Thursday, June 27, 2019

As Brexit negotiations have stalled, tensions between the EU and Switzerland are ramping up

Published in The Daily Telegraph

Since 2014, Switzerland and the EU have been trying to amalgamate their existing 120 bilateral treaties into a single agreement. Yet the Swiss refused to concede to EU terms without clarification on certain issues; in response the EU now looks likely to cut off Swiss stock exchanges from the Single Market within days in retaliation for their failure to ratify the treaty quickly enough. 

As a leak last week revealed, their reasons for doing so are, quite transparently, to make an example of Switzerland “in what is probably the decisive phase regarding Brexit”, according to the commissioner in charge of the talks. In other words, Switzerland, a member of EFTA and Schengen, a country that has paid billions into the Brussels coffers over decades, and enjoyed a largely amicable trading relationship, has become mere collateral in the EU’s desire to cow Britain into submission. 

But the Swiss are refusing to back down, threatening to retaliate by banning EU stock exchanges from trading Swiss shares. About 30 per cent of trading in Swiss blue-chips takes place in London. Opposition is not only coming from the right-wing populist Swiss People's Party, but also from trade unions. The Swiss Parliament has instructed the government to return to the negotiating table. 

For the EU, these problems date back to the 1980s, and an initiative by then-Commission President Jacques Delors, who inspired the legendary Sun headline “Up Yours Delors!” following one of his clashes with Margaret Thatcher. Delors, keen to design a uniform system to deal with neighbouring “third countries”, proposed to grant them full access to the single market, but only in return for adopting all the EU’s rules and standards. Lack of a veto over these rules inspired Jens Stoltenberg, the PM of Norway, which did adopt this arrangement, to brand his country a “fax democracy”. It didn’t take sovereignty-loving Swiss voters long to figure this out, and they rejected a similar arrangement in a referendum in 1992.

Back then, the EU respected this outcome and went on to negotiate a package of bilaterals, granting the Swiss selective market access in return for selective rule-taking. Today, however, the EU dismisses this arrangement, which closely resembles the government’s “Chequers plan” for the future EU-UK relationship, as “cherry picking”.

There are many parallels between Brexit and the EU-Swiss relationship, and in fact the British government should be ramping up coordination with Switzerland, to counter the EU’s attempts to increase its regulatory power on the back of disrupting business.

The proposed framework agreement between the EU and Switzerland contains two issues that would be troubling not just for Swiss politicians, but could be rejected in the Swiss public referendum which will follow if their government concedes to the EU terms. First of all, the agreement introduces an arbitration mechanism, with a role for the European Court of Justice, into the Swiss-EU relationship. Until today, that wasn’t the case - all previous disputes were resolved by politicians. The arbitration mechanism anticipated in the framework agreement is effectively the same as that agreed by Theresa May with the EU in November. The Swiss government seems to have conceded on this issue, but whether it will survive its own direct democracy is another question.

Secondly, the EU favours “dynamic alignment”, which means that the Swiss would be forced to accept updates of the EU rules they have aligned with in return for market access. It is a long-standing EU frustration that this wasn’t negotiated in the 1990s. The reason was of course the deep Swiss attachment to democracy and suspicion of agreeing to accede to EU rules that aren’t properly understood.

All in all, the Swiss-EU relationship has been so smooth that the EU’s ultimatums and threats to restrict trade look disproportionate and uncharitable in the extreme. Switzerland has contributed billions to EU projects, and granted free movement, so that today almost one in four inhabitants of Switzerland does not have Swiss nationality, 80 per cent of which are Europeans. How can the EU treat a friendly neighbour in this way? 

In 2018, eleven EU countries, including Germany and the UK, opposed the EU Commission when it suggested cutting off access for Swiss stock exchanges. Now the Commission is getting its way, ignoring warnings from Business Europe, the confederation of European industry, not to escalate. 

One EU diplomat told the FT that because “we’re not going to treat the Brits any worse than Switzerland”, hinting that failure to punish Switzerland with loss of market access for refusing to bow would be seen as a dangerous precedent. Though Switzerland will likely manage to mitigate the damage through its protective measures, it would signal that the EU is willing to restrict market access when it fails to increase its regulatory control over a trading partner.

Given the deep seated love of self-government in both Switzerland and the United Kingdom, two of the oldest democracies in the world, self-destructive attempts to hurt trade in a bid to gain more regulatory control will only fail. When faced with a European country that does not seek to belong to the customs union or single market, yet nevertheless enjoys a smooth trading relationship with the bloc, the EU should not seek to restrict the flexibility that has driven prosperity on both sides, over decades. Instead, it should channel some of its past pragmatism in approaching its future relationship with the United Kingdom.

Thursday, June 20, 2019

What are the chances of a Brexit deal in case Boris Johnson becomes the new British PM?


Published on The Daily Telegraph

It seems almost inevitable that Boris Johnson will become the next Prime Minister of the UK, tasked with delivering Brexit. Boris may not be universally loved in Brussels, given his role in swinging the referendum vote towards Leave, but it would be wrong to assume that concluding a Brexit deal has become less likely as a result.

