The £1.7bn question - who's right: Osborne, Farage or the European Commission?

Below we give a blow by blow breakdown of what George Osborne did or did not secure at today’s EU finance ministers meeting. This basically comes down to the UK’s rebate and how it’s applied - and whether it was always going to apply to the £1.7bn.  Osborne claimed that:

As PM said EU bill unacceptable. Now we've halved the bill, delayed the bill & pay no interest on the bill. Result for Britain
— George Osborne (@George_Osborne) November 7, 2014

Whilst Ukip leader Nigel Farage has claimed that:

Osborne trying to spin his way out of disaster. UK still paying full £1.7bn, his credibility is about to nose dive.
— Nigel Farage (@Nigel_Farage) November 7, 2014

This is what EU Budget Commissioner Georgieva said at a press conference just now:

“As we all know the UK receives a rebate on their contribution, but in years when the UK has to pay additional because of GNI corrections, normally this payment would be on 31 December and it would be in the full amount. With the proposal [under discussion]…in exceptional years this period of time would be stretched into the next year, and when this happens, and it would be in these exceptional circumstances, then the payment and the rebate on the payment could converge. In a normal year, they would not. In a normal year, you have a payment on 31 December and then next year, in the spring, we have the calculation of the rebate on this payment.” 

So who’s right?

Well, Osborne is right that the UK will pay half of the initial £1.7bn demand, since the UK’s rebate will now knock off the difference. So in that sense, Farage is wrong. Britain “will not pay the full £1.7bn”. However, the Government’s position isn’t’ entirely what it seems either, since it’s possible (though still not clear) that the rebate was always going to apply to the £1.7bn.
 
Confused? Don’t worry. Few people know how the rebate actually works. Below is our attempt to clarify the issue.

What has actually been agreed?

• The UK secured a delay on its payments and will now have until September 2015 to pay. It will probably pay in July and September 2015.
• It was also agreed that the UK’s £1.7bn bill will have the UK’s rebate applied to it (in the same way all annual contributions do). The Government claims that it wasn’t ever clear whether the rebate would apply, however, Commissioner Georgieva’s suggest that it always would. Usually  the rebate operates on a one year time lag, but now it will be netted off at the same time when the payment is made. The UK government also claims that the rebate applied to the specific amount is above and beyond that which applies normally, due to the way different facets of the rebate are applied and the time period over which it was calculated (we're still looking into this one). 
• This accounts for the reduced the bill from £1.7bn to £850m.

So, Osborne has effectively achieved an ‘interest free’ payment plan for the surcharge, which will see it coincide with the rebate on said surcharge.

Would this always have happened?

• It has been unclear for some time how the rebate would factor in here. Either people were purposefully trying to obscure the question or it was genuinely unclear.
• However, now that it has been settled that the rebate would be applied, it can be said that this reduction would always have happened. The main change is that the rebate has been moved forwarded allowing the initial payment to be reduced.
• On net the UK will pay £850m, but this should always have been the case thanks to the rebate.

Does this impact other countries?

• Since other countries essentially pay for the UK rebate, they will on net be hit.
• Our understanding is that the countries will still get the full amount expected from the GNI calculations – i.e. France should still get €1bn.
• That said, since the rebate is being paid and also a year early, it is likely that their annual EU budget contributions will increase in 2015. On net then, the gains for certain countries (such as France) could actually be less than expected.

So are we looking at a cash flow problem for the EU budget?

• One outstanding question is how this will all work in practical terms. Judging from the European Council conclusions, countries who are getting a pay-out from the GNI calculations can still claim the money on 1 December.
• However, countries who are paying in large amounts can delay their payments until September 2015. It is not clear whether there is enough spare cash in the budget to smooth over this gap.
• Furthermore, the UK is using its rebate to offset its payment. This will not be covered until all countries have paid in their (higher) annual EU budget contributions next year. This further worsens the cash flow problem.

A political conspiracy or genuine uncertainty?

• Questions will now swirl around when all this was known. Surely, if the rebate applies, that was always known to be the case? Logically, since all UK contributions are subject to the rebate, it always was going to be. The only thing that wasn’t entirely clear was when and how it would be factored in. While this is tricky to work out, it’s not clear why the HM Treasury and the European Commission let the dispute run for two weeks. If this was a “set up” by the UK government to claim success, then the Commission was in on it.
• Maybe the handover in Commission has helped breed uncertainty.

So what’s the verdict? Who’s right, Farage, Osborne and Georgieva? Well, Farage is wrong, Osborne right on the amount but may be exaggerated the extent of the concession. The most right is probably Georgieva - though, we still don't have evidence that the rebate was always going to apply.

And of course, the UK will still pay an additional £850 million.

We will update this as events unfold, but what a mess.

France and Italy get preliminary approval of their budgets, but it's not the end of the story

The European Commission has given France and Italy a preliminary nod through on their draft budgets for 2015. In a statement released yesterday evening, Commission Vice-President Jyrki Katainen said:

"After taking into account all of the further information and improvements communicated to us in recent days, I cannot immediately identify cases of 'particularly serious non-compliance' which would oblige us to consider a negative opinion at this stage in the process."

An outright rejection of the French and Italian budget plans was always unlikely, as it was in no-one's interest to trigger an almighty row involving the second and third largest Eurozone economies. However, doing nothing was also never really an option for the Commission. Had it let France and Italy get away with draft budgets that were not only clearly deviating from their deficit reduction commitments but also not even acting to try and meet them, the credibility of EU fiscal rules - already wafer-thin - would have been shattered.

