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    Sophia Besch talks to Radio 4 about the standing of the German army in Germany and its relationship with the public (from 02.30).

    12 June 2017

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    John Springford, director of research at the CER, talks to PBS Newshour about the UK election result and what this means for Brexit negotiations with the EU.

    09 June 2017

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    Charles Grant speaks to Sophie Claudet of Euronews on the new proposal allowing EU citizens that have been living in the UK for five years to stay (from 08.45).

    Charles Grant, thanks for being with us. Now we’ve seen that Theresa May has put a new proposal on the table allowing EU citizens that have been living in the UK for five years to stay. Does it mean she is softening her stance somehow?

    Charles Grant, Director of the Centre for European Reform

    Her line is for a hard Brexit. The particular proposals she’s made on the rights of EU citizens in Britain were to be expected, they were roughly in line with what the EU thought would happen. It’s not enough for the EU, but as Angela Merkel said, it is a start and I think that they will negotiate on that basis. The gap between the two sides is not a million miles and I do think this will be one of the easier issues to resolve because on both sides, for the three million EU citizens living in Britain and the one or two million Brits living in the EU, there are such strong reasons to get the deal done, to reassure these people who are very, very nervous about their futures. So I would predict in a month or two there will be some resolution.

    Sophie Claudet

    Now, how about the UK’s grim looking economic forecast?

    Charles Grant

    The impact of the 15 percent devaluation of the pound is pushing inflation up, foreign investment is diminishing somewhat, there has been a lot of consumption driven by people spending but it cannot go on forever, and I think we are now expecting an economic downturn. And in particular, as the details emerge in the Brexit negotiations of the kind of relationship that we will have in future with the EU, less closely tied economically in the past, business confidence will suffer, that will affect consumer confidence, and I think there is a downturn coming. To what extent that leads public opinion to regret the decision to leave the EU is an open question.

    Sophie Claudet

    How do you see trade flows evolving between the EU and the UK and are we heading towards a hard or a soft Brexit?

    Charles Grant

    I think certainly we are heading for a fairly hard Brexit, but the general election result which has weakened Mrs May and strengthened the more moderate forces in parliament means it will be softer and more moderate than that she initially envisaged. We will certainly have fairly modest restrictions on immigration, we may be less dogmatic in rejecting a role for the European Court of Justice and we may perhaps stay in the EU custom’s union.”

    Sophie Claudet

    We’ve seen that Theresa May has offered more than one billion euros to Northern Ireland as part of her deal with the DUP (Democratic Unionist Party). Could separatists still push for reigniting Ireland?

    Charles Grant

    Because the DUP, which is one strong community in Northern Ireland, is now aligned with the British government, how can the British government play the role of being a neutral arbiter in the peace process in Northern Ireland which is still a problem, there are still many difficult issues to overcome in Northern Ireland. So it may perhaps strengthen feeling amongst the Catholics that staying in the UK is a bad deal, that they are not being well treated, that their enemies in the DUP are close to the British government now, so it could perhaps ignite some nationalist feeling. But as far as I can see, most people in the north of Ireland and indeed most people in the south, do not actually want a united Ireland at the moment. That would be a step too far for most of them and just too complicated at the current time.

    Sophie Claudet

    Do you think that as far as Northern Ireland and the Republic of Ireland are concerned, are we heading for a hard border or something in between?

    Grant: If Britain leaves the EU customs union there will have to be customs controls on the borders between the EU and the UK, including between the north of Ireland and the south of Ireland, borders to check for duties being paid, for forms being filled in, for rules of origin to be respected.

    Sophie Claudet

    Do you think in the particular context of Ireland it could lead to renewed tension or even violence?

    Charles Grant

    Possibly yes, because if you have these customs controls going back to the border that will be a provocation to the extreme nationalists who will want a united Ireland. And if the border posts go up, I know there is a fear in Dublin that terrorists could burn them down or blow them up, which is a very strong reason not to have border posts, which is another reason for Britain to stay in a customs union with the EU. My friends in Dublin are very worried about Britain leaving the customs union because of the impact it could have on the peace process in Northern Ireland.

    23 June 2017

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    Sophia Besch talks to Camino Mortera-Martinez about how to keep Britain plugged into Europol and European criminal databases.

    30 June 2017

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    Agata Gostyńska-Jakubowska talks to Tok FM about her lateste CER publication 'Brexit maze: The role of EU institutions in the negotiations'.

    06 July 2017

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    Simon Tilford speaks to 'The World at One' about Emmanuel Macron and his priorities (from 15:27mins).

    14 July 2017

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    Sophia Besch talks to Agata Gostyńska-Jakubowska about the role of the European Commission, the member-states, the European Parliament and the ECJ in the Brexit talks.

    You can read more on the role of the EU institutions in the Brexit negotiations in Agata's new CER policy brief, Brexit maze: The role of EU institutions in the negotiations.

     

    17 July 2017

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    For friends of the CER: A note from Paris: Brexit, the euro and relations with Germany, July 2017
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    For friends of the CER: A note from Paris: Brexit, the euro and relations with Germany, July 2017
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    I met some of Macron’s closest advisers in the Elysée, as well as other friends of Macron who are not part of the new government. I also spoke to people in the prime minister’s office, the foreign ministry and the finance ministry. These notes cover French attitudes to Brexit and, at greater length, the future of the euro and Franco-German relations. They also touch briefly upon defence, refugees, Macron’s economic philosophy and the rift between France and Central Europe. These notes, written for friends of the CER, will not be published and should not be cited.

