The Podemos Express: What lies behind the extraordinary rise of Spain's new protest party?

The extraordinary rise of Podemos, Spain's eight-month-old protest party, continues. A new Metroscopia poll for El País, released on Sunday, showed that the party would win a Spanish general election, if held today, with 27.7% of votes. The Socialist Party would finish second on 26.2%, followed by Spanish Prime Minister Mariano Rajoy's Partido Popular on 20.2% – less than half the 44.6% the party won in the November 2011 general election.

This is unbelievable stuff, but what lies behind the instant success of Podemos? 

As with all protest parties, there are a number of inter-related, mutually re-reinforcing causes: 

New media: Can establish and multiply protest movements in a heart beat. Italy's Five Star Movement is a well-know example. Podemos, too, has fed off this.

Corruption scandals: There have been a series of pretty big ones in Spain over the past two years (see this blog post we wrote last year, for instance). That said, though, Spanish politics have struggled with flaky politicians for some time, so this in itself doesn't answer the 'Why now?' question. 

Loss of trust in mainstream parties: This is the same story as virtually everywhere in Europe. In the Metroscopia poll we mentioned above, 42% of respondents said they were inclined to vote for Podemos because of "a feeling of disappointment and disillusionment with the other parties". 

"They're all the same": Related to the above, and especially during the post-crisis years, many Spanish voters don't see much difference between Partido Popular and the Socialist Party. Again, though, Spain has been a two-party, 'centripetal' system for quite some time, so why is it that voters turn against mainstream politicians now? 

EU-mandated austerity: This is a big part of the story, which reinforces the above point. Partido Popular and the Socialist Party are broadly seen by the Spanish electorate as implementing the same set of austerity policies. Remember, the first substantial austerity package during the Eurozone crisis in Spain was passed by the Socialist government of José Luis Rodríguez Zapatero in May 2010. 

Podemos: a 'shadow eurosceptic' party

Podemos certainly doesn't describe itself as 'eurosceptic', and it's not 'eurosceptic' in the northern European sense. Both the party and the Spanish public as a whole remain committed to the Euro. According to the European Commission's latest Eurobarometer survey, 56% of Spaniards think the Euro is "a good thing" for their country – up from 53% last year – compared to 34% who think it is "a bad thing".   

But just as with SYRIZA in Greece, a big part of the Podemos package is predicated on opposition to policies which are, in one way or another, driven by Spain's Eurozone membership – most importantly fiscal consolidation and internal devaluation.

In other words, Podemos could be described as a 'shadow eurosceptic' party.

Podemos leader Pablo Iglesias did say in a recent interview:

"The [Spanish] Socialists should acknowledge that they got it wrong with [the] Maastricht [Treaty]. They got it wrong by letting Spain be turned into a colony of northern European countries."  

Per implication, this means envisaging a Euro without the Maastricht criteria. Similarly, some of the main policy proposals of Podemos seem to be outright incompatible with Eurozone membership. For example, the party's flagship proposal is a "basic income for each and every citizen, for the mere fact of being citizens". According to the party's own estimates, the measure would cost the Spanish government €145 billion – roughly 14.5% of Spanish GDP. That would bust every EU budget rule on the books. 

Other proposals, such as more "democratic and parliamentary control" over the ECB, won't happen as long as Germany is around. 

Therefore, to a certain extent, Podemos offers voters a 'false choice': Euro membership with far-left spending policies. Interestingly, the firebrand anti-austerity talk of Podemos is already having a knock-on effect. Under the leadership of Pedro Sánchez, the Socialist Party has also stepped up its anti-austerity rhetoric. We will see if this will have an impact on upcoming opinion polls.

In our 2012 report looking at internal devaluation in the Eurozone periphery, we noted: 

"The history of the Baltic states – and to some extent Ireland – shows that large scale internal devaluation is fully possible in certain circumstances. But, against a backdrop of plummeting real GDP, internal devaluation also produces a politically explosive combination of falling wages and rising unemployment – all leading to a reversal in living standards. This is the Eurozone's great curse: do what's economically necessary but risk massive political and social fallout."

The rise of Podemos shows just how real that risk still is.

EU migration - a deliverable proposal for reform

As we already noted here, today we published a new pamphlet by Professor Damian Chalmers of the LSE and our Research Director Stephen Booth.

The basic question the authors ask is, in the current political climate, how in the world can we ‘save’ EU free movement? As we’ve stated repeatedly, Open Europe thinks that the single market – including free movement of workers – remains a clear net benefit to the UK and EU. However, like everything else, it needs to be subject to up-to-date, clear and fair rules to make sure it stands.