Over the past few days, both France and Italy pledged to make additional cuts to those initially planned for next year. Therefore, at least in terms of political narrative, the Commission got the upper hand in this first round. It stood up for budget consolidation, and it made its demand for extra efforts heard in Paris and Rome. On the other hand, for all their anti-austerity bluster, French President François Hollande and Italian Prime Minister Matteo Renzi are likely to come across as eventually bending to the will of Brussels.

That said, this is by no means the end of the story. The measures proposed by France and Italy to achieve the extra deficit reductions look far from structural. Also, as the FT notes, the changes are still short of what the Commission demanded and remain vaguely defined: 

• In his letter to Katainen, French Finance Minister Michel Sapin mentions the lower interest rates on French debt, the lower contribution to the EU budget recently announced by the Commission (we have written extensively on this issue, see here and here), and a strengthening of the fight against tax evasion.

• Similarly, his Italian counterpart Pier Carlo Padoan said he would use a €3.3 billion tesoretto (literally 'little treasure', but basically a reserve fund), originally set aside to lower the tax burden in 2015, to reduce deficit instead. However, there seems to be no guarantee that Italy will be able to find the same amount of money every year.

The Commission will issue its final verdict on the draft 2015 budgets of all Eurozone countries by the end of November. We would expect the Commission to come up with a set of stringent recommendations for France and Italy, although an entirely negative opinion looks unlikely. In the end, we may well see a replay of the current discussion. In the meantime, as the contrasting headlines from the New York Times today show, some may struggle to discern who exactly capitulated... 

The print version and online version of the New York Times today struggle to judge who blinked first...

Michael Wohlgemuth: Why the EU cannot bank on Germany’s economy

Open Europe Berlin Director Michael Wohlgemuth has written an interesting piece for World Review, looking at the current status of the German economy. Here it is:

The German economy is showing clear signs of weakening. GDP declined by 0.2 per cent in the second quarter of 2014 and German business sentiment fell for a fifth straight month in September to its lowest level in 17 months. Manufacturing orders dropped during August to the lowest level since May 2013.

Germany’s problems will remain and get worse.

Much of the resilience of the German economy during the last years can be attributed to harsh labour market and social security reforms. These were introduced by the Social Democrat Chancellor Gerhard Schroder (1998-2005) in 2003 with his ‘Agenda 2010’.

The new centre-right / centre-left coalition led by Chancellor Angela Merkel has rolled back many of these reforms by reintroducing early retirement, granting extra pensions for mothers and installing an unprecedented legal minimum wage - of 8.50 euros per hour - in all sectors and all regions of Germany.

The German government has been forced to admit that the minimum wage will increase labour costs by 10 billion euros. It is still unclear how many jobs will be lost after its introduction in 2015.

The new pension benefits will cost around 200 billion euros until 2030. Early retirement could take up to 250,000 elderly off the job market over the coming years when skilled and experienced labour is becoming increasingly scarce and valuable.

Demographic decline will be Germany’s greatest challenge in the long run: coming decades could see Germany’s workforce shrink by about 200,000 every year. The old age dependency ratio - between those older than 65 and those of working age - could increase from 31 per cent in 2013 to 57 per cent in 2045.

Immigration to boost the workforce would be essential. Experts calculate that net-migration of around 400,000 people a year - preferably young and educated - would be needed to avoid demographic decline.

So where should Germany’s future economic growth, desperately needed to pay for pensions and somehow to rescue the eurozone, come from?

The answer is from productivity and innovation, in short: smart investment. Labour participation rates, labour productivity and entrepreneurial ingenuity would have to increase dramatically.

However, Germany’s productivity growth is lagging behind almost all other economies in the world.

The established German Mittelstand - its economic backbone of small and medium-sized enterprises - and some big exporting firms, are still good at innovation. However, Germany holds a dismal 111th place in the World Bank’s ranking for ‘ease of starting a business’ and its service sector is under-developed and over-regulated, while Germany’s education system fails to produce enough matching skills.

Germany’s capital stock is depreciating faster than new investments are replacing it. A declining capital stock combined with a declining workforce, leaves no hope for a growing economy.

That does not mean Germany’s government must add more public debt to the mix.

Many observers are demanding that the government abandons its ‘austerity obsession’ and take advantage of the historically low interest rates for more debt-financed ‘stimulus’.

But the Merkel government is still in the position to do the right thing and increase investment without abandoning the new constitutional balanced budget rule. German politics should also provide better regulatory and tax environments for private domestic investment and lower barriers to entry for its service sector.

Domestic industrial investment is also increasingly discouraged by the ‘lonely revolution’ to wean Germany off both fossil and nuclear energy.

This policy may cost consumers, taxpayers and business up to one trillion euros over the next two decades, according to Peter Altmaier, the former minister for the environment, who is now chief of the Chancellery and minister for special affairs.

German energy costs are now more than double those in the US, while Germany’s greenhouse emissions have increased.

German entrepreneurs and foreign investors have always had these negative factors on their radar.

Germany’s problem is not austerity, but demography and complacency. The message is you cannot bank on Germany.

Seven reasons we love Slovenia's new Commissioner nominee Violeta Bulc

The first (and only) causality of the European Parliament hearings for Jean-Claude Juncker's new Commission so far, is Slovenia's Alenka Bratusek, who withdrew her candidacy for the post of Vice-President for Energy Union after a being effectively vetoed by MEPs.

She's been replaced by Violeta Bulc, Slovenia's Development Minister, who will face the music next Monday, when MEPs grill her on her suitability for the Transport portfolio (the Energy Union job will go to Slovakia's Maros Sefcovic).

But who is Violeta Bulc? Quite a colourful personality, if the internet is anything to go by. Europe is so often accused of being run by boring bureaucrats, even being accused of being as charismatic as "damp rags." Bulc is anything but. So we've picked out Bulc's best bits, mostly from her CV online for you to savour below.

