Saturday, December 18, 2010

Bail-outs and Budgets: The Big Three leading Europe

European leaders are hoping that just two sentences to be added to the Treaty will be enough to put an end to the on-going crisis that has plagued the Eurozone in 2010. EU Heads of State reached an agreement yesterday in the Justus Lipsius building in Brussels on a permanent mechanism for bailing-out stressed Euro-zone countries.

Germany succeeded in ensuring that the mechanism was only used in extremis. However, it failed to make it a condition that it is activated only as a last resort – an important distinction given Chancellor Merkel’s nervousness about the treaty change.

“The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality” ; – the Eurozone is counting on these two sentences to deal with the single currency’s inherent flaws. It was Germany – with the support of France – that nailed an agreement where others failed. The Italy-Luxembourg proposal for Europe-wide bonds was dismissed as was the Belgian proposal to increase the £440bn fund to buy bonds from at-risk countries.

The European Stability Mechanism will replace the European Financial Stability Facility (EFSF) and the European Financial Stability Mechanism (EFSM) in 2013. The UK also got what it wanted. The Council agreed to limit explicitly the application of the ESM to Eurozone countries – to reassure UK Prime Minister David Cameron that the UK would not be sucked into any bail-out obligations.

Mr Cameron is having a good summit. He has guaranteed the UK won’t be part of the Eurozone stability mechanism. He has had more mixed results in his other battle to avoid any increase in the EU budget. The UK has agreed to the increase for 2011 to be kept under 3% without giving MEPs anything in return for backing down over demands for a 6% increase. However, Mr Cameron had gone into budget negotiations with the intention for a freeze on the budget.

The European Parliament on 15th December backed down on its demands to have a greater role in the post 2013 multi-annual budget negotiations in return for a limited increase to the 2011 budget. It has been a humiliating end to 2010 for the European Parliament since winning new powers under the Lisbon Treaty 12 months ago. The Council position – held together by the UK and Germany – took the European Parliament to the brink. The alternative would have been a 2011 budget being approved on a month to month basis. The Parliament finally acknowledged the troubles this would bring.

Mr Cameron is reported to have struck a deal last night with Germany and France on the 2013-2020 budgets which would in effect bring about a real-term freeze in EU spending. The acquiescence of the French suggests that this deal would most likely affect the EU cohesion funds which disproportionately affect the Member States in Central and Eastern Europe. Poland will lead the backlash against the deal, if it transpires, given that it is a large beneficiary of cohesion funds. The French will have insisted on ring-fencing agricultural funds. France has been a long-term defender of the Common Agricultural Policy and this time the Germans are supporting them. Germany had recently signed a joint declaration with France calling for a strong CAP.

The UK would get to keep its rebate as part of the deal. France and the UK would be the winners; Poland and her East European neighbours the big losers. This is a scenario that ResEuropa had floated a few weeks ago and while there is no confirmation of the deal, reports in today’s press suggest it could well be on the cards. David Cameron will need to be careful to explain why he is not pressing for reductions in CAP rather than the cohesion funds.

The EU big three have out-foxed the Commission President Mr Barroso who will want to see cohesion funding kept in tact since this funding is regarded as European solidarity in action.

Time will tell whether this summit has marked the start of a powerful axis of UK, France and Germany – or whether it was just the easy thing for Mr Cameron to do since he will not have the appetite to deal with yet more calls to give up the UK rebate. I suspect that this new alliance won’t last for long: It was a minor miracle that the France and Germany could agree on the stability mechanism. Nevertheless this week demonstrates that, even if only for now, the big three are in the driving seat. What both the agreement on the budget and on the stability mechanism show is that when it comes to Europe, Mr Cameron and his coalition government will do almost anything for a quiet life.

Friday, December 10, 2010

Hungary sets out its ambitious EU Presidency Priorities

The Hungarian Government has published its priorities for the Presidency of the European Union – and they have in mind a very political Presidency with a rather ambitious programme for the next six months.

This is the first time Hungary has held the rotating Presidency position since it became an EU member six years ago and Budapest is determined to make it a success. With the help of Spain and Belgium, both of which were Presidency office-holders in 2010, Hungary has put in a lot of planning and preparation for their big break on the European stage.

Hungary is the eager new kid, showing signs of impatience with the lack of any real progress made by the Council over the last 12 months. In the first half of 2010, Spain was distracted by the fall-out of the financial crisis – and tried to run the Presidency from Madrid rather than send civil servants en masse to Brussels. Belgian civil servants didn’t need to leave home for their Presidency during the second half of 2010 but they had no Government in place to report back to. So while it may not have been an annus horribilis for the EU (it has had worse years), 2010 has been a little pedestrian as far as policy achievements are concerned. Without Mr. Herman van Rompuy at the helm, it would have been hopelessly directionless. The dynamic Hungarians hope to change all that.

While Presidencies are required to push the European interest, they inevitably reflect the national priorities of the office-holder. Hungary will be no exception. The priorities reveal a particular emphasis on issues that have pre-occupied them at home in the hope that there will be a European solution where national measures have failed.

Security of energy supply, the environment, and ethnic minorities and immigration are big priorities for Hungary.

Hungary is vulnerable to severe gas supply disruptions and so will use the opportunity of the EU Presidency to score some quick wins on security of supply. Budapest wants the EU to establish a truly common energy market and has scheduled a special Council meeting on energy on 4 February.

The toxic chemical mudslide which emanated from the Ajka resevoir in western Hungary in October and polluted the Danube river affected 5 European countries. The Hungarians see this as a cross-border issue that requires EU leadership and have prioritised progress for an EU Strategy on the Danube as well as a wider EU water policy.

Hungary has been criticised for the treatment of Roma and the country was offended when France sent hundreds of Roma back to Central Europe. The EU Presidency will include new initiatives to ensure better integration of migrants. Similarly, immigration into the EU – and within the EU - is high on the agenda. Hungary promises a better migrant flow management and will want to secure the accession of Romania and Bulgaria to the Schengen system of free movement. Hungary is also strongly in favour of Turkish membership of the EU and this will set it on a collision course again with France and Austria, which are resolutely against the idea of Turkish membership.

The draft Presidency programme has some very lofty ambitions. The priorities of jobs and growth will be the most pressing on the EU agenda. There will be some tough negotiations on the macroeconomic surveillance mechanism and on European economic governance. The Hungarian Presidency will start on the actual implementation of the EU 2020 strategy. They will work on the Single Market Act in the hope of stimulating job creation and growth through new legislation on taxation, counterfeiting and a revision of the Small Business Act. They will also hope to secure a deal on legislation for a common European patent which has dogged the Belgian Presidency. It will be up to the Hungarians also to make a success of the European External Action Service – the EU diplomatic corps - which has suffered teething problems over the last 12 months.

Hungary also wants to salvage something from the wreckage of the Copenhagen summit on climate change last year. The low key Cancun negotiations are flagging and the China-US bilateral talks have squeezed out the EU as a driving force on climate change policy.

Regardless of its grand ambitions, Hungary will have to prove it is a steady pair of hands and that it can be trusted to steer the EU’s 27 member states through some very difficult decisions. The signs are that it will not be so compromising. At a time when views are deeply polarised on the size of the EU budget, the Hungarians seem indifferent to the austerity pressures to EU spending from the UK and Germany. Speaking earlier this week at the London School of Economics the Hungarian Foreign Ministry Janos Martonuyi said, "I don't think it is time to discuss about percentages and figures. First let's discuss policies, let's discuss substance, and thereafter of course we can look into the financial resources and the possible [...] ceilings or caps as far as the financing of individual policies is concerned," He wasn’t speaking on behalf of the Council, of course, but nevertheless, Mr Martonuyi and his government colleagues will soon have to learn the difference between what Hungary can do in its national interest and its role in leading the European interest.

In Defence of Rompuy-Pompuy

It’s been a full year since Herman Van Rompuy started his term as President of the European Council. On 19 November 2009, Van Rompuy was chosen unanimously by the European Council, at an informal meeting in Brussels. He took office on 1st December 2009 – the day the Lisbon Treaty came into force – and his term runs until 31st May 2012. He has spent his first twelve months trying to carve out a distinctive role for himself – not easy when the Commission President Jose Barroso is on his second term - and demonstrates his experience with such a strong command of the EU’s internal affairs. And as he tries to present himself to the world as the EU’s international statesman, he is constrained by the so-called High Representative, Baroness Cathy Ashton, who represents both the Commission and the Council to the world. It is no wonder Mr Rompuy is already being written off as a lame duck President. His task looks impossible.

And yet, despite these limitations and against all the odds, Mr Rompuy is making his mark. The best way to judge his record is to measure his achievements against the expectations of the treaty that created him. The European Parliament will (and does) exploit the opportunities that the Treaty presents to them and the European Commission is pleased with a smoother decision-making system that was promised to them, it is the European Council – representing 27 Member States governments – that needs to prove more than most that the Lisbon Treaty does what it says on the tin; namely create better conditions for inter-governmental co-ordination, traditionally a weak-spot under the 6 month rotating presidency system. If Mr Van Rompuy can co-ordinate the Council and reconcile the national interests of 27 different governments, then he will have done not just what the Treaty requires him to do, but also prove to us that the Treaty can get the EU motoring again, particularly at a time of financial crisis and a mounting pressure of protectionism.

On Mr van Rompuy’s elevation, he was ridiculed in the British press as a non-entity. While some had been expecting a figure with an established international status, like Tony Blair – some-one who could stop the traffic; Mr Rompuy, they said would find it difficult to hail a cab. UKIP MEP Nigel Farage MEP caused a storm when he told Mr Rompuy that he had “all the charisma of a damp rag and the appearance of a low-grade bank clerk". The Sun newspaper simply called him Rompuy Pompuy.