In many negotiations, it takes a hardliner to close the deal. Theresa May, a Remainer, would always have had a much harder time selling concessions to the British public than a Brexiteer would. For Boris, there are two options: either he goes full-on Trump or he chooses a more diplomatic path. It is not obvious what will work best with the EU. Jacob Rees-Mogg, a key ally of Boris, summed up the basic idea of a “Trumpian” strategy well, when tweeting: ‘To misquote Vegetius "If you seek a deal prepare for no deal."’

Contrary to the popular narrative, the EU does seem willing to compromise - at least a bit. Boris is keen on delivering the “Brady amendment”, the only thing UK MPs could agree upon, apart from rejecting no-deal. This entails renegotiating the Withdrawal Agreement relating to the Northern Ireland backstop, an arrangement whereby the UK would remain under the EU’s customs regime until further notice, and replace it with ‘alternative arrangements’.

From talking to diplomatic sources, the Telegraph’s Europe Editor Peter Foster, has gathered that a time limit to the backstop, is “not beyond realms of possibility if we're talking five to seven years [and if there is a] clear baked in Parliamentary majority as price of a deal.” Foster however thinks that the Trumpian approach would fail, as “a demand to ‘bin the backstop’ will be rejected outright and very quickly scupper any chance of a reset”.

In a way, the question isn’t even which approach will appeal to the EU. The real question is what will appeal to Ireland. A senior French official recently stated that "only Ireland can say the backstop is no longer necessary, but that’s not the case.” So when push comes to shove, the EU will ask the Irish what they think.

Following the increased discussion of a no-deal Brexit during the Conservative leadership contest, Irish Taoiseach Leo Varadkar said, “to me, no backstop is effectively the same as no deal”. Will Varadkar and the Irish political class respond positively to a Trumpian approach or will they dig in deeper instead?

Well, we can’t know for sure, and even if Ireland were to concede to a time-limited backstop, discussions would only resume in a few years time. This is why it’s so important to have a plan B, to prevent a traumatic no-deal Brexit.

While it’s true that the effects of “no deal” can and will be mitigated, given how both sides have a clear interest in doing so, it would spark a terrible blame game. French President Emmanuel Macron would no doubt blame the UK when confronted by French fishermen angry over the loss of access to British waters. The UK, meanwhile, would blame Ireland and Ireland would blame the UK. Everyone would be right to blame each other, but as a result of this, there would be less political capital to agree the deals necessary to mitigate no-deal.
A plan B could therefore consist of proposing to negotiate “alternative arrangements” to the backstop immediately. Both sides agree that the backstop should be replaced by something else at some point, so why not try to agree it now, so the UK can leave the EU, knowing for sure that it won’t have to enter the backstop?

So far, the Irish government has been very sceptical about the possibility of alternative arrangements preventing a hard border with Northern Ireland. Then Christian Bock, the head of the customs department of Switzerland, which is outside of the EU’s single market and customs union, has told British MPs at a hearing that he thinks an “invisible border” on the island of Ireland is “possible”.

The EU will of course come up with shaky legal arguments that it wouldn’t be able to talk trade before the exit date, even if Jean-Claude Juncker himself suggested just that in December. Then if the EU accepted to talk about future trade, Boris could claim that an extension of UK membership is warranted.

The actual “alternative arrangements” are likely to entail a lot of concessions from all sides. The UK may need to concede to some regulatory alignment, perhaps by Northern Ireland alone, which would cause some extra regulatory checks in the Irish Sea. Ireland may need to accept that Northern Ireland will simply also leave the EU’s customs union and the other EU member states would need to tolerate that Ireland and the UK will not bother to impose burdensome border checks. If goods entering the Irish Republic from Northern Ireland were compliant with single market standards, there isn’t much for the EU to fear, beyond the loss of a tiny bit of tariff income, which Ireland and the UK could compensate for.

Fundamentally, if we want to protect the extensive trade between the world’s fifth biggest economy and the world’s largest trade bloc, there is no alternative to perpetual negotiations and flexibility. Even when the EU-UK divorce and future relationship have been sorted, negotiations will remain necessary. If market access were granted on the basis of regulatory alignment, any regulatory changes would once again trigger negotiations. That is certainly the case in the stormy relationship between Switzerland and the EU. The EU’s relationship with post-Brexit Britain will be no different.


Wednesday, May 29, 2019

Five myths about the European parliament election results

Published in The Spectator 

In the analysis of last week’s European Parliament elections, a number of claims which should be categorised as 'myths' have emerged. Here, I’ve singled out five of them that should be challenged:

1. The 'major development' that the centre-right EPP and centre-left lost their majority isn't a major development

For the first time since 1979, the centre-right European People’s Party (which included the UK Conservatives until 2009) and the centre-left S&D group (to which Labour belongs) do not command a majority of seats in the European Parliament.

Danish EU Competition Commissioner Margrethe Vestager, who belongs to the centrist, soon to be renamed 'ALDE' group, and is a candidate to succeed European Commission President Jean-Claude Juncker, commented: 'I have worked with breaking monopolies, this is basically what I’ve been doing for five years,' adding 'the monopoly of power is broken.'

