Carbon price hits eight month low

According to Point Carbon, carbon prices for permits traded within the EU Emissions Trading Scheme (EUAs) have "crashed", and are now priced at less than €20/tonne. The chart below illustrates how far the price has come down over the course of just one month.



We have made the point repeatedly that price volatility is a major flaw in carbon markets, and acts as a serious disincentive to large-scale capital investments designed to cut carbon emissions. Decisions on this scale of investment take place over a timeframe of years, possibly decades, making it very difficult for big polluters to make plans on the basis of an erratic carbon price signal.

Carbon prices are driven by scarcity in carbon permits, which in turn is determined by a number of complex and unpredictable factors - including weather patterns, fossil fuel prices and expected economic growth. The latter two factors in particular are behind the current slump in prices in Europe.

The judgement of bureaucracies (in this case the Commission) - who need to determine the final number of permits to be issued - is of course a key driver of carbon value in cap-and-trade schemes such as the ETS. And it is apparent that these officials were unable to predict a big slump in oil prices and recession in Europe. If winter turns out to be unusually warm, this could push prices down even further...

This illustrates the intrinsic problem of the ETS and systems like it: bureaucrats cannot predict the future, and can never have the knowledge or resources to be able to set the allocation of carbon permits at the "right" level for a five or seven year trading period.

When things don't go the way the officials expected, the result is volatility in the price of carbon. That's why we think it's time for emissions trading to be replaced with a solid, long-term carbon price mechanism such as a tax.

Drivel

An FCO press release this morning confirms our new Europe Minister Caroline Flint intends to carry on in a long line of politicians telling us we should accept the EU institutions and all their problems because... we have European friends, take European holidays and eat European food.

She told an audience at the University of Leeds:

"Britain is an island nation, but our instinct is international - we shop at European fashion shops, we eat at pizzerias, we holiday on the Mediterranean. So why do people distrust the European Union and feel distant from its institutions?"

"If the EU didn't exist, in the last few weeks we would have wanted to create it."

Genius.

Great timing

Europe is heading for a recession. The UK is experiencing the biggest jobless rise in 17 years. Barclays has predicted that there could be 150,000 fewer SME's in England and Wales by early 2010 - a prediction that was made before the financial crisis went all out.

The response of the European Parliament? To pass a law that will reduce jobs and impose more red tape - in particular for small businesses.

The Temporary Agency Workers Directive will give 'temps' the same pay as permanent staff after only 12 weeks of employment - a drastic change compared to the present arrangement in the UK. The CBI originally argued that the 'qualification period' should be 18 months, and estimated that the proposal could cost Britain 250,000 jobs.

There are lots of issues on the table here, but the main one is no doubt the disastrous timing. If anything, small businesses need breathing space to find a way through the rough times ahead. But the nature of business has never been the EP's strongest area - only 14% of MEPs have any business experience whatsoever.

Neither does it help that the EP may vote to scrap the UK's opt-out from the Working Time Directive, whose extension the Government supposedly got in exchange for accepting the Temp Directive in the first place. Talk about a potential double-whammy...

Anyhow, the TUC is happy - and one can hardly blame them. John Monks, its General Secretary is quoted on PA:

"The passage into law of today's directive means that opponents of more rights for temps have now lost, and the UK cannot now opt out of better rights for agency workers."

He got that right.

Nein, Danke

Sarko has been busy cooking up a new plan to keep himself in the EU hotseat past December. He wants to create a "European economic government", partly by establishing a parallel EU Council of eurozone leaders, of which he will be President for the whole of 2009.

According to Le Monde, he neglected to consult Angela Merkel about the idea before announcing it in the European Parliament yesterday, along with plans for a sovereign wealth fund, and a plethora of protectionist measures - "I don't want the citizens of Europe to wake up in a few months and discover that European businesses belong to non-European capitals", he said.

Well Spiegel has helpfully put together the reaction from across the German political and media lanscape today. And it ain't good.

Czech update

Sarko, Barroso et al will be watching the upcoming Senatorial elections in the Czech Republic with eagle eyes. One of the Lisbon Treaty's crucial hurdles hangs in the balance.