The tensions between the two European Presidents are often clear enough. In most cases, the territory that has been carved out between them, is unambiguous. The Council President represents the EU abroad in foreign policy and security matters. The Commission President takes the lead role in climate change. But on energy policy, which is both a security and commission policy area, they have to agree between them who will take the floor. Both Mr Van Rompuy and Mr Barroso were present at the G8 and G20 meetings.

The Lisbon treaty was supposed to have resolved the old question of Henry Kissinger's – “when I want to phone the EU, whom do I call?” The answer wasn’t clear to President Obama as he stood between Mr Van Rompuy and Mr Barroso for the official photo-call at the EU-US Summit in Lisbon on 21st November. But the EU is (for good reason) complex and it would be disingenuous to pretend that it can be led by one person alone.

To even try and answer Mr Kissinger’s question is to ignore the dynamics between the EU institutions. These dynamics have changed a lot in the 12 months, post-Lisbon. The Council’s position vis-à-vis the Commission is stronger but it still relies heavily on the Commission. Mr van Rompuy led a task-force to propose ways of strengthening economic governance for Eurozone members – something that the Commission would normally feel responsible for. The Commission, in response pressed ahead with its own proposals, because it feared that the Council’s measures would be half-hearted. In reality, Mr Rompuy knew he would need to rely on the Commission to initiate new legislation. While this caused some friction between the two institutions, it served to demonstrate that the Council is willing to be pro-active when it needs to be. It did so again last month when the Commission was told to go back to the drawing board over its budget plans. The Council, led by Mr Van Rompuy, made it clear who was running the show.

It has taken President Barroso some time to adjust to the new power-sharing arrangements but he is now thinking more creatively about how he could work with Mr Rompuy to get what he wants from member state leaders. He also needs Mr Rompuy to help him deal with a European Parliament which has become much more strident and demanding after being bestowed with a wider scope of competences under the Lisbon Treaty. MEPs are becoming frustrated with an increasingly cautious Commission. As long as this directs their fire towards President Barosso, then President Van Rompuy is safe.

The Lisbon Treaty has changed the power landscape of the EU in just the last twelve months – and it is to Mr Van Rompuy’s credit that he has not become a victim of it. Instead, he has put the Council back in the game – at a time when neither Germany nor France are providing any effective leadership to the EU. And while he may have ruffled some feathers over at the Commission, he is credited for the way he has deftly handled any inter-institutional fall-outs. MEPs admire the way he has insisted on taking the European interest; something that had been missing at the Council which had normally followed the national interests of its most powerful members. Of course, Mr Van Rompuy has not been perfect. His low profile does not nearly match the importance of his position and he can do more to show he is a safe pair of hands (for instance, instead of adding to the sense of alarm and despair of the Euro-crisis by saying that the entire EU will disintegrate if the Euro fails, he should have kept a cool head and looked beyond the short term troubles). He is after all, supposed to provide the EU with a long term perspective – an important part of the equation when member state governments will always have an eye on the next election. The Lisbon Treaty’s objective for the President of the European Council was for some-one to provide strategy and stability. He needs still to demonstrate he can fulfill these goals. But the Lisbon Treaty is already proving to be the life-line that the EU needed. And President van Rompuy can certainly take some well-earned credit for that.

Friday, November 26, 2010

The Euro: Why we are all in it together

The European bail-out package for the Irish economy this week seems to have failed in its ultimate objective of containing the threat to the Euro. The buzz-word in Brussels is “contagion” and some serious commentators believe that a full-blown currency crisis is now unavoidable as the markets, having done their worst to Greece and Ireland, now turn on Portugal, Belgium and even Spain. Such widespread contagion in the Eurozone could make the single currency unsustainable and the Euro, as we know it, would not survive another two years.

The unthinkable could still happen. The Euro could disintegrate under the relentless pressure of the markets – its weaknesses now so ruthlessly exposed. However, Germany will not allow it – and so long as Germany will shore up the single currency, the Euro will survive.

And yet, Germany has some responsibility for the latest contagion threat. Chancellor Angela Merkel insisted on a permanent crisis mechanism that included provisions for an “adequate participation of private creditors” - meaning future rescue packages might involve a write-down of existing debt – increasing the risk for private bond investors.

This only served to spook the markets, leading to increased borrowing costs for weaker Euro-zone markets. The German government faces increasing pressure to drop the idea and instead extend the European Financial Stability Facility (EFSF) beyond 2013. A permanent rescue and resolution mechanism would provide stability and good governance for the Eurozone.

The Achilles heel of the Euro has been the “no bail-out” clause of the Eurozone’s stability and growth pact – something that the German Finance Minister, Wolfgang Schäuble acknowledged in a speech in Berlin on 5th November. He said that Europeans could not see how far financial integration would go when the no bail-out clause was signed. UK Chancellor, George Osborne’s decision to a bilateral loan to Ireland demonstrated the extent of the exposure of UK banks to the Irish economy. So, the UK – a non-Eurozone country – is as financially integrated to Euro-zone economies as Eurozone countries are to each other. Euro or no Euro, financial integration is now so advanced that contagion is a threat to weak markets in or out-with the single currency area. As David Cameron is fond of saying in these difficult times, we are all in this together.

While it is true to say that Ireland has been constrained by the Euro and the European Central Bank in how it can adjust to worsening economic conditions, it was never the Euro that brought the country to its knees. The mistakes Ireland made were the same as those that ruined Iceland which like the UK is not a member of the Eurozone.

While the reasons for Ireland’s problems differ from Greece, another Eurozone member – the former was guilty of stoking a housing boom and the latter of profligacy and unsustainable indebtedness - they are both guilty of being irresponsible Eurozone members. Germany will want to ensure that Ireland and Greece change their ways. Greece is already winning praise for the way it is introducing new austerity measures. However, Ireland’s budget could go out of the window if – or rather once – a new Government is elected in January.

Reports of the Euro’s death are somewhat premature. The forecast for growth in the Eurozone is higher than it is for non-Euro countries like the UK. It is also worth keeping in mind, the reason for why weaker economies are struggling so much is because the Euro is so strong – and they can’t devalue to become more competitive internationally. Last week, I raised the prospect of a common corporate tax as a consequence of the EU bail-out of the Irish economy. For some, this was a little far fetched – but no more far fetched, I would argue than a complete disintegration of the single currency. The truth is the Euro needs closer economic governance if it is to survive in its current form. If Germany succeeds in putting in place a rescue mechanism, the Euro will survive; if there is closer co-ordination of national economies, the Euro will prosper. As they say; what doesn’t kill you, makes you stronger.

Friday, November 19, 2010

How the Irish Bail-out could mean an EU Business Tax

Ireland this week finally accepted the offer of an EU bail-out to halt a contagion spreading across the Euro-zone like wild-fire. Spain and Portugal are also vulnerable to a knock on the door from the man at the IMF and all the stops are being pulled to prevent them going the same way as Ireland and Greece. But the crisis does not begin and end with the PIGS (Portugal, Ireland, Greece and Spain). The banking crisis threatens to engulf the entire Eurozone to the point where it could wipe out the ten year old currency.

This is a crisis that is too good to waste. For Europhiles, the bail-outs present a unique opportunity for an unprecedented fiscal convergence and closer co-ordination of tax rates between Member States – the holy grail of the more ardent euro-federalists.

EU Commission officials joined the IMF and the European Central Bank in a fact-finding trip to Ireland this week to work out just how much Ireland needs to borrow to bail out its banks and perhaps even service the public debt which severe austerity measures have failed to correct. The final figure could be around €90bn.
The Irish Government is expected to announce further austerity measures of around €15bn next week and a 2011 austerity budget will be put to the Dail on 7th December. However, the cuts will not be enough to restore confidence. Germany is putting pressure on the Irish to raise its corporation tax, which at 12.5% is much lower than many other EU economies.

For Ireland it is too heavy a price to pay for a bail-out that they have only accepted with great reluctance.

Elmar Brok, a senior CDU Member of the European Parliament told a party congress in Karlsruhe; "Ireland has two options to consolidate its budget – cut expenses even further or increase taxes like the corporate tax rate,"

This is not the helpful budgetary advice it seems. Mr Brok’s concern is not really about how best the Irish Government can raise its income. He, like his political colleagues in Berlin, have long been concerned about the effect that the low rates of corporation tax in Ireland has had on the German economy. Germany has seen companies re-locate to Ireland thanks to highly competitive tax rates.

It is not just Germany that has seen an opportunity to attack Ireland’s corporation tax – but the UK too.

Britain is poised to help in the bail-outs – either bilaterally, or as part of a European mechanism. British banks reportedly have around $150 billion of exposure to Irish debt.

But the UK too has been a victim of the low rates of Irish corporation tax – and would welcome an increase being part of a European bail-out deal.
For its part, Ireland says the corporation tax rate is non-negotiable; not least because it offers the country its best chance to grow its way out of the crisis. The Irish European Minister Dick Roche bluntly told reporters that "it (corporation tax rates) is certainly not up for negotiation.”

This is hyperbole. It is, of course, up for negotiation. The austerity measures have stalled growth in the economy and the Irish need to look at where they can increase tax receipts. Moreover, the EU member states that have lost out to the advantage that Ireland had in attracting corporations to its shores, will insist on it.
Tax competition has been a sacred cow for EU member states. As member states have increasingly harmonised standards to ensure a level playing field in the single market, tax was the only area left where they could really compete with each-other. Outside of Value Added Tax, where minimum levels and exemptions are agreed at EU level, the European Union has very limited competences for tax policy.