But, it is all but certain that the two major groups will simply turn to her ALDE group to obtain a majority in the European Parliament, which has gained a lot more power since the Lisbon Treaty entered into force ten years ago.

And Vestager herself, who is part of the Danish Social Liberal Party, is pretty close to the policy consensus of the EPP-S&D 'duopoly' anyway, which is strongly in favour of more powers for the EU and wary of proposals to let the EU focus on its core business – scrapping trade barriers. US President Trump dubbed her the 'tax lady'. Her views are closely aligned with the ALDE, which is being strengthened by a merger of the forces of French President Macron, and former Italian social democratic Prime Minister Matteo Renzi, whose party would further weaken the influence of the free-market supporting German FDP in the group. It all indicates that the EPP-S&D groups are simply being supplemented by something which is very similar anyway.

2. The 'influence' of anti-establishment eurosceptic parties will be indirect rather than direct 

Matteo Salvini, the leader of Italy’s governing 'rightwing-populist' Northern League, basked in triumph after the election, where his party gained 34 per cent of the vote share, doing even better than the polls had predicted.
In Hungary and Poland like-minded governing parties did well, while in France, Marine Le Pen’s National Rally managed to beat Macron's party for first place. Elsewhere, the results for eurosceptics were more disappointing, even if they consolidated past successes. The Alternative for Germany (AfD) for example, which will likely join Salvini’s new group in the European Parliament, only secured 11 per cent of the vote, which is an increase, but only a modest one.

Reacting to the results, Salvini stated that 'Europe is changing'. That is true, but it would be wrong to expect that his new group will have a lot of pull in the new European parliament. For a start, the 'business as usual'  parties – in the sense of creeping centralisation of EU power and money - still have a solid majority.

Also important are the internal divisions between the populists. Salvini just urged the ECB to 'guarantee' government debt, in order to keep bond yields low. This kind of Zimbabwe-style economics won’t go down well with the German AfD, which was founded due to German opposition to Eurozone bailouts and debasement of German savings as a result of ECB policies aimed at financing struggling governments in the eurozone’s periphery.

As well, mainstream parties will sooner or later learn from lessons from the Netherlands and Austria, where mainstream conservatives have enjoyed electoral success after taking up the concerns of anti-establishment parties without copying their often problematic solutions. In the case of the EU, that means refraining from outsourcing choices that are already controversial at the national level, on topics such as migration, taxation or national spending, to a supranational bureaucracy that doesn’t have the political legitimacy to make those choices.

Also in the UK, the massive success of the Brexit party will no doubt have an effect on Conservative party politics. No other politician like Brexit party leader Nigel Farage has been able to exploit the opportunity to exert influence on the political discussion through his European parliament speeches. Because the Brexit party will refrain from joining Salvini’s group, it looks like Farage will continue to enjoy the opportunity to get good 'speaking slots' in the EP, as leader of his existing group, the EFDD.

3. Talk of a 'green wave' is exaggerated

It is true that the greens have been doing well in this election, supposedly on the back of the climate debate, but at the end of the day, they will only have 69 seats, of a total of 751. Even if in relative terms their success is greater than other groups, it is still lower than the relative growth enjoyed by the ENF group, which includes Salvini and Le Pen. Also in absolute terms, they only gained 18 extraseats, which is less than the 39 seats gained by the ALDE or the 22 gained by the ENF.

The greens did very well in Germany but the trouble is that they are not particularly popular in Southern or Eastern Europe. They also can’t be used by the centre-right EPP and centrist ALDE to replace the left-wing S&D, as this combination does not deliver a majority. Also replacing the ALDE as the vehicle to prop up the EPP-S&D won’t work, given that such their majority would be too small, especially as Hungarian PM Viktor Orbán may be about to leave the EPP.

4. The European Parliament is unlikely to determine Juncker’s successor with its 'Spitzenkandidaten' system

Five years ago, MEPs designed a system aimed at complying with the EU Treaty’s requirement that EU leaders 'take into account' the result of the EP election when deciding the President of the European Commission. The idea is that EU leaders simply endorse whoever can secure an EP majority, with the respective EP groups each nominating a 'Spitzenkandidat' or lead candidate. Back then, Merkel was pushed by the German media and her social democratic coalition partner SPD to go along with it and appoint Jean-Claude Juncker, who had been chosen as the EPP’s lead candidate.

An ambassador of a major member state told the Financial Times that EU leaders are today still 'traumatised' over losing the initiative to the European Parliament over Juncker, stating: 'The wounds are still fresh. It won’t happen again.'

At the moment, MEPs are struggling to agree on a candidate, while French President Macron is a powerful opponent of the idea, clashing with Merkel who supports the process, possibly in a bid to gain extra concessions, as the nomination of the Commission President is part of a package of other EU top jobs.

