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Thursday, February 27, 2014

Merkel's speech: far too early to jump to conclusions

Chancellor Angela Merkel has delivered her much hyped and anticipated speech to both Houses of Parliament - so what conclusions can we draw and was it good or bad news for David Cameron's EU strategy?

In short, Merkel delivered a very statesmanlike speech but there was little new here.

The Chancellor was never going to set out a definitive list of reform proposals or endorse/reject Cameron's EU reform agenda. She made the point explicitly in (perfect) English that her speech would disappoint both those who hoped it would "pave the way for a fundamental reform of the European architecture which will satisfy all kinds of alleged or actual British wishes" and those who expected she would "deliver the clear and simple message that the rest of Europe is not prepared to pay almost any price to keep Britain in the European Union".

Here are some of our key observations:
  • Merkel opened with a long passage about Britain's role in both world wars and its commitment to Europe's democratic values. She emphasised that "the UK has no need to prove its commitment to Europe". This was a clever gesture of diplomatic goodwill that she didn't necessarily have to make. She also highlighted Germany's view that the EU remains a vehicle to ensure stability across the Continent.
  • There were few specifics but she made it clear that in order to strengthen the eurozone the EU treaties will have to be adapted in a “limited, targeted and swift” manner, adding that if the UK and Germany show they are serious about reform, they will find the legal mechanisms to make it happen. 
  • In terns of EU reform generally, she stated that that Europe had to change to adapt to new realities - a clear acknowledgement that the status quo is untenable. She said the EU policies needed to be evaluated by all member states. "For all EU member states it is essential that all EU policies – whether energy and climate, shaping the single market or external trade relations – have to be measured by whether they contribute to the European economic strength or not," she said.
  • Merkel reiterated her statements on the need to cut red tape and ensure the EU is competitive.
  • She emphasised the benefits of the four freedoms of the single market and that they are inseparable, but added that "it is also true that, to maintain and preserve this freedom of movement and gain acceptance for it from our citizens... we need to muster the courage to point out mistakes and tackle them" - a clear hint at the possibly of reforming the rules around EU migrants' access to benefits. She further expanded on this in the press conference by pointing out that free movement could not involve unrestricted access to benefits and that this was as much of a concern in Germany as in the UK.
  • Merkel called on the EU to be more outward looking, particularly given that 90% of global growth over next five years will take place outside EU, despite it occupying 25% of the global economy. She was clear on the need for the EU-US free trade deal (TTIP).
  • She also argued that the principle of "subsidiarity must be respected more in Europe".
  • She stressed the importance of the City of London to the EU economy - a nod to those who fear that the City remains in Brussels' sights.
  • While Merkel stressed the need for the EU to change economically and politically, the was little more on addressing the EU democratic deficit, which Cameron has been keen to emphasise.
In summary, Merkel's speech was a statesmanlike address. The rhetoric reflected Germany's cultural and historical affinity with the EU but, without being specific, Merkel was equally clear about the need for the EU to change. She added, "Our ideas of how the future European Union ought to look like may vary on the details but we, Germany and Britain, share the goal of seeing a strong, competitive European Union join forces."

Her pitch to Cameron could be summed up with her comments that "we need a strong United Kingdom with a strong voice inside the European Union. If we have that, we will be able to make the necessary changes for the benefit of all." As we noted in our briefing, there is ample scope to translate these shared principles into concrete reforms which would attract a lot of public support in both countries. It is also worth remembering that when it comes to reforms, Merkel is a believer in a more gradual, step-by-step process as opposed to the huge all-encompassing package that many UK observers are looking out for.

It is now up to David Cameron to put forward concrete policy proposals, not only to the German Chancellor but to the wider EU negotiating table.


Denis Cooper said...

You helped to inflate a bubble of expectations which has now burst, and yet you insist on examining the fragments of wrinkled rubber to see whether they might still be hiding something to buoy up your entirely misplaced hopes, or at least to convince some of the more gullible observers that this could possibly be the case.

Peter van Leeuwen said...

A totally different emotional significance of the EU, for Germany central to its post WWII success, for Britain an uneasy and cold relationship. Britain will often be alone in this and it will hinder Britain from becoming a major influence.

Rik said...

The early part of phase2 of what might end up to be 10 phases.
Merkel doesnot want to give things away but likely want to see what would be an acceptable reneg result for the other side and especially how urgent it is.

The urgence is mainly on Dave's hometurf not so much in Europe at the moment. They have simply other priorities.