This could all change. Although it may seem far-fetched to assume that the financial crisis could lead to a common corporation tax – particularly since it would require unanimity among all Member States, the terms of debate have changed since the bank bail outs. Low corporation taxes are increasingly seen as an unfair advantage -when each Member State’s economy is so intrinsically linked with each-other and fiscal transfers across the Eurozone are seen as a natural response to asymmetric shocks to the Euro. So rather than more protectionism and the disintegration of the Euro, could the banking bail-outs, in fact result in an EU tax policy that sets common rates for all business operating in the single market?

Friday, November 12, 2010

Row over Euro Bailout Scheme could lead to a Treaty Referendum

Could we get our referendum on the Lisbon Treaty after all? After nine bad-tempered years in the making – and the many contortions of the major political parties to avoid any chance of a referendum, there is again a real prospect of the Treaty being subjected to a popular vote.

And it is not the work of the British Conservatives that has re-opened the debate - but the Germans.

German Chancellor Angela Merkel is determined to make changes to the Lisbon Treaty to factor in a permanent mechanism that would bail out Eurozone countries in trouble - even if it means galvanising the anti-Lisbon lobby into one last push for a referendum.

It’s still not clear whether adding a permanent mechanism to the Treaty would require ratification from each of the 27 Member States. The Commission is hoping that it can be adopted by a “simplified” procedure (invoking Article 48 of the Lisbon Treaty). This procedure allows for the adoption of minor surgical changes.

It is not an option, either, to go ahead with a bailout mechanism without any treaty change at all. Germany has insisted that any bailout mechanism be enshrined into the Treaty - otherwise it would be contested by Germany’s Constitutional Court.

A report from the think tank Bruegel published this week (9 November) says that any mechanism for financial stability will require a broad revision of the EU treaties.

It was at Deauville, before the October Council where Merkel persuaded the French President Nicolas Sarkozy to support her plans for establishing a permanent fund after Germany was exposed to a hefty 100 billion Euros contribution to the Greek bailout.

A permanent rescue mechanism would be activated in a possible future Greece-type scenario, where “the stability of the euro as a whole is under threat”.

Notwithstanding any prospects of Treaty referendums, the whole initiative is at risk from the markets which have so far reacted negatively.

Bond-holders are being asked to bear a greater risk and cost in case of a bailout in order to protect the taxpayer. This in turn would, as the President of the European Central Bank Jean-Claude Trichet fears, drive up borrowing costs for the most indebted countries. Ireland is at risk of going the way of Greece after news this week that its borrowing costs are being ramped up. Nevertheless, Merkel is adamant that the risk does not fall on the taxpayer.

Frau Merkel also wants to introduce tougher sanctions to deter more feckless members of the Eurozone from running large deficits in the first place. This would either be a loss of voting rights or of EU funding.

This did not go down well in Bulgaria the EU’s poorest country. Prime Minsiter Borissov said; "I would support [the proposals], but let's first discuss the mechanism. Imagine that you have a 3.5% or 4% deficit, and the sanctions include freezing of EU funding. The country would not solve its deficit problem: it would sink even deeper"

The new rules would the UK which has opted out of the EU, but the UK would nevertheless support Germany’s attempts to bring greater rigour to Eurozone deficit control.

The next Head of State summit will take place on December 16-17 where it is expected there will be some form of agreement on the whether the Treaty needs to be changed and whether it would need to be ratified again. The Commission on the other hand will deliver its own proposals on new EU budget rules amending the Eurozone’s original Stability and Growth Pact in December.

Berlin believes that all 27 member states, including the UK – and not just the Eurozone countries should be subjected to the new budget deficit regime to give the single market as a whole the stability it needs. Paris, on the other-hand is reluctant for the Eurozone countries to take decisions that would affect all 27 member states.

The bail-out debate has opened a whole pandora’s box of contentious issues and the EU will have to tread carefully if it is to avoid creating a split in the Eurozone between the deficit sinners and the deficit saints. And it is the cohesion of the whole of the European Union – and not just the Eurozone – that is at stake. If the bailout mechanism does trigger a treaty change and even a referendum, the Euro-sceptics will have their chance to strike.

Thursday, November 11, 2010

Barnier's Single Market Act - A Defining Moment for the EU?

Listening to Michel Barnier, the Commissioner for the Internal Market at the European Parliament yesterday, got me thinking. Are we about to witness the start of a new phase in the growth of the single market?

The ambition is big enough. The Commissioner spoke of the proposed Single Market Act as a motor for deeper and closer integration, sweeping away the structural barriers that have frustrated the development of the internal market over the ways. The new Act would re-launch the single market, he said. It would be our best hope for growth – adding 4% to the EU’s GDP annually. It would bring about a realization of a genuine single market in transport and energy, both important growth areas, if they weren’t being hamstrung by national protectionism.

I have no doubt he is right to conclude that market integration will help the economy grow – and help Europe become more competitive globally. But the Vision Thing will require a lot of vested interests being tackled and a lot of sacred cows being slaughtered. For instance, a key component of the Single Market Act is tax co-ordination – sensitive at the best of times. Some Member States, understandably, believe that tax differentials can give them a fair competitive edge against European trading partners – and that it doesn’t stop them from being good members of the internal market.

The Single Market Act could prove to be one of the big landmark events in EU history. But looking at the evidence so far, I’m not so convinced. I’ve seen the Services Directive, which was launched by the Commission to a great fanfare, fizzle and become a shadow of the revolutionary turning point in the single market it was meant to be. Besides the Commission’s workplan for single market measures in 2011 looks particularly lacklustre – a bit more so-called Smart Regulation measures, some new initiatives on debt recovery, a common consolidated corporate tax base, an airports package and maybe something on VAT. Despite the big talk, the Commission is still quite hesitant.
There are nevertheless some big plans for a digital single market which the Belgian minister for Economy and Reform, Mr Vincent van Quickenborne emphasized at the same event in the European Parliament yesterday.

Michel Barnier’s speech on the Single Market Act is not quite up there with Paul Henri Spaak’s address to the European Parliament in June 1961 and the Single Market Act cannot match the defining moments of Jacques Delors’ “Completing the Single Market” White Paper 25 years ago. But perhaps it can be comparable to the 1997 Single Market Action Plan – a programme of objectives to give a boost to a flagging ideal. Of course, it all depends on political will and political leadership. Delors, Mitterand and Kohl – and yes even, Lord Cochfield and Mrs Thatcher, could offer the leadership required in 1985. Tony Blair and Gerhardt Schroeder led the way in 1997; who can give the single market the leadership it needs if it is to go to the next level?

Monday, November 8, 2010

French-British Defence Deal could provide a breakthrough for

“Sovereignty is not isolationism”; so said French President Sarkozy when he signed a historic agreement with UK Prime Minister on defence co-operation.
The deal between the UK and France aims for quite some far-reaching measures that will pool the defence capabilities of both countries for the next 50 years.

David Cameron was keen also to assure the media that the UK would not be restricted in making strategic defence decisions by pooling resources and capabilities with the French.

Does this new entente cordiale mark a step towards a deeper EU defence policy, or does it in fact create a pragmatic alternative that would in reality preclude any closer EU-level co-operation?

Britain and France are the two largest military spenders in the EU and therefore form the essential pillars of any EU defence ambitions. The two governments account for almost half of all military spending in the EU. However, both have a very different approach to EU defence policy. France, only recently a full member of NATO, have traditionally been enthusiastic about an EU role in defence; the UK have been careful to pick and choose areas for more EU co-operation, preferring to develop a leading role for itself in NATO.

When US Secretary of State, Hilary Clinton came to Brussels last month, she implied that impending cuts to the UK defence budget would only undermine the usefulness of the UK within NATO – and as a military ally of the US. The UK Government, nevertheless, pressed on with stringent cuts to its defence budget.

The Strategic Defence and Security Review (SDSR), which the UK Government issued on 19th October, foresees significant cuts in military capabilities with 8 percent cuts to the defence budget over the next four years
The budget cuts are the main reason for the UK’s decision to enter a pragmatic bilateral relationship with France.

The UK-France deal includes the creation of a joint expedition force, the shared use of aircraft carriers as well as cooperation for the maintenance and spare parts of strategic airlift capabilities. What has been deemed as ‘modest’ combined efforts on the safety and effectiveness of both countries’ nuclear weapons are also part of the deal.

An emergency deployment force will have 5000 service-men and women from each country, with land, sea and air components and with commanders rotating between UK and France.

Some of this makes good practical sense for both parties –. The UK won’t have its second carrier until 2020 but once it does, the French can use it as an alternative to the unreliable “Charles de Gaulle”.

The extent of nuclear cooperation established by the deal underscores the will to retain absolutely independent nuclear capabilities, maintaining mutual secrecy of the strength of the French ‘force de frappe’ vs. the British submarine ballistic missile force.