Today, only 26 per cent of Germans have heard of their own compatriot Manfred Weber, a Bavarian CSU MEP who was chosen as the 'Spitzenkandidat' of the EPP. He has never run a government, nor has he ever had any important Ministerial job. Soon, we may find out that this particular EP innovation will be ditched by the leaders of Europe’s democratically elected governments.

5. Turnout is up, but this isn’t proof of the EP’s legitimacy

Until now, European-wide turnout for the EP elections had been dropping at every single occasion since 1979. That trend has been reversed, with turnout now above 50 per cent – the highest level in 20 years. The reasons why are unclear, as Eurosceptic successes have been combined with both high and low turnout in different countries.

In any case, a higher turnout or even the fact that it is directly elected do not provide the European Parliament with the necessary legitimacy to take the important decisions it is taking.

In its verdict on the Lisbon Treaty, the German Constitutional Court ruled that the EP is 'not sufficiently fit' to take 'representative decisions on the basis of majority', at least as long as there was 'no uniform European demos' – a condition that looks unlikely to be satisfied any time soon. Surely, Germans wouldn’t find it fair if a majority in Europe imposed nuclear energy on them. Would it be in line with the idea of majority voting? Yes. Would the EU be seen as a constituency where it is fair that the minority is outvoted on important matters by the majority? Surely not.

In the debate on the EU’s upsides and downsides, the European Parliament has often correctly been singled out as contributing to many of the EU’s downsides. Fundamentally, it is part of the 'political' arm of the EU project. Whether the turnout for the direct election of the EP is up or not, won’t do much to improve the legitimacy of the 'political EU'.

Monday, May 20, 2019

The good, the bad and the ugly of Jean-Claude Juncker’s presidency

Published in The Spectator 

Also published in German by Achgut.com, in French for Contrepoints and Belgian newssite Express, in Dutch for Het Financieele Dagblad, Express and originally for Dutch foreign policy think tank Clingendael


For five years, Jean-Claude Juncker has been head of the European Commission. Luxembourg’s former Prime Minister is known for always being able to crack a joke, but as his term ends this year, it’s a good time to look at the good, the bad, and the ugly of his track record as president of the European Commission.

The good

The Juncker Commission has achieved some results when it comes to concluding new trade deals. Most prominently there are its trade agreements with Canada and Japan, with the latter creating the biggest trade area ever. It may not be an orthodox free-trade agreement, as its standards could function in a protectionist manner, but the perfect is the enemy of the good. Juncker, and especially his Swedish Trade Commissioner Cecilia Malmström, deserve credit here. Unfortunately, Juncker was unable to conclude the TTIP trade deal with the United States, but it may have been killed off by President Trump anyway. The EU Commission hasn’t been perfect during the trade tensions with Trump, as it engaged in counter-tariffs that have hit EU consumers, but in the end it managed to convince EU member states to relaunch an attempt for a more modest trade deal with the US, and the EU also offered to reduce some of its own import tariffs

Another policy area where improvements were made by the Juncker Commission is the EU budget, which amounts to a whopping €1,000 billion over seven years. In 2017, the EU’s Court of Auditors concluded, for the first time ever, that a significant amount of EU payments had been largely error-free. That’s not to say the EU budget is managed well, to put it mildly. For a start, this issue only relates to errors in spending and not to outright fraud. The latter is supposed to be fought by the EU anti-fraud agency OLAF, an institution with a controversial reputation.

It also doesn’t refer to poor spending choices. The EU still spends €340 billion on agriculture, with more than 70 per cent simply paid out to those who happen to own agricultural land. Its second biggest spending area, regional spending, also ‘does not seem to contribute effectively to foster income convergence across regions’, according to a 2016 CEPR report, and EU spending on administration, staff and bureaucracy has an even worse reputation.

That said, the first necessary reform to the budget was for the EU’s own auditor to declare that its spending was materially free from errors. As the Chinese saying goes: ‘a journey of a thousand miles begins with a single step.’

The bad

Brexit

The one big failure of Jean-Claude Juncker and his Commission is of course the loss of the United Kingdom as a member state. In the UK, Prime Minister David Cameron announced his resignation the morning after the referendum result was announced in June 2016. That Juncker did not do the same is not only due to a difference in political culture, it’s mainly because of a belief within EU institutions that they shouldn’t be blamed for anything Brexit related. That’s bizarre thinking. Brexit is partly the result of the EU ignoring British discontent over the ever greater concentration of power and money at the EU level. Juncker and co. even obstructed Cameron when he attempted to reform the EU and the UK’s relationship with it, even if Cameron himself wasn’t ambitious enough in the negotiations.

There is very little introspection within the EU institutions as to why Brexit happened, even if two out of five of Juncker’s recent objectives for the EU were about ‘less EU’. But these objectives were also partly a response to the recent success of eurosceptic ‘anti-establishment’ parties across Europe. It seems that Juncker hasn’t been able to respond to the rise of populism. During the last five years, people only supported the EU Commission’s preferred option in one in six referendums. Opinion polls also indicate that in mainland Europe, people want the EU to lose powers.
In response, the European Commission has not done much more than coming up with mere pledges supporting ‘subsidiarity’. In practice, the body has simply continued with business as usual, proposing to scrap national vetoes for foreign policy and taxation, while it pushes for European taxes.

