Guest article by Mina Toksoz: Erdogan has used coup attempt to crack down on perceived opponents but may not be as strong as it may appear

It was the army that stopped the military coup

The majority of the coverage of the failed Turkish military coup, and the rhetoric from Turkish political leaders suggested it was defeated by the Turkish people on the streets in support of democracy — some responding to the call from the minarets others to their reason. But that was not really the case. It was the Turkish army that stopped it just as it was General Umit Dundar, commander of the first army in Istanbul, who advised President Erdogan to leave his Marmaris hotel which was attacked soon after.

The top ranks of the Turkish army “stayed loyal” to the President as relations between them has improved over the past year as the President’s policies came in line with military’s objectives: hard line on the PKK in place of the peace process, policy of defeating ISIS replacing the previously ambiguous attitude, making up with regional ally Israel and toning down the hostility to Russia for a more constructive stance on Syria. With the exception of differences over the Kurdish issue, this is also in line with Europe and US thinking. Hence came the statements of Western government support for the elected government of President Erdogan and against the coup attempt despite the subsequent dismay over the deep purges taking place. EU in particular needs Turkey to ensure the refugee deal that is critical to maintain political stability in Europe. That President Erdogan is prepared to accommodate to EU demands despite the instability caused in Turkey by the 3million (and rising) Syrian refugees shows that the two sides need each other.

But President Erdogan’s position is not as strong as it may appear. The curt statement published hours after the General Chief of Staff had contained the coup pledged allegiance to the “demokratik hukuk devleti” –  democratic state based on the rule of law. This may not be empty rhetoric as the army still sees itself as the guardian of the secular Turkish Republic.

Turkish Parliament put on rare show of unity

President Erdogan’s authoritarian direction is also set to continue to clash with the democratic aspirations of the Turkish people and the defence of democracy by its political institutions –parliament, media, political parties, business associations, that were amply illustrated during the coup attempt. The Turkish Parliament (Turkiye Buyuk Millet Meclisi) showed a rare show of unity on the weekend pledging their allegiance to the sovereignty of the people vested in the Meclis. As the coup unfolded Friday night, MPs from all parties rushed “to keep the lights on” in Parliament and stayed put even when the building was bombed releasing a joint statement condemning the coup. However, the debate in the special session next day revealed the deep polarisation in Turkish politics. While Prime Minister Yildirim of the ruling AKP (Justice and Development Party) blamed “foreign interests who try weaken Turkey” with the nationalist-right MHP (Nationalist Action Party) Chairman Bahceli pointing to the Gulen movement as orchestraters of the coup, the centre left focused on domestic issues. The chairman of CHP (Republican Peoples’ Party) Kilicdaroglu called on MPs to work harder to strengthen democracy while the deputy head of Kurdish-left HDP (Peoples’ Democracy Party) Baluken warned that without a political solution to the ongoing conflict in the south-east, threats to democracy remain high and more military coups cannot be ruled out. These divisions were reconfirmed two days later in the debate on the 3-month emergency rule the government proposed which was passed with the support of the MHP despite CHP and HDP voting against.

Although inspiring, the scene in the Meclis was overshadowed by the action on the streets where President Erdogan spoke to his supporters. He now sees the opportunity – a Godsend, as he put it, to try to push forward the constitutional changes for an executive presidency. The government has rapidly instigated wide-ranging purges of the army, judiciary, the bureaucracy and even academia to increase its grip over the country that could further weaken the checks and balances of Turkish political institutions.

Turkish people have seen all this before, especially after the 1980 coup that had split the country between right and left. Now it is more complex. A left-alternative has only a faint echo in the CHP and HDP who –given the electoral system in Turkey, are unable to win elections, although some 40% of the electorate vote for them. On the right the vote is split between the MHP, which is in crisis as its politics has been increasingly appropriated by the AKP. Supporters of AKP are mostly people who had been left behind by the Kemalist regimes. They have been given voice by President Erdogan whose politics is a Turkish/Islamic version of Trump, Farage and other present day populist figures who thrive on crises.

Politics to drive economics

The political developments of last weekend have economic consequences. The living standards of the AKP political base improved significantly over the past decade as the Turkish economy grew rapidly. But incomes have largely stagnated since their 2008 levels. The coup attempt and the ongoing political purges is seen as increasing risks for international investors and the terror attacks are discouraging tourists. This will reduce the vital foreign exchange inflows to meet Turkey’s big external financing needs – the economy’s Achilles heel. This could continue to weigh on the lira increasing refinancing risks for the highly indebted corporate sector. The rating agencies Fitch and Moody’s warned of risks to Turkey’s investment grade rating if institutions are further weakened.

The treasury—with bureaucrats having the experience of the 2001 debt crisis, have kept a tight grip over fiscal policies. But there is a major risk that the budget discipline is loosened in order to stimulate growth to bolster political support for President Erdogan’s bid for executive presidency. Monetary policy was already suffering from political pressure for easing, although the sharp fall in the lira since the coup attempt and the inevitable uptick in inflation, led the Central bank to cut interest rates less than had been expected.

The Turkish economy is still strong with a resilient banking sector, a dynamic and diversified manufacturing, and is supported by the low oil prices and rock-bottom international interest rates. The economic authorities responded swiftly and decisively to the political shock with emergency liquidity measures and Economics minister Zeybekci promised to push on with measures to raise Turkey’s low savings rate and reduce its vulnerability to external shocks. Business welcomed the emergency rule with the Istanbul Chamber of Commerce stating “exceptional times require exceptional measures”. Domestic investors are so far standing firm. As the lira collapsed, retail depositors rushed to sell foreign exchange (some $6-7bn since the beginning of the week) and buy lira providing a domestic hedge and containing the depreciation. The weaker lira could help rebalance the Turkish economy to reduce its dependence on imports. But for currency movements to have lasting impact, they must be accompanied by deeper reforms with a longer term horizon and a business environment based on the rule of law to attract investment. However, increasingly, policy is having to focus on the short term and fire-fighting repeated domestic and international crises in the context of weakening rule of law. Meanwhile the purges are likely to trigger a major brain drain from the country. This will deplete expertise in the economy and the bureaucracy, and risks weakening policy flexibility in response to changes in global conditions. Hence the outlook for the country has become more fragile. But for 22-hours, the Turkish people and its battered institutions held together to defend democracy and showed an alternative way forward for the country away from coups and authoritarianism.