1. Interesting ideas about energy generation:  "Natural environmental heat can transformed directly into electrical energy," says Bulc. A shame that she most likely won't have the Energy Union brief really as it could have made for an interesting discussion during her EP hearing.

2. She believes in 'Syntrophy' - which is apparently something to do with 'the creative power of nature.' And here's what she had to say about discovering it. (Note the CAPS.)

At various levels and in various dimensions, and every once in a while, something triggers excitement in each and every one of our cells. Love. Surprise. Achievement of a goal. A realisation along the way. A thought. Hope. Birth.

I felt this type of excitement when I was introduced to SYNTROPY. I can hardly express emotions that were flooding me while I was traveling through complex formulas that were mostly incomprehensible to me, yet so familiar that I felt as if they were a part of my life all along.

3.  Positive values: Her business, Vibacom, is run on the values of "the power of positive energy and pure thoughts." This "creates the conditions for prosperity and thrivability." Well, the EU could definitely do with an injection of positive energy...

4. Serious sporting prowess: Not only does she have a black belt in Tae Kwan Do, but she was also a professional basketball player in Yugoslavia, and won athletic championships in javelin. Eat your heart out Vladimir Putin.

5. She blogs: Violeta's blog is well worth a peruse. Here's a post from last month called, "The vibrations of the White Lions in the new Era."

6. She is a qualified Shaman and firewalker: She has a certificate from the Shamanic Academy in Scotland. No explanation offered - and is one needed? She has also received a certificate for "firewalk" and "breathwork" instructor at the recognised school of transpersonal education, Sundoor. Should come in handy during her grilling by MEPs...

7. She's got charisma: In 2010, she won the "Sunny Personality of the Year" prize. We're sure that a sunny disposition will help Bulc in Brussels which is hardly regarded as being among the most uplifting cities in Europe.

While we concede she may be a little out there, she certainly has the potential to shake up the dreary and self-regarding Brussels bubble.

The UK's Lord Hill is approved as EU financial services Commissioner - What next?

The final discussions and votes in the European Parliament's committees over the nominees for the new European Commission are currently taking place with most of the results already in.

As expected, Lord Hill has been approved as new EU Commissioner for financial services by 42 to 16 votes. The vote was on his actual portfolio, meaning that despite some speculation, he wasn't stripped of any of the responsibilities (i.e. ones relating to the banking union).

What does this mean for the UK? 

As we argued here, the appointment of Lord Hill as EU Commissioner for financial services is a victory for the UK - but not a make-or-break issue in the wider context of David Cameron's EU renegotiation strategy. The key negotiations will remain between national governments. We would also caution against drawing too much from Lord Hill's comments in front of the European Parliament - as we noted, this is ultimately an exercise in telling the European Parliament what they wanted to hear and trying to please everyone. The key will be to judge Lord Hill on what he does and how he works with the likes of Frans Timmermans in trying to change the culture of the Commission. Clearly, however, it will be important for Hill to not forget to mind public opinion at home as, for better or worse, he will be seen as some sort of a bellwether for the UK's approach.

What are the other verdicts of the day?

As for the other nominees, Finland's Jyrki Katainen was approved for his role as Vice-President for Jobs, Growth, Investment and Competitiveness by 98 to 52. A surprisingly close vote, possibly reflecting a weaker than expected performance in the hearings from someone of whom many had high expectations but also the fact that he failed to convince the left that he is no longer an arch proponent of the austerity approach.

In spite of all the controversies about his ties to the oil industry and his declaration of financial interests, Spain's candidate Miguel Arias Cañete has been approved as Energy Commissioner by 77 to 48 votes, but may face supervision by Commission Vice-President Frans Timmermans.

France's Pierre Moscovici also got the green light from MEPs as new Commissioner for Economic and Financial Affairs, Taxation and Customs Union by 31 to 15 votes. There may be some less than enthusiastic reactions in the German media tomorrow, so keep an eye out for our daily press summary. 

As expected, MEPs have rejected Slovenia's Alenka Bratušek by an overwhelming 112 to 13 votes. Bratušek had been proposed as Vice-President for Energy Union, but has been judged 'not fit' to be a Commissioner, meaning that she will have to be replaced.

The vote on Valdis Dombrovskis will take place later tonight, but he's also expected to go through.

Therefore, Bratušek is the only real 'victim' of the hearings. In addition, MEPs have also demanded that the Hungarian nominee, Tibor Navracsics, be given a different portfolio. Navracsics had been proposed as Commissioner for Education, Culture, Youth and Citizenship.

What happens next?

• The priority will be to find a substitute for Bratušek. At the moment, it's unclear who will replace her, and how long the process will take. Slovenia had put forward four nominees. The list of names included another woman, centre-left MEP Tanja Fajon. However, Fajon may not be seen as senior enough for a vice-presidency. Furthermore, she comes from a different political group (the European Socialists and Democrats, S&D). Bratušek belongs to the liberal ALDE group, which is likely to demand that she be replaced with someone from the same political family. Over the past hour, the name of Violeta Bulc, currently serving as Slovenia's Deputy Prime Minister, has also emerged as a possible candidate to replace Bratušek.

• Once Slovenia puts forward a new candidate, and provided that he/she gets the go-ahead from the European Parliament, there are broadly three possible scenarios:   

1) Timmermans becomes Cañete's supervisor: It has been reported that Frans Timmermans could, in addition to his current portfolio, also become responsible for 'sustainable development'. This means he would de facto supervise Cañete, and would also probably involve scrapping the post of Vice-President for Energy Union - meaning that the new Slovenian nominee would be handed a 'lighter' portfolio. As per Navracsics, he could perhaps keep the Education portfolio while being stripped of the Culture and Citizenship briefs.

