Important UK - EU negotiations

While we are waiting for PM Cameron to present a more detailed whishlist for a reformed relationship between UK and the European Union, it is interesting to have a look at the negotiation  process. It is a political tool intended to ensure a "yes" majority in the forthcoming referendum.

But who are the people that will be influenced by the negotiation results ? It is not the europhiles. They will vote yes even if Cameron comes back empty-handed. The anti-EU camp want UK to leave the supranational EU and will vote no even if he has a great success. The primary audience to be influenced are voters outside these two groups, the people whose attitude to EU-membership are more open.

This does not mean that the negotiation results are of no significanse for europhiles and eurosceptics. On the contrary these groups will use the results in their referendum campaigns, arguing that necessary EU-reformes are achieved or that the results show that significant EU-reforms are impossible.

Successful negotiations are also important for the EU. The Union needs reforms to cope with financial crisis, growing eurosceptism and lack of trust. An UK-exit will be a severe blow for the Union.

Because the negotiation results are of importance for so many, the process will be a serious effort of policy development and can at best initiate a necessary adaption of European integration.

UK election with international consequences

PM Cameron confirmed in his first speech after the general election on 7 May that there will be an EU referendum before the end of 2017. The referendum will be based on a renegotiated relationship between the Union and the UK.

Exactly what Cameron´s demands will be is still unknown. Earlier he has said that Britain not will follow "an ever closer union" as a lodestar any longer, that he will not accept that changes in the single market shall be imposed on non-eurozone members by the eurozone, and that he wants a scrutinizing of social benefits for EU migrants and greater powers to national parliaments.

The process which now will start up must be welcomed, because the European Union needs reforming. The realistic possibility for a British exit will put pressure on the Union and give Cameron weight in the negotiations.

It is of course impossible to predict what Cameron can achieve and what the result of an referendum will be. What seems clear is that both the negotiating period with a lot of discussions and the referendum will have international implications and consequences.

When the EU starts negotiating it will be highly aware that any concession to Cameron might tempt other members to ask for the same - with or without threaths of exit. And a Brexit may raise questions about the unions viability. Therefore it may be that the Union will not only discuss special arrangements for UK but also will look for universal solutions - ie reforms for the Union as a whole. Even if the negotiations will steer away from issuses that require treaty changes, they might include questions which can be settled by using the simplified procedure for treaty changes and they might also result in agreements which will be incorporated in treaty amendments later. And the negotiations can of course be a sort of kickoff for a wider reform process in the Union.

The forthcoming discussions and negotiations will also be of interest outside the EU. For the EEA EFTA countries Norway, Iceland and Lichtenstein the discussions of a possible Brexit will be of special interest. If UK decide to leave the Union, it will have to reorganise the relationship with the EU. One of the most likely options will then be to join the EEA. That will mean new opportunities and new challenges for the current EEA EFTA countries.

A Brexit will have geopolitical consequences. EU as a whole will get less weight compared to other major powers. How UK will be perceived is not as clear. An article in Washington Post 9 May, which also commented upon the election success of the Scottish National Party, said UK now risks becoming more isolated than at any time in its modern history, and that David Cameron will need all his skills to avoid going down in history as the founding father of Little England. The proponents of Brexit will of course describe the situation quite differently.

 

A look inside the EU debt prison

While the Greek government is struggling with their creditors, the European Parliament has published a study on how the crises affects fundamental rights in seven EU member states: Belgium, Cyprus, Greece, Ireland, Italy, Spain and Portugal. The study, which is done by Milieu consultancy in Brussels, cowers the right to compulsory education, right to healthcare, right to work, right to pension and the right to access justice.The freedom of assembly and freedom of expression were also loooked into.

The main conclusion seems to be that austerity undermines fundamental rights across the EU. EurActiv gives a summary of the report:

Education systematically slashed. All countries cut the number of teachers in their schools, while the number of pupils rose. Some schools in Greece are not heated, hygiene standards no longer respected in Italy. More inequality because of lack of books and other equipment.

Health costs transferred from state to citizen. The report states that "in Greece, the bail-out agreement shifted the burden of healthcare from the State to the patient, with an increase in user fees and co-payments for certain medicines", which has led to a series of damaging consequences for the population. Across the member states there is an explosion of waiting times. There is a reference to an article in The Lancet which says that "the predominant response [from the Greek government] has been denial that any serious difficulties exist, although this resonse is not unique to Greece; the Spanish Goverment has been equally reluctant to concede the harm caused by its policies". The article gives the counterexample of Iceland, which decided to maintain its existing health policies even when confronted by the IMF after the 2008 financial crises.

Critical shrinking of employment, pensions and justice. The crises cost EU around 50 million jobs whilst increasing the number of job seekers by 80 million, resulting in mass unemployment in several member states. Belgium, Greece, Spain, Italy and Portugal have all raised the pensionable age, and most countries have reduced the amount they pay out in pensions each month. Legal aid has been cut. Belgium and Greece have introduced VAT on lawyer´s fees.

Horizontal budget cuts. The report highlights that the spending cuts introduced during the crises were rarely specifically targeted at the wasteful uses of public resources. Rather, it seems that many of the imposed measures were horizontal, indiscriminate cuts across policy areas they targeted, in order to meet financial savings that were determined in advance. The abolition of Greek public television is one such horizontal measure, which is seen today as inefficient and potentially dangerous.

Looking inside the EU debt prison one can easely get the impression that austerity is punishing the poor for the mistakes of the rich.

Horizon haircut boosting 2 mill new jobs ?