Therefore, the pamphlet argues that instead of reaching for “quotas” or a “points-based system”, Cameron should focus on the “pull factors” – who can access what benefits and when – which if done right, will have a big impact but without ending the basic free movement principle (a red line to Merkel and others).

Chalmers and Booth – both writing in a personal capacity - argue that national governments should be able to limit EU migrants’ access to out-of-work and in-work benefits, social housing and publicly funded apprenticeships until after three years. EU citizens would have a right to access public healthcare within their host country, but, for the first three years, the costs would be borne by their state of nationality and, insofar as there was a shortfall, through private health insurance that they were required to purchase. Children of an EU citizen would have a right to access childcare and primary and secondary education. The changes wouldn't be retroactive but only apply to future EU workers.

This could be done through EU legislation and avoid a treaty change to the totemic EU principle of free movement. But it needs to be recognised that, while it often comes with overall net benefits, free movement does have an impact, particularly at the low-skilled / low-income end of the job market where the competition between school/university leavers, those moving from welfare into work and migrant labour can be fierce, with the consequent knock-effect this can have on wages.

The length of the qualification period can be discussed and needs careful thought to strike the right balance between incentive to work and ability to live.

The proposal could kill three birds with one stone:

First, it would remove the effective “subsidy” to EU workers who perform the lowest-paid jobs in the UK by removing the state top-up to low wages. For those thinking of coming to the UK, this could certainly change their cost/benefit calculation before they make the leap. It would create a fairer system, which could well have an impact on numbers and boost public confidence in free movement.

Secondly, and just as importantly, it would hand back an important public policy tool to national governments. If welfare (out of work and in work) is not open to EU migrants, national governments can better target their policies at their own citizens – helping the young with publicly-funded apprenticeship or those coming of welfare with income top-ups. The effect of these policies is blunted if they open to people across the entire EU.

Thirdly, unlike ideas for quotas or caps on EU migrants, it leaves the basic principle of free movement of workers intact, while not requiring a complicated EU treaty change.

Finally, because of that, this proposal could win support in other capitals, including, importantly, Berlin.

We will soon be publishing further research looking at the economic impact these and other potential proposals could have on EU migrants considering coming to the UK – and to what degree removing access to welfare for three years might act as a disincentive to those migrants who would be coming to working in the UK on the lowest incomes. We'll also look at other areas such as minimum wage. However, also, we’ll investigate the trade-off this involves in terms of the UK’s overall wealth and competitiveness, for which EU migrants no doubt play an important part.

Everyone take a deep breath: suggestions Merkel ready to accept Brexit following free movement row are wide of the mark

Der Spiegel reports that German Chancellor Angela Merkel warned David Cameron at last month’s EU summit that she would no longer try to keep the UK in the EU if Cameron sought to impose quotas or a cap on workers from other EU countries, as opposed to changing the rules around EU migrants’ access to benefits. The magazine also reported that the German Chancellery and Foreign Ministry fear that, for the first time, Cameron is pushing the UK towards a “point of no return” in terms of its EU membership and that a UK exit is “possible”. But there’s no reason to be get overly excited though.

• This was a report from one magazine which didn’t include any direct quotes from Merkel, but merely quoted unnamed sources. Moreover, as Sky News' Faisal Islam points out, the report isn't exactly front page either... its on page 36 of the print edition.
• The reported comments were specifically about reports in the UK media about Number 10 possibly considering putting outright caps on the number of EU migrants who can come to Britain to work, either via quotas or a points-based system. So one speculative media report leading to another.
• As we’ve argued repeatedly, there are two elements to free movement: volume – how many EU migrants come to the UK every year. And fairness: who can access what benefits and when. That Merkel doesn’t support an end to the basic right for EU migrants to come to the UK to work isn’t surprising at all. It’s been the German government position for ages. Stefan Seibert, Merkel’s spokesperson this morning re-stated Germany’s commitment to “the general principle of free movement”.

However, within that there’s a lot of scope for change and plenty of EU reforms that could fly in Berlin. Remember, the Bundestag will this week vote on a number of proposals aimed at tightening EU migrants’ access to benefits, including re-entry bans for those migrants that abuse of the German welfare system.

It’s interesting that since the stories in the UK media about a points-based system or quotas for EU migrants, FAZ and the Sunday Times note that the UK government is now looking to make its EU free movement proposals “Germany-compatible”. Also, UK Chancellor George Osborne told the BBC this morning,

“It was never envisaged that you would have such large numbers of people coming, people coming who don’t have job offers, people who move on to our benefits system…We are going to do this in a calm and rational way, but the British people want this addressed.”

