Monday, October 21, 2019

Speech to the Bundestag's EU Affairs Committee on the long-term EU budget 2021-2027

Here's a video and summary of my talk to the Bundestag's EU Affairs Committee on the long-term EU budget 2021-2027 (MFF).

My Bundestag briefing on EUBudget reform, proposing to impose drastic cuts to overall bureaucratic spending as well as to "direct payments" to agricultural landowners and to failing EU regional funds, which are vulnerable to corruption can be found here:

English version

German version

Summary of my talk.


Thursday, October 17, 2019

Just how much does Boris Johnson's deal concede to the EU?

Publish on The Daily Telegraph

Despite endless claims that it would refuse to renegotiate the binding part of Theresa May’s deal, the EU has finally engaged, and granted Boris Johnson some important changes. Here’s an overview of both the “wins” the PM secured as well as the concessions he made. Though the DUP are not yet on board, these proposals are likely to form the basis of any final deal.
First of all, British negotiators managed to persuade the EU to agree that Northern Ireland will remain a part of the UK’s customs territory permanently, meaning that residents of Northern Ireland will enjoy all the benefits of trade deals negotiated by the UK. It will gain the right to an independent trade policy, from 2021 on at the earliest, or 2023, if the transition is extended.
In return, however, the UK government conceded to customs checks in the Irish Sea, on top of regulatory checks; Northern Ireland will, de facto, remain in the EU’s single market.

But for that to be acceptable and democratic, however, both sides have agreed a mechanism to provide “consent” to the residents of Northern Ireland. This would involve giving the Northern Irish Assembly the right to leave the arrangement, if there is a simple majority for that - but, only six years at the earliest after the end of the transition period, meaning in 2027 or 2029. A “cooling off period” of two years would follow any vote to leave the arrangement, four years after the transition. That the EU and Ireland have conceded to a unilateral exit mechanism linked to a time limit is a significant compromise.
DUP MPs are clearly unhappy at failing to secure a “veto” over this, claiming that it contravenes the Good Friday Agreement because “majority rule on this single issue alone” is provided in the deal instead. If this were the case, however, then surely the DUP should realise that any veto for the unionist side would necessitate a “veto” for the republican side too?
From the point of view that the Good Friday Agreement requires both sides to agree to fundamental changes to Northern Ireland’s status, what has been agreed would represent a compromise. This Brexit would deliver meaningful change, alongside serious steps to mitigate trade disruption and ensure that the Northern Irish can enjoy any fruits of EU departure, such as lower tariffs.
The DUP wants a vote before the arrangement enters into force, but surely the Irish-minded community would also need to be on board? If they are not, perhaps something closer to the status quo – reconciled with Brexit being delivered – isn’t such an unfair compromise?
Any goods entering Northern Ireland will face EU-level tariffs but a system of rebates will be worked out so that Northern Irish businesses and residents can enjoy lower UK tariffs. Goods travelling from Great Britain to Northern Ireland will be subject to checks, all to prevent checks on the land border on the island of Ireland.
To soften all this, the EU has made an important concession, that personal goods and goods that “will not be subject to commercial processing in Northern Ireland” will not be checked. The details will all be decided by a “Joint Committee” of EU and UK officials, so the EU will still have a say in this, another argument for the DUP not to agree to the deal, even if they seemed quite open to the idea of intra-UK customs checks.
In this way, the EU is effectively tolerating some leaks in its already leaky external barrier. The EU's Chief Negotiator Michel Barnier openly admits that "we cannot totally eliminate the risks". This is exactly the kind of flexibility needed to solve the complex Northern Irish puzzle, so perhaps with more flexibility from the EU’s side, the DUP could be brought on board after all.
Another issue that presented itself at the last minute was VAT, even if one diplomat did claim that this really was a sideshow or smoke screen for another problem in London (the DUP). Here, the agreed compromise is that EU law on VAT will apply in Northern Ireland, the UK will be responsible for collecting it, but the UK will be able to apply Ireland's VAT reduced rates and exemptions in NI, so the “tampon tax” can remain abolished there.
Throughout the negotiations, the EU – and in particular France – has been pushing for so-called “level playing field” arrangements. In theory at least, the UK conceded to such an arrangement, which involves not diverging greatly from EU environmental and social regulations. In practice, however, this won’t be enforceable, given that it is only part of the non-binding political declaration. Theresa May’s level playing field was still part of the binding part of the deal and by getting rid of the backstop, Boris Johnson can also claim to have removed the role of the European Court of Justice, at least for Great Britain, as otherwise the UK would have outsourced its trade policy to the EU – and therefore also its top court.  
In any case, Boris Johnson's strategy of showing that the UK was serious about no-deal, has - fundamentally - worked, even if the EU and Ireland need to be credited for having engaged. The question is whether DUP will get another chance to influence the process. Should a majority in Parliament vote this down, then EU leaders could perhaps make one final move in the direction of the DUP, just before the end of October. Yet changing parliamentary arithmetic could well see the DUP MPs lose their strategic clout, should a general election follow the failure to deliver Brexit on October 31. 
Finally, the EU has dropped all talk of further extension. Just yesterday, German officials were arguing that at least another two months were needed, yet Jean-Claude Juncker came out emphatically against the idea of delay when questioned about it earlier today.   
If the House of Commons agrees this Saturday, Brexit will be done on time.