However, Strategic airlift continues to be a problem for Europe which it is only now dealing with the new Airbus A400M, already late in schedule, set to be delivered only in 2012

A recent centre for European reform paper says that “London must invest the same political energy it has devoted to France towards exploring additional savings with other European countries.
Certainly the SDSR, has opened the possibility of closer defence co-operation with Germany, Italy, the Netherlands and Spain.
The SDSR says that the EU has a role to play in “promoting security and prosperity”.
That the SDSR does not see bilateral co-operation on defence operations and capabilities as an alternative to a fully-formed EU defence policy is striking – not least because its principal author is Defence Secretary, Liam Fox, an ardent Euro-sceptic who was, in opposition, keen to seethe UK withdraw from the European Defence Agency and openly opposed a stronger foreign policy that would result from the Lisbon Treaty.
That does not mean the UK Government has not been critical where it believes European military operations have failed. The EU mission in support of security sector reform in Guinea-Bissau and the military training mission for Somali security forces has raised eyebrows in the Foreign Office. But the UK wants to keep the EU’s military deployment in Bosnia-Herzegovina
Notwithstanding some highly effective EU military programmes, EU defence policy has been stagnant, on the whole, since the Iraq war. The success of the France-UK deal could provide the EU with an impetus to further develop EU co-operation on defence and security. The so-called Common Security and Defence Policy still falls short of any workable EU-wide decision-making capacity.

However, that is to assume the France-UK deal will work in practice. In 1998, both countries signed the St Malo defence accord which was within the NATO framework. Just five years later, it was forgotten as France became the UK’s biggest critic for going to war with Iraq.

Maternity leave rights will test UK’s patience with Europe

“Choose your battles carefully” would be Machiavelli’s advice to David Cameron. The British Prime Minister was in Brussels this week with a mission to freeze the EU budget for 2011. It is a battle he is set to lose.
The showdown over the budget was Mr Cameron’s first real foray as Prime Minister into hard-nosed European negotiations. His attack on the proposed budget increase at his week’s European Summit rallied the more Eurosceptic wing in his party. However, after failing to repatriate powers to the UK, as he had promised to do before the election, and now failing to prevent a rise to the EU budget, he will need to find another battle to win if he is to confirm his Euro-realist credentials.
He doesn’t need to wait long. After lying low on employment and social legislation, the European Commission has chosen a time of increasing unemployment across Europe to propose to extend maternity leave. The Council has already pushed back any major extension of paid leave for new mothers but the UK Government, more than most, will want to resist any new maternity leave rights. So far, David Cameron has kept quiet since his coalition partners will not want to take such a hard line. However, he will soon have to take a view and come out fighting if he is to please his own party which believes that the EU has no role to play at all in employment and social affairs.
Last week the European Parliament adopted the Estrela Report on the “improvement of the health and safety at work of workers who are pregnant or have recently given birth”.
MEPs want to increase paid maternal leave to 20 paid weeks and make a two-week paid paternal leave mandatory across the EU.
"Maternity cannot be regarded as a burden on social security systems, it is an investment in our future," argued the author of the Parliament’s Report, Portuguese Socialist MEP Edite Estrela.
The Estrela report proposes minimum maternity leave should be extended from 14 to 20 weeks, six weeks of which would be taken immediately after childbirth. The rules would apply to self-employed workers. Workers on maternity leave must be paid their full salary, which must be 100% of their last monthly salary or their average monthly salary. The report also says that member states must give fathers the right to fully paid paternity leave of at least two weeks within the period of maternity leave. Female workers cannot be fired from the beginning of a pregnancy to at least six months following the end of the maternity leave.
Sometimes an issue exposes cultural divisions as much as political ones. This is one such issue. The vote by and large followed national lines with a high cohesion ratio of 72,54% among MEP votes from the same state. Of the UK MEPs that voted, 54 voted against and only 3 in favour. The liberal group ALDE was divided right in the middle on the issue. UK Liberals were opposed to the report.
Liz Lynne a UK Lib Dem MEP on the social and employment committee said that at a time of economic recovery, it would not be acceptable to impose such a heavy burden on businesses. And in any case, it would only give employers further reason not to employ young women.
The report did not take into consideration who would be picking up the bill. Responsibilities for paying for maternity leave vary across Europe. France will oppose the Parliament’s position since it will be the Government that would be responsible for an additional €1.3 billion.
What is remarkable is that the report received most support from the southern states. The so-called PIGS plus Ireland, all without exception voted overwhelmingly for the legislative proposal. Bankrupt Greece voted 14 for the proposition and 0 against. Italy had 57 votes for and one vote against the proposition. Spain had 37 for and 1 against, Ireland voted 11 for and 0 against.
The European Small Business Association estimates the cost for these proposals from the Parliament would be in the region of €121bn between now and 2030. The proposed 2.9% increase in the EU budget would cost the UK a further €500m in contributions. The maternity rights proposals present a much bigger challenge to David Cameron. Certainly much more tax-payers money is at stake. Is he ready to go to battle, again?

Cathy Ashton gets her EU Foreign Service – with a little help from William Hague

The EU institutions have, despite some last-minute political wrangling, reached a settlement on a new European diplomacy service. The Lisbon Treaty allowed for an External Action Service with the objective of matching Europe’s economic status in the world with a similar diplomatic clout.

However Cathy Ashton, the EU’s High Representative for Foreign Affairs, had to contend with competing demands from MEPs, national governments and the European Commission, all with different views on what the scale and scope of the new foreign service operations should look like.

In Strasbourg this week MEPs voted to adopt the European External Action Service Staff Regulation, the Financial Regulation and the EEAS 2010 budget. The EAS will now be operational on schedule - from 1st December.

EU foreign ministers in July already paved the way for the EAS to be operational from 1st December. Member State governments – including the UK Conservatives, who had been critical of the EAS plans before they came to office – were keen for the EAS to be a success.

However, rows broke out soon after over the budget and over appointments. Nevertheless, Cathy Ashton has defied her critics – and she has had many – by casting aside controversy over the budget and over national and georaphical quotas for the EAS staffing regulations. The vote this week means, the High Representative can now get on with the business of appointing around 80 senior diplomats. She will then, over the next two years, recruit officials from the Council General Secretariat and from national diplomatic services. Eventually, the EAS is expected to be staffed by around 6,000 officials.
The EAS is possibly the most significant of the innovations brought about by the Lisbon Treaty. And it was the unqualified support of the British Foreign Secretary, William Hague that helped make it happen

In a major speech on foreign policy on 1st July, William Hague set out his vision for a United Kingdom that is “highly active and activist in our approach to the European Union and the exercise of its collective weight in the world”. This was not the Euro-passive Conservative Government we had been led to expect

This represented a major shift in Hague’s view of the world. In opposition, he was particularly hostile to the EU external relations policy as conceived by Lisbon. As shadow foreign secretary, he was bitterly opposed to the appointment of Tony Blair as EU Council President, fearing that, as an international statesman, Mr Blair would give the EU too much legitimacy on the world stage.

And now, Mr Hague is making the case for a stronger British presence within the EU institutions. He says that the number of British “A” officials has fallen by 205 since 2007, he says; “As a new Government we are determined to put this right”.

Although there is no guarantee that nationality provides any support for any particular national policy, it is important for the UK that British diplomacy is ingrained in the new External Action Service.

William Hague understands the real-politik of a common European foreign and defence policy and the EAS is a practical way of demonstrating Europe’s power to the world – at a time when the UK, France and Germany are losing their individual impact on world events and when their bilateral relations with countries like India and China are becoming less relevant to world affairs.

Spending cuts at the UK Foreign Office and Ministry of Defence, announced this week, was in part made possible because of the new powers and responsibilities of the External Action Service.

So the EU’s High Representative for foreign affairs – and former Labour peer, Cathy Ashton can thank William Hague for the success this week in securing a smooth transition to a powerful new global institution. Mr Hague has paved the way for a powerful international diplomatic service which will finally give the EU a single voice in the world. But Cathy Ashton must receive her fair share of praise for the success in setting up the EAS. She has confounded her critics – who have from the day she was appointed dismissed her as a light-weight - by keeping a cool head and single-handedly creating the momentum she needed to drive through her plans

MEPs square up to National Governments over the EU Budget

The British public is bracing itself next week for deep spending cuts when the Chancellor of the Exchequer, George Osborne unveils plans for unprecedented reductions to departmental budgets in the Comprehensive Spending Review on Wednesday.

Ireland and the Baltic states are already experiencing the pain that comes with their national austerity measures. Other European countries like Sweden, France and Germany are also scaling back public sector spending. Even the new left wing government in Greece is slashing the public sector – although it hardly has a choice in the matter after a humiliating European bail-out.

It is understandable then that EU member state governments were appalled at the European Commission’s proposal to increase the EU budget by nearly 6%. At a time, when difficult decisions on job cuts and wage freezes in the public sector are being made by national governments, the EU asks for more money.

It is, of course, the centre-right governments across Europe that are introducing the austerity measures they believe will stabilise their economies and help bring about a sustainable recovery. Some are more enthusiastic than others. Nevertheless, the European centre-right consensus is real cuts need to be made and need to made immediately.

It is strange then that the Centre-Right majority in the European Parliament has taken an entirely different view when it comes to the European Union budget. The European People’s Party believe that there should be more public spending – not less – for the
EU to invest in growth and jobs for the future.

Sidonia Jedzejewska – a Polish MEP in the Centre Right EPP Group, is drafting the European Parliament’s report on the 2011 budget. He believes that the EU should be able to properly fund cross-border education and training programmes if it is to add value.

When the European Council agreed to a lower budget increase than the 5.9% proposed by the Commission, the European Parliament, led by the EPP, responded by re-instating the 5.9% increase. This matters because after the Lisbon Treaty, the European Parliament now has a say in the Budget. Previously it would just be asked to approve the over-all amount. Now it can negotiate on individual budgets for transport and fisheries and so on. MEPs have already threatened to block funding for ITER, the international nuclear fusion reactor project.