The “job offer” part is interesting – the right to move to another EU country without a specific job offer hasn’t always been there. However, note there’s nothing about a cap – what the Der Spiegel report was about.

Similarly, at Downing Street’s briefing to journalists today, Cameron’s spokeswoman said:

“When the founding fathers established the European Union and introduced the principle of free movement, it was about labour and how you integrate the countries of the single market. The mass migration that we have seen with new countries joining, the impact on countries like the UK, the free movement to claim benefit – these are areas that have evolved and need to be addressed.”

There’s the point about wider “impact” but, again, the main focal point is benefits.

Which may suggest that No 10 remains primarily committed to looking at “fairness” – not actually ending free movement per se.

So only tweaks then? Not at all. Open Europe has today published a new pamphlet by Professor Damian Chalmers and Open Europe Research Director Stephen Booth which argues that the basic right to go and work anywhere in the EU should stand – on the whole, free movement remains a clear benefit to the UK. However, national governments should be able to limit EU migrants’ access to out-of-work and in-work benefits, social housing and publicly funded apprenticeships until after three years.

Incidentally, Der Spiegel did not claim that Merkel was now ‘ready to accept’ the UK exiting the EU, as some UK media outlets have reported. Instead, she now considers Brexit “möglich”, which translates as “possible”, which is more along the lines that it is something she fears.

In other words, whilst certainly a strong indicator of the mood music in Germany and the UK, on specific substance, this is much less of a story than the headlines suggest.

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.

Slovenia fights back - but maybe it's a few months too late?

Gone but not yet forgotten

The European Parliament and the political machines that dominate it were, according to many, not supposed to select the President of the European Commission - but they got their man. MEPs, led by Spitzenkandidaten Martin Schultz and Jean-Claude Juncker outplayed the member states through a clever use of ambiguous treaty wording and a political deal, which in turn was driven by pure German domestic politics.

Having installed Juncker as Commission President MEPs took the individual candidates, nominated by the member states, to task. According to the Treaties, the EP can accept or reject the entire Commission, but MEPs have turned this into de facto votes on individual Commissioners, with intra-EP politics meaning some nominees may be taken 'hostage'. Having called back the UK's Lord Hill for a second hearing - creating jitters in Downing Street - MEPs finally voted down Slovenian candidate Alenka Bratušek. She was today forced to resign - despite Juncker himself insisting on her candidacy. MEPs seemed to have made their point - it has voted down individual nominees in the past, and as we predicted, the EP was bound to claim a scalp. 

MEPs now seem to be pushing their luck further - attempting to tell the Slovenian Government who they should appoint as their new candidate, with both the EPP and S&D calling for the nomination to go to social-democrat MEP Tanja Fajon. Slovenia, however, is pushing back. The country's PM has issued a statement saying:

"The Slovenian Prime Minister expects political groups in the European Parliament to abide by EU law and the fundamental democratic principle in selecting candidates for commissioners" 

In other words, the Slovenians say, this is for their Government - not MEPs - to decide.

Will MEPs stand back? We will see. To be fair, Slovenia has a new government and we can't blame it for events over the least few months. But we can't help asking, isn't this exactly what member states were asking for when agreeing to the Spitzenkandidaten in the first place?

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.

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

Europe's new 'dream team'?

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

A couple of initial thoughts:
  
Donald Tusk 

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

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

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

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

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

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

Federica Mogherini

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

EU leaders fail to agree on the remaining top jobs. Anything to remember from yesterday's summit?

Yesterday's European Council summit ended without an agreement on the remaining EU top jobs. However, something interesting still came out of the meeting.

A socialist (and a woman?) for next EU foreign policy chief

EU leaders appear to have established that the next High Representative for EU foreign policy will be a centre-left politician. German Chancellor Angela Merkel, French President François Hollande and Italian Prime Minister Matteo Renzi all said it in the respective post-summit statements.

Renzi, who is pushing for Italian Foreign Minister Federica Mogherini to get the job, also stressed that, "Everyone agrees that there's no other candidacy than Italy's." Hollande added that the High Representative "will necessarily be a woman, taking into account the image of Europe we have to offer". The French President also made clear that he backs Mogherini's candidacy.

The next European Council President will be appointed by unanimity, and could be one of the 28 sitting EU leaders

As Hollande put it during his press conference, the next European Council President "will be a personality that will have to gather consensus". Similarly, Merkel said, "We need a personality...who can hold us 28 together."

