finally) become clear that it must be a space of solidarity – that word the British dislike so much (I want my money back). The Greek bailout, the creation of the European Stability Mechanism or the banking union plan all show this, each one in a different way. The other members of the Union are not obliged to enter this logic, even if they did ratify a treaty establishing that all countries aimed to join it. But they can no longer hope to be part of a Union without solidarity.”

“The UK has been a brake for the EU for a long time. It now risks becoming [the EU’s] ball and chain…Europe without the UK would do better than the UK without Europe. Since no exclusion procedure exists, we can only hope that the British themselves decide their eviction by referendum in 2017. With one brake less, Europe will then have more chances to accelerate.” 
Pretty strong stuff. Especially coming from a business daily, which should be more aware than others that the UK is an asset to the EU. Perhaps Monsieur Vittori should have a quick look at our recent 'Right speech, right time?' briefing, in which we noted that: a UK exit from the EU would shrink the single market by 15%, with £261.4 billion in annual European exports (up from £165.25 billion in 2001) potentially facing extra costs; a €14 billion hole would open up in the EU budget; and the EU's geopolitical clout would be substantially reduced.

Would it really be in the best interests of France?

Mali and France: about that 'pact of European solidarity'...

It's always interesting to watch rhetoric and negotiation posturing clash with reality.

Following David Cameron's EU speech last week, Najat Vallaud-Belkacem, a French government spokeswoman, insisted that:
"Being a member of the European Union has a number of obligations... The Europe that we believe in is a pact of solidarity and that solidarity applies to all member states".
Yeah, about that "pact of solidarity":

Ministers from the 27 EU member states, plus Norway and Canada, are currently discussing the operation in Mali, with the Canadians seemingly more committed to 'European solidarity' than the Europeans given that they already have special forces on the ground. The Germans are providing cash, two transport planes and possibly some training personnel while Poland is likewise considering participating in the training operations, with a decision due by the end of the day.

Other European powerhouses are still to make their minds up. In other words, we'll see what the great pact of solidarity can deliver for the French in the end...

Easing of the Basel III rules - a test case on conflicts of interest?

A lot has been written over the past few weeks regarding the easing of the Basel III banking rules, which we've been meaning to cover but didn't get round to doing.

The specifics and details have been well covered so instead we'll look at some of motivations behind the changes. In our view, the change provides an interesting insight into the potential conflicts between monetary policy and financial supervision – something we have discussed at length with regards to the ECB being turned into the single financial supervisor for the eurozone (see also Felix Salmon’s blog for a wider discussion of this issue).

The changes, which are fairly technical and complex, focus on easing the burden of banks in creating what is known as the Liquidity Coverage Ratio (LCR). This is essentially a liquidity buffer which banks will be required to hold to ensure that they have enough cash (or cash like assets) on hand in a crisis to cover themselves for 30 days. The time frame in which the banks must have this buffer in place has now been increased by 4 years as well.

Again we won’t go into the detail of whether this change undermines the attempts to make banks safer but we would highlight that many banks already meet the adjusted standards, albeit with significant support from central banks (a point we’ll expand on in second) – given the on-going banking troubles in Europe and the US this is naturally a concern.

Monetary policy vs. financial regulation

More interesting from our perspective is the motivation for this change. As Bank of England Governor Mervyn King said:
“Most banks are completely overflowing with liquid assets…[Which] reflects the way in which central banks around the world have expanded balance sheets to provide economic stimulus. That won’t always be the case in the future.”

“Since we attach great importance to try to make sure that banks can indeed finance a recovery, it does not make sense to impose a requirement on banks that might damage the recovery.”
So it seems that the ultimate motivation for the move is to make it easier for central banks to remove themselves from non-standard monetary policy measures (such as QE or the LTRO) without fearing a massive drop in lending.

Clearly, both these concerns fall into the realm of monetary policy, rather than supervision or regulation. Obviously, a collapse in bank lending would be bad for everyone, so the measures are tied to some notion of short term financial stability, but surely these comprehensive Basel III regulations – which will set the basis for financial regulation over the next decade or more – should be taking a much more long term view than this. There are very real concerns that in the long term this could hamper the safety of banks and their ability to withstand future crises without taxpayer help.