Over-regulation

The failure of the ‘subsidiarity’ agenda is most visible when it comes to the EU Commission’s ‘better regulation’ agenda, a competence of Dutch EU Commissioner Frans Timmermans. Even if it started ambitiously, the results are disappointing.

From 2014 until 2018, the Juncker Commission came up with 370 legislative proposals, which represents a drop from the period between 2009 and 2014, but is in line with the problematic situation before. After 2008, Brussels came up with a lot of new financial regulation, something which could be described as hysteric, because not lack of regulation but expansive monetary policy was at the heart of the financial crisis. However, it’s of course not the number of proposals which is the problem, but their overall impact. There have been a number of complaints that proposed EU legislation has been issued without proper impact assessments being undertaken.

Nevertheless, it would be simplistic and wrong to only hold Timmermans and Juncker responsible for the European regulatory mania. The controversial recent update to the EU’s Copyright Directive is a good example. Irrespective of Juncker’s close ties with Axel Springer, Europe’s biggest publishing house and Google competitor, a number of countries were against this particular piece of legislation. A joint statement was issued by the Netherlands, Luxembourg, Poland, Italy and Finland, warning that it represented ‘a step back for the digital single market’, as it disproportionally benefited intellectual right holders. Regardless of who is right and who is wrong, it’s a good example of how only a restoration of national vetoes would be an effective guarantee against EU over-regulation.

Free movement

Another problematic aspect of the Juncker Commission was its misguided efforts to limit the free movement of workers within the EU when updating the posted workers directive. New EU rules said that companies temporarily posting workers in other EU member states would only be able to do so for a maximum of 12 to 18 months – shorter than before.

Unfortunately, this update to the posted workers directive doesn’t really solve the problem. For posted workers, social contributions that need to be paid on top of their salary still need to be paid in the country of origin. This makes sense, as a company needs to be able to temporarily post workers in different member states, so these workers can then simply continue to be dependent on the social security system of their own country.

These social contributions are however much lower in countries like Poland as compared to for example France or Belgium. That the new rules require employers to pay slightly higher salaries to posted workers does not compensate for their much lower social security contributions. The Belgian and French governments are wary of tackling the problem of high social contributions at home. Instead, they have preferred to support the EU Commission’s attempts to restrict the free movement of workers, as the Commission went around stressing the importance of this EU freedom in the Brexit context.

Services

Jean-Claude Juncker has suggested ‘coalitions of the willing’ as a possible future model for the EU, but this idea hasn’t been applied by his Commission to opening up Europe’s services market, which could potentially generate a lot of growth.

In 2018 and 2019, the Juncker-Commission simply ignored requests from 17 member states to ‘scrap the remaining obstacles for labour and training’ when it comes to services. Instead, the Commission preferred to restrict the single market, while at the same time using the single market as an excuse during the Brexit negotiations.

The eurozone crisis

When heavily indebted Greece got into trouble once again in 2015, the European Commission pushed hard to keep the country in the eurozone, despite the fact that it had been given two bailout packages already.

Together with France, the EU Commission heavily opposed the temporary euro exit proposed by German Finance Minister Wolfgang Schäuble. In the end, however, German Chancellor Angela Merkel overruled Schäuble, and decided instead to give Greece a bailout package of 86 billion euro. The fear that a Greek exit could lead to a eurozone break-up had trumped concerns that this would lead to even more irresponsible budget policies and internal strife within the eurozone. In 2019, Juncker himself declared that keeping Greece in the eurozone was one of the biggest achievements of his Commission.

The EU’s response to the eurocrisis has been about short-term gain in return for long-term pain. The question, however, is if the common currency can survive by issuing ever more debt to heavily indebted member states. Greece has had some economic growth since 2015, but its debt burden of 181 per cent to GDP still hangs over its future. Meanwhile, the whole house of cards is being supported by the European Central Bank at the expense of savers and European productivity, as the ECB’s extraordinary loose monetary policies have less and less impact on economic growth.

The ugly

Martin Selmayr

Less important from an economic point of view, but concerning when it comes to popular support for the EU was the appointment of Juncker’s cabinet chief, Martin Selmayr, to secretary-general of the European Commission, one of the most powerful positions in the institution. According to the European Parliament, this appointment ‘could be viewed as a coup-like action’, and the European Ombudsman described it as ‘a violation of European law and the Commission’s own internal rules’. This of course fed the rumours that Juncker was heavily dependent on Selmayr, in part because of the president’s rumoured alcohol abuse. Whatever the truth, Selmayr has played an important role in the Brexit negotiations, and his hard-line approach has complicated the already difficult talks.

The ‘political’ Commission

In 2014, Juncker declared that his European Commission would be ‘very political’, even if he himself had not bothered to run as a candidate in the European Parliament elections in his native Luxembourg. In practice, his desire for a ‘political’ Commission didn’t signify anything good. Juncker has expressed all kinds of wild opinions, such as support for a ‘European army’, which has worsened tensions with the UK.