Tuesday, October 15, 2019

Mario Draghi's legacy as ECB President

Mario Draghi's last months as President of the European Central Bank have been tumultuous. He managed to push through more bond purchases or "quantitative easing" on 12 September, despite the fact that Central Bank governors representing a majority of eurozone economic output opposed it, also because it was “open-ended”, without a time-limit. Not only was there open opposition by German and Dutch Central Bankers, but also France's Central Bank chief resisted. The ECB’s monetary policy committee had also advised against restarting QE, arguing long-term interest rates were already low.
Only days later, a prominent German ECB official, Sabine Lautenschlaeger, resigned, while two former German ECB chief economists, along with former heads of the Central Banks of Germany, Austria and the Netherlands, criticised Draghi's record in a new publication.

Remarkably, also German tabloid Bild waded into this otherwise rather technical debate, depicting Draghi with “dracula teeth” as "Count Draghila”, mentioning that “we have lost billions because of him”. 
Also governments waded in. Belgium’s Finance Minister warned the ECB’s policies hit savers and increase inequality. Ahead of the decision, the Dutch government had stated that these “suppress” interest rates, with the Christian democratic coalition partner even accusing the ECB of endangering Dutch pensions, which have had to be cut due to ongoing low rates, further questioning whether the ECB is respecting its mandate.

Draghi and his acolytes have been denying all accusations, arguing that interest rates are low amongst others due to ageing. Research by Claudio Borio, the top economist of the Bank for International Settlements, the "Central Bank of Central Banks,", has however demonstrated that "the decline in real interest rates over the last 30 years is not explained well by non-monetary factors but monetary policy seems to play a more significant role".

The ECB has been using various methods to keep interest rates low. Apart from its general interest rate setting policies, whereby it also set negative rates, and “Quantitative Easing”, which amounts to creating new money, which is then used to buy bonds, including government bonds issued by Eurozone governments, it has been lowering collateral requirements for banks in Eurozone countries to receive financing from the ECB.

When interest rates decrease as a result of this kind of manipulation, even if this is also partially the result of natural, “non-monetary factors”, the benefactors are excessively indebted governments that have a hard time refinancing their debt. At least in Zimbabwe things are more honest, with the Central Bank paying out subsidies directly with printed money.

There is no such thing as a free lunch, however, so someone has to bear the cost. David Folkert-Landau, the chief economist of Deutsche Bank estimates that negative interest rates, amount to an annual tax on Eurozone savings equal to 160 billion euro. Not very democratic, given that Parliaments have no say over this kind of “inflation tax”. Historically, central banks have been used to finance when taxpayers would refuse to pay for, most notably war, which is why the Bank of England was set up, but nowadays runaway welfare spending.