Europe would imho have been better off to get this off the table and not let it start to play when the EZ is in another crisis. These things always happen at moments like that and with the homecrowd (and some evenly predictable backbenchers) involved it is simply dangerous to gamble on that. For instance the scenario of the UK blocking an Grexit (by being forced to by stampeding backbemchers) as that require treatychange is not that farsought.
Anyway was always not likely to happen.

Cameron by himself basically indicating that negotiations will first start post election should not count too much on direct and full support at this stage. especially with no clear proposals to talk about. Only partly and that is that sorry excuse of an inventory (aka a complete waist of time and trees).
Holland might move but largely because of its own reasons (electoral pressure), not to go for Cameron's sake at this stage.
Non-EZ countries with anti-EU pressure might another good bet at this stage.

The rest will move when they have to move and not earlier.
Not a bad idea to have this come up when there is a crisis btw. Likley they donot want to confront markets with an exit and voters inm other countries as well btw (might give them ideas).

Good phase to look at the quality of people in your own corner and in the opposite one. People that still think this is a one time thing can be put in the not the sharpest tool box for instance (unless they have a proper reason for that and a decent explanation, like Mandelson for instance).
Important to know how people tick and how many braincells they have for how to adress them.
Hotheads not too clever (aka Redings) facts should be clear considerably before the talks with time to fume in public before the good old brain starts kicking in.
Considerably more intelligent but careful persons (aka Merkies) need to be moved one step at the time.
EUreligionistas need to be brought (if necessary kicked) to reality first before you start the talk. Etc.

Imho communication with the business sector has the highest priority now. When they really understand the background of this we will see a lot less EU-in remarks or different ones at least.
may be confront IP with the fact that they themselves stated that leaving would take years (clearly indicating more than 2) , but officially you only have 2.
Meaning that an exit need anyway a lot of preparation before the 50move is actually done. Just to avoid all sort of legal uncertainties with people on the other side that are fed up with Cameron&Co. So why not try this road first it does probably 3/4 or so of that preparation. Overall it hardly looks like causing a delay.

jon livesey said...

Thanks for this very comprehensive and sane analysis. People keep finding imaginary road-blocks in what is starting to seem like a pretty irresistable process.

The UK will be careful not to impede changes that are legitimate requirements of the euro members. The UK will never let itself be caught seeming to be obstructive in an issue outside its own legitimate areas of concern.

In response, the other EU member states will gradually give way to the UK's desires for repatriation of powers, subsidiarity and a relationship that is distinct from that of the euro area members.

In time, as Sikorski says, the euro area becomes the "real" EU, the UK and one or two others are closely associated and members of the Single Market, but are not included in moves towards federalism.

Rik said...

The EA will remain a huge risk.
Just look at the literature about an optimal currency area.
In no way with the reforms proposed now it comes even close to that.
Add a structural low growth (aging and the dysfunctional thing, likely transfers to economic ineffcient sectors/countries) and structural rising expenditure (healthcare for the elderly).
Simply looks the thing will remain under pressure as there is no way such an optimal area can be created out of this mess. Even worse new uncompatible to the main stream members are to be added.
Summarized will remain under pressure and more or less guaranteed to run into another crisis. If not because of bail out fatigue or austerity fatigue in this one, it will be because the lousy set up further on up the road.
Everybody is fully focussed on keeping the oger alive, however completely miss the point that will remain an oger (plastic surgery doesnot make ogers Ms Universe nmaterial).

If reports are to be believed Labour will go Cameron. Promise an In/Out referendum in the next 2weeks.
From their side the by far best alternative. They should have done it directly after Cameron. This is simply a fort that was undefendable. You cannot have that start playing (and it likely would) just before a general election. Or see another Lord-farce fully reflecting on your leader. They had/have to take their losses in order to avoid that the thing kills them in next election (and IP goes after them with a good proposition from this moment on).
Anyway if it does and Mr Ed doesnot change his mind again a few times the next few weeks (all in orde to show he is a decisive leader of course) it will change the dynamic of all this.
1. It is a gamechanger re the EU. Simply a lot of them wanted to see how sure the referendum was. If Labour moves they got an early answer on that (earlier than the general eelctions they probably expected).
2. Cameon is therefor given a push in the back re an earlier start up of negotiations.
First better see how much the other side moves because of this. Like we see here we have gone from a no go to Merkel's 'limited treaty change looks acceptable', in 6 months or so. Which is a pretty good result imho.
3. 'Dave' will have to reposition himself. Towards the 3 other main parties.
Labour: iso undemocratic now more like: Tories are the real deal at least as far as traditional parties go. At least still a lot better for Labour than being undemocratic on referenda and 80% of the electorate having that view in a next election.
IP: more that there is no other way possible than the 'Dave' way. The only thing they can do is run in the way of the negotiaters.
Clegg: as the village idiot that promised a referendum but when he could deliver (or start delivering) backed off and now is the last 'undemocrat'.
Something like that.
Might also be a reason for the backbench to finally shut up, close ranks and donot waist the best chance of reform there likley ever will be.