On October 5, after a bruising debate, the Budget Committee of the EU Parliament voted to reject the Council’s proposal to limit the increase to 2.91%. The Council said that a 5.9% increase on 2010 – giving an overall EU budget of €130.14billion – was “politically unrealistic”.

The UK government goes further. It sees the proposal increase as – at the very least – insensitive.

Earlier this week, British Prime Minister David Cameron told a joint press conference in London with Danish counterpart Lars Lokke Rasmussen that the figures should be progressively "reduced rather than increased." The UK's net transfer to EU institutions is set to rise from £6.4 billion this year to £8.3 billion in 2011-12.

On 30th September, Vince Cable, the UK’s business minister spoke to MEPs in the European Parliament: He said; “At a time when national governments, including mine, are having to make very painful cuts in public spending, no one can understand why the European budget is not being subjected to the same discipline.” Clearly, this has fallen on deaf ears.

The most audacious part of the Commission’s budget plans is the four percent increase for administration costs. The Commission has even gone to the European Court of Justice to save planned pay increases for EC officials after Council threatened to impose a freeze.

The European Parliament – along with the Commission – believe that there is a need to increase EU funds to compensate for the short-falls that will come about in national public spending. MEPs are particularly concerned that infrastructure and regional development projects would suffer. However they go much further than ring-fencing investment projects – they have also rejected a Council proposal for a €820.71m cut to the hugely bloated agriculture and fisheries sectors.

While tax payers have been asked to indirectly or directly shoulder the costs of getting through the financial crisis, can the EU conceivably demand for more?

National governments are forced to take measures to cut national defence spending, reduce child benefits, postpone school building schemes, lay off thousands of workers. Is this the right time for MEPs to make the case for more money for cross-border student exchange schemes, bee-keeping research or the Palestinian Authority? MEPs are worried that if the EU does less, it would become less relevant. If the EU does less, but does it well, they should have nothing to fear. The EU budget should not be used as a substitute for another European stimulus package. It should be there to support growth, jobs and prosperity, for the long-term success of the single market.

The fight over the EU budget is set to rumble on. The European Parliament will vote on the Committee’s recommendation during the plenary session in Strasbourg next week.

Although the Parliament will continue to push the limits of its mandate and test the patience of the Council in doing so, ultimately it does not have the power to impose its will on the national governments. Perhaps, instead MEPs should reconcile itself to the political imperative across Europe. Rather than re-start a debate over stimulus versus austerity, it should accept the new reality, while securing as best it can its constituent interests.

Friday, October 8, 2010

William Hague spells out plans for EU Scrutiny

UK Foreign Minister, William Hague this week sent a warning shot to the European Union – the sovereignty of the British parliamentary system is paramount and any future EU treaty will be put to a referendum – by law.
Mr Hague was giving his keynote speech on foreign affairs at the Conservative Party Conference and he underlined the government’s commitment to introduce an amendment to the European Communities Act 1972 to ensure that any treaties “giving away power” would be put to a public vote before ratification. This would put the UK on the same footing as Ireland. The Irish have voted on any new EU treaty since 1987. The Foreign Secretary also said he would follow through on his election promise to introduce a United Kingdom Sovereignty Act – making it clear where the ultimate authority in the UK lies.

Party conference is a great opportunity for any politician to play to the gallery and Mr. Hagues’ tough words on Europe was music to their ears. However, on re-reading his speech, his bark was much worse than his bite.
After the traumatic ratification process of the Lisbon Treaty, there is no appetite in the EU or in any of it member states for another institutional treaty.
At the Conservative Party conference in 2009, there were calls for a referendum on the repatriation of powers in the field of employment and judicial affairs. It was believed that this could strengthen a Conservative Government’s hand in demanding opt-outs in those areas.

The Conservatives, now in office, seem to have backed off from attempts to renegotiate shared competences with the EU. This may be because they are sharing power with the more euro-enthusiastic Liberal Democrats in a coalition government. It might also be because it would be just too difficult – and may even undermine any attempts to get a good deal from the on-going bargaining over the EU budget.
All that was left for Mr Hague to say on Tuesday in Birmingham was to say that his government would, “reaffirm once and for all the sovereignty of our ancient parliament”, I suppose to protect the legislature from encroaching demands from Brussels.

Again, this is not such a radical departure from what is already acknowledged elsewhere in Europe. One of the reasons for the delay in ratifying Lisbon was that the German constitutional courts had been asked to rule on whether the Lisbon Treaty would have any effect on the sovereignty of the Bundestag.
Mr Hague pointed out to party representatives, “EU law has effect in this country because - and solely because - Parliament wills that it should. Parliament passed the 1972 European Communities Act…..I can tell you today that we will legislate this autumn to underline that. A sovereignty clause on EU law will place on the statute book this eternal truth: what a sovereign parliament can do, a sovereign parliament can also undo.”

This has been met with some bemusement in Brussels where it is considered that the Lisbon Treaty actually offers a greater role for national parliaments to block EU legislation. Indeed there is some frustration in the European Commission that there is not enough scrutiny of EU laws by national assemblies. The scrutiny committees in both the House of Lords and the House of Commons are under-resourced and lack the time and political weight to properly scrutinize European legislation.
Mr Hague does acknowledge that the new sovereignty clause is hardly ground-breaking. He says, “It will not alter the existing order in relation to EU law. But it will put the matter beyond speculation…This clause will enshrine this key principle in the law of the land.”

So the foreign secretary’s speech does not herald a departure with the UK’s relationship with the EU. Brussels can breathe a collective sigh of relief. The coalition government’s package of EU policies amounts to little more than symbolism.
Messrs. Cameron and Hague had successfully buried the issue of the Lisbon Treaty during the general election campaign, they still run the risk of encouraging the euro-sceptic wing of the Conservative Party to amend the Sovereignty Bill during its parliamentary passage. The Conservative leadership will be desperate to contain this prospect since it would not only put the UK on a collision course with Brussels but also create tensions with their Liberal Democrat coalition partners.
Given their political limitations, the Conservative leadership will need to look elsewhere to restrict the expansion of EU decision-making post-Lisbon. David Cameron has hinted at negotiating the application of the “so-called” passerelle clause in the Lisbon Treaty.

This article allows the European Council to switch decision-making from unanimity to qualified majority (but not in foreign affairs or defence). This could significantly widen the scope of EU influence. However, Gordon Brown had already negotiated the insertion of a provision that the passerelle cannot be used without the agreement of both houses of Parliament.

So what red meat is left for the euro-sceptic wing of the Conservative Party?
Firstly, the UK is notorious for gold-plating EU directives. Where other Member States implement the spirit of the directive, the UK follows it to the last letter.
Secondly, the Lisbon Treaty envisaged national parliaments playing a fuller role in EU legislative scrutiny. However, the EU scrutiny committees in the Houses of Parliament are under-resourced – and although there is a wealth of talent in the House of Lords committee, it is difficult to find experienced MPs wanting to serve on the Commons committee. The Committees should initiate debate on draft directives before they are adopted by the EU institutions.

In Denmark, parliamentary committees mandate ministers on the line they should take in EU negotiations. And ministers are then required to report back to their committee after their Council meeting. Of course, this would not work quite so well in the UK. However, we do have some talented MEPs in Brussels and the scrutiny committees could and should invite them to take part on a regular basis.
For the Conservatives, the issue of parliamentary scrutiny of EU legislation is clearly important. They are restricted in their ambitions despite some grand-sounding initiatives. However, the new government could make a real impact by improving the scrutiny mechanisms already available to them.

Friday, October 1, 2010

Will the UK sign up to European Economic Governance?

Brussels was brought to a standstill yesterday by 100,000 trade unionists from across Europe who were demonstrating against plans being drawn up by the European Commission that would penalise member state governments that fail to rein in their deficits.

Trade Unions across Europe are concerned that the fiscal conditions being placed on Member State governments by the EU will lead to more job losses and threaten economic growth.

The conditions are being drawn up to ease market fears over unsustainable public spending after the “shock and awe” €750billion plan to protect the Eurozone from collapsing during the weekend of May 7-9th.

The Commission believes that the €110bn EU bail-out of Greece earlier this year shows that without any fiscal union there is no guarantee that the whole system won’t fall apart when a shock hits the system. Olli Rehn, the Commissioner for monetary affairs has said: “We need stronger and better EU economic policy co-ordination”. In other words; more economic governance. And this spells trouble for the UK’s relations with the EU.

For now, the idea of more EU “economic governance” has not registered in the UK. It is seen as a Eurozone response to a Eurozone problem.

However, the German Chancellor is insisting that it should be a matter for all 27 Member States. This is to ensure that the French don’t get it all their own way. Germany is concerned that France will form a political bloc with the more “fiscally-relaxed” member states rather than agree to serious structural economic reforms. France is more ambitious about fiscal union but not so keen on the budgetary constraints that Germany is insisting on.

There are inevitably conflicting views on what economic governance would look like. If applies to all of the EU27 Member States, then the UK will want to see a minimalist framework – a sort of code of good fiscal conduct. However, BusinessEurope – the employer’s federation want to see co-ordination of demographic pressures on pensions, stress-testing of public finances and monitoring of labour, product, services and capital markets.

The European Central Bank has not shied away from proposing a radical agenda for European control of deficit and spending. In June this year, the ECB proposed an independent EU fiscal agency to monitor public finances; financial sanctions and the even removal of voting rights in EU institutions.

The ECB believed that Member States had not been stringent enough in applying the fiscal rules that exist. Apart from ignoring the pressures that governments were under to revive their economies following the financial crisis, the ECB solution would be an unacceptable loss of fiscal autonomy. Its response is that Greece had de facto lost fiscal autonomy after it was bailed out.

