Irony alert as Poles ride to UKIP's rescue in a classic Brussels stitch-up

We reported only a few days ago that UKIP's EFDD group in the European Parliament collapsed after a Latvian MEP resigned, meaning the group no longer met the criteria of having MEPs from at least seven different EU member states. The news drew a lot of media attention (not to mention schadenfreude) mainly due to the financial implications for UKIP - which, according to our estimates, stood to lose nearly €2 million a year in EU funding.

Today, it was announced that Robert Iwaszkiewicz, an MEP with Janusz Korwin-Mikke's KNP (pictured) has joined the group. Korwin-Mikke himself was deemed too toxic to join the UKIP group after the European elections given his controversial views on rape (women always "pretend to resist") and the Holocaust (no evidence Hitler knew about it), and that was before he provoked a full-blown race row. Iwaszkiewicz himself is hardly baggage free; during an interview about with Gazeta Wrocławska a couple of months ago, when asked about domestic violence, he said that:

"I'm convinced that many a wife would benefit from such a response in order to re-connect with reality."

When asked about his Korwin-Mikke's views as described above, he said that "these are taken out of context... when considered broadly, they make sense". In any event, this does not appear to be a principled defection - but rather a classic Brussels-style dirty deal. Polish daily Rzeczpospolita reports that Korwin-Mikke and Farage struck an agreement which would see Iwaszkiewicz's transfer mirrored by an MEP from the EFDD move to the 'far-right' bloc led by France's Marine Le Pen, which also includes Geert Wilders's PVV, the Austrian Freedom Party and Lega Nord, and fell one nationality short of forming an official group during the summer. The paper describes this a "binding transaction" and quotes Iwaszkiewicz as saying that:

"Negotiations are on-going. It was necessary to save them and I had to join urgently".

It remains unclear therefore whether an MEP from the EFDD will definitely join the Le Pen group - but that seems to be the implication. Because of the way the nationalities are represented over the two groups, it would either have to be one of UKIP's 24 MEPs or one of the two Sweden Democrats.

If the former, UKIP and Nigel Farage will face some uncomfortable questions given the extent to which they have tried to distance themselves from the Front National. Regardless, this incident just underscores the absurdity of these taxpayer subsides for European Parliament groups.

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

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

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

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

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

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

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

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.    

MEPs' great hope for more EU democracy and transparency to be decided by... a secret ballot

Own-goal alert.

When selected as the Socialists' candidate for the European Commission President, Martin Schulz claimed that:

“I want to be the first President of the Commission who is not the result of a backroom deal in a Brussels office."

This is the main argument advanced by supporters of the spitzenkandidaten process (including by the current front-runner, Jean-Claude Juncker) i.e. that having the Commission President nominated by the largest political group within the European Parliament is more transparent and democratic than the previous process whereby EU leaders agreed the Commission President amongst themselves. For the first time, voters would be able to directly determine who would get this crucial post., and be able to hold politicians to account for their choice.

However, when the Parliament itself comes to vote on the appointment, as per its rules of procedure, the vote is held by, wait for it, a secret ballot: 

Rule 105 : Election of the President of the Commission

1. When the European Council proposes a candidate for President of the Commission, the President shall request the candidate to make a statement and present his or her political guidelines to Parliament. The statement shall be followed by a debate.

The European Council shall be invited to take part in the debate.

2. Parliament shall elect the President of the Commission by a majority of its component Members.

The vote shall be taken by secret ballot.

Although this is not a new development - Barroso was confirmed by secret ballot - this time it was supposed to be different. It is hard to stress just how absurd it is for MEPs to decry a "stitch-up" by national leaders and then refuse to allow themselves to be subjected to scrutiny. If the idea is to make the appointment process more transparent and to 'put voters in charge', how can voters hold their MEPs to account when they do not know how they voted? How will - for example - Labour voters know if their MEPs will follow the party line and vote against Juncker should he emerge as the European Council's preferred candidate?