The Civic Democratic Party ODS suffered a major blow in regional elections to the Social Democrats and is expected to lose again on Thursday and Friday, thereby risking losing their tiny majority.

If the Czech Constitutional Court then decides that the Lisbon Treaty doesn’t transfer sovereignty away from the country, a simple majority will suffice for the Social Democrats to pass the Lisbon Treaty in the Senate. In the other, more likely case, a three fifths majority is required in the Senate (as detailed in footnote 27 of this paper).

In the latter scenario, the ODS just might be able to block the Lisbon Treaty, depending on how they do in the elections (two fifths means they have to keep 33 of their 41 seats). But even then it's not certain Lisbon will be ditched, as Prime Minister Mirek Topolánek supports it, unlike President Václav Klaus. Their disagreement reflects differing views within the ODS Party on Lisbon - so it all depends on which ODS Senators get re-elected.

If Lisbon does get through the Parliament, President Klaus might try to re-launch the case before the Constitutional court when he has to ratify the Treaty. This will delay ratification even further. Ultimately he could just refuse to sign the Treaty, as it is not clear from the Czech Constitution whether the President has the right not to ratify a Treaty approved by Parliament, so the matter might eventually have to be decided by a Court ruling, again resulting in delay.

This would leave efforts by EU officials to isolate Ireland frustrated and reduce the political leverage of a Czech EU Presidency to press all member states for ratification.

MPs slam Lisbon Treaty's provisions for parliaments

A new, but belated, report on the Lisbon Treaty's provisions for national parliaments from the cross-party EU Scrutiny Committee makes for very interesting reading.

Just to pull out some of the best bits, the committee concludes: "we doubt whether the Lisbon Treaty's new subsidiarity provisions about the role of national parliaments would make much practical difference to the influence presently enjoyed by the UK Parliament", and says, "we doubt the significance of the 'greater opportunities' for national parliaments to be involved in any meaningful manner in the workings of the EU."

The Committee notes that "if national parliaments trigger the yellow or orange card procedures, the decision on whether a proposal is compatible with subsidiarity will continue to rest with the EU institutions." It also notes that, "There may in future be proposals where it might be difficult to deny that collective action by the EU would be the most effective way to achieve a Treaty objective, but where a national parliament would strenuously object to the proposal because it infringes national sovereignty. If a proposal were objectionable on grounds of sovereignty alone, neither the yellow nor the orange card procedures would be available to national parliaments."

The report quotes Andrew Duff MEP, who told the Committee: "there is a danger that, in assessing the Treaty of Lisbon, national parliaments become obsessed by the early warning mechanism on subsidiarity. It was understood by those of us involved in its drafting and, then re-drafting that the mechanism, although a necessary addition to the system of governance of the Union, was not really intended to be used. It is, in Bagehot's terms, more a dignified part of the European constitutional settlement than an efficient one." Richard Corbett MEP also told the Committee: "in practice, I do not think that the 'yellow' and 'orange' card mechanisms will be extensively used."

It's just a shame this damning opinion on the sham that is the Lisbon Treaty's so-called new provisions for national parliaments wasn't released in time to have an impact on the UK ratification of the Treaty.

Sarko puts in for overtime

According to Belgian daily De Standaard, EU Commission President Jose Barroso is "lying awake at night" worrying about the fact that soon Nicolas Sarkozy will no longer be EU Council President. Instead, it will be the Czechs, who will take over the rotating presidency for six months from January.

So much so that apparently the EU legal services have been investigating whether or not it would be possible to extend Sarkozy’s presidency beyond December, because Barroso wants “continuity”.

Last week on his blog French journalist Jean Quatremer quoted an unnamed minister from one of the smaller countries saying: “We fear the worst with the Czech eurosceptics”, after President Vaclav Klaus said that he would not be flying the EU flag on the presidential palace during the Czech EU Presidency. You'll remember the Czech President was the only EU leader to welcome the Irish no vote and call for it to genuinely be respected.

Of course Barroso, Sarko et al have been harping on a lot over the last few years about the need for the Lisbon Treaty and the permanent EU President it would introduce. But in the last week their impatience has hit new levels as the prospect of a less than completely blinkered pro-integration EU Presidency looms in the shape of the Czech Republic.