 

Referendum should not be accepted as fair democratic process but where do Remainers go from here?

Four reasons why the referendum lacks legitimacy:

We Remainers are told we should accept the result of the referendum with good grace and start thinking optimistically about the future of an isolated Britain (or England and Wales) hankering after the glories of its imperial past. There are actually four reasons why the referendum lacks legitimacy each one of which on its own would be sufficient on its own.

it undermines parliamentary sovereignty

Clem Attlee, the prime minister who created the National Health Service and greatly strengthened the welfare state said that referendums are “devices for demagogues and dictators” a phrase which was strongly endorsed by Mrs Thatcher in 1975. (To my knowledge she never did a U-turn on the matter.) Attlee it should be said was against the UK joining the forerunners of the present EU. While one can never know what a historical figure would have thought about present issues the best assumption is always that he or she would still have the same opinion so Attlee would still have thought joining the EEC in 1975 was a mistake and would have wanted to leave. But he also would have kept his opinion on referendums so he would have deplored the use of a referendum for this as for other purposes.

The campaigners to leave said that they wanted to return sovereignty to Parliament. But in fact by allowing a vote of 38% of the electorate to overturn a large majority in Parliament in favour of Remaining in the EU, the use of the vote to decide the future position of the UK in Europe and the world amounts to the biggest attack on parliamentary sovereignty since the 17th century.

 

One option was clear, the other encompassed contradictory aims

Second, the referendum was presented as a binary choice between Remain and Leave. But in fact while the choice to Remain was for a very clear known outcome, the choice to Leave opens at least two entirely different options. One is that the UK should remain a country of high immigration, but with the larger amount the comes from outside the EU being increased in relation to that from in the EU and with the UK moving forward on the basis of competition in open markets despite the evident costs to those left behind struggling in low wages and with inadequate public services. The other is of a country drastically reducing immigration so as to protect those with poor education and skills who have found it difficult to compete in open labour markets and have lost jobs due to competition from countries with much lower labour costs. If the referendum had separated these very sharply different visions of the future for the UK outside the EU and thus given the electorate three choices it is almost certain that Remain would have come out top of the three in a first post the post election. Even if the Alternative Vote system was used allowing a second choice to be used to decide between the two front runners it is very unlikely that most of those who voted for one Leave option (free labour and other markets as opposed to measures to protect British workers from competition) would have put the opposite option as their second choice.

The vote divides the generations

Third the referendum was intended as determining the future of the country for a period of 30 years or more, a very different proposition than a general election whose outturn lasts for a maximum of five years. The fact that all surveys show a large majority of those under 40 who will live longer with the consequences voted to Remain is an unacceptable binding of their future by an older generation.

Voters were misinformed in some cases deliberately

Fourth, the British people were misled and in several instances told outright lies by the Leave campaigns.

First, they were told that Turkey IS joining the EU in large posters prominently displayed. Turkey IS NOT joining the EU. Eleven years since negotiations opened in 2005 Turkey has completed only one of the 35 chapters which are preconditions for being considered for accession. Turkey as other countries can never join the EU without the parliamentary approval of every member country including not only the UK but also Germany, France and Austria where opposition to Turkish membership has traditionally been far greater than in the UK. (In fact British governments have long supported the principle of the possibility of Turkish membership and this position was not questioned by the Leave members of the British government before the referendum campaign).

There is no possibility in the near future that Turkey could come to a position in which member parliaments would be asked even to consider it for membership. This was a very distant prospect in 2010 and since then President Erdogan has made a large steps away from meeting EU membership criteria related to human rights, freedom of speech, rule of law and treatment of minorities. .

 

Second, the people were told that Leaving would give Britain control of its borders. In fact Britain has control of its borders: people coming into the country go through passport control. The UK can and has turned back people, including EU nationals,with criminal records or considered a threat to security. Whether the new electronic system is effective is open to question but that was always a choice only for the British government. To significantly strengthen such controls would require either a massive increase in border staff to subject travellers to intense scrutiny and long queues or some way of cutting the number of visitors.

Third, the Leave campaign’s battle bus was emblazoned with a statement that Britain would save £350m a month by leaving the EU and that this will be used to increase funding for the NHS. When Dr Sarah Wollaston, a Conservative MP and medical doctor, changed sides from Leave to Remain during the campaign in disgust at this flagrant lie, the Leave campaign announced that their position had not changed and the sum to go to the NHS remained on their bus. Immediately after the campaign it was dropped like a hot cake because they know that leaving the EU will save less than half the £350m and given other demands no government could afford to increase spending on the NHS to that extent without raising taxes.

Where now?

Those amongst the 48% who voted Remain who feel strongly about the matter should never accept the Referendum as a legitimate exercise of democratically accountable governance for the reasons given in the article and particularly because far from returning sovereignty to Parliament it critically undermines the sovereignty of Parliament by pressuring MPs to vote contrary to their own judgment on a matter of fundamental importance to the future of the country and possibly even the very existence of the country. One reason for non-acceptance is to try to prevent it acting as a precedent for referendums both in principle and in the manner of their conduct on other issues in the UK and across Europe.

However saying this provides little guidance of how Remainers should act in the coming months and years. Despite the reluctance of leading Brexiteers to move quickly to activate Article 50 of the Lisbon Treaty to set in motion divorce proceedings it remains probable that the UK or what remains of it will leave the EU in due course. It must require an Act of Parliament but probably enough MPs have promised to follow the referendum outcome rather than their own judgment so probably passing such an Act.