Interestingly, Renzi told Italian journalists:

"Hollande said that, according to him, the next European Council President has to be one of the 28 [sitting EU leaders]. It doesn't matter whether [he/she is] from the eurozone or not. He got broad support [for this idea]."

Speaking after the summit, Polish Prime Minister Donald Tusk confirmed that his name has been informally floated for the post of European Council President (an option we discussed here and here), but that he had not been approached officially.

Tusk reiterated that he would prefer to remain in Poland, but then added:

"We have to play out a complicated game and sometimes in this game the argument goes that all options remain on the table. Therefore, if you ask me if this is impossible, I will say that in the negotiations I prefer to keep every eventuality in reserve in order to achieve the maximum that Poland could possibly achieve."

And that was it. EU leaders will meet again on 30 August to try and wrap up a deal. We will be monitoring the meeting very closely, despite it being on a Saturday.

Will Tusk take over from van Rompuy, and what would it mean for Cameron?

Tusk and Merkel "discuss the World Cup" ahead of today's
European Council summit (h/t Maciek Sokolowski)

Yesterday, we reported that Italian Foreign Minister Federica Mogherini's bid to become the next EU High Representative for Foreign Affairs has run into trouble due to her perceived lack of robustness vis-a-vis Russia and Putin, with around ten or eleven countries - mostly from central and eastern Europe - opposing her candidacy. We argued that one way to try to square the circle would be to appoint someone from that region as European Council president to replace Herman van Rompuy, with Polish PM Donald Tusk the most credible candidate.

Today's Rzeczpospolita splashed the news that Merkel was urging Tusk to take the European Council President post and a few hours ahead of the European Council summit this scenario remains very much in play:

#EU diplos tell me latest ticket making rounds: #Poland's Tusk as @EUCouncil pres to placate East on #Mogherini at #HighRep. Tusk resisting
— Peter Spiegel (@SpiegelPeter) July 16, 2014

It is understandable why this 'dream ticket' could generate widespread support - it ticks a number of boxes; at least one top post goes to a woman, one to someone from central and eastern Europe, an experienced politician as European Council President and a relatively junior one as High Rep. It is clear why Merkel - who has good relations with Tusk - is pushing his candidacy.

So why is Tusk resisting? Well, the main reason - aside from his lack of language skills - is that he has no immediate successor as Polish Prime Minister (not least because he has culled any potential challengers) and Polish domestic politics are particularly precarious in the wake of the Wprost tapes scandal. Law and Justice are currently leading in the polls and it is not clear whether the government would be able to hang on without fresh elections in the event of a Tusk departure. Moreover, Tusk himself feels he still has unfinished business in Poland.

Nonetheless, Mutti can be very persuasive so it cannot be completely discounted, and van Rompuy's successor does not take over until November, which leaves a bit of time for a transition. Given that the role will be very important in broking David Cameron's potential renegotiation, what would it mean if Tusk got the job?

Well let's start with the positives - like the UK, Poland is a non-euro country so shares concerns about eurozone integration potentially disadvantaging non-euro members. Poland is also economically liberal and backs further expansion of the single market and the EU-US free trade deal (TTIP). Poland and the UK have also been close allies on Energy issues and with Russia having emerged as a common concern, both recently worked together to push the EU to adopt a tougher position on Russia. Finally, if Tusk were to get the job, he would be keen to stay close to Merkel, something Cameron could use to his advantage.

However, on the whole, a Tusk Presidency may not be good for Cameron; the two have a strained relationship, exacerbated in recent times by the row over EU free movement and Cameron's (ill-advised) comments about Poles claiming UK benefits (Tusk's former spokesperson Pawel Gras claimed the Polish PM had a proper f****** go at Cameron over these). Moreover, while Cameron and Tusk may agree on specific issues, Tusk is dismissive of Cameron's broader argument that the EU is need of fundamental reform and he is therefore unlikely to go out of his way to help him get significant concessions - Cameron would therefore need to ensure he has enough support among other national leaders to negate this factor.    

Franco-German stand-off over eurozone fiscal rules reaches biblical proportions

In the past month there has been a lot of pushing and shoving over the eurozone's fiscal rules (see here). While renegotiating the Stability and Growth Pact seems off the table, French President François Hollande and Italian Prime Minister Matteo Renzi have been calling for more 'flexibility' in the application of eurozone fiscal rules - leading a whole host of German politicians to see red.

Whether or not more flexibility may be granted to member states in the future will in part be decided by the next EU Economic and Monetary Affairs Commissioner. As we've pointed out here, the two front runners for the post for the post are French Economy Minister Pierre Moscovici and Dutch Finance Minister Jeroen Dijsselbloem.