In a press conference on Thursday Sarkozy said: “We cannot work like this, changing every six months on such important subjects… For example, on the establishment of an agreement between the Russians and the Georgians – with Bernard Kouchner, we knew exactly what was going on, all the ambiguities… it is a bit frustrating to deal with a thing like that then to not manage it afterwards.” Barroso apparently then recognised the need for “a leadership for European states” and then suggested Sarkozy become the first permanent EU President.

Clearly, attempting to strip the Czechs of their six months in the hotseat would be politically impossible, although in theory, there is some room for flexibility. In 2007 the Council agreed that: “The Council, acting unanimously on a proposal from the Member States concerned, may decide that a Member State may hold the Presidency during a period other than that resulting from the order established in the Annex hereto.”

Great piece

by Sholto Byrnes on the Guardian's Comment is Free today

Too little, too late

In the Mail on Sunday, Peter Hitchens told us something very interesting indeed.

The NSPCC have apparently admitted that a statement made in December welcoming the signing of the Lisbon Treaty and calling for “a speedy ratification in all EU member states”, should never have been made.

You may remember that the statement was later used by Foreign Secretary David Miliband to persuade Labour MPs to vote for ratification of the Treaty in Parliament. As well as using it in an official party briefing paper, with the legend "Their words, not ours", he also stood up in Parliament and told the House:

“The NSPCC pledged its support, as have One World Action, Action Aid and Oxfam. Environmental organisations support the treaty provisions on sustainable development and even the commission of bishops supports the treaty. This is a coalition, not of ideology, but integrity”. As Peter Hitchens says, "Endorsement from such a respected, independent body is priceless."

Well the NSPCC now admit that they withdrew the statement when they realised it had gone too far for a non-political charity. The statement was made in the name of the charity’s Chief Executive, Dame Mary Marsh, who now says she has no recollection of ever having made or authorised it, although the NSPCC’s Chairman, Sir Christopher Kelly, has assured that records show that Dame Mary did authorise the statement.

Peter Hitchens writes: “Her statement, though known to be a serious error, was allowed to remain on the record for months while it was used to influence the outcome of a Parliamentary vote. And the NSPCC, which survives on public and official donations, did nothing to correct what it well knew had been a serious mistake.”

And guess where some of those public donations come from? Well the EU Commission of course. In fact, a written answer to the Commission from MEP Dan Hannan revealed that all of the charities Miliband used to support his stance on the Lisbon Treaty are in receipt of significant amounts of EU funds.

EU 'leadership' on climate change

One of the main gripes the Polish government have about the EU climate and energy package is the proposed reforms to the Emissions Trading Scheme, which from 2013 would force power generators to pay for all their carbon credits rather than receiving them for free.

Given that coal power is about twice as carbon intensive as gas, the graph above shows why the Poles are so upset...

According to Polish officials cited in the WSJ, Polish coal fired plants would need to pay 4.8bn euros per year under the plans.

Leaving aside the debate about making power generators pay for carbon credits (free permits have led to huge windfall profits for these firms, paid for by electricity consumers) this issue exemplifies the problems of adopting such a complex, centralised, and prescriptive approach to cutting carbon emissions.

It would have been far more politically sensible and realistic for the EU to just focus on securing agreement on simple targets for absolute cuts for carbon emissions, and making sure these are properly implemented and enforced. This would allow member states to choose the most appropriate and cost-effective way of reaching these targets and fighting climate change.

Although the Commission has grandious visions of itself as "leading the world" through its approach of micromanaging national energy policies, there's no point formulating policy like this if the only effect is to scare off national governments who - unlike the Commission - are accountable their electorates, and don't want to see their voters freeze or lose their jobs.

Because the Commmission has insisted on such an overpriced and interventionist way of dealing with climate change, the effect will be simply to kill off the possibility of winning consensus within Europe. And that will damage the chances of a more important global agreement on climate change.