2) Mini-reshuffle: Some reports have also suggested that Slovakia’s Maroš Šefčovič could become the Vice-President for Energy Union. Navracsics would become Commissioner for Transport and Space, and the new Slovenian nominee would get the Education portfolio. An alternative could be to make Austria’s Johannes Hahn the Vice-President for Energy Union, with Navracsics becoming Enlargement Commissioner and the new Slovenian nominee again taking the Education portfolio.

3) Tweaking portfolios: Another solution would be to give Navracsics, as in the first scenario, a ‘downgraded’ portfolio (i.e. without the Culture and Citizenship briefs), and keeping the new Slovenian nominee as Vice-President for Energy Union. However, the concerns over the seniority of the person and the ability to provide oversight of Cañete would remain significant.

• The European Parliament's final vote on the whole Commission is scheduled for 22 October. It may be pushed back if finding a substitute for Bratušek takes too long, but that looks unlikely.

• The new Commission will enter office on 1 November.

Things are progressing in a broadly positive way for the UK and the wider EU reform agenda. However, whether the Commission will in the end deliver reform - and whether it can function well internally given the new structure - very much remains to be seen.

Hill likely to be approved but Bratusek down as Juncker Commission edges closer

Hill's hearing was less of a duel than expected

Following another long day of hearings the make-up of the Juncker Commission is becoming clearer.

The UK’s Commissioner-designate Lord Hill had his second hearing in front of the Economic and Monetary Affairs Committee today and by almost all accounts performed well. While he was at ease and fluid as in his first appearance, he was importantly much clearer and more specific on the details of what he would like to achieve (for example on capital markets and banking union). This, combined with his extensive written answers, means that there is no grounding for rejecting Hill on content.

There were, of course, those who questioned his impartiality and independence but as we pointed out here, these complaints seemed to have little to do with Hill himself (who has few direct connections to the City left) and more with the fact he was from the UK. As liberal MEP Sylvie Goulard said:

“He took the exercise very seriously…We think it is unfair just to reject him because of his passport.”

Furthermore, compared to other Commissioners (Spain’s Miguel Arias Cañete springs to mind) Hill has far less recent and direct contact with his industry in question. His approval is now widely expected tomorrow.

Equally Cañete looks set to survive following a significant amount of political wrangling with the centre-right EPP sticking to its guns to ensure that the centre-left S&D does not try to block him – mostly by threatening to hold up the approval of France’s Pierre Moscovici, who incidentally also looks set to be confirmed.

As we always said though, things are looking less rosy for Slovenia’s Alenka Bratusek, who struggled on content during her appearance and also faces accusations of corruption over her nomination process. In fact it seems as part of the cross-party deal, she is likely to be rejected, meaning a new representative will need to be found for the post of Vice President for Energy Union.

Finding a new nominee for this position will be tricky not least because Bratusek is an experienced politician from a newer member state and contributed to the much debated gender balance of the new Commission. One option would be for Slovenian to put forward another one of its four nominees such as Tanja Fajon MEP, although she is unlikely to be considered high profile enough for the VP slot, meaning some reshuffling will still be needed (the FT has a plausible option here).

The other hearings from today went more or less as expected with the Netherlands Frans Timmermans particularly impressing, while Finland’s Jyrki Katainen produced a solid display in an area he has extensive experience in.

With Czech Vera Jourova now confirmed after being held up, the main wrangling will be over where to put Hungary’s Tibor Navracsics and who will fill Bratusek’s role. Much of this is expected to be decided tomorrow although with no firm timeline. One final issue which remains to be resolved is the exact split of powers between Commissioners and how the VPs will work with the standard Commissioners. Jean-Claude Juncker may have to provide further detail to the EP on this before he gets the final OK.

However, in the end, after pushing its luck earlier on the European Parliament now seems to have regained its control and sense of perspective.

Timmermans comes out fighting for EU Reform

Vice-President Commissioner Designate for Better Regulation Frans Timmerman's hearing at the European Parliament Conference of Presidents has just wrapped up, and the man who we've hailed as a  thought leader for EU Reform came out pushing many of the reforms we have long been arguing for

Seamlessly switching between five languages, he had some rather important things to say.

On regulation, he said that the EU needs a fundamental 'culture change' in the way in which it regulates to adopt a more "common sense" approach. Impact Assessments will have to be overhauled, and existing legislation needs to be assessed for its effectiveness. Regulations that doesn't make sense should be scrapped, so that business can feel an "immediate relief".

#Timmermans: Commission's impact assessment board has to be composed of ppl who can act w/out vested interests #EPhearings2014
— Open Europe (@OpenEurope) October 7, 2014

#Timmermans: What I am proposing is to change culture of the way in which we regulate in a more common sense manner (cites oil-jug gate)
— Open Europe (@OpenEurope) October 7, 2014

#Timmermans: I will present a better regulation review proposing regulations that shld be withdrawn within a year #EPhearings2014
— Open Europe (@OpenEurope) October 7, 2014

Consistent with his - and the Dutch government's - motto "National where possible, European where necessary," Timmermans had some strong things to say on respecting national parliaments:

#Timmermans: "This European Union will not be built against the will of the national parliaments nor the member states." MEPs need to engage
— Open Europe (@OpenEurope) October 7, 2014

#Timmermans: My principle of subsidiarity is you'll only take action on higher level if that's only way to achieve goals you want to attain.
— Open Europe (@OpenEurope) October 7, 2014

#Timmermans: If confirmed I will take debates directly to national parliaments #EPhearings2014
— Open Europe (@OpenEurope) October 7, 2014

On the need for more transparency and scrutiny, Timmermans said there will be increased scrutiny on behind the scenes deal-making and lobbying.

