Reopening a can of worms?

At the moment, the papers, especially those of a remoaner persuasion, are full of positive news about the Eurozone economy.  In spite of the European Central bank’s programme of quantitative easing, which tends to reduce the value of a given currency, the €uro hit its highest level against Sterling since 2009 on 23rd August. The Eurozone manufacturing sector is doing well, with even the French economy showing signs of improving after a rather stagnant period.

So all looks rather hunky-dory across the water – or does it? As we have pointed out before, a number of underlying tensions lurk beneath the seemingly calm EU waters. Emmanuel Macron, the EU’s new blue-eyed boy, has not only seen a sharp fall in his popularity ratings in his native France, but looks likely to stir up West-East tensions following an attack on “social dumping” – the reduction in wages caused by the arrival in the west of large numbers of migrants from the former Soviet Bloc countries.  This desire to control the level of East to West migration is viewed by these countries as a form of protectionism incompatible with the Single Market.

Then the North-South divide could be rekindled soon if a recent statement by Spain’s Prime Minister Mariano Rajoy is anything to go by.  The Spanish government is keen to press ahead with closer fiscal and monetary integration within the 19-nation single currency bloc, calling for  Eurobonds, a  European Monetary Fund and a common Eurozone budget.

This move has the support of Germany’s Chancellor Merkel but not of many of her countrymen, who fear they will end up subsidising the weaker economies of Club Med. Luis de Guindos, Spain’s Finance Minister, said that Brexit, along with the election of President Trump, has pushed the EU and the Eurozone closer together, but given that this proposed deepening of integration within the Eurozone would require treaty change and thus reopen a can of worms, the net result could be the opposite.

Besides the hostility among the German public to Eurobonds, there is also the issue of countries outside the Single Currency Area. Poland, which has historically looked to the UK to be the spokesman for the non-Eurozone group, is concerned that closer integration among single currency users would lead to the formalising of a two-speed EU, which it has long opposed. Technically, all member states apart from Denmark (and, of course, the UK) are required to adopt the €uro after meeting certain criteria, but there is no enthusiasm to adopt the Euro in Poland, Hungary or the Czech Republic and given the tensions between these countries and Brussels over migration quotas, amendments to existing treaties – or indeed, a successor to the Lisbon treaty – is likely further to fuel tensions.

So while the improved performance of the Eurozone may perhaps take something of the sting out of the North-South divide which, after all, is primarily about economics, we need to remind ourselves that the EU has always been a political project. A drive to closer integration which leaves some member states on the outside could have highly unpredictable consequences.

 

Ambassador Leonidas Chrysanthopoulos on US/Russia tensions

Anyone attending our annual rally last April will have heard the former Greek Ambassador Leonidas Chrysanthopoulos describe in graphic detail the problems his country still faces.

Those who appreciated his speech may be interested in his comments about the current tensions  between Russia and the USA. Click on this link and you will be able to follow his take on the current tit-for-tat, which provides a welcome contrast from the reporting in the mainstream media. The Ambassador’s comments begin about four minutes into the video clip.  He is very critical of what he sees as an unnecessary move by the new US administration and makes the very valid point that modern Russia is poles apart from the old Soviet Union, but some people don’t seem to have woken up to this reality.

 

Photo by FolsomNatural

North v South, East v West

Cast your eyes no further east than Berlin, Vienna or Rome and all looks pretty rosy in the EU’s garden. Apart from the shock of Brexit, most of the critical votes during the past year have gone the Establishment’s way. Even before our referendum, the Austrians set the scene by choosing a former Green party leader as President rather than Norbert Hofer of strongly eurosceptic FPÖ (Freedom Party of Austria). Now this year, the Dutch and French elections have not seen any breakthrough for eurosceptic parties and looking to the future, Germany’s Alternative für Deutschland (AfD) is losing support, with Angela Merkel looking unassailable while Italy’s Five Star Movement does not now look likely to make any sort of breakthrough when the country goes to the polls. It too may have peaked.

Meanwhile, the economic news looks positive. The €urozone is enjoying a decent recovery with deflation beaten and business confidence returning. After almost a decade of one problem after another, the EU does appear on the surface to have turned a corner. Frexit, Iexit and other variations on the same theme don’t take up many column inches now.

In actual fact, one other country would vote to leave the EU if granted a referendum – the Czech Republic. At the beginning of July, the Spectator Magazine published an interesting report on the state EU in collaboration with Project 28, a polling organisation.  47% of Czechs would vote to leave as opposed to 43% who want to stay. The country  is very much an outlier, however, as the next most anti-EU country, Greece, would vote to stay in by 54% to 39%.