If we do see an EU agreement, the likely deal will only come after a string of pretty substantial concessions to the current 'troublemakers', leading to an even more complex web of industrial subsidies, fiscal transfers and economic distortions. As well as free carbon permit allocations to politically favoured industries, there could well be a big increase in the quota of external offset credits from outside Europe (which often just contribute to more pollution). France and others will continue to push for 'green tariffs' on goods from countries with climate policies that are not to their liking, opening up a pandora's box of EU protectionism and tit-for-tat tariff raises with China, India and the US. In a few years time, when it becomes clear the renewables targets are a bad idea and not physically achievable, this part of the agreement will also begin to unravel.

This is not an example the Chinese or Americans are likely to be keen to follow.

By making such an expensive mess of its carbon policy, the EU will not only discredit itself but will also weaken the chances of a global consensus on the issue, and strenghten those who would rather see no action at all on climate change.

So much for European leadership on climate change

Brown 3, Sarkozy 0

From the Evening Standard's 'Match of the Day' column:

British diplomats have not had so much fun for years. France's President Sarkozy was ever more desperate to claim credit for the banking rescue. But Brown stole the show. The PM normally slinks in late for EU summits but he arrived early to hog the limelight. Then he hijacked the announcement of a G8 crisis meeting by calling a sneaky British press conference.

Sarkozy, the summit chairman, tried to catch up by re-announcing everything. But while he kept calling it "the European Plan" others talked about "the Brown Plan".

Gordon Brown v Nicolas Sarkozy
Ground: Brussels Kick off: Noon Score: Brown 3, Sarkozy 0

Italian government on the warpath against "hellish" hedge funds

Thanks to the FT Lex column, we are informed that Giulio Tremonti wants to abolish all hedge funds. The article notes that "In the Italian media, Mr Tremonti’s rantings never made headlines", and speculates that "this was possibly a charitable decision to gloss over yet another embarrassing sweeping statement from the former tax accountant turned finance minister".


Tremonti has declared that hedge funds are “absolutely crazy bodies which have nothing to do with capitalism” and has warned that when Italy takes over the presidency of the G8 from Japan in January, it will put the utter destruction of this “hellish $2,000bn industry” on the agenda.

Given that hedge funds are apparently the work of satan, one can only imagine what Tremonti must think of the City of London...

Chart from: London Economics/ Eurohedge database

Watch out Cowen, angry MEPs are after you

Somebody is hopping mad about the Irish no vote.

According to the Irish Times Spanish MEP Íñigo Méndez de Vigo yesterday demanded the resignation of Irish PM Brian Cowen:

"You're not going to stop us. We'll go ahead [with Lisbon]. There are ways to do it. This is the history of the EU. If compromise is not possible, the others will go ahead. To me it is shocking that a government that held a referendum and failed is still in office. A government that puts a question to a referendum and loses has to resign: that's democracy."

Er, a government that puts a question to a referendum and loses has to scrap the idea - surely that's democracy?

Anyway - it's definitely one of the more sinister threats we've heard since the no votes - "There are ways to do it. This is the history of the EU."

GULP. He is certainly right about that.

Oh dear

Sarko is *not* happy with Brown getting all the credit right now...

From PA:

Officials have privately noted that Nicolas Sarkozy has been unhappy with the degree of praise being lavished on Mr Brown.

And signs of tensions between Mr Brown and the French president emerged into the public arena this evening.

On Newsnight last night French Finance Minister Christine Lagarde had clearly been told to stress Sarko's role in the handling of the financial crisis - mustn't have Brown taking all the limelight.

A likely story

Luxembourg PM Jean-Claude Juncker has told a German newspaper that Gordon Brown "begged" to be let into the meeting of the eurozone leaders at the weekend: (Hat-tip the Mail's Benedict Brogan)

He said: "The British prime minister had to beg to be let into the room in which the euro group was meeting. I'm sure that when the storm is over, the British will think about whether they shouldn't become an equal in all decision-making bodies."

Hmmm - Brown giving up years of staunch opposition to the euro so that he gets a paper invite to more meetings in Brussels? A likely story...