Re the EUfolks they will increasingly come under pressure because of this. Eg in the NE they really like it that another 3rd world country likes to join (with alot of subsidies) and a 'normal' country wants to leave.
As said see how far they move by themselves this time I expect a considerable move.

Rik said...

You are missing the clue.
This is about: do the other countries want the UK to leave or do they want to accommodate it.
With huge risks in case of the exit scenario.
Not even considering loss of the rEU major export market.
Markets starting to question the stability of the whole thing especially the EZ (and more specific the guarantees of the North for the ECB which are essential to keep the South afloat). The ECB is worth very little without German backing only few would put their money on it in that case.
And the political contagion that goes with it (and has to be adressed anyway in order to avoid that other countries go British as well). Just looks at these events doubts in one country simply starts discussions in others. In that respect showing that the EU is open for a basketcase like the Ukraine while pushing a normal country out is simply a huge PR disaster of which the EU can only afford a few more before its own existence will seriously come under (electoral) discussion.

So in a way it is one against 27. But this part is at the end of the day of marginal importance. More important is does the EU (and the other 27) want to run the risk that either markets or national electorates pull the plug out.

In that respect as said several times before it is imho moronic that the EU hasnot acted on this already. Not only in relation towards the UK btw. Holland as you will know is now pretty close to 50% in the polls of all sort of populist stuff plus critical Christians (and the traditional parties rapidly moving as well as a consequence thereof).
It is in a downward approval trend (with no end in sight). And this is in a lot of places in Europe the period that the populists go for the main market (of normal voters). Populist that often have EU exit on top of their agenda.
What this does is simply gives a lot of boost to those efforts. Simply by the fact that normal parties in a normal country think it is normal that EU exit is discussed and is a normal alternative anyway. Not some irrealistic fruitcake/racist plot.
Undoubtedly it will still be presented like that but in the usual often fully counterprioductive way. Arguments by people who have a proven trackrecord of mismanaging themselves (like most EU politicians) saying that what next door finds completely normal is totally unrealistic and racist and will ruin the country etc is hardly a credible thing in the battle for the hearts and minds of their own electorate.

Average Englishman said...

Interesting how different people can read different things into the same speech. It seemed quite simple to me.

* We Germans respect you.
* We are your friends.
* We think the EU needs a bit of reform but nowhere near as much as many in the UK would like.
* Basically we like the EU and think it is a good thing that needs to grow and change as it grows.
* Don't hold your breath waiting for the changes.
* If and when the changes come they are likely to involve more EU integration not less.

So, no new stuff there and pretty much as expected in that Ms Merkel's speech did not address the fundamental concerns of an ever growing number of people in the UK and elsewhere that the EU is an undemocratic monster that needs to be dramatically cut down to size. So, it's still 'UK OUT' thank you very much for me and I am increasingly uninterested in the supposed cost to my pocket of this sort of move. The people fighting in Kiev for their freedom from a different monster know all too well what that freedom is worth and it cannot be calculated in pounds shillings and pence.

Alaneg said...

How did we get to the point where we are now being told what can and can't be accepted by a foreign head of state in our own Parliament.
It seems that everyone is missing the point that the E.U. is governed by a group of UNELECTED
commissioners who play the fiddle to Germanys tune.
Could the EU survive without our £60 odd million per day ? I doubt it.
If (and it's a BIG if)we are to continue as a member of this political experiment we must insist that the commissioners are accountable and removable.
I for one will not support the E.U. unless there is a democratic system in place.

Denis Cooper said...

jon livesey said:

"The UK will be careful not to impede changes that are legitimate requirements of the euro members. The UK will never let itself be caught seeming to be obstructive in an issue outside its own legitimate areas of concern."

It's a legitimate area of concern for the UK that:

1. Apart from the UK and Denmark all of the present EU member states are under a treaty obligation to join the euro.

2. That same treaty obligation to join the euro is automatically imposed on all new EU member states as a condition for their accession to the EU.

3. Once a country has joined the euro there is no mechanism for it to leave the euro without leaving the EU altogether.

4. The only way the eurozone can be held together is by whatever greater federalisation Merkel may see fit to impose.

Just as it was a legitimate area of concern for Pitt that Napoleon was extending his empire across the face of Europe; but unlike one of his modern day biographers Pitt did not decide that it would be a jolly good thing if the whole of Europe was united against us in a strong empire and that this was something to be encouraged and facilitated by the British government.

jon livesey also said:

"In response, the other EU member states will gradually give way to the UK's desires for repatriation of powers, subsidiarity and a relationship that is distinct from that of the euro area members."