Scratch beneath the surface, however, and the picture isn’t so positive. Some 41% of Italians, 32% of French an 28% of Germans do not think that the EU in its present form will still exist in 10 years’ time. What is behind this sentiment? – or to put it another way, what are the most likely causes of conflict within the EU, causing it to splinter?

Firstly, the €urozone’s overall improved economic performance conceals real problems within individual countries. Youth unemployment is still over 40% in Spain and 45% in Greece. Italy recently bailed out two of its banks and, along with Spain, the overall indebtedness of its country’s banks increases while the net credit of German banks is also increasing. Such imbalances within the Single Currency area have the potential to cause problems if uncorrected. Furthermore, any push for closer political and economic integration within the €urozone would risk reopening old wounds when they have not had long to heal. Club Med is still resentful of Germany, whereas German taxpayers will not want to subsidise what they regard as the profligate and lazy southern countries.

More destabilising than the north-south divisions, however, are the east-west tensions. The Spectator claims that Hungarians have little appetite for “Hexit”, with only 15% of voters wanting to leave the EU. Viktor Orbán, the country’s leader, is a frequent critic of Brussels, however, He is no enthusiast of further integration and according to a piece in the Guardian, “he doesn’t want to leave the EU; he wants to subvert it, which is far more dangerous.”

The refugee crisis has inflamed East-West tensions. Hungary’s initial opposition to accepting large numbers of immigrants was worded roughly along the lines of “we’re not ready to accept immigrants; our country is still rebuilding itself after years of subjection to the Soviet Union. Come back in 20 years’ time and maybe we’ll be able to handle the sort of multicultural society you have in the West.” Now the rhetoric has hardened. Orbán doesn’t want multiculturalism now or ever and has announced that his country will offer a home  for “Germans, Dutch, French and Italians, terrified politicians and journalists who here in Hungary want to find the Europe they have lost in their homelands.” In the same speech, he also attacked political correctness while elsewhere, he claimed that Europe’s Christian identity was under threat from Moslem migration.

It is quite clear that there is a vast difference between his vision of the EU’s future and that of Macron and Merkel. “In 1990,  Europe was our future, now we are Europe’s future,” he said on another occasion. Meanwhile, according to one blog, in the Czech Republic, the country’s parliament has voted to enshrine in its Constitution (subject to Senate approval) the right for its citizens to carry arms. The reason for this seemingly drastic measure seems to be a concern about the possible problems which migrants might cause. The blogger wasn’t able to provide too many sources of information and any extra detail about this surprising development would be welcomed.

Such attitudes are light years away from the pathetic defeatism of Sweden’s former Prime Minister Fredrik Reinfeldt, who said that his countrymen were “boring”, going on to rubbish his own country to an incredible degree, claiming that “only barbarism is genuinely Swedish.” Well, the Swedish Vikings were a pretty rough lot a thousand years ago, but since then, European civilisation, including Sweden , has much of which to be proud. Is he unaware of the heroic efforts of Sweden’s king Gustav II Adolf who played a huge part in saving Europe from barbarism in the Thirty Years’ War? Or the great Swedish botanist Carl Linnaeus whose categorisation of plants into different genres is still the basis of botany today?

It is quite unbelievable for any western leader to be so dismissive of  his country, but although perhaps the worst, he is far from unique. Douglas Murray’s book The Strange Death of Europe claims that the entire continent is “weighed down with a guilt for its past.”  While his arguments are persuasive, they hardly apply to the former Soviet bloc countries like Hungary and Poland who are proudly patriotic and defensive of their culture after years of subjection to the sterile ideology of Marxism-Leninism. There doesn’t seem to be much evidence of guilt in the utterances of Mr Orbán nor indeed, in those of Poland’s most influential politician Jarosław Kaczyński.

Furthermore, we are not talking about a straight west-east split. I am sure that many people living in Western Europe probably sympathise far more with Hungary, Poland and the Czech Republic than with their own guilt-ridden political leaders. It is these leaders, however, who will be trying to drive European integration forward and if it is on their multicultural, self-loathing politically-correct terms, then Hexit, Czexit, Polexit may be on our lips sooner than you can say Jack Robinson.

 

Brexit – the Irish angle

Nigel Dodds, the Deputy  leader of the Democratic Unionist Party who leads the party’s MPs in Westminster, responded  to the recent Queen’s Speech by saying, “Let me make it very clear – I believe when people voted in the European Union referendum to leave the European Union that they voted to leave the single market and customs union. And I believe that Northern Ireland must, along with the rest of the United Kingdom, do likewise.” He added, “We must not get into a situation where we have borders erected between the island of Ireland and the rest of the United Kingdom.”