A further motivation for the changes seems to be an attempt to encourage demand for a wider variety of assets by allowing them to be held as part of the LCR. Again this is all well and good, but it is the job of monetary policy to manage such demands and should not become ingrained in long term regulation. It is hard not to see this as a sop to the current crisis and immediate economic problems. (On the other hand we would note that this does help ease concerns that the requirements for banks to hold more sovereign debt would worsen the sovereign-banking-loop, although again increasing the risk on banks’ balance sheets is not a desirable trade-off.)

As mentioned above, the easing of regulations may make it much easier for central banks to exit their non-standard monetary policy measures without causing market distortions. The lack of a clear exit strategy is something which we have continuously warned of within regards to greater ECB intervention and the problem still applies. Obviously, finding the best way out is important but not at the expense of a safer banking system. Furthermore, taking such substantial action, such as that seen during the crisis, should not be done lightly and altering regulations to ease the potential problems or side effects of such actions could lead to a situation where the final cost of such actions are not fully considered. It is not hard to imagine similar pressure being applied to the ECB’s monetary policy, particularly if the eurozone crisis escalates again, while easing supervision would provide an easy out rather than managing the imperfect one size fits all monetary policy.

We must note that these regulations are produced by the Basel Committee and the BIS, not the ECB, so it is far from certain that the ECB will act in a similar way (although many of the central bankers involved do overlap). Additionally, the ECB will not be directly responsible for regulation but supervision, although there is substantial flexibility within this bracket and the people involved will still have a large say on regulation at the European Banking Authority (EBA). 

Our main point is that there will be very similar pressures and very similar powerful lobbies, which seem to have had a substantial impact here. This of particular concern for the ECB, where the Chinese walls could well prove insufficient, with the ultimate power for both supervision and monetary policy residing with the Governing Council.

We would suggest the previously mostly theoretical conflict of interest between financial supervision/ regulation and monetary policy just got a little bit more real.

Friday, January 25, 2013

A vote of confidence? Banks start repaying ECB long term loans

This morning saw the start of the on-going process of repayments of the loans given by the ECB to European banks under the Long Term Refinancing Operation (LTRO) (see here for details).

The ECB announced that 278 banks have already pledged to repay €137.2bn. This compared to the 523 banks in total that borrowed around €190bn in net liquidity from the first LTRO at the end of 2011. The amount repaid was above expectations – below we assess why this may have been and what it could mean for the eurozone.

Why have banks decided to repay so much so early?
- A big motivating factor is reputation. It is clear that banks which repay early can highlight that they have access to market funding at low levels and have a sustainable business model.

- Although the loans seem cheap with the low ECB rate they require lots of collateral (to which haircuts are applied). This cost mounts up and some banks (particularly in northern countries) can now borrow on the markets more cheaply. ECB funding is also secured (against the aforementioned collateral) this ties up lots of banks assets, many may prefer to seek unsecured market funding, even if it is a bit more costly.

- Having huge amounts of excess liquidity just parked at the ECB is not efficient or effective. It also distorts bank balance sheets and may detract from other goals such as deleveraging or recapitalisation (more on this in a minute).
What does this mean, if anything, for the eurozone?
- There are fears over a two-tier banking system between those stronger banks funding themselves on the market and those reliant on the ECB. We would add that this furthers the divergence in the eurozone since the split is broadly along the existing strong/weak country divides.

- If the move is to aid banks in deleveraging this could perversely have a negative effect on the eurozone, with banks decreasing lending and reducing demand for euro (particularly peripheral) assets.

- That said the net impact on liquidity is limited, with excess liquidity in the system still at almost €700bn. It may need a further €200bn to be removed before the impact is substantially felt in terms of borrowing costs and demand for assets in the eurozone.

- There could well be a confidence boost from the higher than expected repayment. However, if this furthers a strengthening in the euro there could be growing concerns that it could begin to hamper exports in the weaker economies (a key driver of growth when both public and private sector are limited spending). This also furthers tensions within the one-size-fits-all monetary policy.
So, there are some clear reasons for repaying the loans early, although what it means for the eurozone and the impact it could have is far from clear (this is partly because the actual impact of the LTRO beyond helping banks fund themselves is far from clear). 

One more thing: many analysts are now making a song and dance about the reduction in the size of the ECB balance sheet - seeing it as a great positive. Which it is of course. But strangely, the same people always made the point that the ECB's expanding balance sheet, really wasn't that importance. So which is it?

In any case, as we said at the start, this is a rolling process and the full impact will not be clear for some time. The most important point to watch now is the location of the banks which announce that they have repaid. If it turns out to be solely northern banks, we could see some divergence emerging in the banking system, at just a time when eurozone 'bank union' plans are trying to unify it.