But member states are not going to give up the fiscal controls that easily. What might be more acceptable is the Commission’s less ambitious plans to synchronise preparations of national budgets. The idea is that governments would submit national economic programmes to the Commission every April. Commission experts will look at the plans and advise the Council, which in turn will issue country-specific policy guidance in July. Only then would member states finalise their budgets and present to their national parliaments.

This arrangement was agreed in September but the UK managed to get a concession and the UK government will continue to present the budget first to the House of Commons and only then would it submit the budget to the Commission and Council “for their consideration”.

The Coalition Government in the UK is looking on with some trepidation. The Conservative Prime Minister and Chancellor will be resistant to anything that smacks of undermining national fiscal autonomy. The LibDem deputy Prime Minister and Business Secretary are likely to see some merit in better fiscal co-ordination. Divisions within the coalition on Europe will, at last, surface after the governments best efforts to ignore their differences.

Sarkozy’s “Blustery Spat” over EU Rebuke

Tempers are still frayed in the Berlaymont this week. Nerves are still raw and noses not yet quite back into joint following what was probably the most ill-tempered working lunch of Europe’s leaders for a long time.

Despite the earnest agenda that had been prepared, the heads of government from the EU’s 27 Member States had to restrain themselves from turning the European Council lunch into a bun fight.

Instead of using the opportunity to flesh out the EU’s foreign policy post-Lisbon or develop new measures on economic governance following the Euro-crisis, the lunch, according to the FT, instead turned “into a blustery spat” over France’s expulsion – or voluntary relocation scheme - of Roma.

Put simply, the European Commission believes this contravenes the sacred cows of free movement for EU nationals and non-discrimination of EU nationals. The Roma that were sent back to Romania are EU nationals and the Commissioner for Justice, Fundamental Rights and Citizenship – and Vice President of the Commission to boot, Madame Viviane Reding is on the warpath.

At first, the formidable Mme Reding was measured in her response to President Sarkozy’s initiative to offer money to Roma who had set up camps in France. It was when she claimed to have found out that the French Government were being “duplicitous” in what they had been telling the Commission, she went nuclear. The Commission Vice President said that the policy was worthy of Vichy France.

This did not go down too well in Paris. President Sarkozy bounded into Brussels last week for the Council Summit looking for a show-down with the Commission – something which always plays well at home.

Sarkozy slammed Viviane Reding for her "deeply shocking" and "insulting" comments. However, he couldn’t help himself from going further. He suggested that perhaps Luxembourg – Mme Reding’s Member State – would want to accommodate Roma travellers. This only undermined his position that France was well within its rights and that it was an infringement of national sovereignty to order the Government to change policy that had been designed to crack down on crime and disorder.

Although President Barroso tried to quell the dispute, he was forced to defend his Vice President when President Sarkozy harangued him in front of EU leaders. The result? Mme Reding apologised only for the Vichy remark. President Barroso stood his ground on the substantive allegations that were levelled at the French Government.

President Sarkozy was publicly isolated. He had failed to rally any political support from his European colleagues. It was a shame that serious issues around economic governance and EU foreign policy were sidelined.

However some fundamental principles were re-established. The Council President Herman Van Rompuy concluded that the European Commission has the responsibility of overseeing the application of EU law in the areas of freedom of movement and non-discrimination.

Another positive result for the Commission was an invitation from the Summit to the Commission to write the strategy for Roma travellers.

As for M. Sarkozy, he was sent back to the Palace Elysee with his tail between his legs, facing the prospect of Mme Reding taunting him with infringement procedures for contravening EU laws.

Thursday, August 5, 2010

Another Day, Another Euro

There has been some ill-informed nonsense written about the Euro since Greece was bailed out with the help of Eurozone members.

Some economists, who should know better, claimed that the crisis would spread to other vulnerable euro countries like Italy and Spain; that these countries would have no choice but to leave the single currency and that even Germany might walk away and start printing Deutschmarks again.

However, the Euro is much stronger than that - and is designed to withstand such shocks. It can, of course, be improved by enforcing strict deficit rules and by creating, which it now is, an emergency bail-out fund. What does not need to happen is any so-called economic governance. National budgets should not be subject to ECOFIN approval and tax policy should remain a useful competitive tool not be remotely part of any european fiscal union. The European Central Bank however does need to be more political in interest rate decisions and take into account more inflationary pressures in a Euro member state that is struggling. But thats as far as it goes.

I resisted joining in the clamour for quick fix solutions and rather stood back and watch the debate burn itself out. The Greek crisis has been dealt with and the Euro moves on

I read with interest some opinion polls which shows that two thirds of voters noe believe the EU is more relevant than ever following the financial crisis. thsi is remarkable considering no-one particularly liked being asked to bail out the Greek system as though it were some kind of perverse award for their fecklessness.

It was unfortunate that UK Deputy PM used the excuse of the Greek financial crisis as the reason why he changed his mind on the urgency of austere deficit cuts. Regardless, none of this of course excuses the fact that he campaigned to win Lib Dem votes without telling his voters that he had changed his mind.

What is also strange is that the Conservatives did not join on the bandwagon and launch a tirade against the Euro just when it was at its weakest. Perhaps this can be explained by the realisation that a weakened EU was not in the UK's interests. david Cameron himself said so during a visit to Paris shortly after becoming Premier.

Observers are mystified as to just how muted Cameron, Hague and Osborne have been on Europe - especially when there is a real chance to put the boot in.

The junior coalition partners can be credited for keeping the eurosceptic wing of the Conservatives reined in but how long can this last? At a Progress meeting in the House of Commons, chaired by the new MP for Wolverhampton, Emma Reynolds, Labour Party members came together to find ways of putting a wedge in the coalition on the issue of Europe. While every-one agreed that Europe is not a priority for voters, it is the coalition's achille's heel. Although there is no sign yet of a coalition split Labour is watching closely for any sign of fracture.

The Coalition Government's approach to the EU and its key partners has been surprising but commendable. But dont be fooled. It does not mark any shift of the Conservatives policies on Europe. It is pure RealPolitik. There was genuine fear that the weakened Euro would drag the UK back into a recession. But here we are - out of the storm. Another Day - another Euro. The single currency carries on.

Tuesday, April 27, 2010

The European Union – the policy that dares not speak its name

The second in a series of three party leader debates, last week, featured the thorny issue of the role of the UK in the European Union – or as the broadcaster, Sky News put it EU interference in the UK.

It presented front-runner, the Conservative leader, David Cameron with an opportunity to claw back some ground lost to Nick Clegg, the Liberal Democrat leader who dramatically stole Mr Cameron’s thunder in the first leaders’ debate. The Liberal Democrats are considered to be soft on the European Union and David Cameron’s more sceptical position was thought to hold more appeal to wavering voters. However, to the dismay of Conservative supporters, Mr Cameron decidedly failed to land a killer-blow on the Liberal Democrat leader.

This can only be explained by Mr Cameron’s determination to keep the question of the EU on the margins of his election campaign. In 2001, the Conservatives under the leadership of William Hague put their EU policies – particularly on the Euro – at the centre of their campaign and failed to gain any ground on Labour as a result. Mr Cameron has learnt the lesson from this doomed campaign and has so far avoided the issue of the EU as much as possible for fear of exposing the divisions in his party concerning Europe.

Rather than going in for the kill, Mr Cameron spent his time during the debate on Europe defending the Conservative Party’s position from Nick Clegg’s accusations that the Conservatives would put the UK on the sidelines. Gordon Brown gave the goldilocks pitch of dismissing both his opponents approach on Europe – the Liberal Democrats for being to hot on Brussels, the Conservatives for being to cold. Labour, he said, has it just about right.

Mr Cameron told viewers that he wanted to repatriate certain powers from the EU, although he didn’t elaborate on how or where he would try to negotiate opt-outs. The Conservative party manifesto suggests that criminal justice is one such area where they would try to claw back more national sovereignty. The Liberal Democrat manifesto, by contrast, favours more EU co-operation on criminal justice and homeland security.

The Conservative leader repeated his promise that he would hold a referendum if there was ever another change to the institutional relationship between the UK and the EU. However, this failed to differentiate him from the canny Mr Clegg who also offers the same deal. Nick Clegg even rattled Mr Cameron when he reminded the audience that he dropped his “cast-iron” guarantee for a referendum on the Lisbon Treaty once the treaty was finally ratified.

David Cameron was clear about the Conservative’s policy to refuse entry to the single currency. But again, he could not score points against his Liberal Democrat opponents who had modified their position in support of the single currency by adding Gordon Brown’s caveats that the country should join “only when the economic conditions were right” and even then only after a positive referendum result.

Mr Clegg ‘s strategy was clearly to marginalise Mr Cameron on his decision to leave the Centre-Right EPP Group in the European Parliament and form a group with – as he calls them - a “bunch of nutters”. This allowed Gordon Brown to dismiss Cameron’s Conservatives simply as anti-European.

Perhaps it was a mistake for Mr Clegg to remind the audience of his understanding of the European Union from his days as a “Eurocrat” adviser to the former Trade Commissioner, Sir Leon Brittan, but Mr Clegg was savvy enough to know that he shouldn’t try to sound as Euro-sceptical as the Conservatives might have done just to appeal to the gallery. Instead, he articulated the case for stronger EU co-operation to help bring about stronger financial service regulation and action on climate change.

Mr Brown took a low-key approach but nevertheless repeated the Blairite offer of putting the UK at the heart of Europe and not on the sidelines. He stuck to a pragmatic defence of the EU, repeatedly claiming that three million jobs depended on UK membership.