Of course central banks in the U.S., Japan and the UK engage in similar practices, but tellingly, Greece, a country with a debt burden that would be unsustainable without external Eurozone and ECB support, currently pays less to borrow over ten years than the United States, whose currency underpins the world economy. Greece now also enjoys negative rates, meaning investors pay the Greek government for the privilege of lending to it. This makes clear how far the ECB has gone.

The official line of the ECB is that we need all this to “achieve” a 2 percent inflation target. Originally, this was interpreted as a maximum limit, but somehow the ECB gets away with reinterpreting this as a goal to achieve. As if anyone aims for their investments to lose 2 percent per year.

It’s not only an issue however that savers are hit or that asset prices are distorted, given that people buy hard assets to avoid debasement of their savings. Some countries are also hit worse than others: Belgium has a lot of savings, the Netherlands a lot of pension funds that are banned from taking big risks, while a relatively low percentage of Germans own real estate. These are all reasons to be hit worse. Just like fiscal transfers, these monetary transfers ultimately also threaten the Eurozone, as they create more disunity: those having to pay aren't happy and those haven't to accept conditions linked to the payments aren't.  

Politically attached conditions linked to monetary action have already been a thing in the Eurozone, as the ECB has been sending various letters to governments with instructions in the past, suggesting otherwise monetary support may end. With the arrival of Draghi’s successor, Christine Lagarde, who’s a politician, an even more politicized ECB can be expected. A few days after Lagarde’s nomination, the French government watered down its commitment to trim the country’s bloated ranks of civil servants, in a sign how all that easy money does not enable space to reform, but instead provides an incentive to avoid reform. Politicising the central bank will in any case not change the fact that there is insufficient political unity underpinning the Eurozone. The clearer the effects of the ECB’s policies become, the more evident this is.

