Are you waiting as well for the results of the German federal legislative elections? Do you use environment-friendly means of transport? Are you interested in regulation of banks and financial markets? Read about all these issues and more in our latest weekly newsletter!
The Bavarian and German legislative elections
On Sunday 15 September 2013, just a week before the German federal legislative election, Bavaria was holding its own legislative elections. It is Germany’s richest and most populated Bundesland (State), and therefore this election were seen as a test before the one of next Sunday. The CSU, the conservative sister party of Angela Merkel’s CDU, won back the absolute majority of seats in the Landtag (the regional Parliament) that it had lost in 2008 and that will enable it to govern without a coalition partner. The SPD (social-democrats) slightly improved their share of the vote compared to 4 years ago, but still got less than half of the CSU’s result. The results also marked a slump in the support for the FDP (liberals) which, with only 3.3% of the vote, will not be represented in the Landtag and lose their place in the coalition with the CSU. The Greens also lost some support and remain Bavaria’s fourth party behind the Freie Wähler, a regional party. Die Linke (The Left) and the Pirate party remain outside the Landtag, as both have gathered much less votes than the threshold of 5%.
Political analysts and journalists agreed that it was a triumph for Horst Seehofer, the Bavarian Ministerpräsident (chief of regional government) and a former federal minister of Agriculture. Although the result in Bavaria bodes well for the CDU/CSU’s chances on Sunday, several analysts also pointed out risks for Angela Merkel: first, that CDU/CSU voters think the election is already won and do not bother to turn up in sufficient numbers to vote, thus reducing the lead announced by the polls; second, the FDP result could lead some CDU/CSU voters to give their second voice (under German electoral rules, voters have two voices: one that is counted at the district level, where they vote for a person, and one that is counted at regional level, where they vote for a party) to the FDP in an attempt to maintain the current coalition by helping the FDP to pass the 5%-threshold. On the other hand, the results also confirmed the reduced support for the Greens, therefore making a potential coalition at federal level between the SPD and the Greens ever less likely.
Note: All these uncertainties will make the election results on Sunday extremely interesting to follow. In my opinion, after having had a look at the latest polls, the most probable coalition will be CDU/CSU-SPD, a coalition that already ruled the country during Angela Merkel’s first term in office (2005-2009). It is true that Peer Steinbrück, the SPD leading candidate, has excluded working again in such a coalition, but German politicians are mostly pragmatic and will do what is best to guarantee political stability in the country. In addition, Angela Merkel herself has repeatedly stated that she was ready to enter another such “big coalition”, although her preferred choice is continuing the current coalition with the FDP.
The French economy
With unexpectedly good economic results (a small growth of 0.3% of GDP in the second quarter 2013 is a positive change compared to recession) and accordingly improved forecasts for 2013, the French PM, Jean-Marc Ayrault, declared that positive signs were announcing a restart of economic growth and reminded that employment was the priority. To foster hope also in Europe, he called for a reorientation of Europe with an economic government, a banking union, a European energy community and a minimum salary, denouncing €4/hour-jobs in Germany.
However, not everyone shared the resolute optimism of French leaders. So, Pierre Moscovici (the minister of Finance) had to defend French reform plans at a meeting with his colleagues of the Council, after Olli Rehn, the EU Commissioner in charge of economic and monetary affairs, had criticised France for not respecting the recommendations made by the Commission. Olli Rehn agreed that France was going in the right direction, but warned that there was still much to do to restore French competitiveness and stimulate job creations. Jörg Asmussen, the German member of the ECB’s executive board, also urged France to accelerate the rhythm of reforms. The main points of disagreement are the budgetary deficit – France obtained two additional years, i.e., until 2015, to meet the maximum threshold of 3% of the GDP, but is currently at 4.1% instead of the 3.9% agreed on with the Commission – and the pension reform. The latter will once more raise the labour costs, despite the risks of further deteriorating the French competitiveness, though Mr Moscovici assured that the additional cost for businesses will be compensated by other measures. The French minister of Finance declared that European rules “set the target”, but that countries were “free to act” in order to reach the target.
The French task is made even harder by the general mood against further taxes (which, all taken together, represent 46% of the GDP): according to an opinion poll by the CSA institute, 86% of the French people are against paying more taxes to put right the public accounts. Interestingly, this feeling is shared by people across the whole political spectrum and across the different professional categories. This was acknowledged by the French President, François Hollande, who announced a “tax pause” in 2014: only the VAT and another tax will increase… In 2014, the State will allegedly reduce its expenditure “for the first time in thirty of forty years”. The income tax on the lowest incomes will be reduced. The President also refused any ecological tax, declaring that it was not a good idea to “reduce ecology to taxes” and restated the principle that if an ecological tax rises, then another tax must decrease, in order to ensure the fiscal neutrality of a transition towards a ‘greener’ tax system. On unemployment, the President showed the same optimism as Mr Ayrault and announced that unemployment would start decreasing very soon, reminding of the various measures adopted to favour employment and stimulate France’s competitiveness.