Both Mr Clegg and Mr Brown performed as they had been expected to by those familiar with their EU policies. The only surprise of the Europe debate was that Mr Cameron took trouble to tone down his more euro-sceptic views – which for many, should have been his strongest card of the evening, certainly in trying to find some clear blue water between himself and his main threat Mr Clegg. His most effective intervention on the issue of Europe came during a discussion on immigration where he promised a cap on the number of people from newly-joined EU countries settling in the UK.

The three main parties’ manifesto commitments on the EU vary only in so far as tone. With the Lisbon Treaty out of the way, and the single currency only a distant prospect, the manifestos could comfortably avoid making any substantive policy decisions one way or the other.

The Conservative’s policy pledges emphasise the role of the US and NATO “as the ultimate guarantee on Europe’s Security.” Labour, however sees the UK playing a strong role in European defence, in “partnership with NATO.” The Labour Party manifesto points at “the poverty of the Tory vision […] summed by their false choice between alliance with the United States and one with Europe.”

It suits Labour of course to paint the Conservatives as being on the fringes of mainstream decision-making in Europe. It describes David Cameron’s decision to take his MEPs out of the Centre-Right Group, the EPP (the largest Group in the Parliament) as “anti-European” and would only undermine Britain’s influence in the EU. However, Gordon Brown left it to Nick Clegg in the TV debate to turn on David Cameron for allying the Conservatives with niche political parties in the European Union.

The manifesto commitments on Europe were successful in keeping the issue low on the electoral agenda and the Leader’s debate also succeeded in creating a full-blown clash on the UK’s position in Europe. The only surprise from both the manifestos and the debates on Europe is that David Cameron restrained himself from a full-blooded eurosceptic attack on his new nemesis, the Euro-friendly Nick Clegg. He did, however, allow himself to repeat more than once the slogan from the 2001 election campaign, “In Europe but not run by Europe”.

Ashton Critics seize on “half-baked” Euro-Diplomacy Service. Can the Baroness Survive the Onslaught?

European Union Foreign Ministers are meeting today (26 April 2010) in Luxembourg to consider controversial proposals prepared by Baroness Ashton for a new External Action Service (EAS) which will be responsible for all EU diplomatic services around the world. The EU’s High Representative for Foreign Affairs and Security Policy desperately needs approval from Member States for her EAS blue-print which has been dogged by criticism for its proposed structure and budgets.

The High Representative has published new proposals a month after her original plan issued on March 25th, was roundly slammed for creating the role of an all-powerful Secretary-General. The new structure sees a triumvirate running the 7,000- strong service. One of the triumvirates would deputise for her at official diplomatic visits. It is not known whether this would be another Commissioner, with a remit in external policy – or even a Foreign Minister from one of the Member States. The Lisbon Treaty does not provide for an official deputy but the three posts are expected to be occupied by heavy-weights in order to give the High Representative the support she clearly needs if she is to make the EAS a success.

The new structure, already provisionally agreed by ambassadors to the EU, is designed to reflect the prevailing interests of the Commission and the Council in EU foreign policy – the Commission, because it is still reluctant to relinquish control over budgets for delegations to countries around the world; and the Council because Member States retain full responsibilities for their foreign policies. However, the new command structure, while trying to accommodate both the Council and the Commission, runs the risk of creating further confusion over who is running the EU’s foreign policy.

A more immediate concern for Baroness Ashton is the growing criticism from MEPs over the lack of accountability of the new EAS. A German Christian Democrat MEP, Ingeborg Graessle, has said that the Ashton proposals are in violation of European laws since they do not provide for any accountability to the European Commission or to the European Parliament.

German MEP Elmar Brok, who is responsible for writing the European Parliament’s report on the proposals, has threatened to pull the plug on the proposals if they are not changed to improve accountability to the Parliament. MEPs refuse to believe the claim by Baroness Ashton will be budget-neutral (ie: would not cost more than the costs of the structure that it will replace). The European Parliament has the power to block the budget for the EAS if it does not agree to its proposed structure.

Once foreign ministers give their approval to the plans today, attention will turn to MEPs who are already critical not just of the plans but also of the architect. The proposals are seen as an important test of the credibility of the newly-appointed High Representative – who just four months into office, has been dismissed by many as a “lightweight” and could even bring about her downfall.

Cathy Ashton took office as soon as the Lisbon Treaty was ratified and was the UK’s candidate for the role after British Foreign Secretary turned it down.

UK Prime Minister Gordon Brown was criticized at home for nominating some-one who had so little experience on the international stage. Baroness Ashton was appointed Trade Commissioner only when Lord Mandelson was recalled to Government. It was also seen as a victory for the French who were free to put their man – Michel Barnier – in the coveted Internal Market Commissioner position. Stephen Booth, Director of the Brussels and London think tank “Open Europe” dismissed her as a “complete lightweight”.

The French Foreign Minister, Bernard Savage immediately criticized Baroness Ashton for failing to turn up in Haiti to fly the EU flag after the earthquake. She told journalists she didn’t do “disaster tourism”. She was also criticized by the French Europe Minister, Pierre Lelouche for going to Ukraine for the inauguration of the pro-Russian Ukranian President Viktor Yanukovich rather than a major European defence conference in Majorca. The French have also criticized her for going to London every weekend and having de-briefing sessions on a Friday at the Foreign and Commonwealth Office.

On 8th March, The High Representative faced down her critics at a meeting of European foreign ministers in Córdoba. Her position had been so badly weakened, she took with her a letter signed by David Miliband and Swedish foreign secretary Carl Bildt saying that EU foreign ministers should get behind her and her plans for the EAS. The storm abated for a short while, before the French President, Nicolas Sarkozy summoned her to the Elysée Palace where he reportedly gave her a dressing down for “amateurism” and, quelle horreur - having such a poor command of French. Monsieur Lelouche made an impertinent offer to arrange a residential French language class for the High Representative.

However, to British ears, the sniping sounded like Paris begrudged losing control of international diplomacy – a policy sphere that France guarded jealously. And given that she needed time to learn the ropes, Baroness Ashton was given the benefit of the doubt. Nevertheless, the negative response to her proposals for the EAS has put Baroness Ashton in a very dangerous place. Der Spiegel last week reports that there is a growing body of MEPs from across the political spectrum who question whether she is the right person for the job. With a basic salary of €323,000, she is the world’s highest paid female politician and MEPs wonder whether she is out of her depth.

The European People’s Party – a coalition of European Centre-Right parties in the European Parliament – have been sceptical about Baroness Ashton’s capabilities from the outset. Not long after she was approved by the European Parliament, an official spokesperson for the EPP Chairman, Joseph Daul went on record as saying; “We expect a lot from the position of High Representative. So far she has not met that level of expectation. We are not trying to destroy her but want an improvement in her work.” He even was far as saying; “It’s not right to assume she is there for five years. She can be removed. Something must change.”

Political point-scoring alone cannot explain the Ashton-bashing. The EPP cannot get rid of her and have her replaced by one of their own – the deal was always going to be a Centre Left High Representative in return for living with a Centre-Right President – Mr Van Rompuy. It cannot be explained either by Anglophobia since the French were happy with securing the Internal Market portfolio for Michel Barnier and in fact the French President had even boasted that they had beaten the British in securing the job. The only explanation is turf-war politics – The French and Germans want a say in the appointment of key EU ambassadors in the new EAS, concerned that it will become a British Foreign Office writ large. It doesn’t help either that in addition, the Commission President is behind a power grab for the EU aid and development funds.

There are some signs of encouragement for Baroness Ashton’s supporters. Its been acknowledged in diplomatic circles that she has developed a chemistry with US Secretary of State, Hilary Clinton and that the appointment of Poul Skytte Christofferon, former Danish Ambassador to the EU, as her special adviser, is considered generally as a good thing.

Nevertheless, there is a real threat that the Baroness might not survive much longer. Brussels is watching the UK election very closely to see what will happen. Should Labour lose the General Election in the UK, she would lose the support of her biggest backer. Her detractors could petition for her replacement – perhaps with David Milliband, the outgoing British Foreign Secretary.

Thursday, February 25, 2010

Lib-Dems and Labour come together to expose Tory weaknesses on Europe

Last night the Liberal Democrats and Labour came together to present a progressive common cause united against the reactionary forces of Conservatisim. Or at least it was an opportunity for them to steal a march on a Tory policy that seems doggedly rooted in the Major years untouched by the uber-modernising David Cameron.

Chris Bryant MP, Europe Minister and Ed Davey MP- Lib Dem Shadow Foreign Minister spoke at a Westminister event last night on the issue of the Conservative Party's policy on Europe. And they started with Tory MEPs record in the European Parliament.

They said that in the last few weeks Tory MEPs have voted against measures to tackle tax evasion and tax havens.

Chris Bryant warned that if the Conservatives win the election they will do everything in their power to get opt-outs on EU social protection measures such as maternity leave.

Ed Davey wents as far as calling many Tories "mouth-frothing xenophobes. He said that the Conservatives were actually taking a step back into out-right euro-scepticism. Michael Howard when Home Secretary actually helped set up Europol. Now the Tories oppose the European Arrest Warrant and Eurojuste. As part of the Stockholm Process, the Uk will have the choice to opt-in or opt-out of measures over teh next five years. We should be asking the question now - what will the Conservatives do if elected - opt-in or out of Eurojuste?

