EU news focus

EU news focus: 22-28 November 2013 – German coalition, closing tax loopholes, Eurosceptic right-wing parties, the deal with Iran and the powers of the Bank of England

EU News Focus

In this week’s newsletter, we focus on the following five topics: the programme of the probable grand coalition in Germany; the project to close tax loopholes benefiting cross-border financing structures; the diversity among Eurosceptic right-wing parties; the role of the EU High Representative in reaching the E3+3 deal with Iran; and discussions about increasing the Bank of England’s powers. Enjoy the reading and share with us your opinion about these topics! 

Internal affairs

A grand coalition for Germany… and no change for Europe?

The Christian-Democrats (CDU) of Angela Merkel and her allies of the CSU (Christian-Social Union) will most probably form a grand coalition with the Social-Democrats (SPD) after the talks successfully ended this week. The only remaining obstacle – admittedly, not a small one – is the vote of the SPD members to ratify the agreement. If everything goes as planned, Angela Merkel could be re-elected chancellor for a third mandate, on 17 December, by the Bundestag.

The CDU/CSU, although having won the elections with a wide margin over the SPD, nevertheless had to make some significant concessions to the centre-left to have a chance of forming a government. So, the introduction of a mandatory national minimum wage across all sectors, which was a key electoral promise of the SPD, will take place in 2015. The rate will be set at 8.5€ per hour. According to the DIW (Deutsches Institut für Wirtschaftsforschung), 17% of workers currently earn less. The deal foresees a 2-year transition period until 2017.

In matters of pensions, a “minimum pension of solidarity” of 850€ per month will be introduced in 2017. In addition, the pensions of mothers with children born before 1992 will rise. Finally, those who have contributed for already 45 years will have the right to retire at the age of 63 instead of 67.

Moreover, the next German government will invest more in transport infrastructure, education and science. Regarding transport, the CSU managed to impose the idea of a highway toll for foreign cars, but its introduction (planned in 2014) remains doubtful as it is extremely likely to violate European law. Furthermore, Angela Merkel herself expressed her opposition to such toll during the electoral campaign.

The dual citizenship for immigrants’ children born in Germany, another demand of the SPD, will also be introduced. Currently, these children have to choose between the German citizenship and their parents’ one before the age of 23.

Regarding the energy policy, the aim to abandon nuclear power by 2022 remains unchanged. In addition, renewable energies shall represent 55-60% of the total electricity production by 2030.

Regarding economy, there will be a stricter regulation of banks and other financial actors. Furthermore, the CDU managed to impede the tax rises called for by the SPD.

Finally, on Europe, the German government’s policy shall not change significantly. The deal struck between CDU, CSU and SPD insists on the necessity to reduce sovereign debts and adopt reforms to enhance competitiveness, while at the same time realising sustainable investments. Rescued countries will have to participate in their own rescue, and recourse to the ESM will be only in last resort. There is no planned mutualisation of debt: each Member State will remain responsible for its own debts. Finally, there is nothing on the very topical issue of the banking union.

Sources: Der Spiegel, La Stampa, El Pais, Le Monde, La Tribune.


Closing the tax loopholes benefiting cross-border financing structures

Using cross-border financing structures can be a way to reduce a group’s tax bill. The EU rules on free movement of capital can provide a legal protection to many of these operations, but there are also abuses and the Commission has now decided to tackle them. The Commissioner for Tax, Algirdas Semeta, indicated that “the aim of the reform is to avoid that companies use differences between national tax systems to channel benefits free from tax from one country to another”. The Commission reckons the proposal, if implemented, could bring billions of euros of additional income to the Member States.

The EC relies on even further-reaching proposals already made by the OECD and discussed by Member States. Member States would be allowed to ignore artificial structures aimed at avoiding tax. Double tax relief (i.e., tax relief for the same reason in two different Member States) would be prevented, in particular where hybrid instruments (partly equity, partly debt) are used. A very important text, the Parent-Subsidiary Directive, will have to be reformed.

Sources: Financial Times, El País (summary, more detailed).


The European (political) right-wings

Recently, we reported about the attempt of some far-right leaders to build an alliance ahead of the 2014 European elections to have more clout after the elections in the EP. Indeed, nationalists top the opinion polls in France, the UK, the Netherlands and Greece, and are rising in Scandinavian countries, Austria and Slovakia. However, although Eurosceptic far-right and/or nationalist parties could win many more seats, Jordi Vaquer, director of the Initiative for an Open Society in Europe (iniciativa para una sociedad abierta en Europa) claims in El País that it is not possible to put all these parties in one single political family. Rather, the right-wings in Europe are ever more fragmented.