So you tell me what Cameron got for us "in response" back in 2010 when Merkel wanted an EU treaty change to make sure that the German constitutional court would not declare any future eurozone bailouts to be illegal.

The EU treaty change to which the Tory MP Mark Reckless was referring on October 24th 2011 when he said this to Cameron in the Commons:

"The Prime Minister tells The Daily Telegraph today that we should use any treaty change to shore up the euro to get powers over employment and social policy back, yet on 25 March, he agreed to precisely such a treaty change, but did not ask for anything in return."

Idris Francis said...

"Germany's view that the EU remains a vehicle to ensure stability across the Continent."

I agree - the EU is well on the way towards the stability I realised in 1992 it would achieve - the stability of the graveyard.

I agree as always with Dennis Cooper - OE has for the last year or two built up expectations that we can achieve the changes that (they think) would make continued membership acceptable to us - and now that Ms. Merkel has made it perfectly clear that there is no such prospect, OE tries to ignore what she actually said - which will surely prove to be another boost to UKIP's poll ratings.

That said, it was good of Ms. Merkel to come here to tell us what we may do, I am very much inclined to write to her to tell her what she can do with her surrender terms.

Peter van Leeuwen said...

in writing your reaction, could you be more concise please?
Of course populist parties will do well in the May elections, the EU hasn't done so well for ordinary people. That is what democracy is all about. In another five years time the mood may swing again, see how the fortunes of Dutch PVV have gone up (2010) but also gone down again (2012).
The UK wish list (not presented yet) will necessarily remain a sideshow to repairing the EZ, through further integration on a few things that really matter. That said, there is ample scope for reform in matters which will be liked by the UK (without the need for treaty change), and if the UK were to leave the EU outer ring (favored by UKIP) even then, we'll still trade with the UK.

christina speight said...

Denis Cooper - as Idris Francis says - is as usual right.

We should recognise that "reform" os a day-dream and no politicians of power are remotely interested. Brexit is the only way forward for Britain to come near the aspirations shown in the YouGov poll. Merkel had weasly but honeyed words fpr us bit essentially it was saying "Get Lost" .

Let's take that message on board and bend all our efforts to getting away from the Evil Empire in Brussels. Nobody but but Booker-North have done their homework and proved the deliberate plans to flood Britain via directives from 1996 onwards to reduce our farm-output to provide Habitat mainly for birds. Merkel 'values" the City but Brussels keeps up a ceaseless attack on it.

Sorry Open Europe but this is a shallow assessment.

Anonymous said...

I got th impression that she told Cameron that he had no chance of any renegotiation of the terms, so as that is the case, and without germany being in favour of a renegotiation it won't happen, we should have a referendum now.

Rik said...

1. No.

2. Do you really think that the problems within the EZ will be solved within 5 years? And if so obo what?
The EU credibility problem looks highly correlated with the EZ issue. And the rise of populist highly correlated with both.
Approval rates for the EU go down now with almost 1/2% a month btw.

You clearly need treatychange and a lot of that to make it work (at least without running the substantial risk of a new crisis).
Merkel indicates here however basically that that necessary treatychange will take longer.
Btw hard to see how necessary measures for getting even remotely close to an optimal currency area will get approval all over the board. It looks to be a Lisbon like battle in waiting and with the public aware now of the trickery.

3. PVV is a bad example. It lost probably 8-10 seats because of strategic voting in last general election. Something hard to see happen again after the reactions of that part of the electorate on the way Rutte used the mandate given by these strategic voters.
Look at your Peil.nl (I think 2-3 months ago, it appears that now the more normal (also higher educated) voter is moving as well to Wilders. Looks to be stopped somewhat in the last poll I have seen.
Same btw in France with that Mrs (this month's polls 2 btw).
In other words it looks clearly a long term trend in your country. And see my remarks on the treatychange, with for now no end in sight.
So might well be that your country is next.
PVV support looks very structural (and rising), the volatility in polls (excluding that strategic voting issue) for PVV support looks a lot lower than that of most of the traditional parties.

4. In other words if the EU was wise it would start to adress not only the UK issues but also the ones in countries like your own.
If the UK example shows one thing it is that when people get really pissed a few years can be way too long. Just look at a lot of the reactions here. And as history shows EU change, in whatever direction goes slowly. It could well be that voters in some country are simply not prepared to wait so long. Which would make it an existensial issue seen the way the EZ especially is set up.