For all the laudable talk about democracy, transparency and accountability, critics will be forgiven for thinking that this is about the European Parliament trying to carve out more power and influence for itself within the EU structure. Yet another reason to drop the spitzenkandidat charade and allow national leaders - who have a much stronger democratic mandate - to make this decision.

Who will win the race for the most anti-EU MEPs: Farage or Le Pen?

***Update 18:30*** 

We flagged up earlier that Beppe Grillo was in talks with Nigel Farage and it looks like they have gone well:

#Grillo and #Farage agree to "begin discussions" over new EP group. They will meet again in coming weeks. http://t.co/5CSRVAXyCI #EP2014
— Vincenzo Scarpetta (@LondonerVince) May 28, 2014

This could be a very interesting development - stay tuned!

***Original Post***

The dust is beginning to settle after the European elections, and aside from the drama over the appointment of the European Commission President, the other big developing story is the exact composition of the groups within the new European Parliament.

As we predicted in our pre-elections briefing, despite many commentators predicting the its demise, the ECR group survived, albeit in a diminished state. However, there is a chance it could still end up making up its loses by attracting fresh recruits such as the Belgian N-VA, the Finns party, and, more controversially, the AfD or the Danish People's Party. There has been speculation that Law and Justice could move to the EPP but we consider this unlikely.

Therefore, the big question is: how will the record number of seats for a whole range of anti-EU and protest parties translate into EP groups? (regular readers will know you need at least 25 MEPs from at least 7 different member states). Assuming there will be no formal alliance between the two, the question is whether there will be two 'anti-EU' groups - a 'moderate' group headed by UKIP and Nigel Farage and a 'far right one' headed by Front National and Marine Le Pen, and if so, which one will be larger. Farage and Le Pen virtually have the requisite number of MEPs on their own but it remains to be seen whether they can get 6 other national factions on board.

As we illustrate below (click to enlarge), theoretically, the numbers are there for both but it depends heavily on how exactly the parties end up lining up. UKIP's EFD group are potentially more attractive to new members, but they are also more vulnerable to losing MEPs both to the ECR and to Le Pen's new European Alliance for Freedom (EAF) group, with Lega Nord having already jumped ship.

Click image to enlarge

Le Pen has just given a press conference in Brussels, but nothing new emerged. For the moment, her alliance includes five countries and 38 MEPs - what she described as an "extremely solid basis". Therefore, two more countries (and parties) are needed to wrap up a group, but Le Pen, Wilders & co. were all extremely tight-lipped when asked what these parties could be.

While the neo-fascist MEPs will remain beyond the pale for everyone, the question is will Farage and Le Pen want to link up with parties like Janusz Korwin-Mikke's Congress of the New Right? This could be the missing piece of the jigsaw for both Farage and Le Pen but given that Korwin-Mikke has said that it is "not possible to rape a woman" and that "there is no proof Hitler knew about the Holocaust" the question is whether the domestic reputational costs of such an association would outweigh the benefits. An intriguing possibility would be a Farage-Grillo alliance (the two met today) but ultimately we think this is unlikely.

One potential - and highly ironic - scenario would be if neither group attracts enough national factions in order to satisfy EP rules thereby missing out both on lucrative taxpayer subsidies as well as a highly visible platform from which to undermine the EU from within. In the longer term, could this yet lead to a rapprochement between Le Pen and Farage?

The 2014-2020 EU budget: The deal that never was?

After the umpteenth round of talks on the next long-term EU budget between negotiators from the Irish Presidency, the European Parliament and the European Commission, Ireland's Deputy Prime Minister Eamon Gilmore announced yesterday,

"We have concluded negotiations on the EU's multi-annual budget for the next seven years [2014-2020]. I have reached an agreement with the European Parliament's chief negotiator. We have agreed a package that we are both going to recommend to our respective institutions...This is a balanced package that addresses all four of the issues identified by the European Parliament as important for the EU budget." 