Note: Improved confidence is a good thing for France, and it will hopefully support further growth. However, a small improvement in the economic data entails, of course, the risk that pressure for reform decreases. This is a particularly important worry to those who know French resistance to bold structural reforms. Therefore, French leaders need to remember that not everything is solved: private-sector firms continue to fire people and the recovery is extremely slow and fragile. Moreover, France finally needs a bold pension reform that will truly tackle the problem of its financing. To adopt such a reform, French leaders will need to show a capacity to show the way forward and some courage to tackle numerous vested interests that are putting the system on the road towards bankruptcy.
European Mobility Week
The European Mobility Week is taking place from the 16th to the 22nd of September, with the motto “Clean air – it’s your move!”. More than 2000 cities will offer activities aimed at making European citizens better aware of how the transport affects the local air quality. Small changes can contribute to making a difference: walk, ride a bicycle or take public transports rather than your own car! Janez Potočnik, the European Commissioner for the Environment, underlined that our daily choices can have an impact on our air quality and our health.
Find out more about the European Mobility Week on its website!
This week, we decided to look at something else than Syria. We chose Somalia, beneficiary of a conference of donors organised on 16 September in Brussels.
Somalia is usually given as an example of failed State, i.e., a State that does not have control over its territory. As the new Somali leaders try to lead their country out of the civil war (fuelled by Islamist Al-Shabab militias linked to Al-Qaeda) and of extreme poverty, the EU High Representative Catherine Ashton called for a “New Deal” for Somalia. As she points out, piracy act have dramatically decreased and the Al-Shabab militia have been chased away from an important part of the country. In the past decade, the EU helped Somalia through humanitarian aid, a naval mission against pirates and financial support for the African Union’s military mission fighting terrorism. Catherine Ashton announced that the EU would also support the political process leading to the adoption of a Constitution establishing a federal State.
To finance the efforts towards a more secure and more democratic Somalia, the EU organised a conference of donors in Brussels on September 16th. €1.8 billion were pledged on this occasion, more than double the hoped amount. The Somali President, Hassan Sheikh Mohamud, welcomed the “New Deal” and underlined that it was “based on Somali-led initiatives” with four priorities he outlined: “security, legal reform, public finances and recovery”. The President of the Commission, José Manuel Barroso, announced that €650 million would come from the EU and the rest from several Member States. Some Somalis prefer, however, to wait and see if the pledged money really brings progress on the ground. The Al-Shabab militias claimed that money would end up in corrupt hands. Corruption is indeed a problem pointed out by the United Nations Monitoring Group on Somalia. In reaction, “Norway decided to directly pay government employees their salaries.”
Troubles for some EU reforms of financial markets and of the banking industry
Plans to reform the EU financial markets and banking industry ran into trouble in the last two weeks. The planned introduction of a financial transaction tax (FTT) in 11 Member States part of an enhanced cooperation procedure was criticised by the Council’s legal service. Moreover, in a non-binding opinion, Advocate General Jääskinen recommended the ECJ judges to cancel the emergency power given to ESMA (European Securities and Markets Authority) to ban short-selling. Finally, plans to hand over the oversight of the Libor to the ESMA (based in Paris) were abandoned. All three plans were successfully opposed by the UK.
Regarding the FTT, it would violate international customary law by unduly extending Member States’ tax jurisdiction. Moreover, it may violate the EU Treaties as well, insofar as it is “likely to lead to distortion of competition to the detriment of non-participating Member States” and it would infringe “upon the taxing competences of non-participating Member States”: in some cases, the British government would have to collect the tax and would have to hand it over. Let us note, however, that it was just a non-binding legal opinion and that it does not prevent the concerned 11 Member States to go ahead and take the risk of facing a challenge before the ECJ.
Regarding the opinion of AG Jääskinen, the problem with the decision granting emergency powers to the ESMA was that it should have been adopted at unanimity, to guarantee “enhanced democratic input”. The Advocate General considered that Article 114 TFEU, which allows adopting harmonising measures necessary for the achievement or functioning of the internal market, was not the appropriate basis for a decision granting powers that go beyond the mere internal market harmonisation. For AG Jääskinen, the outcome of the challenged decision “was not harmonisation but the replacement of national decision-making with EU level decision-making”. Therefore, a more appropriate basis would have been Article 352 TFEU, which requires decisions to be adopted at unanimity (instead of qualified majority voting under Article 114 TFEU).
Finally, regarding the Libor, Michel Barnier, the Commissioner for the Internal Market, renounced in transferring its regulation to the ESMA. Draft rules to regulate several benchmarks at European level was presented this week and an alternative plan is to give overseeing powers to a group composed of national regulators and the ESMA. The rules, if adopted by the Council and the European Parliament, will also apply to commodity benchmarks. The UK also continues with its own reform of Libor regulation in an attempt to restore trust following the scandal of Libor-rigging that involved many major banks.
Regarding the banking industry, the UK government also announced that it had raised £3.2 billion by selling a 6% stake in Lloyds Banking Group, reducing its stake to 32.7%. In this operation, the government made a profit of £61 million. Only institutional investors were offered the shares sold this week
This week-end, there will be the European Student’s Convention. The main topic of this traditional meeting of representatives from 47 national unions of students from 39 European countries is: Internationalisation of the European Higher Education Area: Policies and Practices for Stronger EU Neighbourhood Policy”. The event takes place in Kaunas.
The EP agenda for the week ahead will be shortly available here.
Source: Lithuanian Presidency of the Council.