#Timmermans, we will make sure that there is a Mandatory transparency lobby list - currently only voluntary. #EPhearings2014
— Open Europe (@OpenEurope) October 7, 2014

On the institutional divide between euro-ins and euro outs:

#Timmermans reiterates that he does not support separate institutions for the #eurozone #EPhearings2014
— Open Europe (@OpenEurope) October 7, 2014

There was some stuff that may not go down as well in No 10, such as Timmerman's insistence on the importance of the European Convention of Human Rights (see here), and his description of the European Arrest Warrant as a "great success."

#Timmermans defends European Arrest Warrant, "a great success". We desperately need EAW. #EPhearings2014
— Open Europe (@OpenEurope) October 7, 2014

#Timmermans agrees that UK objections to application of #ECHR justified, but that opting out EU court rulings sets dangerous precedent.
— Open Europe (@OpenEurope) October 7, 2014

All in all, this was a strong performance that has already received good reviews on twitter and beyond. The response of the EP will be interesting to gauge and may give an indication as to how hard he will find it to push through some of these reform efforts in the coming years.

Showdown between France and Commission set to test EU’s budget rules

It has been widely reported over the weekend that the European Commission (EC) is seriously considering rejecting France’s new budget proposal which will see it run a deficit of 4.3% next year rather than the EC target of 3%.

As the graph above shows, France has strayed significantly from the path originally agreed with the EC, even after it requested and was granted additional time to meet its deficit targets just last year.

Importantly, this is the first time a country has flagrantly flouted the budget rules. Other countries have missed their targets or asked for extensions, but with the presumption of good faith and serious efforts being made to meet said targets. However, with its latest budget France has rejected the previously agreed cuts (worth 0.8% of GDP) and offered just 0.2% of GDP in savings. In other words it has flat out chosen to ignore the rules.

This may seem like semantics but it puts the EC and the EU more broadly in a tough position. With much of peripheral Europe failing to meet the fiscal rules agreed under the Stability and Growth Pact (SGP), the Fiscal compact and the European Semester, many have already been questioning the effectiveness of these tools. Ultimately, the EC risks replaying one of the key features of the previous crisis – letting a big country break the SGP and then being unable to effectively enforce it for other countries, helping to facilitate the large build-up of sovereign debt.

This is therefore a key test of the viability of the new rules and whether this time will really be any different. Combined with the renewed bank stress tests and bail-in rules, the coming months are an important testing ground for the new financial architecture which the Eurozone has put in place.

Sadly, as Reuters highlights, another fudge looks to be on the cards. While the EC will probably reprimand France to the fullest extent before getting to outright fines, it will also work up a new looser programme which gives it more time. This helps all sides save face and avoids the risk of further weakening French President Francois Hollande to the benefit of the Front Nationale (something which the EU wants to avoid).

As for what happens now, the EC will provide a verdict on the budget by the end of the month in what will be one of the last acts of the Barroso Commission. This is of course all complicated by the hand-over of the EC and the wrangling over who will actually be in charge of enforcing the budget agreements. When all is said and done another muddle through is likely, but with the Eurozone facing economic stagnation investors may be less than convinced by such moves.

European Parliament hearings of Commission nominees: Will MEPs claim any notable scalps?

Will Juncker's Commission survive unscathed?
(picture via @Gruene_Europa)

On Monday we will see the first hearings of European Commission nominees by the European Parliament committees responsible for their respective policy areas (full calendar here). The UK nominee, Lord Hill, will ironically be grilled by MEPs at the same time as David Cameron will be giving his closing speech to the Conservative party conference. 

MEPs are not able to strike down individual Commissioners but they do have a veto over the Commission as a whole and have in the past used this leverage to force member states to withdraw nominees that they did not like; Rocco Butiglione in 2004 and Rumiana Jeleva in 2009 (although Jeleva also faced considerable domestic opposition). There has also been a lot of speculation that one or more nominees to the Juncker Commission could also be 'taken out' by MEPs (Alex Barker of the FT has a good round-up here). There will certainly be a hell of a lot of posturing - but are any of the candidates at genuine risk? We asses the most 'problematic' candidates below:

Lord Hill - Financial Services (UK)

There has been a lot of speculation that MEPs will target Lord Hill (and some have already made it clear they will) but this is based less on reservations about his character or ability, and more to do with his record as a lobbyist, concerns about the UK being allocated the sensitive financial services portfolio, and hostility to the Conservatives' EU policies more specifically. While MEPs will not give Lord Hill an easy ride it is highly unlikely that he will face any major problems given that this would be seen as a huge and unnecessary provocation towards the UK (with no chance of Cameron backing down and putting forward somebody else). Juncker has further lessened the risk by transferring the contentious issue of bankers' bonuses from Lord Hill's remit into that of Vera Jourova, the nominee for the Justice brief. 

Prospects for survival = Strong

Pierre Moscovici - Economic and Monetary Affairs (France)

It is no secret that the appointment of former French Finance Minister Pierre Moscovici to this key portfolio is far from popular among conservatives in the European Parliament. Can Moscovici, whose country is consistently failing to meet the its EU deficit reduction targets, be credible enough to police eurozone countries’ budget policies? However, given that Moscovici will be effectively man-marked by two fiscally hawkish Vice-Presidents (Finland's Jyrki Katainen and Latvia's Valdis Dombrovskis), and also that it would be hugely unprecedented to reject such a high profile candidate from such a large member state (particularly given Francois Hollande's recent problems), he should be safe. The only serious threat to Moscovici would arise if the centre-left S&D group tried to veto one of the centre-right EPP candidates (see below) and the EPP decided to retaliate, and they've hinted that in that case they would target Moscovici. 