And Merkel's CDU is not happy about the prospect of Moscovici bagging the job. The party’s budgetary spokesperson Norbert Bartle has told Handelsblatt:

“If you appoint exactly that French Finance Minister [Pierre Moscovici] to the position of the EU Economic and Monetary Affairs Commissioner, who has done nothing to comply with the Stability Pact, that is as if you wanted to cast out the demons with Beelzebub." 

Bartle could have stuck to the good old "putting the fox in charge of the hen-house", but when CDU politicians resort to the bible to argue their case (Matthew 12:27), you know it's getting serious.

Why Cameron needs to make a swift decision on the UK's next EU Commissioner

In a recent briefing, we stressed that David Cameron needs to pick a 'heavy-hitter' as UK's next European Commissioner if he wants to secure a key portfolio for the UK. Our point is reinforced by a quick look at the candidates being (more or less officially) lined up by other EU member states.

If the UK drags its feet on 'declaring' its candidate, and then sends someone not considered up for the job, we suspect its chances will pretty much have evaporated.

FRANCE - Former Finance Minister Pierre Moscovici is regarded as the frontrunner. The possible alternative could be Élisabeth Guigou, who has served as French Europe Minister, Justice Minister and Employment Minister.

GERMANY - Günther Oettinger looks very likely to stay on as German Commissioner. A former Minister-President of Baden-Württemberg, he has gained influence within Angela Merkel's CDU party during his five years as EU Energy Commissioner.
 
ITALY - Foreign Minister Federica Mogherini is widely tipped to become the new Italian Commissioner. She is currently regarded as the frontrunner to replace Lady Ashton as EU foreign policy chief. 

FINLAND - Former Prime Minister Jyrki Katainen will be the new Finnish Commissioner. He has already replaced Olli Rehn, who had to take up his seat in the European Parliament. Importantly, Katainen stepped down as Finnish Prime Minister precisely because he had set his eyes on a job in Brussels.

SPAIN - Former Agriculture Minister Miguel Arias Cañete is the favourite to become the new Spanish Commissioner. He resigned in April after being picked by Spanish Prime Minister Mariano Rajoy as Partido Popular's top candidate in the European Parliament elections.

POLAND - Various names have been suggested. Foreign Minister Radosław Sikorski remains the frontrunner (despite the recent wiretapping scandal). Former Finance Minister Jacek Rostowski and former EU Budget Commissioner Janusz Lewandowski - recently elected as an MEP - are also in the race.

NETHERLANDS - The frontrunner is Finance Minister and Eurogroup Chairman Jeroen Dijsselbloem, who is one of the two big contenders for the key post of Economic and Monetary Affairs Commissioner along with France's Pierre Moscovici.

ESTONIA - Former Prime Minister Andrus Ansip, leader of the liberal Estonian Reform Party, will be the new Estonian Commissioner, according to what Jean-Claude Juncker just said during his hearing with MEPs from the ALDE group.

What is somewhat different with this lot is that it includes a range of acting or former senior ministers still very much operating on the political centre stage in their respective countries. With some exceptions, the time when countries sent to Brussels whoever the sitting government tried to 'get rid of' seems pretty much over.

Cameron better get a move on.

Flexibility and sloppy translations: Could the discussion on EU fiscal rules still endanger Juncker's election?

The Bundesbank attacks Renzi: "He tells us what to do". This is today's front page headline of Italian daily La Repubblica. According to Italian media, Bundesbank President Jens Weidmann yesterday had a go at Italian Prime Minister Matteo Renzi for telling everyone else in Europe what they have to do.

Well, that's not quite what Weidmann said. The full speech is available here. And the exact quote is:

Italian Prime Minister Matteo Renzi, for instance, likens the EU to 'an old, boring aunt, who tells us what we should do.'

In other words, Weidmann was simply quoting Renzi. Quite different from what has been reported by Italian papers, although Weidmann did say in his speech that structural reforms "should be implemented, not only announced" - a Bundesbank Leitmotiv.

A case of 'lost in translation'. Still, Renzi hit back less than an hour ago during his joint press conference with outgoing European Commission President José Manuel Barroso in Rome:

#Renzi: The task of the Bundesbank is not to take part in the Italian political debate.
— Vincenzo Scarpetta (@LondonerVince) July 4, 2014

Sloppy translations aside, this episode highlights that there are some unresolved issues when it comes to what different eurozone countries mean by the 'flexibility' of EU fiscal rules. This may well spice up the European Parliament vote on the appointment of Jean-Claude Juncker as European Commission President, scheduled for 15 July.