 

Maintaining any special access to single market will be difficult outside the EU

Then will follow negotiations on leaving and subsequent economic relations with the EU. The least bad outcome from the point of view of Remainers of such negotiations would be to retain substantial access to the single market. But this will be highly difficult to obtain. Since the UK will now refuse full access to the single market for other EU workers—given that this was the biggest substantive issue in the campaign, it must inevitably accept limitations on its own access to the market in the 27 remaining member states. A new government may still hope that it can negotiate access to important parts of the single market like financial services and the digital economy but it will not be at all easy. Any deal requires the agreement of every one of 27 countries all subject to their own pressures and lobbies. If the UK was negotiating with the German Industry Association (BDI) which has called for a good deal for the UK the task might be easy. But it is not. Even the German government if it had sole negotiating rights would want to maintain a rules-based single market, and Germany is not able to dictate to other countries despite the myth to that effect in the UK. With regard to euro zone bail-outs it has much power as the leading creditor but that power does not extend to other policy areas as seen in its attempt to push for a common sharing of refugees across the EU.

At present more access to the single market than countries like the US and Canada (in the present situation with as yet no TTIP) seems impossible as all EU countries and institutions are taking an all or nothing approach. In my opinion the other EU countries were a bit too rigid in what they allowed David Cameron in his renegotiations. However, there are in fact very good reasons for the EU’s apparent rigidity. The EU is not, as portrayed in the British media, a monolithic entity but a framework for achieving the very difficult task of enabling 28 independent member states to work and cooperate in some areas as well as compete fairly in others. The fear of those who want to hold the EU and its single market together is that, once one breach in a rulebook is made, there is a high risk that other countries will want their own exceptions eventually making the single market a shell with more holes than substance.

It seems that many Leave voters did see their vote as compatible with a close relationship with the single market. If such an agreement can be reached it could gain political and popular support in England and Wales, provided it included a significant restriction to free movement (probably a cap, a points system to cherry pick migrants would not be likely to be acceptable). However, if no such agreement can be reached, the UK will be faced with a stark choice of having at best the same access to the single market as the US or Canada, or and arrangement like Norway’s or Switzerland’s that does not achieve any of the major aims of Brexiteers. By then the impact of Brexit on the UK economy may be more visible especially if investors begin to expect no or few remaining privileges for the UK to be agreed.  Brexiteers might present this as the EU punishing the UK but in fact it would just reflect the normal self-interest of parties to any negotiations. It is precisely to overcome the stumbling blocks that arise when negotiations are based only on each country looking after its self -interest that the structures of the EU were created. The Conservative government should be held to account by pro-EU opposition parties – acting with at least some cooperation – for the consequences for the British economy of every disinvestment or other adverse consequence brought about by the referendum result.

 

The forgotten parts of England and Wales that turned the vote

One domestic aspect of the June 23rd vote is particularly notable . It was always expected that prosperous rural and many suburban areas that usually return Conservative MPs would vote Leave. What was less expected were the Leave majorities in poorer parts of England and Wales that have lost mining or manufacturing industry over the last 30 to 40 years. Most larger towns, apart from Birmingham, voted Remain. But smaller depressed post-industrial towns that have long been safe Labour constituencies voted Leave, a good example being the first significant Leave vote in Sunderland in the north-east, but included towns in the West Midlands, Lancashire, Yorkshire and South Wales. A Panorama programme on BBC on July 4th gave some glimpses of the way people in these towns feel. They feel left out and forgotten and the phrase “Give me my country back” appeared to resonate, but what do they mean by that? It appeared to be a nostalgia for when the towns were thriving manufacturing centres and the high streets full of local shops. There was almost nothing these respondents said in the programme that actually had anything to do with the EU, (such towns are not major magnets for immigration) but nevertheless they appeared not just to be giving a protest vote but to actually believe that leaving the EU would lead to a revival of their towns. Somehow it would seem that UKIP and possibly even Conservative campaigners found ways of raising such hopes. Such hopes are not going to be fulfilled by UKIP and probably not by the Conservatives, but others particularly Labour politicians cannot just wait and let them experience another disillusion. There does need to be concerted efforts made to give back hope to these towns. It should be based on encouraging local initiatives supported from outside. At least for another two years some outside money may continue to come from the EU.

The vote clearly reveals that many English and Welsh people are deeply discontented and implies that the UK’s apparent success in terms of job creation and low overall levels of unemployment hide a labour market which is not functioning as well as people in all major parties have believed. This applies both to areas of high immigration and economically-depressed areas. Minimum wages paid holidays and rights for part-time and temporary employees (some derived from EU legislation) need to be better enforced.

The question Where Now? has only been very partially addressed and will have to be addressed again in the future

Guest article by Mark Hudson: The Immigration Myth

Arguably, voting on June 23rd for most people will be dominated by fear. Either fear about the economy or fear about immigration. One of these will trump the other.

Of course there are lots of other issues, but when they are alone at the booth, faced with putting an ‘X’ in one space or another, most voters will fall back on what they fear most. Most people are not passionate about this issue one way or the other.

It is in this context that it is worth stressing that the real immigration issue in Britainif one is worried about immigration (which is not a major issue for me) – is immigration into the UK from non-EU countries. This key point has not been picked up by the Vote Remain camp.

These are the facts, sourced from government and anti-migration sources (see below).

1. Non-EU immigration accounts for more than half of immigration into the UK - which is entirely within the control of the UK Parliament, subject to national opinion.

The anti-migration website Migration Watch shows that even today more than half of immigrants into the UK still come from outside the EU (177,000 from non-EU in calendar 2015 against 170,000 from the EU.)

Between the 2001 and 2011 censuses the UK population grew from 58.8 million to 61.7 million. Over this time the non-EU born population grew by 1.5 million to 4.9 million (8% of the total) while the EU-born (excluding UK-born) population in the UK grew by 1.1 million to 2.6 million (4% of the population). So while immigration from the EU grew over this decade, the majority or 56% of the growth in the foreign-born UK population was due to the 1.5 million extra non-EU immigrants.

According to the Office for National Statistics (ONS) Labour Force Survey estimates for 2015, there are 3.3 million EU citizens in the UK – 1.6 million from the EU14, 1.3 million from the EU8, 300,000 from Romania and Bulgaria and the remainder from the other EU countries of Malta, Cyprus and Croatia[1]. There are 2.1 million UK citizens living in other EU countries (http://www.migrationwatchuk.org/briefing-paper/354) so the net effect of EU migration is to increase the UK population by only 1.2 million.