The International Labour Organisation, ILO, backs Juncker´s € 315 bn investment plan and says it has the potential to create more than 2 mill new jobs. Using a small amount of public money to lever in private capital can complement the monetary measures recently announced by the European Central Bank.

Parts of "the small amount of public money" will come from a haircut of EU´s research and innovation programme Horizon 2020. Research organisations don´t like this part of the investment plan at all. The European Association of Research and Technology Organisations  have published a statement expressing deep concerns about the proposal and says it offers little reassurance that the investment plan projects will effectively aim at supporting R&I activities.

The Council and the European Parliament will decide on details of the investment plan later.

Syriza - changing the debt puzzle ?

During the days after the Greek election 25 January there have been statements from the new Greek government and from the Union and other member countries that might seem to be incompatible. Most important was perhaps German chancellor Merkels statement that she does not envisage a fresh debt cancellation. But there are also clarifications and additional statements which indicate willingness to have a new common look at the pieces of the puzzle. For example by the end of the week PM Tsipras said that no side is seeking conflict, and it has never been their intention to act unilaterally. Greece, he said, would not renege on its debt.

And Greece is not alone with their criticism of the negative consquences of the austerity policy. The French finance minister Sapin said on Friday that though the Greek debt should not be annuled, it also appeared legitimate to him that the Greek government would like to discuss ways to reduce the weight and reimbursement of the debt. To day EU observer reports that US president Obama has entered the debate by urging the eurozone to look at how the US returned to growth: "Fiscal imprudence is important. But what we´ve learnt in the US experience .. is that the best way to reduce deficit and return to fiscal soundness is to grow". "You cannot keep on squeezing countries that are in the midst of depression", he told CNN.

Some of the pieces in the puzzle that will be looked at are probably:
-repayment terms  -  the Union has said it is willing to do that
-repayment of debt tied to economic growth, not Greek budget  -  may be
-write-off of debt  -  less likely
-structural reforms inside Greek  -  likely

In the longer term it will be necessary to improve the Unions regulations for economy management. Andrew Duff, president of the Union of European Federalists, said in an interview with EurActiv last week that more federalism not necessarily means one-size-fits-all policies. "Common economic policy combining monetary, fiscal and economic measures would not be a single policy for the whole of the EU.  It would obviously be tuned to regional and cyclical varieties, but it would be accountable and representative and responsible, whereas the present set up is essentially driven by national prime ministers on a part time and intergovernmental basis. This has proven not to work."

The Juncker fund - if implemented, which projects ?

The new € 315 billion European Fund for Strategic Investments (EFSI) will use € 21 billion EIB/EU money to trigger other public and private contributions. Still the result seems to be only questions.

Will public and private actors contribute as intended ? The signals are  unclear. Germany´s finance minister Schauble said ealier this week that his government is not in favour of national contributions to the fund. However, the German government would contribute through state-owned development bank KfW. No member state has formally announced its intention to contribute to EFSI. If public co-financing will be excluded from calculations of budgetary adjustments, this can make participation a bit more tempting for some of them.

How will the management of the fund be organised ? The Commission proposes that member states  contributing will have a seat at a steering board for the fund. But now several of the finance ministers say that governments should refrain from being represented in the steering board and should not entail voting rights. And why is there need for a steering board, can´t EIB do the job ?

Will the fund be in accordance with the state-aid regulation ? EIB president Hoyer wants more clarity.

Will the fund be of interest for private investors ?  The carrot is that public money work as guarantee, if projects make losses the publicly-funded portion would be first in the line to suffer financial losses.

Will the new fund influence the functioning of the Structural funds and the research programme Horizon 2020 in a negative way ?

And what about the projects ? Will there be enough good proposals ? That is of course a crucial question. The idea is to send project proposals from member countries through a "pipeline" system to EIB. The European Union´s investments task force has already identified 2000 projects waiting for funding across the 28-nation bloc. But how many of them are economically viable and can foster European competitiveness ? Baden-Wuerttemberg´s Minister for Europe, Peter Friedrich, is not impressed. He tells that the nearly 60 projects Germany is pursuing, together meant to boost investments in Germany with € 90 billions, include outdated ideas and dead ends. The list needs a reworking, otherwise regions and others will lose out.

The Other Europe with Tsipras ?

How will the parliament election and new government in Greece affect EU policy ? Concerning debt and austerity the first statements from EU and Syriza suggests willingness to negotiate, and that is of course no surprise. But beyond a willingness to discuss payment conditions, is the EU open for some creative thinking about debt relief ? It is very hard to say how the negotiation process will proceed, because the member states have different views reflecting their own economic situation. Even if the statements from the most relevant Commissioners have been very cautious so far, the French European Commissioner for Economic and Financial Affairs, Moscovici, sounded perhaps a bit more openminded than Commission President Juncker and others. But the Unions economic recovery policy is so far not very successful, and there might be or occur opportunities for changes. Perhaps Syriza, a coalition of left wing parties in government with a right wing party, has some extraordinary possibilities to form broad alliances across the traditional party constellations ? A symbol of this possible broad backing is an Italian party named L´Altra Europa con Tsipras (The Other Europe with Tsipras), which has 3 MEPs belonging to the same group in the European Parliament as Syrizas 6 MEPs (GUE/NGL) .

There are obiously other policy areas where the new Greek goverment might influence EU politics. For a  Union struggling to develop a more common foreign policy, Syrizas pro Russia attitudes will undoubtedly create challenges. Syrizas pro Palestinian policy will perhaps be more welcome.

It will be interesting to follow the new Greek government.