A couple of Italian MEPs from Renzi's Democratic Party have said they want "clarity" from Juncker before supporting him. Similarly, the leader of French Socialist MEPs Pervenche Bérès told French daily Le Monde:

We are in a difficult equation. We criticise the [economic] policies of the right. But if we reject this candidacy, we will have no influence on the re-orientation of the policies that Juncker must pursue.

It is too early to tell how this story will end. Juncker is due to meet the centre-left S&D group on Tuesday precisely to discuss the priorities of the new European Commission. We will probably have a clearer idea after that. Indeed, one would assume that, if Renzi or François Hollande told their MEPs to vote for Juncker, MEPs would follow their leaders' instruction. Furthermore, the German and Italian governments are both playing down tensions.

That said, looking at the vote on Juncker in the European Parliament, the three groups expected to back him (EPP, S&D and ALDE) have 479 MEPs in total. The UK Labour Party already said it would vote against Juncker. If French, Italian and maybe Spanish centre-left MEPs did the same, along with the 12 Hungarian centre-right MEPs from Prime Minister Viktor Orbán's Fidesz party (who sit in the EPP group), support for Juncker would suddenly shrink to 389 MEPs.

The required majority is 376, so we would be looking at a much tighter vote. And it's going to be a secret ballot, which adds to the uncertainty. Time for Juncker to get worried? Maybe not yet, but he has already got a quite difficult job on his hands in pleasing everyone when it comes to using the 'flexibility' in the EU's Stability and Growth Pact to its full extent.

Ukraine update – Russian sanctions come to the fore again

We’ve been overdue an update on the situation in Ukraine. Over the past few weeks, as anyone following the news will have seen, the situation on the ground has remained very volatile. The attempted ceasefire was widely disregarded, leading to the Ukrainian government to launch a significant counterattack once it expired.

On the international level though, there seemed to have been some de-escalation: Russia drew back troops from the Ukrainian border, the Russian Parliament removed the government’s right to military intervention in Ukraine (at Russian President Vladimir Putin’s request), Putin welcomed the new Ukrainian President and government and generally softened his tone.

However, in recent days, events seem to be taking a different turn, with several reports suggesting a potential widening of economic sanctions on Russia. Much of this seems down to the fact that many believe Russia has allowed its border with Ukraine to be deliberately permeable and may have directly helped to resupply the pro-Russian separatists both with arms and personnel.

Importantly, Germany has hardened its position on sanctions, earlier this week German Chancellor Angela Merkel said:

“Regarding sanctions against Russia, we have so far reached level two and we cannot rule out having to go further.”

Deputy Chairman of the CDU/CSU Michael Fuchs added:

“If the Russians were to go further on the road which they have recently taken [towards escalation] then we must thoroughly consider whether there should be other sanctions . . . The best sanction is to take less [Russian] gas . . . You don’t even have to call it sanctions, but just don’t buy so much.”

In the meantime, the EU has also completed much of the technical work behind imposing wider economic sanctions, particularly sector specific ones. While, Russia has previously brushed off such threats the WSJ reports today that, according to a leaked document from the Russian Finance Ministry, it is quite concerned. The document argues:

[While Russia] has adequate reserves to compensate (for) the majority of the economic losses caused by sanctions…[they could still have a] substantial impact.”

“The imposition of sanctions on individual sectors of the Russian economy could lead to a worsening of their financial condition, borrowing terms, a rise in the risk premium and an increase in the capital outflow.”

As we noted in our very first report on all of this, sector specific sanctions would certainly hurt Russia, especially in the longer run which is looking increasingly worrisome from an economic perspective.

But while Russia is right to be concerned, as we noted in our Dove/Hawk scale, the EU is incredibly divided over deeper sanctions. While some countries have hardened their stance – notably Germany and the UK – others remain quite opposed, in particular Italy (which fears a restart of economic uncertainty) and France (which remains keen to conclude its military dealings with Russia before any further talk of sanctions). As such, it seems that any clear EU decision on this remains someway off.

On top of this, the standoff over gas supplies to Ukraine continues. Russia continues to insist that all gas from now on must be pre-paid and is demanding an immediate payment of $1.95bn out of a claimed $4.5bn in unpaid bills. Ukraine is refusing to give in, not least because its worsening economic situation means such upfront costs will be very difficult to stomach and may well have to be funded by European bailouts. So far this has avoided blowing up into a Europe-wide issue since transit of gas to Europe has continued but as Ukraine’s reserves dwindle and it seeks to import gas back from the rest of Europe (something Russia said it would prohibit) it could easily quickly spiral into a very serious continent wide problem.