Stop me if you think you've heard this one before...

The Director of Open Europe Berlin, Prof. Dr. Michael Wohlgemuth, has dug up this old quote, which has a great deal of relevance for where we're at today. 

It's taken from the third Jean Monnet Lecture delivered in Florence by Ralf Dahrendorf - in 1979 (Dahrendorf was Member of the German Parliament, Parliamentary Secretary of State at the Foreign Office of Germany, European Commissioner for External Relations and Trade, European Commissioner for Research, Science and Education, Member and life peer of the British House of Lords, director of the London School of Economics, Warden of St Antony's College at the University of Oxford and Professor of Sociology at a number of universities in Germany and the United Kingdom...).

Pay attention:
"It is emphatically not the desire of some of the founding fathers to create another superpower; to have as much decentralization as possible and only as much centralization as necessary, is a prescription for a humane society to which many, including myself, would subscribe today."
He continues:
"The policy of the British government is to express its commitment to the Community – which is appreciated – to assure its partners that it does not propose to break the law – which is more than can be said of some others, though it remains to be seen what exactly the British Government has in mind – and to demand a « broad balance » of contributions and benefits. It will be for politicians to try and find out how much room for manoeuvre the notion of « broad balance » allows; at first sight, it certainly does not seem unreasonable. To say that we have to start again in order to build Europe would be wrong; there is much in the acquis communautaire which is worth preserving. But what we need is more than mere adjustments and reformlets; we need a fundamental reappraisal." 
 Then he absolutely hit the nail on the head:
"I have often been struck by the prevailing view in Community circles that the worst that can happen is any movement towards what is called a Europe à la carte. This is not only somewhat odd for someone who likes to make his own choices, but also illustrates that strange puritanism, not to say masochism which underlies much of Community action: Europe has to hurt in order to be good. Any measure that does not hurt at least some members of the European Community is (in this view) probably wrong. In any case it is regarded as unthinkable that one should ever allow those members of the Community who want to go along with certain policies to do so, and those who are not interested to stay out. The European interest (it is said) is either general or it does not exist." 
Full lecture here.

As they say, most things that are being said today, have been said better before...

Thursday, January 24, 2013

Cameron's EU speech: German media cautious but receptive

Yesterday we brought you some instant reaction to Cameron's speech from European media and politicians. In this blog post, we round up reaction from the German press after they've had a day to digest it - a crucial barometer of how much, if any, purchase Cameron's agenda can count on in Berlin. What struck us was that the media, overall, tackled the complex issue where next for the UK in Europe, with admirable balance. Criticism tended to focus on Cameron's perceived pandering to UKIP and his own party. But equally there was also strong support for parts of his argument.