Mr Vaquer points to the vulnerability of the current major European party, the EPP (Christian-democrats), which is threatened by the rise of Eurosceptic right-wing parties. In 2009, the EPP already lost the British Tories who formed a group with the Party of Justice and Law (Poland) and the Czech ODS. More could follow, such as Berlusconi’s Forza Italia (if it is not simply expelled from the EPP) and the Hungarian Fidesz. In addition, many xenophobic far-right parties can hope for success at the coming elections. What brings together these parties is the rejection of political institutions and elites (not only the EU). But there are also differences.

So, in the North of Europe, Mr Vaquer says there is a “nationalism of prosperity” (using an expression of the political scientist Jean-Yves Camus) in the Scandinavian countries, the Netherlands (with the PVV of Geert Wilders) and the UK (with the UKIP). These parties avoid open racism and use their interpretation of European values to reject Islamic values. They are “economically egoistic”, promote a “cultural exceptionalism”, Eurosceptic and anti-immigration.

In the East of the EU, there is a different kind of nationalist parties, of a more fascist/neo-Nazi style, such as Golden Dawn (Greece) and the Hungarian Jobbik. They are openly xenophobic, homophobic, sexist and anti-Semitic. They also have militias that occasionally commit violent actions.

Finally, some parties, such as the French Front National, the Italian Lega Nord, the Belgian Vlaams Belang and the Austrian FPÖ, try to assimilate themselves to the first category to avoid being marginalised because of excessive far-right radicalism. Indeed, economic nationalism or patriotism appeals more to the middle class. But not all parties defending the “nationalism of prosperity” are ready to ally with parties that still show their racist, xenophobic and homophobic roots on some occasions.

This panorama shows that Europe is not back to the 1930s despite the probable strong showing of xenophobic populists. Traditional right-wing parties will have to get back electors lost to radical nationalist and far-right parties without imitating them. An alternative that does not rely on fear, hate and egoism needs to emerge.

Source: El País.

International Relations

The nuclear deal with Iran: a success for the European foreign policy

The deal reached between the 3 most powerful European countries (France, the UK and Germany), the USA, Russia, and China (E3+3) with Iran on the nuclear activities of the latter signs a triumph for Lady Catherine Ashton, the EU High Representative for the Foreign Policy since 2009. Criticised for a long time because of her alleged lack of competence and charisma, she was chosen precisely because she did not have a strong personality that could have clashed with national leaders over foreign policy. Now, she has managed to achieve a nearly impossible deal after more than a decade of repeatedly failed talks. Of course, the change of President in Iran is a significant factor to explain the breakthrough, but even when times were difficult, Lady Ashton never abandoned her task of trying to bring together everyone around the table to negotiate and find a peaceful solution. In fact, she was the leader of the negotiations during all these years. The EU High Representative was the one who steadily kept contact with the different parties. Of course, a permanent and comprehensive deal still needs to be negotiated, but this first, temporary deal is a major success for Lady Ashton and for the European foreign policy and will probably be the key moment of her mandate.

Sources: The Guardian, El País.


More powers to the Bank of England to control the banks’ balance sheets?

While the ECB has been given the job to control the Eurozone banks’ balance sheets, the Bank of England may also get new powers to supervise financial institutions. Its Financial Policy Committee (FPC) will examine on the request of George Osborne, the Chancellor of the Exchequer, whether more powers are necessary for this task. Mark Carney, the Bank’s governor, said that he would like his institution to control the “leverage ratio”, i.e., the amount of capital that banks must hold proportionally to their total assets without risk adjustment. The leverage ratio is an instrument to influence the bank’s risk-taking behaviour. According to Mr Carney, the FPC review will last for about a year. The power to set the leverage ratio is considered as “an essential part of the bank’s toolkit for improving the safety of the banking system”.

Sources: BBC, Reuters.

Next week…

The agenda of the European Parliament for next week is available here.

On the Council’s side, the Competitiveness (Internal Market, Industry and Research) Council will meet on Monday and Tuesday in Brussels. Depending on the topic discussed, different ministers participate in the meetings.

The Model European Parliament, a simulation of the EP for students, will take place in Vilnius on Wednesday. Moreover, there will be the closing event of another education project, “The New Generation of Opera”.

Sources: EP website, Lithuanian Council presidency website.

Pierre-Antoine KLETHI

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