It’s not normal for a supranational bureaucrat to go around making political proposals that go directly against what many EU governments think. The Dutch Foreign Minister, Stef Blok, certainly thinks so. He recently wrote in the FT that ‘A less political European Commission is needed… A Commission that prides itself on being political undermines its own objectivity.’

Elsewhere, European competition policy is also getting more and more politicised. Margrethe Vestager, the responsible European Commissioner, declared when entering office that she found ‘it only natural that competition policy is political,’ although she did add that when it comes to enforcement, ‘there is simply no room for political interference’. But the Commission has in fact been making clear political choices when deciding whether to take action against countries it feels have violated its competition policies.

Belgium, the Netherlands, Luxembourg and Ireland were all attacked by Vestager over their tax agreements – ‘rulings’ – with big companies, often from the US. But she let the Italian government bail out banks – despite new EU rules aiming to hit investors instead of taxpayers first. Exceptions were also made for the pro-European French president, Emmanuel Macron, who was allowed to nationalise a French shipyard to prevent it from being bought by an Italian company. As enthusiastic as Vestager has been when it comes to enforcing the grey areas of competition law, like the question whether a tax ruling is open to all, she has been nowhere to be seen when there were clear violations of the rules, like bailouts or nationalisation.

Also good relations with the US were all but served by Vestager. President Trump dubbed her the ‘tax lady’ and the CEO of Apple, which she saddled with a retroactive tax bill of billions of euros, called her policy ‘total political crap’.

For the EU, competition policy isn’t an obscure side show. It is at the very heart why especially smaller countries are a member. Undermining it by politicising it will destroy all legitimacy for the already ailing project.

Foreign policy

The EU’s relations with its neighbours have not improved under Juncker’s ‘political’ Commission. It may have been the American President who started the trade conflict, but the EU could have refrained from counter-tariffs (which hurt consumers) and its refusal to include agriculture in trade talks. The EU’s sanctions against Russia have also hurt Europe’s agricultural industry, no matter how bad Putin’s actions may have been. Even the EU’s relationship with Switzerland isn’t very warm. Although trade relations with the country are stable, the EU continues to try to renegotiate the relationship, insisting on imposing its top court, the ECJ, as the arbiter of judicial disputes. In late 2018, the EU even threatened Switzerland with an ‘ultimatum’, which has failed to resolve the issue until today.

Whether a country is suffering and on its way towards a dictatorship or whether it has a booming economy isn’t a metric for good relations with the EU: both ties with Turkey and with economically thriving Israel, whose Prime Minister has called the EU ‘hostile’, have worsened considerably.

The migrant crisis

Last but not least, there was the reaction of the Juncker Commission to the greatest migration crisis seen on the European continent since the second world war. 2.5 million migrants entered the EU in 2015, 2016, and 2017. Naturally, the European Commission only had limited control over this, because border protection is rightly a responsibility of member states. Nevertheless, the Commission tried to abuse the crisis to once again grab more power.

Despite French warnings, the Commission and the German government together made sure to outvote Central and Eastern European countries, when deciding on mandatory quotas for member states to welcome asylum seekers. In practice, this policy has of course proven impossible to apply – there are no passport checks in the Schengen zone, so one cannot enforce people staying in a certain member state. The policy did, however, lead to more euroscepticism in Central and Eastern Europe, undermining decades of efforts to embed those countries in the West. It also undermined the EU Commission’s questioning of the rule of law in Hungary. There, PM Orbán thankfully used the opportunity to hurt the EU’s credibility, by subjecting the idea of mandatory migration quota to a referendum.

The EU Commissioner for Migration, Dimitris Avramopoulos, also failed to create ‘disembarkation platforms’, where asylum seekers crossing the Mediterranean would be received, something that EU leaders had backed in 2018. Nor did the EU put a lot of effort into coordinating readmission agreements with migrants’ countries of origin.

If asylum seekers had been able to await their asylum requests in a safe area at the EU border, the business model of human smugglers would have been destroyed and thousands would not have died at sea trying to reach Europe. Terrorists would also not have been able to exploit the migration chaos.
Of course, the migrant crisis is a massive challenge, but the EU Commission’s focus on non-effective and divisive mandatory quotas for asylum seekers and more money for border patrol staff – ideally under EU sovereignty – missed the point completely. By now, it should be clear to everyone that the chaotic influx of migrants was not due to a lack of border guards, but the fact that those caught entering were allowed to continue their journey into Europe.


Overall, the Juncker Commission may have done well when it comes to international trade, but otherwise his presidency has been a wasted five years, with his greatest defeat being the loss of the UK as a member state.

Thursday, April 25, 2019

European and national elections in Belgium: is new political gridlock on the horizon?

Published on Open Europe's blog


On Sunday 26 May, Belgium will not only be holding European Parliament (EP) elections but also federal elections for the lower house of the national parliament, and for the parliaments of the so-called “federated entities” – regional and community assemblies that are co-sovereign with the federal level. The complex structure of the Belgian system requires permanent coordination, but can also cause political gridlock.