In a piece with the strong headline: "The Ignorance of the Cherry-picking Westerwelle", Die Welt's London correspondent Thomas Kielinger argues that:
“David Cameron has called for a fundamental reform of the EU so that his country can remain a member. This has nothing to do with blackmail… When [German Foreign Minister] Guido Westerwelle repeated his well worn assertion that the UK would not be allowed to ‘cherry-pick’ in its relations with the EU he was guilty of exactly the same thing that he denounces. He picked out of the speech that which fits his argument while he ignored that which he did not want to hear.”
"Cameron is in no way alone in his analysis of the changes that are coming for the EU, which one cannot address as being 'business as usual.' The overdue plans to stabilize the euro zone bring with them a deepening of the EU that also will have wide-reaching consequences for the countries not belonging to the euro. Those need to be not just discussed, but also most likely negotiated. It is not anti-European when the British prime minister brings these up. “It is not anti-European of Cameron to remind of the threat to the EU’s competitiveness [or] the creeping democratic deficit and the lack of public confidence in the EU and its institutions… Great Britain is approaching the EU question in a 'practical' not emotional way, Cameron says. That would do us all some good."
On a much more critical note we have Der Spiegel, which it must be said has consistently adopted a Cameron-critical position. Their UK Correspondent Christoph Scheuermann argues that:
“Cameron's vision of Europe is a free trade area with access to the beaches of the Mediterranean. Beyond that, he doesn't associate the project with a past or a future. Apart from vague demands like competitiveness, flexibility and fairness, he has no idea how the EU should develop… He's isolated partly because his interest in Europe stems from fear rather than any desire to shape it.”
FAZ's Klaus-Dieter Frankenberger argues that:
“Once the agitation has settled over real or perceived British special demands, the country's European partners should quietly sit down and study Cameron's wish list and not just immediately dismiss it as cherry picking. Cameron’s strategy may be risky, but his analysis is not wrong... A solid [EU] framework is essential. Nonetheless this framework has to accommodate a range of traditions, mentalities and objectives. This means that without flexibility, it won’t work either. Europe's challenge is to find a way of combining that flexibility with commitment. Pragmatic British and other sceptics should be able to warm others to that idea.”
Süddeutsche’s Martin Winter argues that:
“Since the crisis, the formula that more Europe is always good for Europeans is no longer valid. It would be good to know what ‘more Europe’ means in detail and who will be expected to bear its political and financial costs. Brussels’ almost planned economy mentality in the crisis does not inspire confidence. A blunt European debate – which is not conceivable without Britain – could lead to greater clarity… The statement currently heard in Brussels that Britain needs Europe more than Europe needs Britain is foolish and dangerous… Above all, it is in the interest of both the Germans and the French, not only to pull the British along, but to bring them to the centre of the European debate."
Finishing on a lighter note we have Bild Zeitung which in its print edition had a very tongue-in-cheek list of 8 reasons for "Why we don't need the Brits in the EU" which included pearls of wisdom such as using imperial measurements, driving on the 'wrong' side of the road, eating chips with vinegar and drinking stale beer, as well as having a higher debt than Greece, Spain, Portugal and Ireland combined. However, in an equally tongue-in-cheek online piece which paid tribute to "the crazy Brits" citing everything from the Royal Family and Boris Johnson to the Loch Ness Monster and the Sex Pistols, argues that:
“With his promise of a referendum, David Cameron has turned the old continent upside down… Most EU countries have tacitly agreed to build Europe above the heads of the people. Motto: The European project is simply too important for democratic participation. And then along comes this Cameron!... The Europeans are collectively pissed… and want to convince the combative Cameron that he is acting against the interests of his own country. Some even speak of expulsion and want the friends of mint sauce and those who drive on the left completely out of the EU. But dear Britons, please stay! You are so crazy. We need your opposition, your obstinacy rather than a united Europe.”
Who said Germans don't do sarcasm...? Potentially plenty of scope for support if the UK, with partners, is able to pitch its proposals for EU-reforms in a smart way.

Business backs Cameron's call for a mandate on Europe

A letter in today's Times from some leading UK business people supporting Cameron's approach:

EU reforms must come before any membership referendum

Business faces ever more burdens from Brussels and the single market in Europe has not yet been fully realised

Sir, As business leaders we are passionate about Britain’s prosperity. We agree with the Prime Minister that Britain’s best chance of success is as part of a reformed Europe. We need a new relationship with the EU, backed by democratic mandate.

Business faces ever more burdens from Brussels and the single market in Europe has not yet been fully realised. The euro crisis has created the circumstances for a new EU settlement. This is the moment to push for a more flexible, competitive EU that would bring jobs and growth for all member states. That means completing the Single Market and quashing the culture of red tape.

Now is our chance to reform the EU from within. The Prime Minister is right. This is a European policy that will be good for business and good for jobs in Britain.
The full list of signatories:

John Ayton, Bremont Watch; Sir Anthony Bamford, JCB; Sir John Beckwith, Pacific Investments; Samir Brikho, AMEC; Sir George Buckley, Arle Capital; William Butler-Adams, Brompton Bicycles; Stephen Catlin, Catlin Group; Ian Cheshire, Kingfisher; Andrew Coppel, De Vere Group; Gerald Corbett, Betfair; Mick Davis, Xstrata; Philip Dilley, Arup; Paul Drechsler, Wates Group; Ralph Findlay, Marston’s; Rupert Gavin, Odeon & UCI Cinemas; Ben Gordon, Britvic; Michael Gutman, Westfield Group; Lord Harris, Carpetright; Aidan Heavey, Tullow Oil; Robert Hiscox, Hiscox; Brent Hoberman, made.com; Sebastian James, Dixons Retail; Luke Johnson, Risk Capital Partners; Andrew Law, Caxton Associates; Lord Leach, Open Europe; Alistair McGeorge, New Look; Jon Moulton, Better Capital; Charlie Mullins, Pimlico Plumbers; Jamie Murray Wells, Glasses Direct; John Nelson, Hammerson; Richard Nichols, College Group; Tim Oliver, Hampden Holdings; David Ord, Bristol Port Company; Alan Parker, Brunswick; Sir John Peace, Burberry; Tony Pidgley, Berkeley Group; Sir John Ritblat, Delancey; Nick Robertson, ASOS; SIr Simon Robertson, Rolls-Royce; Xavier Rolet, London Stock Exchange; Sir Stuart Rose, Ocado; Joanna Shields, Tech City Investment Organisation; Michael Spencer, ICAP; Tim Steiner, Ocado; James Townshend, Velcourt Group; Ted Tuppen, Enterprise Inns; Moni Varma, Veetee; Paul Walsh, Diageo; Robert Walters, Robert Walters; Joseph Wan, Harvey Nichols; Tom Wells, Charles Wells Pub Company; Nick Wheeler, Charles Tyrwhitt Shirts; Bob Wigley, Stonehaven; Charles Wigoder, Utility Warehouse; Lord Wolfson, Next