A warning from the ECJ

The Advocate General of the ECJ has said that an EU law on harmonising telephone and internet data retention rules is an internal market, not a justice and home affairs issue, and therefore was correctly decided on by qualified majority vote back in February 2006. (see here too)

The Directive - seen as a response to the 7 July bombings in London - sets a time period of six months to two years during which telecom operators are to keep phone and internet data.

Ireland challenged the decision, arguing that it was made on the wrong legal basis, and should have been decided by unanimity, under the justice and home affairs provisions in the EC Treaty. The Advocate General opinion is not binding, but it does give an indication as to how the ECJ will rule in the end.

Regardless of the no doubt complicated details of the case, not only is this further evidence of the ECJ's 'power grab' but it is also an example of how QMV can be very problematic for member states - particularly the smaller ones like Ireland.

When talking about the Lisbon Treaty, its supporters - including the UK and Irish governments - have persistently dismissed arguments that it would lead to the loss of the veto in sensitive areas of policy, including justice and home affairs. We were constantly told that this wouldn't matter because votes are barely ever actually taken, with consensus being the normal way to reach decisions in the Council.

But now we see that actually, it does matter. The Irish government, which has been arguing so viciferously in favour of more QMV and a 50% loss in Ireland's power to block legislation it dislikes through the Lisbon Treaty, has behind the scenes been trying to get a JHA decision reversed because it wanted to be able to block it.

The ECJ will be pleased that it will no longer have to deal with such quibbles once Lisbon is in force - it will be quite clear in which areas (the vast majority) QMV will apply.

Don't say we didn't warn you.

A £79K day at the slopes

It's difficult to beat the efforts to turn Barnsley into a Tuscan hill village as an example of how the EU wastes money, but this comes fairly close:

The European Union has given £79,000 to a Danish businessman to build a ski slope - on an island where snow rarely falls and there are no high hills.

Ole Harild lives on the island of Bornholm, in the Baltic Sea, which is known for its sunny climate and lack of snow.

Mr Harild had been unable to go skiing abroad one year with his wife because of work and came up with the idea of building his own Alpine ski run for the island.

Not thinking it would come to anything, Harild put in a request for an EU subsidy in the winter of 2006.

"I never thought they (the EU experts) were going to back something so crazy," Ole Harild said.

"But since the money had been released there was no reason not to go ahead with the plan."

With the money made available Mr Harild bought a machine to mark out the run, a snow blower and 80 pairs of skis and boots for hire.

Unfortunately, the run was open only for one day last winter but Harild said that in spite of predictions of global warming he lives in hope that one day cold weather will return.

A platform for EU protectionism

One of the key arguments made in our new report on the EU's climate action and renewable proposals is that because of (probably justifiable) fears about damaged international competitiveness for key heavy industries, the mammoth package is likely to provide a platform for protectionist measures.

Nicolas Sarkozy has previously focussed most of his rhetoric on 'green' tariffs that would be placed on imports from countries that do not adopt carbon reduction policies to the satisfaction of the EU (this provision is in fact written into the proposed Directive). The British and others are opposed on the basis that such carbon tariffs would open up a Pandora's box of protectionist lobbying, and would be a logistical nightmare to implement in any case (what would the carbon footprint and resultant tariff be on an ipod manufactured in several different countries?).

Now Paris is taking a slightly different tack. The line of thinking goes that if border tariffs are a non-starter, other forms of subsidy would need to be considered. Sarkozy has therefore hatched a plan to try and get the EU to loosen up state aid rules for chosen manufacturing industries, as well as an EU aid plan which would allow these sectors to get loans at preferential rates. Sarkozy will propose "to the European Commission and to our European partners a revision of the common framework on state aid ... so that it can be harmonised with the goals we are pursuing in the context of the climate-energy package."

With EU state aid rules already being twisted into all manner of different shapes and sizes in response to the financial crisis, and given that many member states are starting to get seriously cold feet about the proposal to move to full auctioning of carbon permits in the midst of economic downturn, it's quite easy to imagine Sarko getting his way on this...

Financing the 'yes' campaign

Irish MEP Kathy Sinnott has made a very good argument in a letter to the Taoiseach on the subject of the financing of the Irish referendum campaign.