In other areas there have also been renewed tensions. Ukraine finally signed the long awaited Association Agreement with the EU – the factor which essentially started all of this off. Russia remains concerned by such action and has already retaliated against Moldova, with bans on certain imports, which signed a similar deal. Meanwhile, new Ukrainian Defence Minister Valeriy Heletey stressed that the army would retake Crimea, promising, “There will be a victory parade... in Ukraine's Sevastopol.” Whether or not this has publicly manifested itself yet, you can be sure such comments and actions are antagonising Putin and Russia.

The situation in Ukraine remains very fragile but more worryingly little real progress seems to have been made. Russia, Ukraine and the EU remain at loggerheads over the association agreement and gas supply. Ukraine and Russia continue to disagree over the future for eastern Ukraine and Crimea. Despite these longstanding disputes which intermittently flare up and recede, Europe as a whole seems no closer to finding a clear stance or unified position on how to deal with what is happening. 

Italy claims "great victory" over "looser" eurozone fiscal rules

UPDATE (11:30am) - In a separate interview with Quotidiano Nazionale on Saturday, Mr Del Rio explicitly speaks of a "great victory" for Italy at the EU summit.

Here's the full quote:

"The green light to flexibility is the great victory [...] One needs to acknowledge that, thanks to Italy, the work of the summit was not focused on names, but on what to do to move from the time of austerity [rigore] to the true implementation of the [EU's] Stability and Growth Pact. We really won a substantial battle."

ORIGINAL BLOG POST (9:50am)

It was bound to happen.

The battle to make EU fiscal rules more 'flexible' was one of the key issues on the table at last week's European Council summit. Italian Prime Minister Matteo Renzi and French President François Hollande were seeking to make their support for Jean-Claude Juncker conditional on a de facto loosening of the rules. So what was the outcome? Well, depends on who you ask. If you ask Renzi's people, this weekend saw a watering down of the rules.

Graziano Del Rio, Renzi's top aide (see picture), claims thus in an interview with today's Corriere della Sera:

Q: Italy comes back from Brussels with the rule of the 'best use' of the flexibility already provided for [by the EU Treaties]. Isn't that too little to speak of a Europe that abandons austerity and of a victory of the Renzi government?

A: No, it's not too little because it is precisely the lack of use of flexibility that has caused our most serious problems.

Q: So, during its semester of [rotating] EU Presidency, Italy won’t ask to raise the [EU's] deficit limit, the famous 3% of GDP? 

A: I don’t think that’s a rule set in stone forever, but we don’t want to be the ones who move it onto sand. No, we won’t ask to raise the 3% [deficit/GDP threshold]. That’s also to avoid suspicions and titters in Europe, keeping in mind that there are other countries that glaringly breach that limit – and even Germany has done it during a certain period of time.

Q: Excuse me, but what does this greater flexibility mean then?

A: It means that, when deficit is calculated, part of the spending is not taken into account, or, better, it is considered as flexible. The [EU’s] Stability Pact effectively becomes looser. It can be done for co-financing, that is the money Italy is obliged to spend to use EU funds. We’re talking about a figure around €7 billion a year. But there’s also the investment clause, that would allow [us] to leave out of the calculation spending with a high social impact […] We’re talking about a figure around €3 billion. In total, flexibility could be worth €10 billion a year, although it can’t be taken for granted that these two items can be added together.

Of course, everyone is talking about 'interpretation', and no-one will say the rules have been formally re-written. Still, this looks as if the Italian government is claiming they have managed to loosen EU fiscal rules, via a new interpretation. Spin or otherwise, Berlin and Frankfurt won't be entirely pleased.

The Juncker row: Were there any concessions to the UK and what happens next?

The UK suffered a major defeat this afternoon when it was outvoted over Juncker becoming the next president of the European Commission. However, this isn't the end of the road for reform – not even close – but it certainly has strengthened the risk of Britain leaving the EU. See here for a our full analysis of this.

So did the UK get any early concessions? In his press conference, David Cameron took his defeat on the chin and said it would make his reform strategy harder:

“Today’s outcome is not the one I wanted. And it makes it harder, and the stakes higher…This is going to be a long, tough fight and sometimes you have to be ready to lose a battle to win a war. It has only stiffened my resolve to fight for reform in the EU, because it is crying out for it.”

Cameron was asked whether much more of this kind of thing would prompt him to recommend an ‘Out’ vote in a referendum. He declined the offer but did make the point that:

“And at the end of 2017, it will not be me, it will not be the House of Commons, it won’t be Brussels who decide about Britain’s future in the European Union. It will be the British people. It will be their choice, and their choice alone.”