Wednesday, January 23, 2013

How realistic is Cameron's timetable for EU reform?

As Open Europe Director Mats Persson notes over on his Telegraph blog, in his speech today, Cameron has set himself a concrete timetable, despite the fact that timetables in Europe are notoriously difficult to control. A treaty change discussion could drag on for years. Here we look at how a few examples of how slowly or quickly it takes to reach a decision in Europe.

Basically, EU treaty changes or fundamental reform can take an enormous amount of time - or it can happen in months. It's all a matter of political expediency - and how bad Europe needs it / wants it. The single EU patent, for example, took 37 years to negotiate. Setting up a €440bn bailout fund took 12 hours (though it was followed by a year of bickering over what they actually had agreed).

So here are some examples. Those who say Cameron is stuffed, could point to:

Single EU patent – 37 years 
The Convention for the European Patent for the common market was signed at Luxembourg on December 15, 1975, by the 9 member states of the European Economic Community at that time. However the CPC never entered into force as it was not ratified by enough countries. It took until last December for a an agreement on the creation of a single patent system across 25 member states.

Fisheries reform – 21 years and counting 
In 1992, it was determined that there had been over-investment in vessels, overfishing and that numbers of fish landed were decreasing, and that reforms were needed to address these issues. Completing the reform of the Common Fisheries Policy (CFP) by the end of June 2013, in a single reading if possible, is the goal of the current Irish EU Presidency.

UK Rebate – 10 years 
In 1974/75 the Wilson Government sought to resolve the UK contribution question - which was the highest in net terms - during the “renegotiation” of the UK’s terms of accession which it had promised in its October 1974 election manifesto. The UK did achieve a new corrective mechanism but the revised formula (which placed more emphasis on national wealth when calculating our contribution) in practice produced no real benefit to Britain. In 1984, Margaret Thatcher secured the UK rebate in its current form.

European Constitution/Lisbon Treaty – 8 years 
The drafting for European Constitution was initiated by a declaration annexed to the Treaty of Nice in 2001, and the draft Constitution was signed on 29 October 2004 by representatives of the then 25 member states. Following the ‘no’ votes in the French and Dutch referendums, negotiations over the Lisbon Treaty began in 2007 and the new Treaty was ratified in 2009.

...but those who say that, given the enormous stakes, Cameron actually achieve something substantial, could point to:

Limited treaty change to establish new eurozone bailout fund – 5 months 
On October 29 2010, following pressure from German Chancellor Angela Merkel, EU prime ministers and presidents backed "a limited treaty change" to deliver tighter fiscal discipline and allow for the creation of a permanent bail-out fund for members of the eurozone. On March 25 2011, the European Council agreed to amend Article 136 of the Treaty on the Functioning of the European Union with regard to a stability mechanism for Member States whose currency is the euro.

Setting up a new €440bn eurozone bailout fund - 12 hours
On May 9 2010, following 12 hours of talks in Brussels, EU financed ministers agreed to establish the EFSF, a temporary bailout fund composed of government-backed loan guarantees and bilateral loans worth up to €440bn provided by eurozone members.

In EU politics, when you hear someone giving you an easy answer, it's probably the wrong answer...

Cameron's poker face?

No, Europe hasn't collectively turned against Cameron (which you would think from reading headlines like these - seriously?). Though several politicians from around Europe haven't exactly come out celebrating following Cameron's speech - which doesn't help the Tories - he's getting a fair hearing amongst several commentators. 