A symbolic vote

MEPs have today adopted the EU's anthem, flag and motto - meaning they will be flown on all European Parliament buildings and displayed in all European Parliament meeting rooms and at official events.

The anthem, based on the "Ode to Joy" from Beethoven's Ninth Symphony, will be performed at the opening ceremony after each European election and at formal European Parliament sittings where heads of state are present.

The motto, "United in diversity", will be reproduced on all Parliament's official documents.

As PA reports, in reality the vote changes little - the flag and the anthem have been the EU's symbols since 1985.

But the decision to use them all the more - despite their removal from the Lisbon Treaty - shows just how cosmetic the changes to the original EU Constitution really were.

The Government justified not holding a referendum on the Lisbon Treaty on the grounds it was "substantially different" from the original Constitution, because of the removal of references to the EU symbols. The MEPs' vote today proves the changes are absolutely meaningless in reality.

Tut tut MacShane

Mark Harper's excellent idea for a Bill has been voted down. As his press release says, somehow, amid all the turmoil on the financial markets , the Government still found time to whip its MPs to oppose the bill to increase the transparency of EU legislation. In a rare break with usual practice, even Government Ministers were told to oppose the Bill.

It really is amazing that our Government is so keen to keep people in the dark about the facts. What are they hiding? But what is arguably more unbelievable, is the speech given by former Europe Minister Denis MacShane in response to the Bill in Parliament today.

Not only did he begin his speech with his usual drivel that anyone who dares suggest any kind of reform of the EU at all is part of the "Better off Out" campaign, poor confused Denis then went on to give a sound argument in favour of the bill - before voting against it.

He launched a long-winded explanation of the various different existing estimates that are out there about the proportion of national legislation that comes from the EU - (atttacking all but his own which suggests 10%) He said there were all sorts of inaccuracies and "lies" being peddled and gave a good account of the endless row over what the figure actually is.

Which is precisely what this Bill sought to resolve. To put an end once and for all to this long and boring row about how much national legislation actually originates in the EU.

It is extraordinary that somebody who accepts that there is so much confusion over the amount of legislation coming from the EU should then oppose efforts to increase transparency.

But that's not all. MacShane also made a song and dance about the 80-odd percent figure which was cited in Mark Harper's speech. He said it was a "lie", from "some anonymous German" and that nobody had ever been able to source it.

He even said the BBC (Mark Mardell in particular) have never been able to find it.

Well it took us about 10 minutes:

Former President Roman Herzog said it here (translation of original article in Welt Am Sonntag, February 14 2007)

The information he was basing his figure on is on page 15 here: (April 29, 2005, in the German Parliamentary Journal 15/5434 of May 6, 2005)

This is State Secretary Parliamentary Undersecretary Alfred Hartenbach Hartenbach saying: From 1998 until 2004 167 EU regulations and 750 directives have been passed. During the same period the German Parliament has in total 1.195 laws (as well as 3055 Rechtsverordnungen) passed.
(“Rechtsverordnungen” are a wide category of binding acts by Parliament, government, administration)

New law to encourage EU openness and transparency

Conservative MP Mark Harper is introducing a new Bill in Parliament today which will require Ministers to declare, on the front of every Bill and regulation, whether it is the result of a European Union decision.

The EU (Transparency) Bill intends to make the legislative process and the role of the EU in it more transparent and accountable to the public.

The Bill should be supported by anyone in favour of more honesty at Westminster. At the moment, nobody knows exactly what proportion of UK law derives from the EU - which has led to rows in the past.

Denis MacShane, for instance, claims the proportion is only 9%, compared with an estimate from the German Justice Ministry, which put the level at 84%.

Requring ministers to be honest about the root of each new piece of legislation is the only way to begin to put an end to that row.

One for the kids

We learn from PA that the EU has begun a concerted campaign to promote children's rights - and in particular the Charter of Fundamental Rights to children themselves.

As well as a quiz, children can take part in a poster competition, whose mouthwatering prize is "a tour of the city and the European institutions and to attend a European award ceremony hosted by Vice-President Barrot."