The status of the border between Northern Ireland and the Irish Republic – the only land border between a newly-independent UK and the EU – is  one of three issues which the EU wants to settle before trade talks can begin. Professor Anthony Coughlan, the veteran Irish Anti-EU campaigner, has proposed that the best way of resolving this problem is Irexit – in other words, the Republic of Ireland should leave the EU as well. He argues that is is logically the best thing to do, even though it is “unpalatable” for many in the Republic.  “If one quarter of the Irish people and one fifth of Ireland’s land area are going to leave the EU because they are part of the UK, has the rest of the country any real alternative but to follow, however reluctantly?” he asks.

It is the Republic, not the UK, which will be the big loser from Brexit if it stays in the EU, he argues. “Dublin and London want to maintain the common Anglo-Irish free travel and trade area. But if the Republic opts to stay in the EU when Northern Ireland and Britain leave it, it is the Republic of Ireland, not Britain, that will be putting the common area at risk. London has Dublin over the proverbial barrel on this.  It can bend Dublin to its will if it so wishes.  There is no international law or moral right to a free-movement facility like this between two different sovereign States.”

He also highlights the problems caused by the EU’s desire for closer military integration, a subject which Donald Tusk, the President of the European Council, highlighted as a priority three days ago.  “If the Republic remains in the EU when the UK leaves, it means that it will become part of an EU military bloc under German hegemony.  That can hardly be in the security interests of the UK.

As an aside, it is interesting that Professor Coughlan, looking at our current situation from across the Irish Sea, takes a far more measured approach than some of the ridiculous headlines we have seen in the press recently. “The fundamental point to grasp about the post-UK-general-election situation is that Brexit is going to happen, whether under Theresa May, Jeremy Corbyn or someone else. The UK is going to cease being an EU Member State.  The only issue still open is how long this will take.” Absolutely. What is more, a recent communication from the European Council on the subject of relocating the EU agencies currently based in the UK (the European Medicines Agency (EMA) and the European Banking Authority (EBA)) says the same thing:- “As the United Kingdom has notified the European Council under Article 50 of the Treaty on European Union of its intention to leave the Union, it is necessary to move the two United Kingdom-based Agencies to other locations within the Union’s territory.” Whatever the rhetoric, the EU is gearing up for Brexit.

Yes, we are going to leave, even if the timescale and route of our exit are still uncertain. As far as the impact of Brexit on the Irish Republic is concerned, the next few years will be very interesting. The country has recovered from the Great Recession better than the other so-called “PIIGS” (Portugal, Italy, Ireland, Greece and Spain). Unemployment stood at 6.4% and youth unemployment at 12% in April, compared with more than 20% and 45% respectively for Greece. Furthermore, the Irish housing market, which took a battering in the Recession, has recovered. Nonetheless, the country is one of few in the Eurozone which may return to deflation. Given that the €uro has been the  culprit for all of Ireland’s recent economic woes, the chance to escape its straitjacket may become more appealing as Brexit draws nearer.

 

 

On the EU side, there has been some posturing too

Mrs May and some members of her team have gone on record to say “No deal is better than a bad deal”, but realistically, “no deal” was never an option. The worst scenario would have been an incomplete, partial deal and with neither side wanting a cliff-edge scenario in March 2019, even this would not be anyone’s preferred option. For all the dire warnings of Yanis Varoufakis, Greece’s former Finance Minister, the UK is not Greece.  We would suffer more than EU-27 from a non-deal, but it would not be in the EU’s interests to be obstructive and prevent an agreement being signed.

To prove the point, it is now emerging that some of the tough rhetoric from the EU side which we heard in the immediate post-referendum period has turned out to be little more than posturing. Barely three months ago, it was widely reported that Spain would be given  a right of veto over the final deal with the UK and would have the full support of the other EU member states if it chose to take a tough line over Gibraltar. Recently, however, Alfonso Dastis, Spain’s Foreign Minister,  has stated that his country will not block any Brexit deal and that talks over Gibraltar’s future will be handled on a bilateral basis. “The issue of Gibraltar doesn’t have to be the first, nor the most important point during talks,” he said.

Another example of hot air is the EU’s apparent desire to remove the lucrative €uro clearing business from the City of London to somewhere within the Eurozone.  This would have been a political gesture rather than an economic necessity. After all, most clearing in the Saudi Riyal takes place in London without any heart-searching in Riyadh. Writing in City AM, however, Mark Field, the City of London’s MP claims that “All of the EU politicians and financiers I have spoken to understand that this is a risk not worth taking. They express no desire to prevent euro-denominated trades from being cleared in London and indeed privately rail against the notion that such business might be forcibly moved to Paris.” He also points out that “Most sensible players implicitly understand that if London is undermined, key participants in the financial services industry will move not to Frankfurt, Dublin or Paris but to New York, Singapore or Shanghai.” Absolutely. In or out of the EU, London  will remain Europe’s principal centre for financial services for the foreseeable future.