Enrico Brivio, columnist for Italy´s main business daily Il Sole 24 Ore, provides a vivid if mixed analysis of the speech, saying:
“Poker players in the Old West said you play more comfortably when you put the gun on the table. And David Cameron has today put the referendum gun on the table of European negotiations.”

He says Cameron has taken 'a big gamble', but has nonetheless decided to follow a “lucid political strategy which [Italian] politicians…don´t always show.” 
Rzeczpospolita foreign editor Jerzy Haszczyński is a bit more supportive arguing:
“David Cameron is right. The EU is far from ideal. It tries to make everything uniform, including the working hours of British doctors, it does not value the diversity of states and nations, it does not support competitiveness. And it is increasingly undemocratic. David Cameron is correct to demand a real debate about the future of the EU. He is right to suggest that the EU has forgotten about its citizens, about their will as expressed through elections to national parliaments, and that it is comfortable making decisions behind closed doors. However, this does not mean that David Cameron is right to accept the fact that his country could in a few years leave the EU.” 
Meanwhile, in a front-page comment piece for Die Welt this morning, assistant chief editor Andrea Seibel argues:
There is 'nothing final' about the ‘Franco-German engine’ for Europe and that “the British scepticism, their non-conformity and liberalism have always also been the engine of Europe…Today a German-British axis is needed. From now on it’s not about the past anymore, but about the future of the continent.” 
Although her colleague Daniel D. Eckert was less enthused, tweeting:
“Cameron’s goals are honourable. But they only fit an EU which is conceived as a free trade zone. Euroland doesn’t function like that”. 
Elsevier's political editor Eric Vrijsen argues that:
“While David Cameron dares, [Dutch Prime Minister] Mark Rutte dives...in the Dutch coalition agreement between VVD and PvdA it is stated that the national state must regain competences back from Brussels… [but] Rutte is shying away [because] he is stuck with a coalition partner which is clearly pro-European”. 
We would note the Dutch comments on the return of powers being part of the coalition agreement are particularly interesting. We’ll have more on that, especially with rumours in the Dutch press today that Rutte could look to launch his own "balance of competencies" review.

Of all the reactions from Europe, there is one that is infinitely more important than all others…

Update - 14.10 23/01/13:

Further reactions from Germany. DPA reports that German Chancellor Angela Merkel said Germany will:
"Talk intensively with the United Kingdom about their visions in detail”
German government spokesperson Steffen Seibert added that:
"The EU need the UK and the other way round" and that changes to the UK position will need to be "discussed in Brussels together".

The good thing about the debate about the UK's role in the EU - and Cameron's fever pitch speech - is that UK journalists are now forced to really read the foreign press. Hence, several of the news outlets are now running "Europe says nein, non, nej, nie" (guess the last two) etc.

The reactions from around Europe have been mixed, with a lot of predictable, and in parts understandable, muttering about "cherry-picking."

Of all the hundreds of reactions (in itself interesting), there's one that stands out. This one. From Angela Merkel (via DPA), who said she's ready to listen to the UK's wishes, if they're "fair":
"Europe also means that one should find fair compromises...Germany and me personally wishes Great Britain to remain an important part and active member of the EU".
German Foreign Minister Guido Westerwelle was slightly less positive but still accommodating saying:
"Not everything has to regulated in Brussels and by Brussels, but a policy of raisin-picking will not work"
Though German MEPs were pretty red-faced, others were more understanding. Germany’s Europe Minister for Hessen, Jörg Uwe Hahn warned against bashing Cameron, saying:
“Cameron doesn’t make this statement out of nothing…he reflects the prevalent sentiment in the UK, but also in many other countries of the European Union...the UK is the conscience that we are a decentral confederation of sovereign states based on subsidiarity, and not central federal state…the demand – that competences should not only shift unilaterally from member states to the union, but if necessary should flow back to the member states – is basically not wrong.”
Chair of Germany’s European affairs committee, Gunther Krichbaum, who has form, wasn't entirely pleased:
“I'm a bit surprised that Great Britain wants to renegotiate the rules. Britain is not a new member state, it did not just join the European Union. It had a say in negotiating all the rules and treaties. If we opened that Pandora's Box, all the pulling and hauling would start again and we would probably end up in the same spot."
Other Triple A countries also put forward interesting reactions. From the Netherlands (a country which the UK hopes will follow its lead):