Prospects for survival = Strong

Karmenu Vella - Environment, Martime Affairs and Fisheries (Malta) 

European Voice suggests that Vella could also be in trouble as MEPs are unhappy at Juncker's decision to merge environment and fisheries and to give Vella a mandate for 'deregulation' in these areas, and also because Malta's track record in implementing EU environmental laws is poor. However, Vella himself is not responsible for the design of the Commission and it should suffice for him to assure MEPs he will give both parts of his role equal consideration. He may also face some awkward questions about long-standing allegations of "political thuggery, tax evasion and corruption" in his time in Maltese politics, but these have never been proved and so it is unlikely he will be placed under serious pressure.

Prospects for survival = Strong

Tibor Navracsics - Education, Culture, Youth and Citizenship (Hungary)

Hungary's nominee was always going to be controversial due to the strained relations between the EU and the Hungarian government headed by Viktor Orban who has been accused of anti-democratic practices such as undermining media plurality and the independence of the judiciary - particularly sensitive given the portfolio Navracsics has been given. Is is clear that Navracsics will face a hostile audience but with the backing of the EPP it remains to be seen whether enough other MEPs will actively try to see him axed from the Commission; in that case any Orban nominee would surely prove unacceptable, and this would trigger a wider political crisis. Moreover, as a former University lecturer Navracsics seems well qualified for this post and so we think that, ultimately, he will be safe.

Prospects for survival = At risk 

Miguel Arias Cañete - Climate Action and Energy (Spain)

Spain’s Cañete will come under fire for a number of reasons. In fact, it'll be open season. Firstly, there is his alleged bias towards fossil fuels compared with renewables. Secondly, there are concerns about alleged conflicts of interest; Cañete has sold his shares in two Spanish oil companies but Green MEPs have complained to Juncker that Cañete’s “wife, son and brother in law all remain as either shareholders or board members of these companies.” Furthermore, it has also been estimated that, during his time as Spanish Agriculture Minister, Cañete’s wife, Micaela Domecq-Solis and her siblings received around €1.8m in EU farm subsidies (though the same accusation could also embarrass some MEPs on the Agriculture Committee). 

Cañete will also very likely face questions about some remarks, widely interpreted as sexist, that he made after a TV debate ahead of the European Parliament elections in May. He said, “The debate between a man and a woman is very complicated. If you abuse [your] intellectual superiority, it looks as if you’re a machista and are cornering a defenceless woman.” There are enough ingredients for a lively hearing but as with Navracsics, the support of the EPP and the fact that he is a heavyweight figure within Partido Popular may be enough to see him through. However, he's definitely on the front line. 

Prospects for survival = At risk 

Alenka Bratušek - Vice President for Energy Union (Slovenia)

Where to begin? Former Slovenian PM Alenka Bratušek is seen by many as the weakest link in the new Commission and faces a raft of challenges. For a start, she nominated herself for the role as acting PM even though her party (appropriately named the Alliance of Alenka Bratušek) received a drubbing in the preceding parliamentary elections, picking up only 4.3% of the votes. The new centre-left coalition has launched in inquiry into her auto-nomination and would like to replace her with Tanja Fajon, one of their own MEPs (which would preserve the Commission's gender ratio).

Moreover, she has been allocated a hugely significant and sensitive role - Vice-President responsible for 'Energy Union' - despite having little experience in that area. As a member of the liberal ALDE group she lacks the protection of the two big centre-right and centre-left blocs (although ALDE's has joined the 'grand coalition' in the European Parliament). Her saving grace might be that not there will not be enough appetite in the European Parliament to reject the Commission outright, but if anyone will be substituted it is likely to be her.  

Prospects for survival = At risk

We will be covering the most significant hearings live so make sure to follow us on twitter @Open Europe.

Confidence vote won, absolute majority lost: not the best start for the new French government

The new French government, led by Prime Minister Manuel Valls, yesterday won its first vote of confidence in the National Assembly. That was expected, but the big news is that Valls and his government have fallen well short of winning an absolute majority.

269 MPs voted in favour, 244 against, and 53 abstained. The absolute majority is set at 289 votes.

Most importantly, the voting records reveal that 31 MPs from the Prime Minister's Socialist Party chose to abstain. Back in April, when Valls sought the confidence for his first government, he got 306 votes in favour. Hence, yesterday marked a substantial step backwards.

The outcome of the confidence vote seems to confirm that the 'left wing' of the French Socialist Party remains opposed to the economic policies being pursued by Valls - which in substance means remaining critical of the approach defended by the European Commission, Germany and other northern eurozone countries.

Incidentally, these divergences forced a cabinet reshuffle at the end of August - which saw the ousting of the three most left-leaning ministers, notably including Economy Minister Arnaud Montebourg.

French history shows that it is possible to govern without an absolute majority in parliament. Another Socialist Prime Minister, Michel Rocard (widely seen as one of the political mentors of Valls), did it between 1988 and 1991.

However, it remains to be seen to what extent Valls will be able to push through the wide-reaching reforms and sizeable spending cuts demanded by the EU if he fails to win back the full support of his own party. As an alternative, he may try and strike deals with the smaller centrist parties in parliament - but the success of such a move would be far from guaranteed.

Indeed, this is hardly great news at a time when the French economic situation is not encouraging, making it essential to move forward quickly with the necessary measures.
 
The road to recovery may have just become longer and bumpier for France.

German fingerprints on Juncker's Digital Agenda?