Friday, September 27, 2019

The EU risks squandering its last chance to do a deal with Britain

Published on The Telegraph
When it comes to EU negotiations, it is becoming ever clearer that the political consequences of the Supreme Court's ruling on Boris Johnson’s prorogation of Parliament are not particularly significant. Yes, it means that MPs have only lost two weeks, instead of five, to try to influence Brexit. But, more importantly, Parliament can’t really agree on much.
There is no support, at least not yet, for any of the alternatives: a Brexit deal, allowing “no deal”, revoking article 50, an early election or a second referendum. Boris Johnson may have lost his majority, but there isn’t an alternative one ready to replace his government. There is only a majority for extending UK membership, something that doesn't settle anything.
The EU must really consider carefully whether it wants to waste the upcoming month in the hope that Boris is deposed, opening the way for either a “softer Brexit” or the reversal of Brexit altogether. The latter is something many in the EU now realise is unsustainable, given how difficult the UK would be as a partner, not least due to the 17.4 million voters that would feel betrayed.
Given that Boris Johnson may also adopt a much more radical position on Brexit in the event of an election, in order to gain votes from the Brexit party, the EU would do well to realise a deal with him now is likely to be much easier rather than one later.
Boris has been moderating his position, most notably by suggesting an all-Ireland agri-food zone, which would increase the number of checks on UK territory, in the Irish Sea. He has however refused to align Northern Ireland to the EU’s customs territory, as this would mean intra-UK customs checks. Instead he has proposed things like trusted trader schemes and technology as a means to soften the border. The EU considers this to be a big obstacle.  
Boris Johnson still wants to preserve the Good Friday Agreement, but by minimising border checks instead of avoiding them altogether. This has lead to EU accusations that he was no longer committed to the "frictionless" trade Theresa May signed up to but only to trade that was "as frictionless as possible".
As a European diplomat put it: “His proposals presuppose the management of a border . . . not the avoidance of a hard border, as was the clear commitment between the EU and the previous UK government.”
The UK and the EU also seem to define what constitutes a “border” in a different way. Whereas the UK only sees it as a geographical frontier, the EU takes a wider view encompassing the all-island economy, thereby also defining checks away from the frontier as a border. 
The backstop is intended to protect the “Good Friday Agreement” and because of this, many equate it with this important peace accord, but as a new Open Europe briefing highlights, this is fundamentally mistaken. The backstop does not meet the same tests for cross-community consent as the Good Friday Agreement. Nationalists support it but most unionists oppose it.
The backstop may on the contrary undermine the already weak institutions established under the agreement, as there are major doubts that it respects the important “Principle of Consent” in the Good Friday Agreement that any fundamental changes to Northern Ireland’s governance must enjoy support among both communities.
The key difference between Boris Johnson and Theresa May is that the former is much keener for the UK to have an independent trade policy. Theresa May’s team seemed much more relaxed about this not materialising, by signing up to the backstop arrangement, which puts Brussels in charge of UK trade policy.
Given that Boris is set on an independent trade policy and therefore tariff differences, which will necessitate some checks, this means that for a deal, “European leaders will have to make a difficult shift in the negotiating red line of having no regulatory friction on the border at all. That is a big ask” an EU source tells The Times.
That is the case, to be fair, but surely asking for the UK to sacrifice an independent trade policy until further notice isn’t exactly a modest demand either.
There is, however, cause for optimism, as the EU has been moving too, even though one needs a microscope to see it. For a start, there was the EU’s willingness to grant Ireland some slack on border checks in case of "no deal”, at least for a while. That’s good news, as it is sometimes forgotten that it’s Germany, France, the Netherlands and Belgium that are going to ask Ireland to protect the EU’s external border after Brexit, while Boris Johnson has pledged that “under no circumstances (…) will the (…) United Kingdom be putting checks on the Northern Irish frontier.”
Secondly, given how leaky the EU’s external border is, it would be weird if Ireland were to come under intense pressure to deliver a perfectly protected border from those countries that fail in exactly that.
We are talking here about Greek customs facing more than €200 million in fines for failing to act against a major Chinese fraud network dumping ultra-cheap clothing and footwear in Europe. And about the ports of Antwerp and Rotterdam, those major gateways to the EU’s internal market, which are “leaking like a sieve”, according to Antwerp’s mayor.
On this, we can spot some movement, as there were some rumours about tolerating the same lacklustre VAT collection in Northern Ireland as elsewhere in the EU.
But apart from this glimmer of hope, nothing is moving on the EU side. EU negotiators have dismissed most UK demands for flexibility, which ultimately come down to tolerating a few extra holes in the external border, for the sake of peace. One such demand was to exempt small traders from being checked at the border.
Even if Ireland would move on the backstop, flexibility from Ireland’s EU partners in tolerating a border that is at least as leaky as the EU’s external border elsewhere will be absolutely crucial in order to come to a deal.
If Juncker is not just being diplomatic when stating that he thinks Boris is intent on a deal, he should realise the EU will need to move. In one month, “dealmaker” Boris may be replaced with “no deal Boris”. To quote EU negotiator Michel Barnier: “The clock is ticking”.  

Monday, September 09, 2019

This may well be the EU’s last chance to avoid a no-deal Brexit. But will they take it?