Dutch MP Mark Verheijen, EU spokesman for governing VVD party highlighted some points of agreement between the UK and the Netherlands:
“We are also in favour of a lower budget and less intervention by Brussels [Cameron's speech] "showed that he wants to tackle this debate with an open attitude". 
MEP Bas Eickhout (GreenLeft) said on Twitter:
“The positive thing about Cameron’s speech: hopefully there will finally be room for Treaty change: is very much needed, only not in Cameron’s way”
And Finnish Europe Minister Alexander Stubb (who has previously warned that the UK was sidelining itself in Europe) said on Twitter:
"Cameron speech more constructive than expected. Like most of the economic principles. Disagree on deepening". Adding later, "Cameron speech clarifies things. At least we know what the Conservatives want. They want to stay in the EU. #thespeech #reluctantbride".
We'll update with reactions from the Mediterranean - which, as you might expect, have been far less receptive. 

Word Cloud of Cameron's Europe speech

Presented without much comment, although we would note that European looms large, while words such as renegotiation, repatrition and exit barely appear (if at all)...

A brave and democratically honest strategy - but will Cameron be able to stick to his timetable?

The British people will this morning be promised an In/Out referendum on Europe. In his speech, David Cameron will say that, if re-elected, he will legislate for a referendum to be held in the first half of the next Parliament (by end of 2017). He will negotiate a new deal in Europe, put it to the people, and campaign for a Yes. Think back two years, one year or even six months, and you can see just how far the debate has moved.

Given how difficult a task he had, his speech ticks most of the boxes. He'll set out a plausible and powerful case for Europe-wide reform, based on five principles, correctly pointing to three main challenges: how to reconcile euro and non-euro member states to EU membership, dwindling competitiveness and popular discontent.

These are his main target groups:

The British electorate: His speech should appeal to the majority of the British electorate that consistently says in polls it would prefer a better, slimmed down EU – rather than a Brixit or the status quo – if that's on offer. Whether the speech will lead to a poll bounce is anyone's guess.

His own party: The vast majority of Tory MPs who want a new deal in Europe, before contemplating Brixit, have got exactly what they wanted. Yes, there are those who think he said too much, others too little; those who want him to legislate for a (possibly "mandating") referendum in this Parliament. But within the constraints of the Coalition, while these discussions are important, surely they are secondary to the fact that the Prime Minister has outlined a clear course towards precisely the type of slimmed down Europe for which Conservatives have been calling for years? And Tory "outists" have got the chance to make their case in a referendum. It's intellectually and democratically honest.

There will be some cynicism as to whether it'll be 1975 all over again: token renegotiation followed by a referendum. But to think that Cameron could recommend staying in on basis that "access for New Zealand butter should continue indefinitely" (which was one main "achievement" Harold Wilson presented to Parliament), is pretty implausible. He wouldn't last a day.

European partners: Europeans who feared an imminent dawn raid on Brussels will be relieved. We're committed to European cooperation, Cameron will say, but the EU needs to adapt and change – become more flexible and democratic. There'll be mutterings of discontent, but for his basic pitch, he will get a fair hearing in national capitals. The more EU-wide he can make the case for reform, the better.

Cameron has the great merit of actually being on the right side of the argument in pointing out the changes Europe needs to thrive. And given that virtually all of the seven broad proposals for more Eurozone integration floating around require some re-opening of EU treaties to be completed, we suspect that Cameron will get at least one good shot at it. We also suspect that European partners will play ball given that, if the British were to leave, the single market would shrink by 15%, with £261.4bn in annual European exports facing extra costs; the EU budget would be some €14bn light; and Germany, the Netherlands and Finland (who write the cheques) will be awfully alone in that Northern bloc.

But, is his strategy, negotiation followed by an In/Out referendum by 2017, achievable? Cameron will not set out a specific "shopping list" of powers that he wants back - and he's right not to this far in advance. Trying to do so would only aggravate partners for little UK benefit. But, of course, Cameron's approach still contains a number of "ifs" and risks. He has set himself a concrete timetable, despite the fact that timetables in Europe are notoriously difficult to control. A Treaty change discussion could drag on for years. This is the trade-off in his speech: as insurance to his own party and the electorate he's now on a timetable, which may or may not coincide with that of the eurozone. Is he willing to recommend Out in 2017, if he doesn't get concessions?

If Cameron is to pull this off it will require a major diplomatic effort, and clever positioning, but Britain has seen through far greater challenges in the past. And Europe gone through much more fundamental changes. Both will come out better on the other side.