On the surface, however, it does appear that the EU has turned the corner after its recent problems. Its economy is performing better than at any time since the Great Recession of 2008 and eurosceptic parties in the Netherlands and France failed to make any breakthrough in recent elections. France’s new President, Emmanuel Macron, is a strong supporter of the EU and his triumph is encouraging the Eurozone to consider pressing on with further integration. Even Germany’s ever-cautious Angela Merkel recently indicated that she would “consider a common finance minister, if the circumstances are right,” adding “we could also consider a Eurozone budget if it is clear that we are really strengthening the structure of the economy and doing sensible things”. 

Donald Tusk, the President of the European Council, has also adopted a very upbeat note in his invitation to the EU’s leaders for the next meeting. “It is fair to say that we will meet in a different political context from that of a few months ago, when the anti-EU forces were on the rise. The current developments on the continent seem to indicate that we are slowly turning the corner. In many of our countries, the political parties that have built their strength on anti-EU sentiments are beginning to diminish. We are witnessing the return of the EU rather as a solution, not a problem.”

There is a big “but”, however. A recent survey by Chatham House, a foreign policy think tank, pointed to a wide gap between the opinions of the EU’s “élite” (defined as leading figures from politics, media, business and civil society) and the general public and even the élite is not as optimistic as Mr Tusk’s words would have us believe.  Only 34% of the public feel they have benefitted from the EU, compared with 71% of the élite while a majority of the public (54%) think their country was a better place to live 20 years ago, which in some cases means before their country joined the EU.

The study also finds 48% of the public wants the EU to hand back powers to member states, while only 31% of the élite are keen on this idea. Less than 1 in 4 of the general public support extra powers for the EU and even among the élite, the figure is a mere 37%. What is more, among the élite, almost one in two (46%) thinks that another country will leave the EU within the next decade. The figure for the general public is 58%.

While the groundwork for the survey was undertaken between December 2016 and February 2017 – in other words, before the Dutch and French elections – it still painted a rather fragile picture of the EU, suggesting that Donald Tusk’s comments may be somewhat over-optimistic. To prove the point, less than a week after Macron’s triumph, several members of his cabinet have already quit. If plans for further Eurozone integration do fall foul of public opinion, any revival of enthusiasm for the EU project among the general public may prove short-lived.

None of this reduces the challenges facing the UK government in the Brexit negotiations. Indeed some have argued that a strong EU may be more willing to grant a favourable deal to the UK than one which believes itself to be on the back foot. What we can say is that it is far from certain that the UK’s negotiators will necessarily spend all the next 21 months facing representatives of an organisation which is self-confident or even united.

Photo by D-Stanley

Irexit – no longer totally pie-in-the sky

Professor Anthony Coughlan, the veteran Irish pro-withdrawalist, was invited to make a submission to the Irish Senate’s Special Select Committee on Brexit on 1st June.

Professor Coughlan explained that, in his opinion, the most rational and sensible course for the Irish Government to follow in relation to Brexit is that it should activate the East-West strand of the Good Friday Agreement to concert a joint approach with the UK Government aimed at  Ireland leaving the European Union at or around the same time as the UK and that it should work towards an Ireland/UK agreement and an Ireland/EU agreement oriented to that end.

He also made the point that there are no significant advantages for the Irish republic remaining in the EU when the UK leaves, but rather major disadvantages. He also addressed the implications of Brexit on the border with Northern Ireland and claimed that, in his view, prospects for the eventual reunification of the island of Ireland* would be greatly diminished if Ireland remains in the EU.

Professor Coughlan expects that support for Irexit is likely to grow in the coming two years. Mind you, he may revise his opinion if Brexit goes badly!  We pointed out a couple of months ago that he is no longer the lone voice he appeared to be a few years back. The Irish Republic, formerly a net recipient of EU funding, is now a net donor, while its trade with the UK was the main reason for it joining the EEC together with us in 1973. The EU, in other words, is no longer so attractive as it once was.

The submission can be downloaded here and the second annex (which is longer than the submission)  can be downloaded here.

* It should be pointed out that support for Irish reunification is not confined to Sinn Féin and hard line Republicans. In 1999, the former Articles 2 and 3 of the Constitution of Ireland were replaced Article 3.1 which “recognises that a united Ireland shall be brought about only by peaceful means with the consent of a majority of the people, democratically expressed, in both jurisdictions in the island” – in other words, an united Ireland still remains a legitimate aspiration for many peace-loving Irishmen, even if we may disagree with them on this, – unless, of course, it was in the context of an application by the Irish Republic to re-join the UK!