Published in The Daily Telegraph
Boris Johnson's future as PM may hinge on whether he can avoid having to request a three-month extension, as required by legislation passed by a majority in Parliament. As this newspaper has reported, the Tory leader has drawn up plans to “sabotage” any Brexit extension by “send[ing] an accompanying letter alongside the request to extend Article 50 setting out that the Government does not want any delay after October 31”.
The EU will require the UK to “indicate a way forward” as a condition to granting an extension. Therefore, the UK hopes Brussels will automatically reject London's “request”, if it deliberately fails to present a concrete reason for the extension.
Legal challenges in the UK may hamper this strategy - a judge may, for example, rule that such conduct would violate the Benn legislation that forces Boris Johnson to request an extension. EU leaders might also still grant the extension, claiming that they believe a general election to be imminent, given the fact that Boris Johnson no longer has a majority. The latter would certainly be unprecedented, but these are unprecedented times.
Moreover, Brussels may now be strategising on the basis that, if they grant an extension, a Labour government, intent on stopping a no deal Brexit, could well come to power - and such a situation may work to Brussels' advantage.
One scenario they might envisage is Labour gaining power in December, perhaps propped up by other opposition parties. This would then be followed by yet another extension of UK membership, followed by a referendum where the British people would be able to vote between remaining in the EU and agreeing to a Labour-style Brexit deal, with likely more alignment than the deal Theresa May negotiated.
Crucially, Brussels is also very anxious to avoid no deal. It is true that France is threatening not to grant an extension, but - as was the case with the extension granted in Spring - this is more a game of trying to extract concessions such as the length of the extension period. Unlike last spring, President Macron no longer fears that the UK’s membership would affect the outcome of the European Parliament elections. 
Most importantly, France and other EU member states will be wary about any action that brings about a no deal against the wishes of Ireland. The latter's Minister for Finance Paschal Donohue stated today that Ireland “would be in favour of an extension that would create the space to hopefully conclude where we are”. It’s well-known that the country isn’t ready to deal with a hard border, even if the EU has now made clear it will tolerate holes in that border at least for a while.
Other European countries will be just as eager to avoid no deal. Insiders in the Port of Rotterdam admit that they’re not ready for a WTO Brexit,  as customs officers, inspection posts and lorry spaces are lacking. The Federation of German Industries (BDI) has warned a no deal Brexit would cause Germany's already weak growth to tumble to zero this year.  Never mind that this is the same BDI which trumpeted right after Boris Johnson entered office that “The Withdrawal Agreement must not be renegotiated.” In other words, the stars are aligned for an extension.
The EU should not, however, waste the time between now and 18 October by simply waiting for the extension. These may be the last weeks for them to avert a "no deal" Brexit. Extending Article 50 does not automatically stop no deal. With Boris Johnson, the EU have “the Devil they know”.  What if an extension is followed by a general election, in which Boris Johnson is obliged to back no deal in order to forge an alliance with the Brexit Party? What if the Conservatives win an absolute majority based on those pledges, and also because Boris Johnson has stepped down just before the extension, "sacrificing" his job for Brexit? These are now very real possibilities.
Therefore, the EU might want to look more seriously into what Mr Johnson is offering now. It’s hard to accuse Mr Johnson of not wanting a deal. Although the PM has moved on food checks in the Irish Sea, the EU and the Irish government have not softened their positions; they are still simply repeating that they are open to the idea of going back to the original Northern Ireland-only backstop. Some UK commentators have pointed out that due to the loss of a majority, the DUP are now “irrelevant” to Boris, so an Irish Sea border of some sort may therefore be easier. 
This may well be the EU’s last chance for a deal-based Brexit. But will they take it?

Sunday, September 08, 2019

Mijn interview over #Brexit in De Zevende Dag:

De EU wil enkel een brexitakkoord als het VK een keuze maakt tussen het uitbesteden van zijn eigen handelsbeleid tot nader order, of anders douanecontroles organiseert op eigen grondgebied (tussen NI en GB):

Thursday, September 05, 2019

Wat Brussel niet heeft begrepen van de brexit

Published in Belgian daily De Morgen and in the magazine of Dutch think tank Clingendael

Het wordt alsmaar moeilijker om tot een brexitakoord te komen. Een van de redenen is dat velen in Europa de Britse standpunten eenvoudigweg niet goed begrijpen. Hier zijn vier belangrijke misvattingen die vaak onuitgesproken blijven, maar het denken over brexit op het vasteland wel domineren en daarmee een akkoord bemoeilijken.