If David Cameron thinks that he has got rid of Europe as an election issue by dumping his cast-iron guarantee for a referendum, then last night showed that both Labour and the Lib Dems are willing to open a common front and make the Conservatives squirm a little over what exactly they intend to do on some very critical questions.

Friday, January 22, 2010

Blooded and Bloodied - The New Commission has been initiated by the European Parliament but only after MEPs get their scalp

Over the last two weeks, the European Parliament held hearings with every single prospective Commissioner – except the President. The hearings are the only occasion for Members of the European Parliament (MEPs) to genuinely bring some influence to bear on the formation of the next Commission. While Commissioner Hearings are a useful exercise in casting some light on a rather secretive selection process, do they really inject the kind of accountability that the Commissioners like to pretend it does and do MEPs really feel that they have held the Commission to account after listening to a series of set-piece answers?

Questions are designed to test the nominee’s credentials, size up their commitment to the European agenda – over and above any national interests – and scrutinize their priorities for the next five years.

The Hearings certainly put the candidates’ probity and record to the test. The Commissioner-designate from Bulgaria, Rumania Jeleva, was allocated the humanitarian aid portfolio but was compelled to stand down after accusations that she failed to fully declare her financial interests while she was an MEP.

As an exercise in determining the policies and priorities for the prospective Commissioner’s five year mandate, it was a disappointment but only because the candidates played safe by repeating the lines of their predecessors. This was to be expected since they will have been prepped in advance by advisers to the incumbent Commissioners and, of course, because the President of the Commission, Jose Manuel Barroso has already set a course for his second term.

If the Hearings were designed to expose gaps in the candidate’s knowledge of their portfolios, it worked. Some arrived with a clear command of their briefs; notably Connie Hedegaard, who chaired the Copenhagen Climate Change summit on behalf of the Danish Government and now commissioner designate for Climate Action. Others who are new to their allocated policy responsibilities such as Joacquini Almunia, the respected Spanish Commissioner for Economic Affairs and now designate for Competition, demonstrated less expertise in the All eyes were on Baroness Ashton – the newly-appointed High Representative for Foreign Policy and Security – returned to the Parliament for a second time to face MEPs. This time she appeared in her capacity as the nominated Vice President of the European Commission and Commissioner responsible for External Affairs. Members of the Parliament’s Foreign Affairs committee were keen to hear more about how she would undertake her duties as arguably the EU’s answer to Hilary Clinton. Alas, it was a lacklustre performance. Many MEPs commented on her responses as unfocused, uninspiring, showing only a superficial knowledge of the world issues. She failed to clearly prioritise her agenda, mentioning every continent other than Oceania as her priority.

It was her British compatriots on the Foreign Affairs committee that gave Baroness Ashton the toughest grilling. Conservative members tried to embarrass the former Labour leader of the House of Lords with questions about her past employment in the CND.

Nevertheless, she remained composed and confident throughout the hearing, honestly admitting her lack of knowledge on certain issues. In any case there was no real danger that MEPs would object to her candidature given the unanimous backing she received for the High Representative position by Member States

Mutterings over the performance by Neelie Kroes, the Commissioner-designate for the newly-created Digital Agenda role, caused some nervousness in President Barroso’s camp. She was the only nominee to be called back for a second smaller meeting, in which coordinators of the main political groups came out satisfied by her more solid opinions and agenda for Digital Europe. Her poor showing at the Hearing surprised many given that she was respected for her grip on the competition portfolio in the previous Commission.

Members of the highly influential internal market committee wanted to see how far the French Michel Barnier would differ from the Irish Charlie McCreevy in the powerful Internal Market Commissioner role. His nomination caused a fracas with the British when the French President gloated that his appointment represented a defeat for the Anglo-Saxon model. M Barnier, however, was at pains to reassure members of the committee that he would not blindly follow a French model of market economics. He played down prospects of heavy-handed regulation under his stewardship of the internal market role. He even quoted Adam Smith – an icon of the free-market British.

The Commissioner Hearings provided the European Parliament with a chance to flex their muscles. The recently-ratified Lisbon Treaty gives MEPs new decision-making powers in more policy areas – such as Justice and Home Affairs and Sport. Parliament was certainly keen to demonstrate its prowess. The reality is, however, that MEPs cannot veto individual candidates although it can refrain from approving the entire Commission team. On Monday evening (18 January), co-ordinators from the political groups met to discuss Rumania Jeleva’s candidature and it soon became clear that MEPs would reject the Commission if Ms Jeleva remained in post. The Socialist & Democrat Group was particularly adamant. The leadership of the European People’s Party responded to pressure from the Socialists with a half-hearted request for the head of Slovakia's socialist nominee, Maroš Šefcovic, nominated for the lowly inter-institutional relations role, ostensibly for comments he was
supposed to have made at a conference in 2005 that Roma were “exploiting the Slovak welfare system”. However EPP Leader Joseph Daul backed down admitting he did not have the stomach for “blood and corpses”.

This outbreak of political posturing has only served to delay the process of assembling a new College of Commissioners. The College was due to be approved by a parliamentary vote on 26th January. The most likely replacement for Ms Jeleva should be Kristalina Georgieva, currently, Vice-President of the World Bank. Her hearing should take place on February 3rd. The parliamentary vote will now take place on 9th February. It will be an anti-climax to a long and wearisome process that started with political-horse-trading over President Barroso’s re-appointment and the uncertainty of when if ever the Lisbon Treaty would ever be signed, meaning the existing Commission had to stay on as a caretaker Commission after its official mandate expired in November 2009.

The Hearings have dominated events in the European Parliament last week. However, there has been a lot of noise and too little light for the Hearings to be of any real worth to MEPs and the general public. The prospective Commissioners will feel that they have escaped the Hearings without too much damage being inflicted. In reality, they have all benefited from safety in numbers and owe their individual mandate not to the Parliament but to their own national Governments still.

Wednesday, January 13, 2010

Iceland referendum and EU acession talks is a Perfect Storm

Iceland is gearing up for EU acession talks to begin in March this year. In a case of seriously unfortunate timing, Iceland is holding a referendum on the Icesave Bill on either 27th February or 6th March. In early March the Icelandic Government will also enter formal acession negotataions with the EU.

UK Chancellor, Alastair Darling hinted darkly on 4th January that the British Government would block Icelandic membership if they did not sign the bank repayment deal. Since then, Icelandic President Grimmson declared that he would not sign the bill and instead referred the issue to a national vote. Icelanders are certain to reject the anglo-dutch deal.

Although the British Foreign Office has since given assurances that the UK won't interfere with the Icelandic negotiations on EU membership, the reality is that the UK may beforced to take a stronger line once the Referendum rejects the repayment arrangements - not least because it will not want to be seen as being forced to back down at a time when the UK is in the middle of a febrile election period.

The problems for Iceland's acession plans don't end there. Germany and France have said that they will not make any concessions to Iceland - even if they are generally positive about Icelandic membership. The first two sectors that will be negotiated are fisheries and agriculture. Icelandic waters are rich pickings for European fishermen and fisheries represent a quarter of Icelandic exports. This will be a big test of Iceland's appetite for EU membership. At a time when it is trying to recover from the financial disaster, it is being asked to submit to strict EU quotas. IN adition, the French will be scrutinising very closely the talks on Icelandic membership of the Common Agricultural Policy. Iceland's 3,000 farmers fear that CAP membership will reduce local agricultural production by up to 50%. Nevertheless CAP membership does offer other benefits to Iceland.

The Germans are even more lukewarm about the prospect of Icelandic acession. The CSU - Angela Merckel's sister party has said it is not the EU's duty to "save" countries in trouble.

Despite this, Iceland could still expect a fast-track process. The country already meets 80% of the community acquis. True - there has already been a delay in achieving candidate status. The country had expected to gain candidate status in December but it was only because of internal EU wrangling over Lisbon appointments that delayed the decision. The present European Commission is a caretaker one with no mandat to make new decisions. Iceland must wait until its successor is properly in place. The Council can only confer candidate status after a recommendation from the EU executive. These recommendations need parliamentary approval too.

Iceland is still hopeful of EU membership in two years and membership of the Euro in four years.

One of the biggest attractions of EU membership for Iceland would be to join the Euro, after the virtual destruction of its currency. This, however, requires a preliminary period of two years during which the Icelandic krona would need to be within the narrow band of the Exchange Rate Mechanism. It would be difficult for Iceland to negotiate an exemption from this requirement, which is embedded in the Maastricht treaty

Iceland is a member of the European Economic Area, and participates in many EU programmes, including the Schengen agreement. Understandably it was disappointed that the Union did not mobilize itself quickly to come to the stricken country's aid, forcing it to turn instead to countries such as Russia and Japan, with which it has no formal links.

Despite the widespread disappointment with the EU, many Icelanders appear to have concluded that their best bet for the future would be to join the Union as soon as possible. Membership has never been so popular.

However, the dispute with the UK and the Netherlands over bank bailouts - as well as indignation in Rekjavik that it is forced to beg its Nordic neighbours for IMF support, could mean public support for EU membership could soon wane. Iceland needs to redouble its efforts to improve bilateral relations with key EU member states to ensure there is no further delay to EU acession talks. There is every risk that the country could be blind-sided by adverse developments from IMF loan talks and the Icesave bail-out referendum. Its essential then that it strengthens informal as well as the more formal channels of communications with the EU and its members (the UK in particular). It should demonstrate its European credentials by hosting a major informal EU summit in Rekjavik later this year to draw a line under the banking crisis fall-out and set about finding a pan-European solution to guaranteeing bank deposits. Iceland should regain its confidence after a series of polital and economic blows and set out what it can do to bring something to the European table.