 There were three nods to the UK in the Council conclusions:

• “The UK raised some concerns related to the future development of the EU. These concerns will need to be addressed.”

• “The European Council noted that the concept of ever closer union allows for different paths of integration for different countries, allowing those that want to deepen integration to move ahead, while respecting the wish of those who do not want to deepen any further.” 

• “Once the new European Commission is in place, the European Council will consider the process for the appointment of the President of the European Commission for the future, respecting the European Treaties.”  

Any of this significant? It’s the basis for a conversation but can mean anything and nothing at the moment. It falls way short of compensating for the defeat inflicted on Cameron. As we argue, it all depends on what happens next.

There were also this on the role of national parliaments:

"In line with the principles of subsidiarity and proportionality, the Union must concentrate its action on areas where it makes a real difference. It should refrain from taking action when member states can better achieve the same objectives. The credibility of the Union depends on its ability to ensure adequate follow-up on decisions and commitments. This requires strong and credible institutions, but will also benefit from closer involvement of national parliaments."

Again, hardly earth-shattering. So what happens next?

Well, in the short-term, there are three things to watch:

1. Will there but further nods to Cameron over the next few days and weeks? There’s already talk of Merkel, Hollande and Cameron doing something jointly. 
2. Who will become the European Council President? This is in many ways the person who will broker the agreement between EU leaders that will decide whether the UK will stay in the EU. This will be decided at an EU summit on 17th June. 
3. The other portfolios in the European Commission and who will become the UK’s candidate. Surely, Cameron must now respond by sending a big hitter to secure a top job?

Post-Juncker press conference round-up

We have been following the post-summit press conferences of EU leaders. Here is a round-up of the highlights, starting with German Chancellor Angela Merkel:

MOST IMPORTANT POINTS FROM #MERKEL #EUCO PRESSER: (1/3) "Ever closer union" does not mean one-speed Europe.
— Open Europe (@OpenEurope) June 27, 2014

MOST IMPORTANT POINTS FROM #MERKEL #EUCO PRESSER: (2/3) #spitzenkandidaten process will have to be discussed in #Council.
— Open Europe (@OpenEurope) June 27, 2014

MOST IMPORTANT POINTS FROM #MERKEL #EUCO PRESSER: (3/3) "flexibility" on fiscal pact does not mean member states get to re-write the rules.
— Open Europe (@OpenEurope) June 27, 2014

In his press conference, David Cameron took his defeat on the chin but noted that it would make his reform strategy harder:

“Today’s outcome is not the one I wanted. And it makes it harder, and the stakes higher…This is going to be a long, tough fight and sometimes you have to be ready to lose a battle to win a war. It has only stiffened my resolve to fight for reform in the EU, because it is crying out for it.”

Cameron was asked whether much more of this kind of thing would prompt him to recommend an ‘Out’ vote in a referendum. He declined the offer but did make the point that:

“And at the end of 2017, it will not be me, it will not be the House of Commons, it won’t be Brussels who decide about Britain’s future in the European Union. It will be the British people. It will be their choice, and their choice alone.”

He also pointed to the paragraph in the Council conclusions dedicated to the UK:

1. The UK raised some concerns related to the future development of the EU. These concerns will need to be addressed.  

In this context, the European Council noted that the concept of ever closer union allows for different paths of integration for different countries, allowing those that want to deepen integration to move ahead, while respecting the wish of those who do not want to deepen any further.  

Once the new European Commission is effectively in place, the European Council will consider the process for the appointment of the President of the European Commission for the future, respecting the European Treaties.

Italian Prime Minister Matteo Renzi was particularly keen to claim victory on a more 'flexible' application of EU fiscal rules. Van Rompuy’s agenda for the next European Commission is “very very very good on substance. For the first time, the focus is on growth. Insisting on growth is a turning point for Europe,” he said.

“Those countries who implement structural reforms have the right to greater flexibility, which is the most important political point for us.”

Renzi also touched on other EU top jobs, and made clear that:

“The name of [former Italian Prime Minister] Enrico Letta for European Council Presidency has never been made”

As for French President François Hollande, he tried to wrap his battle for looser EU fiscal rules into a European flag:

“I did not intervene only to defend France. When I evoke the flexibility in the margins of the Stability Pact [EU fiscal rules], I defend a conception of Europe.” 

And as regards the next European Commission, he said France wants “an organisation around big Vice-Presidencies. I will demand a Vice-Presidency for France.”

Read our take on what Cameron's defeat means for the reform agenda here.