Informing kids about their rights so they can be confident about defending themselves is obviously laudable (albeit not necessarily something the EU should be getting involved in). But as with all of these types of EU youth initatives, the underlying aim is in fact the promotion of the EU itself:

As the small print (the "Teaching Kit") reads:

"This participation is also meant to be a tool for educating active European citizens by uncovering the eminent role of European institutions in the defence and protection of individuals and particularly children."

Among the objectives for children to aim for are:

"Being able to give practical examples of the importance of European decisions in the implementation of better child protection"

and

"Being able to cite and briefly describe the programmes and actions of the Council of Europe and the European Union. "

And as part of the poster-making task, the teachers "Educators" are instructed to ensure that the children have "properly thought about how to show the EU in some way."

EU integration under the stress test

The FT's Brussels blog notes that officials in Brussels are resorting to the predictable thinking that the events of the past week can be used to catalyse a fresh integrationist dynamic in Europe:

the 1992 crisis in the European exchange mechanism appeared to deal a serious blow to the goal of creating a single European currency. But the reaction was spirited. Only seven years later, the euro was up and running.

Similarly, it took the 9/11 terrorist attacks on New York and Washington in September 2001 to prompt EU leaders into agreeing, at a summit just three months later, on the principle of a European arrest warrant. This allows the swift transfer of criminal suspects for trial and detention from one EU member-state to another...

On the face of things, the financial crisis offers a perfect opportunity to push forward closer European integration.

This could be right, or could be wrong. There is a clear narrative developing that Europe faces a very stark choice between closer integration or a reversal of the current contradictory model of full monetary union and only partial political union. There are three key faultlines that have profound implications for the EU as we know it: 1) EU competition policy, and the tensions raised by unilateral declarations of deposit guarantee with state aid rules/ bank nationalisations; 2) The Stability Pact, and the implications for budget deficits of dealing with the crisis; 3) the longer term debate over a single monetary policy, and the lack of institutional capacity of the ECB or central institutions in dealing with a true banking emergency.

Larry Elliot notes succinctly:

In the long term, monetary unions do not survive without political union, and so the…conclusion is that there are pressures both for closer integration and for disintegration. The crisis could strengthen those who argue that the halfway house is inherently unstable and will remain so until there is fiscal as well as monetary union. On the other hand, the growing threat of recession may make some countries question the value of remaining in a monetary union.

It is important to note that this year has seen the process of EU integration questioned not only in terms of its economic legitimacy, but also in terms of its democratic legitimacy - through the Irish No vote, following on the heels of the rejection of the EU Constitution by voters in France and Holland.

Two of the key pillars underpinning consent for the EU as a process of irreversible centralisation are now facing a severe stress test.

Duff calls for end to fair referendum rules in Ireland

Truly extraordinary:

According to the Irish Times, British MEP Andrew Duff has asked Irish Foreign Minister Micheal Martin to commit the Government to scrap the ‘fair referendum’ rules in Ireland, which set out requirements for equal broadcasting time for both sides in a campaign.

He claimed: “Several bizarre judgments of the Supreme Court have put charlatans upon the same basis of parliamentarians."

Meanwhile, Northern Irish MEP Jim Allister reportedly accused Martin of having no “sense of shame” for not respecting the No vote in Ireland, to which Martin responded - to applause from the MEPs: “You should know better coming from your part of the world that saying No forever doesn’t work. Dialogue was the key to resolving common challenges and problems.”

Martin also repeated the Irish government’s claim that people voted No due to “lack of information”. He said, "Too many people are left unaware of the EU's achievements while those who oppose often succeed in peddling half truths”.

U-turn after U-turn

A press release from Nick Clegg this morning reveals he has brought back Alistair Carmichael, David Heath and Tim Farron into the Shadow Cabinet - all of whom were forced to resign from the frontbenches back in March after defying Clegg and keeping their manifesto promises by voting in favour of a referendum on the Lisbon Treaty.

The perils of EU agreements "rushed through without proper thought"

In a welcome development, the Lib Dems have called on the Government to renegotiate the European Arrest Warrant, to tighten it up so that it cannot allow for people to be extradited from this country for actions which do not breach British law.