 

2. The real cultural challenge is in integrating non-EU peoples.

I would argue that what is sparking most concern in the UK regarding immigration is the recent wave of Muslim immigrants into Europe (from Syria, Afghanistan and Africa), their relative lack of integration and the connection in many people’s minds with fanatic terrorism. This is allied to ongoing worries about the relative isolation of the large Pakistani, Bangladeshi, Somali and other Muslim communities in the UK.

There are now 3 million Muslims in the UK (5% of the total population), around half of whom were born in the UK. This is a fact which we cannot ignore or wish away, even if we were so inclined. The real challenge for the UK is how to welcome and facilitate the deeper integration of Muslims into UK life, involving compromise on both sides, and including full acceptance of key European values of tolerance, equal treatment of women and LGBTs, the paramountcy of secular law and respect for human rights.

However, this is completely irrelevant as far as the EU Referendum is concerned, since immigrants from the EU are from a European cultural and Christian heritage. There are no EU rules about non-EU migration and virtually no Muslim migrants from within the EU.

 

3. EU immigrants are not generally competing for housing

The majority of immigrants from EU countries do not compete with UK national for council accommodation, but go for private rented accommodation. This is because:

- they stay generally for less than 5 years (though of course others stay longer or permanently), and so it is not worth applying for council housing. Studies show that one third of EU immigrants return home after less than a year (typically, farm-workers, students, bar-istas) and more than half return home before they get to pension age.

- many are wealthier and/or get better paid jobs.

 

4. The NHS, schools and welfare would be worse off without EU immigrants

A persistent scare story is that EU immigrants are straining the UK’s health, welfare and education services.

This is simply wrong:

-       Study after study has shown that EU immigrants contribute much more in taxes than they take in benefits, and proportionately more so than UK citizens. The UK is a net gainer in budgetary terms. EU citizens come here overwhelmingly to work, not to scrounge or get healthcare.

-       EU immigrants help support the NHS since they contribute more taxes; and two thirds are in work and so use the NHS less, proportionately, than the UK-born or non-EU born populations. It should be  added that the NHS would also be much worse off without non-EU immigrants, who make up a big chunk of the workforce

-       EU immigrants arrive having left school and often are university-educated, so they are not using the education system. EU students are of course paying their way (through the nose).

-       EU immigrants are for the most part better educated than the UK average and therefore have a broadly positive impact on the quality of the UK workforce.

 

Sources: https://en.wikipedia.org/wiki/Foreign-born_population_of_the_United_Kingdom; various FT articles; http://www.migrationwatchuk.org/statistics-net-migration-statistics; the ONS.



[1] The ONS Labour market statistics estimate that of the EU born migrants in the UK, 2.1 million were working.

 

 

 

To remain or leave: the case to stay taking account of arguments to leave

One argument of leave campaign is not true

A letter which I have recently received from Leave.EU, and has presumably been sent to millions of other potential voters, starts with a statement which is not true, namely that “in 1975 we voted for a Free Trade Area known then as the Common Market”. Although the sub-clause that it was informally called the Common Market is true, the reality is that the UK had previously been a member of the European Free Trade Area (EFTA) which consisted of six countries, the UK, Denmark, Sweden, Norway, Finland and Iceland, before it joined what was then  the European Economic Community. The EFTA countries including the UK had Free Trade arrangements with the EEC so in effect the UK was already part of a wider free trade area. It specifically decided to leave the free trade area in order to join the EEC because the EEC had moved to a deeper degree of economic integration, which was underpinned by profound political commitment aimed at making war between its member states impossible. One motivation in the UK for joining was that the deeper level of economic integration was perceived as a reason for the much faster growth—at the time—of the six original EEC member states that that of the UK. But many supporters of entry in the UK also believed in the political purpose of the EEC, not least the prime minister of the time Ted Heath who had experienced war between European countries first hand. If the UK was merely entering a slightly different form of Free Trade Area than the one of which it was already a member, how could it have inspired the passionate opposition of prominent politicians like Enoch Powell and Tony Benn?

But complete honesty is not easy for either side in this campaign

It is not just important  that this Leave.EU statement is untrue but also that it takes a leading role in their campaign. Regrettably the long campaign with proponents of each side scraping around for something new to motivate potential voters is likely to lead to more and more assertions whose truth is at least tendentious and at worst completely absent.  Although this post is passionately committed to the UK remaining part of the EU, it will attempt to respect the truth and separate opinion from fact.

EU membership does have its costs

There are three main arguments used by opponents of EU membership. These are the budgetary cost, the inability to reduce immigration from other EU member states and the loss of sovereignty. They are all valid ones. EU membership is not a free lunch. However, all three are being routinely exaggerated by many on the Leave side.

The budgetary cost in net terms is about £7bn a year, 0.5% of GDP or 1.2% of public expenditure. It is normally presented in gross terms by EU opponents which is about double the figure but the absence of EU expenditure in the UK would have consequences if not replaced which and these consequences are not spelled out by the Leave campaign. For example would the UK government decide that farmers who have received substantial public funding since well before the UK joined the EEC, be left to sink or swim with EU funding not replaced at all? Would scientific and technological research funding (the UK receives more such funding than in other EU member state) be slashed?

According to official figures which are based on samples and so not precise net immigration to the UK is running at around at around 325,000 a year, of which about 175,000 comes from the EU, which is a reasonable concern given we are already quite densely populated. About 190,000 come from outside the EU and therefore would not be affected directly by leaving the EU. Given that there is substantial net inward immigration from outside the EU due to such factors as family reunions and business needs for highly skilled personnel, it is reasonable to suppose that unless there was a deliberate policy of discrimination against the EU, there would be substantial inward net migration from the EU even if the UK left as long as the relative job-creating dynamic of the British economy continued. Nevertheless leaving the EU would make it possible to reduce net inward EI migration by 50-100,000 a year. This would not be likely to reduce pressure on the health and care sectors since some of the people excluded would be likely to include those coming to work as doctors, nurses, other hospital workers or carers. Nor would it relieve pressure on housing since many workers from eastern Europe work in the building sector. It would however help a little to reduce pressure on school places and also a little on the need to build on green spaces.