The European Parliament elections will reflect Belgium’s splintered political landscape

A relatively small country, Belgium only elects 21 MEPs. Belgian political parties are not only divided along ideological but also along linguistic-cultural lines. There are two liberal parties, for example: one for the Dutch-speaking North (Flanders) and one for the French-speaking South of the country (Wallonia), with both parties active in the bi-lingual capital of Brussels. It is fair to say the country really has two political classes – a Dutch-speaking and a French-speaking one.
As a result of these linguistic differences, the country sends MEPs from a plethora of different parties to the European Parliament. Politico currently forecasts that 12 different parties will win seats:
·         Flemish parties:
·         New Flemish Alliance (ECR): 4 seats
·         Flemish Christian Democrats (EPP): 2 seats
·         Flemish Greens (G/EFA): 2 seats
·         Flemish Liberals and Democrats (ALDE): 2 seats
·         Flemish Social Democrats (S&D): 1 seat
·         Flemish Interest (ENF): 1 seat
·         Francophone parties:
·         Francophone Socialists (S&D): 2 seats
·         Francophone Greens (G/EFA): 2 seats
·         Francophone Reformist Movement (ALDE): 2 seats
·         Francophone Workers’ Party (GUE-NGL): 1 seat
·         Francophone Christian Democrats (EPP): 1 seat
·         Other parties:
·         German-speaking Christian Social Party (EPP): 1 seat

Partly because the country hosts the European Council, the European Commission and most other European institutions, it has always been more open than most towards EU integration, with recent polls suggesting 86 percent of the population are in favour of EU membership. But even in Belgium, something has changed in the last decade or so.
The political party forecast to win the highest number of seats, the centre-right Flemish nationalist N-VA, currently sits in the European Conservatives and Reformists (ECR) group with the British Conservatives in the European Parliament, and supports a looser, ‘confederal’ EU. Meanwhile, the second most popular political party, the Francophone Socialist Party (PS), has been sending out Eurosceptic signals of a different nature. It has been protesting against European Commission supervision of national budgets, and also attempted to obstruct the EU-Canada trade deal (CETA) and the recent opening of negotiations for a limited EU-US trade deal.
According to opinion polls, the N-VA would obtain between 25 and 30% in Flanders, about the same as 5 years ago, whereas Christian democrats, greens, socialists and liberals are likely to receive between 10 to 17% each, without any major changes compared to 2014.
More interesting than the actual results of the EP vote will be to see whether the N-VA stays in the ECR group in the European Parliament, especially if the British Conservatives are set to depart soon. Parties opposed to regional nationalism, such as the Belgian Christian Democrats and the Spanish Partido Popular, are likely to veto the N-VA entering the leading centre-right European People’s Party (EPP); the party could instead join the liberal ALDE faction.
The personal electoral performance of former Belgian PM and ALDE leader, Guy Verhofstadt, will also be watched closely. Verhofstadt is now one of the most well-known EU politicians – can he repeat his massive personal vote tally of more than 500,000 in 2014? Another question is how Verhofstadt, the rest of ALDE, and French President Emmanuel Macron will relate to one another after the election. The Dutch, German and Scandinavian ALDE parties are wary of Macron aligning with their group, given his support for a Eurozone budget and apparent demands to scrap the name “ALDE” altogether. ALDE is already a broad church, comprising both centre-left EU-federalists and centre-right opponents of a Eurozone transfer union. If N-VA entered the group, it would mean yet more internal ALDE opposition to Macron’s plans. However, given the likely participation of the UK in EP elections, N-VA may well stay in the ECR for now.
The performance of the far-right Vlaams Belang will also be watched, particularly since this will be the first time Belgians have cast a national vote following the devastating Brussels terrorist attacks of 2016.
In the Francophone part of the country, bigger changes are underway. Following corruption scandals, the PS, once the undisputed leading political force, have lost support to the Francophone Greens and the far-left PTB. Like the Vlaams Belang, these insurgent parties will hope to do well in the EP elections, where voters tend to be more likely to opt for radical parties.