Responding to the warrant issued by Germany for the arrest of Holocaust denier Dr Toben, Home Affairs Spokesman Chris Huhne said some of the "sloppy drafting" of the agreement needed to be tightened up. He said the agreement was "rushed through without proper thought as a knee-jerk reaction to terrorist offences."

The basic problem is that EAW does not recognise the principle of 'dual criminality'. The European Court of Justice has already been challenged on this by Belgian courts, and upheld that the list of 32 areas where 'double criminality' ia abolished were all serious offences. They include 'racism and xenphobia' under which category Germany has invoked the EAW against Dr. Toben, meaning he faces extradition from Britain for Holocaust denial, which - however unpleasant that may be - is not a crime in this country.

"The case with Dr Toben exposes a problem in terms of freedom of speech and I come to this as a good, classic liberal." Huhne said. "It is a fundamental part of our system that we believe in freedom of speech... I don't think it is appropriate for a member state to be pursuing an arrest warrant when it's not in a core category like that."

There are other issues with this particular case. Dr. Toben faces extradition for actions he carried out outside Germany and using an Australian website. Huhne told the Today Programme: "I think it is a pretty dodgy case that the Germans are bringing, both in terms of German law and in terms of the reach of it, because in fact Dr Toben didn't actually commit this offence in Germany."

This is the latest in a long list of problems that have arisen with the EAW since its introduction a couple of years ago. But instead of rengotiating the terms of the agreement as Huhne suggests, the EU is more likely to use the problems to justify moves towards the establishment of EU-wide criminal procedural standards, which will be made easier by the Lisbon Treaty, as we've argued before.

Indeed the problems with the EAW should be a warning to those - such as Chris Huhne - who hope to see the Lisbon Treaty eventually implemented across the EU.

Changes to the European Arrest Warrant and other bits of JHA legislation that the UK has opted into would in future be decided by qualified majority voting - including, for instance, a decision to add to that already controversial list of 32 areas where dual criminality is abolished.

If the UK wishes to use its so-called 'safeguard' in this area, and opt out of the future developments on something like the EAW, it will be thrown out of participation in the legislation altogether. The Treaty effectively puts a gun to the head of the Government - saying it must accept changes to legislation it has already opted into, even if it objects to them - or be thrown out of participation in the legislation in its entirety.

It is highly unlikely the Government would want to give up any form of agreement wth other member states on extradition, given the security climate, which means it would be forced to go along with measures amending the EAW. Clearly some changes to the EAW rules might be welcome - but why corner ourselves in and take the risk that some will not?

Over to EU

So Baroness Ashton of Upholland, the current Leader of the Lords, is to replace Peter Mandelson as the UK's EU Commissioner, apparently as a prize for helping to force the Lisbon Treaty through Parliament.

Needless to say, Baroness Ashton is firmly in the "let's-keep-saying-we-respect-the-Irish-no-vote-but-do-the-exact-opposite" camp.

But could she now be fulfilling a lifetime ambition? Earlier this year she told her peers:

"My Lords, I love Europe, but I never had the opportunity to be an MEP so I did not have the chance to go native."

Back from penance

From PA:

"Peter Mandelson is to make a shock return to the Government in Gordon Brown's Cabinet reshuffle, it was reported today.

Mr Mandelson, who is currently Britain's European Commissioner, has twice resigned as a Cabinet minister under a cloud.

His return, if confirmed, would also mark the end of a feud with Mr Brown dating back more than a decade to when Mr Mandelson supported Tony Blair to become Labour leader following the death of John Smith.

Mr Mandelson's spokesman in Brussels refused to comment on the Sky News report."

According to Sky, Mandelson is to be Gordon Brown's new Business Secretary...

The voice of reason

Further to our earlier post, former Europe Minister Denis MacShane is at it again, guns blazing at anyone calling for a referendum on the Lisbon Treaty . He's back on the Guardian's Comment is Free raving about "xenophobic rhetoric" and a curious "giant fiesta of anti-European hate."

Eurofederalists are always complaining about the lack of 'sensible' and 'reasonable' debate in this country on the EU - perhaps they could start by persuading some of their own?