The third argument about sovereignty is a valid one in terms of principle but much less so in terms of its practical impact. The theoretical underpinning of the EU, and its predecessors, since 1951, has been based on the idea of a pooling of national sovereignty to make war between member states impossible. Those who believe that national sovereignty is a principle that overrides other policy aims could never have supported UK membership in the 1970s and could not have done so whatever David Cameron had been able to achieve in renegotiating the terms of membership. However, the practical impact of EU legislation on individuals and businesses is hugely exaggerated. In most areas of health and safety legislation the UK goes further than required by EU law. On environmental legislation few people are calling for dirtier bathing or drinking water or more air pollution. There is a long list of supposed regulations interfering with daily life from children playing with balloons to women’s institutes recycling jam jars, but most on close examination turns out to be either a complete invention or an addition to EU requirements made by British lawmakers or officials. Indeed I am not aware of any such complaint that has real substance, though some probably do exist since the EU is certainly not perfect.

Political arguments are more important for those with strongest views, but economic ones may sway more voters

Given that there are costs to membership, what are the arguments for paying those costs? They are both economic and political. In my opinion, the political arguments are the more important, but the economic arguments may sway more voters. Attempts have been made by various studies to quantify the economic impact on output and jobs of leaving, in contrast to remaining. However, there are so many variables involved that any such estimate is really little more that an informed guess. It is better to try to analyse the impact and let the reader draw his or her conclusions. Opponents of EU membership assert that it will be possible to negotiate a free trade area. This may be true as affects goods trade. There is no very good reason why the EU should impose tariffs on UK exports if the UK does not do so on EU exports to the UK. However, if the possibility of anti-dumping duties was to be avoided there would have to be rules on state aids. There would also be a risk that some of the non-tariff barriers due to discriminatory regulation which existed before 1986 could re-emerge.

Lack of single market would most affect services exports

The clearest change would be that there would no longer be a single market in the provision of services. The legal provisions needed to enable free trade in financial, legal, accounting, engineering, IT, architecture and other services have proven substantial and 24 years after the supposed completion of the single market programme, many barriers have been removed but there is much still to be done. What can be said is that leaving the single market would mean that the process of removing barriers to services trade between the UK and the rest of the EU would be reversed instead of continuing if the UK remained in the single market. It is possible to leave the EU while still being in the single market as is the case with Norway and to a large extent with Switzerland, but in order to remain in the single market, these countries must implement EU legislation, allow free movement of people and pay into the EU budget. Since the absence of these are the main arguments for leaving the EU, it would make little sense to leave the EU but remain in the single market. Services trade would therefore be adversely affected, also because British citizens would no longer be free to work in the EU.

The view of businesses

That is the broad picture. In detail the experience of EU membership is different for every different type of business dealing with conditions and regulations relevant to it. There does appear to be a very large majority of businesses which want to stay in the EU. From the CBI 80% favour staying in and 5% want to leave. Admittedly the CBI is an overtly pro-EU organization. The Federation of Small Businesses (FSB) is more neutral. Even so its policy director, Mike Cherry states on the FSB website that : “Small firms seek measures to boost cross-border trade and economic growth – the completion of the single market, simplification of VAT, a smarter approach to regulation and protection of the opt-out under the Working Time Directive”. The completion of the single market would not be possible outside the EU and it is hard to see how cross-border trade could be boosted. The opt-out from the Working Time Directive is protected and inside the UK has had success in pushing for smarter regulation (the volume of new legislation being proposed by the present Commission has been greatly reduced compared to previous ones) and can work to simplify VAT. The latest survey of members by the British Chambers of Commerce, which is also neutral as an organisation, shows 59.5% intend to vote to remain while 30.1% intend to vote to leave.

Ultimately, it is the ability of the UK to influence the political future of Europe that is in question

The political argument in favour of staying in the EU is the most important one. For those whose ideal is a theoretically sovereign UK acting on its own to protect its interests in a globalised world, economic costs are worth paying. The case in favour of EU membership is that we will have an ongoing role in an endeavour that has achieved 70 years of peace and a fair degree of prosperity. Whether a member or not, what happens in countries across the Channel is bound to matter for the UK. NATO, which is mentioned by EU membership opponents as an alternative, is an alliance designed to defend its members against potential outside threats but it is not able to make a significant contribution to stable and harmonious relations between its own members. In addition, the UK can exercise more influence on the world beyond the EU’s frontiers by working with neighbours than trying to act on its own. It is true that the influence that the EU has been able to exert to spread peace and stability beyond its borders towards the east and south has recently been a failure. But to start to unravel the EU’s own structure would risk undermining any chance of coherent policies.

With the EU in crisis Commission and other member states should show more solidarity with Greece

 Asylum crisis threatens to weaken EU 

In an interview with the BBC, Manuel Valls, the French prime minister, said that the EU itself was under threat from the crisis posed by pressure of refugee seekers. This on the face of it would seem exaggerated. If some member states are more generous than others in accepting refugees why should that undermine their capacity to work together within the framework of the EU treaties? The Schengen system of borderless travel across most EU member states has already partially broken and could completely break down as member states try to stop or regulate the flows of external migrants. This is a serious blow given the impact of the Schengen agreement on everyday life and symbolism in breaking down barriers. It does not mean that end of the EU, but the fact that people like Mr Valls are talking in these terms is evidence of a deep crisis.

 

At a time of several other difficulties 

The challenge of the asylum seekers is highlighting the differences between and within EU countries and comes on top of several other problems. One of these is the forthcoming UK referendum on whether to stay in the EU, with UK opinion polls suggesting that those likely to vote to stay in or leave are quite evenly divided. A vote to leave would deprive the EU of a major player, which has made a particularly important contribution to the development of the EU’s single market. Furthermore its departure would set a precedent, which would give impetus to anti-EU sentiment on other countries where it is already strong including France, Italy and Poland.