In exchange for agreeing (through gritted teeth) to a historic cut in overall spending from the 2007-2013 budget period, MEPs would secure concessions on "more flexibility" between spending areas and annual budgets, plus a mandatory 'mid-term review' of the long-term budget in 2016. There was also an agreement on "a method for carrying forward discussions" on direct taxes for the EU budget - whatever that means - but no binding commitment.

All sorted? Not quite. Alain Lamassoure, the French centre-right MEP who is heading the European Parliament's negotiating team, told a rather different story to AFP,

"Some members of the European Parliament's delegation are very cautious [on the outcome of the talks], and it's for this reason that I couldn't commit the European Parliament."

The leaders of the main political groups in the European Parliament will meet on Tuesday to decide whether or not they are happy with the latest compromise on the table. In other words, it seems the Irish Presidency was so eager to end its term with a landmark deal that it got a bit ahead of itself.

And not without consequences. German MEP Reimer Böge, from Angela Merkel's CDU party, resigned as the EPP rapporteur's on the 2014-2020 EU budget this morning in protest against what he described as "nothing more than a manipulation" from the Irish Presidency. According to him,

"The European Parliament's negotiating team last night decided not to continue the negotiations, if they can be called such at all, and submit the texts to the European Parliament."

A 'deal' that turned out not to be a deal after all. We can only wonder what ordinary citizens make of all this posturing, brinkmanship and back-room horse-trading.

Moreover, several important questions remain unanswered. How would this 'revision' work exactly, and what would it involve? Are MEPs prepared to drop their demand for it to take place under QMV and not unanimity? What's the point of having a non-binding discussion on 'own resources', given that there's no appetite for direct EU taxes across the bloc?

Ultimately, MEPs should be careful not to overplay their hand in seeking concessions - if push came to shove would they really veto the agreement painstakingly negotiated by EU leaders?

Things should become clearer next week. For the moment, it's worth keeping in mind that, whatever the outcome of the negotiations with MEPs, the deal will have to be endorsed by EU member states by unanimity - meaning that the UK would still have a veto over it. 

Could the EU budget be cut for the first time?

The rumours are flying in thick and fast from Brussels regarding the latest EU budget numbers and the likelihood of a deal. The range estimates we laid out in our briefing still stand up, with several suggestions that Herman Van Rompuy's latest proposal will be for €959bn in commitments and as low as €913bn in payments. In terms of figures this would represent a significant victory for the UK and other states that want to see budgetary restraint. Below is how such a deal would compare to Van Rompuy's November proposal, and more importantly, the current long-term EU budget (MFF).

Of course there are still plenty of twists and turns to come in the negotiations, not least how the headline figures above are distributed across the different headings such as the CAP, structural funds, administration etc. Follow us on twitter for the latest developments.

EU Summit: Everyone is a winner... for now

As is traditional, a leaked copy of the next EU Summit Conclusions has already been making its way around the media long before the summit has even commenced (due on 17-18 October).

As it is still an early draft, little can be drawn from these 'conlcusions' but so far the officials charged with drawing them up seem to have dropped in something for everyone:

France, has received a mention of an EU Financial Transaction Tax despite, as we reported yesterday morning, it still being far short of the nine states needed for the project to get off the ground.

Germany, has received an assurance that there will remain a "clear separation" between the ECB's monetary policy and its new supervisory functions - another clear hat tip to Bundesbank demands that price stability (inflation) remains the ECB's primary focus.

The UK and other non-euro states, have recieved an assurance that there will be a "level-playing field" (an English expression) in the new supervisory structures under the proposed eurozone banking union and that the "integrity of the single market" will be preserved for financial services.

The UK has also managed to insert a phrase regarding the "voting modalities" in the European Banking Authority, which the document suggests will be looked at to ensure non-eurozone countries will not be prejudiced by a Eurozone caucus.

