Brexit…the UK view

At a conference in London, I listened to a Welsh member of the European Parliament’s statements on Brexit this afternoon.

A number of points are worth noting on this MEP’s remarks:

The first point is the intention that has already been stated elsewhere of standing against the whole world to make Brexit a success, and this triumph requires the support of the entire British population.

[Comment: no objections from the floor] Continue reading

The UK will have to agree to single market rules

Agreement on the Brexit “divorce bill” is very good news, involving the UK settling its outstanding commitments to the rest of Europe. Trade negotiations will now be able to start and they will not be straightforward, as Michel Barnier recently explained with the backing of the remaining EU 27. There will be no exceptions to the rule, the UK cannot have a tailor-made agreement, all sectors will be treated equally with no special allowances. Continue reading

German risks for Europe

After the failure to form a coalition the first thing to notice is that Merkel is no longer at the center of the game. She has been replaced by the German president, Frank-Walter Steinmeier, who will decide what will be the next steps.

These steps can be threefold
1 – A coalition between the CDU-CSU and the social democrats of the SPD but the SPD is reluctant to participate.
2 – A minority government but with the risk of doing nothing while important issues have to be managed (the current negotiation failed on the refugees’ question, on carbon emissions, on taxes and on education) These are important issues that cannot be postponed.
3 – New elections at the beginning of next year

I favor the third possibility but my guess is that in this type of situation domestic questions are at the center of the discussion or of the campaign.
European questions were not at the center in recents days but with Merkel’s recent point of view was a kind of guarantee that Europe would not be forgotten.
It could be the case in a foreseeable future if Merkel is no longer the leader. Europe could then be erased from discussions

The recent improvement in the perception of Europe is twofold.
1- GDP growth is stronger and employment is improving rapidly
2- The commitment between Merkel and Macron to improve the way institutions are working at the European level

If Merkel is weaker and focused on internal issues then European reforms will no longer be on the agenda
This would create an uncertainty that could reduce the economic horizon then limiting investment and the possibility to improve the potential growth. Therefore it can have a negative impact on growth and could  be damaging.

Another point on reforms is that with stronger growth it limits the risk of populism. If, because Merkel is no longer at the center of the picture, reforms are not done then we will see the convergence to a lower growth trend rate and more that the come back of populism with the risk of weaker institutions. Some nationalists want to exit from the EU.
The political process in Germany is at risk not only for the Germans but also for Europeans as the current momentum would become more fragile opening the door to populism

The impact on Brexit negotiators will depend on the result of the current political process. A bias positive to populism would a piece of cake for the UK government as populists do not like Europe. It would be the worst situation for a European citizen.

Discussions at a conference in Washington

I was at a conference in Washington during the first week of January. I discussed 3 themes that represent uncertainty in 2017. Here are the main points I discussed.

The first was about interest rates and the possible contagion effect from the US to the Euro Area. Here are the different points I mentioned

The starting point is related to the low momentum seen in world trade. Trade between countries is no longer a source of impulse as it used to be in the past. This means that every country has to generate its own growth. It’s no longer efficient to expect an improvement elsewhere in the world to provoke a stronger growth dynamics. In other words, every country’s growth depends mainly on the strategy that is developed locally. Continue reading