Another major problem is posed by the fact that some of the countries that acceded to the EU in 2004, notably Poland and Hungary have weakened their compliance with political criteria under which they were allowed to join, such as the impartial rule of law, as for example in the packing of Poland’s constitutional court with its own sympathisers by the newly elected Law and Justice government. The attempt by the European Commission to monitor such measures has provoked increased hostility to the EU in Poland and Hungary, and this has become meshed up in hostility to the EU’s strongest country, Germany.

A third problem is the euro zone crisis. Although the threatened departure of Greece from the euro zone was averted last year there are still considerable tensions between countries of the south with high debts and northern countries. Recently there has been an increase in tensions between Italy on the one hand and Germany and the European Commission on the other.

Differences over how to tackle the refugee influx is exacerbating the other differences. There is no simple answer: one policy extreme would mean that the EU abandons any pretence to stand up for human rights of those not already EU residents; the opposite of free entry for all genuine refugees would create unsupportable social and political tensions even in countries like Germany with an initially welcoming attitude. A muddled middle way is the only one that can hope to avoid one or other such consequence.

 

Commission takes wrong approach to Greece

But there are ways in which the EU could do better. In particular the key role of Greece in the crisis should be acknowledged. On January 27th the Commission published a report highly critical of Greece, threatening to expel in from the Schengen zone if it did not do better. This followed a proposal to help Macedonia man its frontier with Greece without consulting the Greek government. Even if the Greek economy were not experiencing the most severe economic crisis any member state has experienced since the early days of the EU, it or any other country would struggle to cope in a humane manner with the huge numbers crossing the sea onto Greek islands. In contrast to the Commission’s attitude a group of academics have put forward islanders that have rescued and helped refugees forward has a candidate for the Nobel Peace Prize.

 

Greece should be praised for what it has done rather than rebuked for what it has not done, and given far more funding to help it manage camps and processing centres to separate refugees from economic migrants and provide migrants in Greece with basic needs in the meantime. It may be that it is will be no longer practical to keep fully open frontiers with Greece given the amount of migrants arriving there, but this should not be portrayed as a punishment but rather as an unavoidable necessity in which Greece needs far more support from its partners.

 

 

Can Spain’s new parties bring new vigour to Spanish politics or will there be deadlock?

 

On January 13th, the new Spanish Parliament, the Cortes, met for the first time following the election of December 20th which gave significant numbers of seats to two completely new parties formed since the previous election, the left wing Podemos (“We can”) and the centre-right anti-corruption Ciudadanos (“Citizens”). The emergence of one, let alone two, new nationwide parties winning substantial numbers of members of parliament, is a rare event in Europe (or outside Europe). The only other example in a large European country this century is the Movimento 5 Stelle (M5S) in Italy. The formation of new parties, despite making government formation more difficult is in the opinion of InsightEU, a positive development which has the potential to re-invigorate democracy. The ability of the two parties to continue to flourish is therefore important for Spain and indeed for the EU as a whole. To do so they have to steer a difficult passage between being simply a protest party determined not to sully itself with real life compromise and treating the pilloried establishment parties with the modicum of respect needed for any negotations and being sucked into coalitions where they have to share responsibility for government and its inevitable failures and in a worst case scenario come to be seen as complicit in a system which they have been able to do little to change. M5S has avoided the latter but at the cost of remaining essentially a protest movement. But the Italian electoral system has meant that M5S is in any case an opposition party. In Spain the electoral result on December 20th and the refusal of the leader of the established Socialist Party (PSOE) to form a coalition with the party governing Spain until the December 2015 election (and still the provisional government) the right-of-centre Popular Party (PP), mean that the two new parties’ choices will be key to determining whether a government can be formed and win a vote of confidence or whether as must happen if no government is formed within two months of parliament reconvening, another election is called. In the latter event it would be likely that voters would move towards the PP as the largest party and therefore the one most likely to provide a majority government.

 

Sub-plot in Catalonia could prevent progress in Madrid

Pedro Sanchez came back from an early Janurary visit to Portugal extolling the recently formed coalition there between the Portuguese Socialist Party and two parties further to the left including the Portuguese Community Party. Sanchez has called for a left wing coalition in Spain, as was suggested as a likely outcome in our post of December 24th, but this now looks very difficult. The Catalan nationalist parties, which have just formed a new regional government, are set on their demands for a referendum on outright independence. Podemos favours such a referendum but the PSOE has promised to oppose it. Thus a coalition including the PSOE and the Catalan parties is impossible, while one including both the PSOE and Podemos looks very difficult. Not only is there the inevitable mistrust between two parties competing for the left wing vote, but there is also the whole issue of the future survival of Spain as a nation. Moroever, without the Catalan parties, Ciudadanos would have to be included to make a majority in the Cortes.

 

Can Podemos compromise enough to allow for new government?

It is to be hoped that Podemos is willing to modify its position on a referendum in the near term. It would be very unfortunate if a new party formed to combat the injustices of a 21st century economy were to be diverted onto the path of supporting nationalism of a kind little different in essence from the 19th century nationalist movements. There is some right and wrong on both sides of the referendum argument. On the one hand, the Spanish establishment needs to understand that if the majority of Catalans feel over a long period that they are not respected in Spain and are thwarted from fulfilling reasonable expectations as resulted from the constitutional court’s overruling of an agreement with the previous PSOE government for increased devolution, this will undermine the legitimacy of Spain. On the other hand, where pro and anti independence opinion is quite evenly divided and also volatile, a referendum which gave a little over 50% to a pro-independence question on one day but could be different if held a few years earlier or later, is a very flimsy basis on which to overturn the 524 years of unity since the merger of the Kingdoms of Aragon and Castile in 1492.

Whatever the pros and cons of the argument for Catalan independence it is almost irrelevant to the issues of inequality and lack of opportunity which affect all parts of Spain (as indeed many other countries).

Ciudadanos appears more willing to take the risks of entering a coalition government than Podemos. A possible way forward, though not one likely to guarantee a government to last the four-year parliamentary term, would be a minority coalition between the PSOE and Ciudadanos backed from outside government by Podemos, in return for meeting the two immediate demands that Podemos has made: a halt to banks repossessing homes from those unable to meet mortgage servicing commitments and free medicines for the elderly. Such demands should be possible to meet without endangering the credibility of Spain’s fiscal policy.