The 'digital agenda' was a key plank of Jean-Claude Juncker's 'campaign' to become European Commission President and will be one of the top priorities for the next five years. Indeed, his new look Commission has its own dedicated 'digital single market' cluster, which incorporates a large number of the Commission departments:

The Vice-President overseeing all this is Estonia's Andrus Ansip, a former Prime Minister of the country which styles itself as a 'digital society', with e-elections and online tax returns completed in five minutes. Former Energy Commissioner, Germany's Günther Oettinger, will take on a new role as Commissioner for Digital Economy and Society, which much of the German press saw as an embarrassment, particularly given the high-profile roles secured by France and the UK.

However, with online privacy and data protection such big issues in Germany, particularly following the NSA scandal, his appointment could be significant - not least because he is likely to have very different priorities to Ansip. Oettinger, along with the Czech Justice Commissioner Vĕra Jourová, will be responsible for ensuring passage of new data protection regulations and a revamp of the EU's e-Privacy Directive. He will also work on copyright. In turn, many of these issues will be integral to the US-EU free trade (TTIP) talks currently under way, another area of intense debate in Germany.

It has been noted by some that the CEO of Axel Springer, the owner of German tabloid Bild, publicly backed Juncker's candidacy (heaping pressure on Chancellor Merkel to do the same) and has a long-running beef with US internet giant Google. Whether this was a purely altruistic move we will leave up to you to decide...although we would note that one of Oettinger's first moves after the announcement of his appointment was to warn Google over its market power - a stark change in tone and approach from the previous administration, whatever the motivation.

In short, while Oettinger's appointment may not have been greeted by spontaneous cheers on the streets of Berlin, those in the corridors of power are likely to be quietly pleased. How 'German' the European Commission will be in this area will be interesting to watch.

Lord Hill is the EU's new financial services Commissioner - but what is his remit and who does he report to?

With the future of the UK seemingly hanging by a thread it is understandable that events north of the border are dominating attention, but today's announcement of the new European Commission also has far-reaching consequences for the future of the UK's EU membership and the EU itself.

As we set out in our flash analysis, the appointment of Lord Hill to the key financial services portfolio (pending approval by MEPs) is a win for the UK, and the general reformist outlook of the Commission, with other crucial posts (Internal Market and Competition) held by liberal, pro-free trade, non-eurozone countries, provides grounds for cautious optimism.

What will Lord Hill's portfolio include?

• Overseeing the creation of the banking union – a crucial policy for the eurozone but also one which threatens to split the EU into euro-ins and outs. In his new role, Lord Hill can ensure this does not happen. That being said, this is a very tricky role to manage (with numerous competing interests), especially for a non-eurozone country.
• Power to review the role of the European supervisory authorities, institutions which have been controversial in the UK since their creation.
• Responsibility for a 'Capital Markets Union'. While this remains vague it could be a good initiative for the UK since London is already the centre of European capital markets. Lord Hill can base the union around the single market rather than the eurozone.

As the charts below show, the Commission has also been re-organised with a series of policy clusters, with the UK being at the heart of all the major decisions relating to the single market, jobs and growth and the Eurozone. Each 'cluster' will be headed by a Vice-President, previously a largely meaningless role but now with additional agenda setting powers and the ability to stop legislative proposals from other Commissioners.

Lord Hill will 'report' to two Vice Presidents who will "steer and co-ordinate" depending on the issue at hand - the new "Jobs, Growth, Investment and Competitiveness" VP Jyrki Katainen and the "Euro and Social Dialogue" VP Valdis Dombrovskis (both of whom are former PMs). In terms of the two VPs, Dombrovskis is likely to supervise the banking union aspects of Lord Hill's post while Katainen will oversee the more single market aspects, although even here, there is plenty of scope for overlap.

Lord Hill's portfolio also has some overlap (and therefore potential conflict) with France's new Economic and Monetary Affairs Commissioner Pierre Moscovici .The potential for Anglo-French clashes within the Commission is relatively limited since Moscovici will be primarily tasked with macroeconomic eurozone policies rather than financial markets, but one potentially fraught area could the be Financial Transaction Tax or a Common Consolidated Corporate Tax Base. Juncker has asked Moscovici to finalise negotiations over both.

It remains to be seen how the relationship between VPs and different clusters will work in practice, especially as Juncker himself has insisted that "In the new Commission, there are no first or second-class Commissioners", and since decisions in the College of Commissioners have traditionally been taken by a majority of all Commissioners in a secret vote. However, Juncker also made clear that the Vice-Presidents “can stop any initiative, including legislative initiatives” of other commissioners – effectively acting as “a filter”.

Time will tell how potential disputes play out or are resolved and to what extent the VPs can truly veto proposals. What is clear is that the relationship between these four men could be crucially important.

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.

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.

'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...

Italy slips again into recession: time for Renzi to re-focus his reform plans?

When Matteo Renzi was widely tipped to take over as Italian Prime Minister back in February, we wrote on this blog: 

Renzi may be able to muster wider parliamentary support than [his predecessor Enrico] Letta, but he would still be stuck with a diverse coalition with smaller centrist and centre-right parties – meaning that the difficulties in pushing ahead any significant political and/or economic reform would not evaporate.

A few months later, it is fair to say the prediction was broadly correct. In his first keynote speech in the Italian parliament, Renzi pledged to implement one big reform per month. However, not much has been achieved so far:

• Some of the promised reforms have been passed only in part (such as the reform of the labour market);
• Others have been proposed by the government but are still awaiting parliamentary approval (such as the reform of the electoral law);
• Others have been announced but have yet to be turned into an official legislative proposal (such as the reform of the judiciary).