The federal and regional elections may bring further political gridlock
Just like with the EP elections, Belgium has a system of proportional representation for federal and regional elections. Differences between North and South make it even harder to agree a federal coalition than in other European countries with a “splintered” political landscape.
Political tensions between the language communities in Belgium have always been resolved in a peaceful manner, but in the past this has led to speculation about a possible break-up of the country, especially as it took about six months in 2007 and a year and a half in 2010-11 to agree a federal coalition. In 2014, after five months, a centre-right federal government coalition was formed between the centre-right Flemish nationalist N-VA, the Flemish and Francophone liberals, and the Flemish Christian Democrats.
At the moment, the federal government is in fact a caretaker government lacking a majority in Parliament, following the N-VA’s exit from the coalition in December 2018, when the party refused to continue to back the government over its support for the “Global Compact for Migration.” This followed the example of the Austrian government’s opposition to the migration compact, perhaps indicating how national politics in EU member states is becoming more “European.”
There are broadly 3 potential outcomes of the federal elections:
Scenario 1: A second centre-right government including the N-VA
Unlike the Vlaams Belang, the Flemish nationalist N-VA does not demand an immediate split-up of Belgium. Instead, it prefers to turn Belgium into a confederation first. It has recently said it wants to secure the post of Prime Minister if there is a majority for another centre-right coalition. Between 2014 and 2019, that job was given to Francophone liberal Charles Michel, in return for being the only Francophone party to join the coalition.
Although Belgian prime ministers are constrained by their coalition partners and by regional governments, they also retain considerable personal leeway. Charles Michel has been taking a strongly integrationist stance, often aligning himself with French President Macron. In contrast, the N-VA candidate to become Prime Minister, former Interior Minister Jan Jambon, would most likely try to bring Belgium closer to the camp of Dutch PM Mark Rutte and his so-called “Hanseatic” cooperation league of Northern EU member states more sympathetic to free trade, which also includes Ireland and the Scandinavian and Baltic countries. So far, Belgium has only rarely allied with the Hanseatic League.
As mentioned, the success of the Greens and the PTB in French-speaking Belgium may complicate matters, as considerable losses are expected for PM Charles Michel’s governing Francophone liberals.
Scenario 2: A “confederal” government, reflecting the majorities in the regions, accompanied with major institutional negotiations
The N-VA has pledged that if there is no majority for a second centre-right coalition, it will only enter a government if Belgium is turned into a “confederation.” This is by no means impossible – the leader of the Francophone socialists, former PM Elio Di Rupo, has said the current arrangements on how much money is attributed to either the federal and decentralized policy levels should be renegotiated.
It is entirely possible that coalitions at regional government level will be formed relatively quickly. If after long negotiations no federal coalition would appear possible, these regional governments would then attempt to negotiate a new Belgian settlement, which the N-VA would try to steer towards confederalism.
Any further decentralisation of powers to the regions will be complicated by the question of whether it will need to be accompanied with additional money for the federated entities, which are widely seen as overfunded.
Although the Flemish N-VA are currently the driving force in support of confederalism, the idea has traditionally been supported in Wallonia too, arising from fears that the current settlement might allow the Flemish to exploit their numerical majority. Former PM and French-speaking socialist party leader Elio Di Rupo expressed support for confederalism in his maiden speech as an MP in 1988, while Belgium’s only EU Commission President ever, Francophone liberal Jean Rey, once was a proponent of the idea as well, back in 1947.
Scenario 3: A federal government without the N-VA
However, as the N-VA is unlikely to secure more than 30 percent of the Flemish vote, other Flemish parties may attempt to form a government without them, perhaps taking the Greens on board, hoping that this may make any upcoming negotiation with the Francophone parties easier. It will be politically difficult to exclude N-VA from the Flemish government, however – in Flanders, polls suggest it will win twice as many votes as the second-placed party.
With so many permutations, relatively small differences in the number of parliamentary seats may determine whether Belgium is headed for major institutional negotiations or for five more years of “business as usual.”

What do the polls for national elections say?


Seats projections based on opinion polls and the results in provincial elections last autumn currently suggest three potential coalitions:
·         Scenario 1: N-VA + two Christian Democrat parties (the Flemish CD&V and the Francophone cdH) and two Liberal parties (the Flemish Open VLD, and Prime Minister Charles Michel’s Francophone MR). This would involve the cdH, currently an opposition party, supporting the coalition that was in charge between 2014 and 2018. In this scenario, the N-VA would once again drop demands for more decentralisation in return for competitiveness reforms. February’s polling would give this coalition 73 seats in the Lower House.
·         Scenario 2: N-VA + the two socialist parties (the Flemish sp.a, and the Francophone PS) and the two liberal parties (Open VLD, MR). This would reflect the likely majorities in regional governments, but would only be feasible if combined with major institutional negotiations. February’s polling would give this coalition 81 seats in the Lower House.
·         Scenario 3: The socialists (sp.a and PS) and the two Green parties (the Flemish Groen, and the Francophone Ecolo), supplemented with either the liberals (Open VLD and MR) or the Christian Democrat parties (CD&V and cdH). With the N-VA outside the government, major institutional negotiations would not be required. February’s polling would give a socialist-Green-liberal coalition 82 seats, and a socialist-Green-Christian Democrat coalition 75 seats.

In the context of Brexit and slowing Eurozone growth, another Belgian deadlock would be poorly timed
In sum, another Belgian institutional deadlock should not be ruled out. Although the country’s institutional structure hasn’t been functioning smoothly to date, a deadlock would be ill-timed, with growth in the Eurozone economy slowing. On top of that, there is the underlying possibility of a No Deal Brexit. Belgium’s central bank estimates that No Deal could cause up to 40,000 job losses in Belgium, and the country is notsufficiently prepared for such a scenario. Belgian liberal Deputy PM Alexander De Croo is aware of this risk, having stated, “I prefer the uncertainty that we have now over the certainty of chaos… a hard Brexit is guaranteed chaos.” Therefore, given the context of Brexit and a slowing economy, Flemish and Francophone parties alike may be inclined towards yet another Belgian fudge.