Spain’s Christmas election: what does it mean?

The results of the Spanish election on December 20th are not clear-cut. Four parties, two old –the centre-right Popular Party and centre-left Socialists (PSOE)—and two new, the left wing Podemos (We can) a movement of local groups which grew out of the 2011 street protests by the Indignados at the time that government cutbacks, and the centrist Ciudadanos (Citizens). The new parties have mounted a significant challenge to the old parties, but unlike Greece failed to dislodge them.

 A fragile lefty-wing coalition may emerge

There does appear, however, to be the possibility of a narrow margin in favour of those who want a change of from the PP, a party whose government in the last four years has succeeded, at considerable social cost, in turning round the economy, but whose moral authority has been weakened by the revelation that the party had for a long time ran a dual bookkeeping system, one above board and one for illegal contributions and illegal payouts. The PSOE is also tainted by corruption but mainly in its regional stronghold, Andalusia. Moreover the PSOE leader, Pedro Sanchez, is relatively new and not seen as tainted by past malpractice. The PP leader, Mariano Rajoy, has by contrast been party leader since 2004 and cannot convincingly claim that he new nothing about what was happening, unless by deliberately turning a blind eye.

The election of 69 MPs to Podemos and 40 to Ciudadanos (out of 350 deputies in the lower house) from none in the previous national election in 2011 are major breakthroughs but ones that were fully expected. Indeed the result for Ciudadanos was in comparison with opinion polls during the campaign the most disappointing of all four main national parties. One reason may be that polls seemed to be pointing towards a centre-right coalition of Ciudadanos and the PP. Some potential Ciudadanos supporters may have moved to other parties on the left because they did not want to prop up the PP.

As it is neither the two national parties of the centre-right nor the two national parties of the left, the PSOE and Podemos, can quite muster the 176 seats needed to hold a majority. The other parties are mainly regional ones, some of whom are on the left, others in the centre. However, because the PSOE and Podemos are more sympathetic to the ambitions of the regional parties (though not as far as wanting to concede outright independence to Catalonia or the Basque Country) they will probably support a left wing government enabling it to have a fragile majority.

 

Meeting the hopes of its voters will be an uphill struggle

Such an alliance might be portrayed as an anti-austerity coalition but if it tries to live up to such a name it will be wasting precious time. Investors in Spanish government paper have to be kept happy that the government will keep the deb from rising rapidly, otherwise they will charge higher interest rates leaving less available for other government expenditure or in extremis force the government to seek a full scale bail-out (they at present have limited support to help prop up illiquid savings banks) from the European Stability Fund (ESM), thus leading them from the frying pan of the need to keep investors happy to the fire of being told what to do by the Quadriga (the old Troika of IMF, European Central Bank and European Commission plus the ESM).

What the government may be able to do is to distribute the burden of austerity more fairly between the privileged on the one hand and the less privileged and public services on the other. That means higher taxes, and crucially a drive against tax avoidance and evasion. An exception should be made to the relatively small proportion of private wealth going into small and medium businesses. To successfully make significant moves to a more equal society while also promoting continued economic recovery, will require single-minded determination, skill, patience and the willingness of competing parties to work together. At the time of writing this looks a tall order, and the left can be sure that the PP will exploit any weakness or failures.

 

 

 

 

VW emissions scandal suggests EU regulation is weak, but Commission shows no sign of wanting to do anything to strengthen it

The fact that Europe’s leading auto manufacturer had been brazenly undermining the purpose of regulations designed to limit poisonous emissions from its diesel cars has made a fool of the EU’s regulations to limit air pollution.  The fact that VW’s ploy was discovered in the US where only 3% of cars are diesel compared with 50% in the EU, adds to the reasons why the EU and its member states should be embarrassed. Because emissions testing is in the hands of national agencies who are close to the manufacturers themselves rather than independent bodies nationally or EU-wide means that it is unlikely that the ploy would have ever been uncovered in the EU. The cheating carried out by VW and more broadly the fact that, for all cars, there are major differences between emissions in laboratory tests and what is actually emitted in normal driving conditions are a major factor why member states are flouting EU legislation on air pollution but unable to comply short of drastic measures such as driving bans.

Given these facts, it might be expected that the Commission would be highly concerned and be proposing measures to require vehicles to be recalled and adjusted to comply with the law after the removal of defeat devices. In fact, it has almost completely ignored the scandal, apart from a Fact Sheet released on September 25th. A search on the Commission’s website for VW produces its latest result in 2013 (which boasts that VW was then the global company with the highest spending on research). The environment commissioner, Karmenu Vella, has not mentioned the subject in recent speeches. By contrast, the transport, internal market, industry and environment committees of the European Parliament and even the UK transport minister, Patrick Mcloughlin, have called on the Commission to investigate. If anyone in the Commission is doing so, it is being kept very quiet. From its lack of response so far, it can be surmised that Jean-Claude Juncker, the Commission and his fellow commissioners do not want to do anything that might upset the largest member state, Germany, or to give the impression that it is throwing its weight around. The commissioner for better regulation, Frans Timmermans, has not seemed concerned about the failure of EU regulation to achieve its aims, which suggests that for him better regulation means less regulation. We can conclude that the UK government’s campaign for a less interventionist Commission, helped by business lobbying and similar if less strongly expressed views on the part of other member states, is proving highly successful at least in the field of environment legislation.

 

 

Will Tsipiras seize the day?

Despite having abandoned most of the policies on which it been first elected in January and in August agreed with creditors to a programme roundly rejected in a referendum on July 5th, the left wing Syriza emerged as the victor of the September 20th election and is again able to form a governing majority coalition with the centrist Independent Greeks. The traditional centre right New Democracy seemed neck and neck in opinion polls a week earlier but was decisively put into second place. Most surprising a dissident group from Syyriza that rejected the agreement with creditors and called for Greece to leave the euro so that it could run it’s own economic policy did not even achieve the 3% threshold required to be represented in parliament.