Men kan veel zeggen van de Britse premier Boris Johnson, maar zijn regering wenst nog te onderhandelen om zo een voor beide zijden pijnlijke no deal te vermijden. De EU weigerde sinds november, toen Johnsons voorganger Theresa May een uittredingsakkoord sloot met de EU, om het bindende deel van dat akkoord te onderhandelen, ook al waarschuwde May de Europese leiders toen uitdrukkelijk dat ze er misschien niet in zou slagen om haar parlement te overtuigen. Pas verleden week maakten Macron en Merkel een eerste bocht: de letter van dat bindende deel kan wel worden gewijzigd, zolang er maar onmiddellijk werkbare alternatieven zijn om een harde grens in Noord-Ierland te vermijden.


Zoals ondertussen bekend is, weigerde het Britse parlement tot driemaal toe om het brexitakkoord goed te keuren omwille van de zogenaamde backstop die erin is voorzien. Die voorziening houdt in dat het VK de handelstarieven van de EU overneemt, tot op het punt dat de EU en in het bijzonder Ierland zich akkoord verklaren met controles op handelstarieven aan de Ierse grens die een harde grens vermijden. Theresa May stemde hiermee in omdat de EU in feite stelde dat een brexitakkoord enkel mogelijk is onder een voorwaarde: dat het VK, de vijfde grootste economie ter wereld, een keuze maakt tussen dit uitbesteden van zijn eigen handelsbeleid tot nader order, of als alternatief douanecontroles organiseert op zijn eigen grondgebied, in de Ierse Zee, tussen Noord-Ierland en Groot-Brittanniƫ. Het akkoord met de EU schendt trouwens het Goedevrijdagakkoord dat vrede bracht in Noord-Ierland, aldus Nobelprijs-winnaar David Trimble, een van de leiders van de partijen die dit akkoord sloten.


Velen, inclusief Theresa May, interpreteerden brexit als een uiting van antimigratiesentiment, maar peilingen wijzen uit dat dit niet zo is en dat men in de eerste plaats migratie beter wil kunnen controleren. Dat werd duidelijk toen de nieuwe minister van Binnenlandse Zaken onlangs liet weten dat er in geval van no deal onmiddellijk een einde zou komen aan het vrije personenverkeer. Ze werd meteen teruggefloten. De Britse regering wil dit alles geleidelijk veranderen, ook omdat Boris Johnson zelf nogal positief staat ten opzichte van migratie.

Ook stelde de Britse regering al voor aan de EU om de rechten van de meer dan drie miljoen Europese burgers in het VK en die van de Britse burgers in de EU te regelen in een aparte overeenkomst, in het geval er geen uittredingsakkoord zou zijn. Maar de EU weigerde dit.


Noord-Ierland maakt tot nader order nog altijd deel uit van het VK en nieuwe spanningen daar zouden het VK dus nog meer treffen dan Ierland. De Noord-Ierse DUP stelde trouwens als minimumeis tijdens de onderhandelingen met May om haar regering te ondersteunen dat er geen harde grens in Ierland mocht komen. Het is wel zo dat die partij nog meer belang hecht aan het vermijden van controles in de Ierse Zee, tussen Noord-Ierland en het Britse vasteland.

Johnson suggereerde net deze week om Noord-Ierland de EU-voedselstandaarden te laten volgen, wat dus controles in de Ierse Zee noodzakelijk maakt. Hij is dus bereid om compromissen te sluiten om een harde Ierse grens te vermijden, ook al zien de unionisten dit met lede ogen aan. Ondertussen weigert de Ierse regering elke flexibiliteit, ook al zou een no deal naast grote economische schade voor Ierland en zijn EU-partners (zoals ons land) ook tot spanningen kunnen leiden met die andere EU-lidstaten. BelgiĆ«, Nederland, Frankrijk en Duitsland willen dat Ierland grenscontroles gaat uitvoeren na de brexit. Dit om de Europese douanegrens te beschermen, ook al zijn onze eigen havens, althans die van Antwerpen en Rotterdam, “zo lek als een vergiet”, aldus de Antwerpse burgemeester.

Boris Johnson daarentegen stelt dat hij helemaal geen grenscontroles wil in Noord-Ierland. Misschien is er dus toch dringend een andere kijk op het brexitvraagstuk nodig.