The MEPs, often an obstacle when it comes to financial regulation, have been promised that the ECB will have "appropriate accountability" in its newly widened role. This is unlikely to placate their desire for new powers but might buy some peace.

Spain, has received wording designed to calm its bond market by raising the prospect of ESM direct bank recapitalisation including 'legacy assets' (i.e. bank bailouts which have already taken place being shifted onto the ESM books). The draft wording calls on the Eurogroup (read Germany, Finland and the Netherlands) to "agree on the exact operational criteria that will guide bank recapitalisation by the ESM in full respect of the 29 June Euro Area Statement". This could still go either way, but Commission President Jose Manuel Barroso has made it clear that he wants Germany to stick to the plan as was originally envisioned/interpreted.

This is, of course, all well and good, but we find it hard to imagine that the final conclusions will be able to maintain what everyone wants. There are likely to be some fights along the way (not least over the last point), lets hope the UK Government is ready to ensure its needs remain included.

Will Merkel's fiscal treaty become a hostage of the FTT?

As we reported in yesterday's press summary, given that the recently signed 'fiscal treaty' will impact on the budgetary autonomy of the Bundestag, it will have to be ratified in both houses of the German Parliament by a two-thirds majority.

Here are some basic Bundestag mathematics: out of a total of 622 MPs, Merkel's coalition has 331 (195 from CDU + 43 from CSU + 93 from the FDP), far from the 415 MPs necessary for the two-thirds majority. So Merkel will definitely need to have some of the SPD's 146 MPs on side, and would also like to be able to count on the Greens' 68 MPs just in case. The remaining opposition party, Die Linke rejects the very premise of the treaty so all its 76 MPs are highly likely to vote against.

However, the SPD and Greens have already said their consent is conditional on a number of concessions from Merkel, most notably: a 'growth programme' to balance out the budgetary discipline element of the treaty and the introduction of a financial transaction tax (FTT - its not clear if they want it in just the eurozone or the EU as a whole, although the latter looks impossible). The SPD’s leader, Sigmar Gabriel told German radio that:

"Whether we vote in favour or not depends on whether Mrs. Merkel makes substantial offers to improve the fiscal pact. I can only urge Merkel to finally take care to ensure that her government ceases to oppose the taxation of financial markets.”

This has not gone down with the FDP, who have long been opposed to a FTT unless imposed across the whole EU as minimum. The party’s General-secretary Patrick Döring described the prospect of tying the ratification of the treaty to the introduction of an FTT as “inconceivable” and “irresponsible”, while parliamentary faction leader Rainer Brüderle criticised Gabriel, arguing that:

"This is no place for ideological battles for the purpose of winning future elections. The situation demands statesman-like responsibility from all concerned."

As things stand there is a classic stand-off over the issue, with significant risks for all parties concerned:

Giving in to demands for a FTT or weakening the budgetary discipline in the treaty further, would undermine Merkel's support within her own party and threatens to split the coalition - which could trigger early elections. That said, the threat of early elections may be just enough to keep the FDP in check given their dismal recent poll results. It would also cause huge problems for Merkel in Europe given that she has expended so much political capital on pushing this treaty through.

The SPD and the Greens are far from cohesive on all issues either and getting embroiled in a full debate on this issue could expose flaws in this fledgling partnership. Furthermore, the German public seem to be losing patience with politicians inability to tackle the eurozone crisis - further posturing on the issue for political gain could easily backfire.

In the end then consideration of these risks and the trend for orderly consensual politics in Germany means that the approval of treaty still looks highly likely, posturing aside. Nonetheless it looks as if Merkel will have to offer the opposition some concessions (e.g. the FDP have indicated they could stomach a watered-down FTT along the lines of the UK’s stamp duty). The extent of these could have a big impact on the power base of the current government and the outcome of the next election.

The vote itself is not scheduled until the 25th May, so there is 'plenty' of time for the party leaderships to hammer out a deal between themselves and present it to their MPs to be rubber-stamped...