The leader of Syriza Alexis Tsipiras, performed his u-turn with grace and has managed to make the Greeks feel better about themselves. Has he achieved anything other than to be re-elected. The answer is no. Will he be able to achieve anything? The answer is that he still might and has a better chance as the head of what is still a new team than the old parties New Democracy and Pasok just because his ministers have had less time to learn bad habits and still have a degree of freshness. Nevertheless all power corrupts and if progress is not quickly made old ways may reassert themselves.

Although the agreement with creditors imposes severe constraints on the new government’s freedom of action it still leaves plenty it can do. It should in no way limit Tsipiras’ ability to tackle corruption and reduce the power of vested interests which he has declared as his priorities. Nor will it prevent him from what must be an ambitious reform of the public administration so that civil servants know their job is to serve the public’s interest not their own and to minimise rather than maximise the burden of bureaucratic procedures on individuals and businesses.

There is however one overriding priority: to make Greeks pay their taxes. Unless they do public services will collapse through lack of funding and the better off will retain their privileges at the expense of the large numbers of unemployed or on very low incomes. Tax receipts have probably fallen during recent months when lack of trust in bank deposits have made Greece into a mainly cash economy. The travails of Greece have still not led to any sense that  paying taxes is one of the obligations of citizenship.

A difficulty is caused by the position e of the richest Greeks are shipping magnates. They were given a particularly favourable tax deal by previous governments in order to attract them to live in Greece and spend money there. This a rational reason but it is still wrong. If rich shipping families are seen to get away with paying little tax other wealthy Greeks will ask way they should and if wealthy Greeks pay little middle range businesses and self employed will ask the same question. Addressing the issue is not easy. The shipping companies have to be treated favourably or they will noticeable to compete with those registered in other countries. This does not prevent fair taxation of the income and wealth of individuals. The individuals of course as to whether they live in Greece or not and even if they do they may try to hide their wealth in tax havens. But international cooperation in tracking down this wealth in places like Switzerland has made considerable progress should seek the advice of countries like the US and Germany which have acted

Refugees replace Greece in the headlines

Angela Merkel changes image of Germany

How much has changed in a month! The headlines are no longer about the struggle of the Greek government and people to find a way forward for their becalmed economy but the more traumatic sufferings of the Syrian people fleeing their civil war. The latter is not new: the war has lasted four years and the numbers coming to Europe have been steadily increasing over the last twelve months. Germany was already committed to accepting large numbers of the refugees and local authorities an voluntary organisations were busy preparing to facilitate their arrival. But the numbers have increased, particularly coming through Turkey and the Balkans overland or via Greek islands. Most important Angela Merkel decided that the issue could no longer be treated as a subsidiary problem but had become the greatest challenge facing the European Union this year and perhaps for years to come. Not only the courage and humanity of her decision to prepare to accept up to 800,000 refugees this year and 500,000 a year subsequently, but the extent to which it is endorsed by large numbers of ordinary German people who have openly even enthusiastically welcomed the arrival of refugees, for example at Munich’s main railway station, have been remarkable. Opposition has so far been muted and mainly concentrated in former eastern Germany.

The image of Germany as rigid and hard-hearted particularly in Greece and other southern European countries but also more widely across the EU by its insistence on harsh fiscal austerity and its refusal to countenance debt forgiveness has been overturned. The Greek drama has not come to an end. A second general election this year is to take place on September 20th. However, for better or worse, the wings of the radicals are likely to be clipped. The main contest is between the traditional centre-right party New Democracy and a Syriza separated from its most leftwing component, and committed to implementing a programme of pragmatic reforms agreed with its creditors, not least the hardline German finance minister, Wolfgang Schauble. It has become clear that a dramatically different economic policy would only be possible if Greece were to leave the euro, a choice supported by a significant but minority section of the Greek population. The dramatic decline in living standards since 2009 and the 50% level of young people’s unemployment in Greece have had devastating consequences that are more comparable to the conditions of the 30s than anything in western Europe since the 1950. Nevertheless it is evident to Greece, which has received many desperate refugees on its easternmost islands, as well as the rest of Europe, that the plight of the Syrian people and other refugees is far worse.

 

Differences between east and west Europe

The refugee crisis has thus done a little to ease divisions between northern Europe and southern Europe, but has opened divisions between west Europe and countries in central and eastern Europe which feel that the refugee problem is not theirs. There are some differences between these former communist countries. The Hungarian government has made it clear that it feels little but hostility to the refugees coming through, even though it knows that they are all heading onwards, mostly to Germany. At least the Polish government has agreed in principle to take 2,000 refugees while putting forward the argument , up to a point valid, that Poland’s demography and economy make it much less suitable to taking large numbers of refugees than Germany. Donald Tusk, the former Polish prime minister, now president of the European Council, has shown the statesmanship to take a wider view of the issue than he probably would have if still prime minster of Poland.

The new president of Poland, Andrzej Duda, has pointed out that the situation in its neighbour Ukraine remains of concern to Poland, much more so than to countries further away from Ukraine. There are substantial numbers of Ukrainians in Poland. Although only a minority of those there at present come from eastern Ukraine and so are refugees rather than migrants in search of employment the numbers of both could rise if the situation deteriorated. In recent months Ukraine has not been very much in the news and to an extent no news is good news even if the low level war in the east continues to cause loss of life. The government is trying to put a bill through parliament to give very substantial powers to the provinces of Donetsk and Luhansk including control over the police forces and courts while allowing Ukraine to regain control of its eastern border, as agreed with Russia at Minsk. Such an eventuality looks theoretical at present but the bill shows that the government is rightly willing to make sacrifices in  the search for peace and stability. In doing so it provoked a violent response from the far-right Svoboda group which killed a policeman outside parliament and the loss of support in parliament from the nationalist Radical Party.

 

Quotas may not work but sharing is essential

The refugee crisis is seen differently across the 28-member EU, as is the case with other issues like the troubles of southern members of the euro zone. No one is suggesting that other countries should open the doors to the extent that Germany is doing. The 160,000 for the rest of the Schengen area proposed by the European Commission is several times lower than the number Germany is prepared to take. In the end rigid quotas probably will not work since it is hard to say how Syrian or other Muslim refugees could be settled in a country as hostile to them as Hungary even if its government agreed. Nevertheless a degree of sharing is required if the EU is to hold together.