To be fair to Renzi, his reform plans involve changes Italy has failed to make for decades. However, there is little doubt the pressure is slowly mounting on the ambitious Italian Prime Minister - especially in light of the latest daunting economic data. Italy has entered recession again. Its GDP contracted by 0.2% in the second quarter of 2014 - worse than expected. The country's national statistics office ISTAT now expects Italian GDP to shrink by 0.3% this year, unless the trend is reversed. This is nowhere near the 0.8% GDP growth initially predicted by Renzi's government. By contrast, Spain is going to upgrade its growth forecast to +1.5% and +2% for 2014 and 2015 respectively.

Needless to say, the meagre growth prospects are raising questions in Brussels, Berlin and Frankfurt over Italy's ability to keep its deficit below the 'magic' EU threshold of 3% of GDP and start reducing its mountain of public debt. Unless Renzi can show substantial progress on the reform side, he's unlikely to achieve any of the 'flexibility' on the application of EU fiscal rules that he's been demanding - along with French President François Hollande - over the past few weeks, and may find himself left with little wiggle room. This would set the scene for another political stand-off between the core and periphery of the eurozone - a scenario which few emerge from looking good.

Perhaps more worryingly, Renzi seems to be currently focusing too much of his reform efforts on the political-institutional side. The reform of the Italian Senate - which has recently taken the centre stage in Rome - is of great symbolic importance and will help speed up the decision-making process once (and if) passed. But its economic impact is limited, and it involves changing the Constitution, meaning that it may not be finalised until early 2015 and will then also be put to a referendum - whose outcome cannot be taken for granted at this stage. Italy can only benefit from the removal of the institutional blockages stemming from a system where the two chambers of parliament have equal powers. However, Italy's economic situation means Renzi should consider investing his best energy and political capital elsewhere - not least because economic reform is the key area where his EU counterparts wish to see progress.

On the economic front, the main achievement of Renzi's government to date is probably a tax cut worth €80 a month for employees earning less than €25,000 a year. The measure may have played a part in Renzi's Democratic Party winning an outstanding 40.8% of votes at the European Parliament elections in May - but the jury is still out as regards its effectiveness as a means to boost domestic demand.

Furthermore, uncertainty remains over Italy's plans to cut public spending and use the savings to finance tax cuts for workers and businesses. Carlo Cottarelli, the Italian government's special commissioner for public spending reform, has recently warned on his blog that the resources he's expected to raise via spending cuts next year are already being used to fund new spending projects. In practice, this means less money to cut the tax burden on Italian businesses and workers - which is among the highest in the world and has been identified as a key pillar of economic reform.

Predictably, Renzi was off to a strong start in terms of trust from both Italian voters and Italy's European partners. However, the time may have come for him to re-focus his priorities and push harder on economic reform. A more efficient parliamentary system and electoral law, while very necessary, will do little to help him win any meaningful concessions in Europe. A thriving economy that grows at an acceptable pace will.

Would a stand alone financial services commissioner be a curse or a blessing?

There’s a bit of a debate going on at the moment over whether splitting up the internal market portfolio in the next European Commission is a good or bad thing for UK interests. The idea is to separate financial services from the wider internal market portfolio, to create a more manageable brief and avoid a scenario whereby an activist Commissioner turns this portfolio into a financial services one anyway, neglecting the many other crucial single market issues such as professional services, energy and digital services.

The idea has been subject to a bit of push-back with some worrying that a new “financial services tsar” will turn against the City, while making it more likely that the Commission develops a Eurozone-bias in its financial services legislation. The British Bankers’ Association has come out against the idea, for example. 

There is undoubtedly a risk here: if a free-standing financial services brief goes to a candidate who is anti-free markets, doesn't get financial services and who wants to pursue Eurozone-tailored solutions at the expense of the single market, then of course, it would be a bit of a disaster. However:

• Remember, we’ve lived with a 'financial tsar' over the last fine years. His name is Michel Barnier. Though there are now those within the UK Government who say Barnier “wasn't that bad after all”, it was clear that he saw his primary mission as restricting and controlling financial activity. He focused almost all his energy on this to the detriment of wider internal market issues. 
• Under Barnier’s watch the integrity of the single market has been mostly protected – for example there are now non-discrimination provisions in laws such as MiFID and EMIR – however it has been and remains a daily struggle and most of these protections were inserted by member states during the negotiation process. Let’s not forget, this is the man who has played a leading role in the drive for a Financial Transaction Tax and the banker’s bonus cap. Furthermore, the original proposal for a eurozone banking union transferred huge amounts of power to the Commission and put a eurozone focused brief right at its core (to the chagrin of more than just the UK). 
• More importantly, however, while financial services is hugely important for the UK national interest, it’s not the only interest. The problem with merging financial services and the wider internal market is that the latter tends to get neglected given all the focus on the likes of banking union and regulating sprawling multinational financial institutions. An active Commissioner dedicated to liberalising the single market in services, digital and energy could be hugely beneficial at the moment, particularly since the appetite for a new push in some of these areas may be growing across Europe. Also, this will form a key plank in Cameron’s renegotiation strategy. 
• Splitting off financial services is the only chance the UK has of getting internal market – which even without financial services (for the reasons described above) would be a big prize. 
• While it is often said that keeping financial services inside internal market ties it to the single market, the point also runs both ways. For example, outside the internal market brief, more attention may be paid to the legal justification for financial services regulation rather than it simply being pushed through under a single market justification as is usually the case. 
• In terms of Eurozone-bias – we’re as concerned about it as anyone, as we flagged up as early as 2011 (though we don’t believe that the Eurozone will organise itself as a perfectly coherent entity any time soon) – the key for this is to keep financial services as far away from the Economic and Monetary affairs brief as possible, which for the most part looks to be taking place. 

So it could go go either way. However, you have to compare it against what has gone before and what the likely alternative is. Cameron would have to screw it up badly to make the de facto division of labour worse in this area than what was the case in the previous Commission.