    BREXIT

    Macron’s line on Brexit is no different to that of Hollande. One of Macron’s closest advisers put it this way: “Brexit must be seen to cost the UK: the deal must be less good than membership. But we don’t want to damage Britain, and both bilaterally and within the EU we need to work together on counter-terrorism and security.”

    Brexit is not a priority of France’s EU policy. Though officials do not say so explicitly, they are happy to leave most of the Brexit dossier to the Germans and the EU institutions. They trust Barnier to ensure that French interests are respected. There are a few issues, like the UK’s financial obligations and financial services, where the French have strong views and have succeeded in pushing  EU policy in a harder direction.

    One key official working on Brexit thought that a deal on citizens’ rights was doable. He implied that the EU would accept – with some modifications – the British position that EU citizens would have the same rights as UK citizens (rather than continued EU rights). But he worried that this would create ratification problems: putting issues like social security and health into the Article 50 deal would be “giving the EU new competences”, and the German parliament and perhaps others would demand the right to ratify the agreement (the EU institutions’ working assumption is that the separation agreement, as opposed to that on the future relationship, should not require national parliament ratification).

    On money, the official said the solution was for the UK to contribute via transitional arrangements, which – at €10 billion a year for say three years – would give the EU a big chunk of what it wants. “The UK would get receipts during the transition. The UK would still need to pay its share of the pension liabilities that are not covered by the EU budget, but that is only a few billion. Then contingent liabilities like budget guarantees for the Juncker plan can be given to a committee.” In terms of presentation, this official would be happy to allow the money to be paid via a development fund for Central Europeans (Barnier has in the past said that he would not support such creative accounting).

    The French, like most of the key officials in Brussels, are against giving the UK a long transition; that would be a distraction for the EU, which wants Brexit to be resolved asap, and in any case the French doubt the UK would be able to accept the EU’s terms for the transition for more than a limited period. However, a senior German official reckons that the EU could soften its opposition to a long transition so long as it knew the shape of the final deal. As for the British Treasury idea that the UK might be permitted an emergency brake on migration during the transition, most senior French officials say “forget it”.

    If the British wanted a softer Brexit, the French would be happy with that. As one official put it: “Do stay in the EU agencies, so long as you contribute money to them and don’t have a vote on their rules”.

    As for the long-term relationship, the French have a particular worry about dumping by the British; in the FTA they will want safeguards that allow them to restrict market access or impose tariffs in response. They also believe that there may be ratification problems in parliaments if the FTA’s critics are able to argue that the FTA lowers standards.

    RELATIONS WITH GERMANY AND THE FUTURE OF THE EURO

    Macron’s strategy vis-à-vis Germany is well known: reform at home, keep within the EU’s 3% budget rule, and thus gain credibility with Germany to embark on eurozone and EU reform. The Elysée also hopes France and Germany can work with Italy and Spain on euro reform, once the Italian elections are out of the way (the four countries will then have several years unencumbered with general elections).

    The relationship between Merkel and Macron has become very close. They speak often on the phone. They acted as a team at the last European Council, proposing joint amendments and doing a joint press conference. Merkel needs Macron to take some of the weight of running the EU off her shoulders. Of course, they have different approaches – especially on the euro, and also on refugees and defence – but have agreed not to air those differences in public. In Paris the view is that relations have not been so good since the days of Kohl and Mitterrand.

    Macron developed a coherent view of the eurozone’s ailments when he worked as an aide to Hollande and then as economy minister. As he said in a recent interview with Ouest-France: “[Monetary union] doesn’t work because it has brought about divergences. Those that are already indebted have become more indebted: and those that are more competitive have become more competitive. Germany has benefited from the dysfunctional character of the eurozone, from the weakness of other economies. This situation is unhealthy because it is not sustainable.” His implicit argument is that the burden of adjustment has fallen almost entirely on the weaker economies of the eurozone, because Germany has not done enough to stimulate demand and reduce its current account surplus.

    Exactly how that analysis translates into specific policies and proposals for reform remains unclear. Macron knows that pushing the Germans too far in the short term will be counter-productive. So he is not talking about ‘eurobonds’, and especially not the mutualisation of existing debts. The Macronists’ priority is a eurozone budget, though they know they cannot achieve that kind of reform till after the German elections. They believe that if this budget – distinct from the EU budget – is focused on investment, rather than crisis management or countering asymmetric shocks, the Germans will accept it.

    They say the new budget will go hand in hand with a smaller EU budget, to keep Germany happy – though this idea upsets Poland. The point of the investment should be to facilitate structural economic reform within the eurozone and thus convergence. However, some French officials, like some Commission officials, also want to use the budget for stabilisation, ie countering shocks, for example through a pan-eurozone unemployment fund.

    Beyond the eurozone budget, the French finance ministry’s wish list includes a better banking union, pushing ahead with the capital markets union, and the eurogroup addressing the German current account surplus. “But the Germans are still for stability not stabilisation and their thinking is not evolving,” notes one official. A full-time eurogroup president no longer seems to be a top French priority.

    Unlike the Germans, the French think the Italians are making a good start on tackling their bank problems. That is to say the French, like the Commission, don’t mind the Italians interpreting the rules of the bank resolution directive in a somewhat relaxed manner.

    Speaking to senior Germans, I think the French are right to assume that Berlin will give a fairly positive response to the eurozone budget initiative. The Germans will do everything they can to ensure that money is not spent in ways that create ‘moral hazard’, ie spending must not reduce pressure for structural reform; they wonder whether, with the EIB and the Juncker plan already operating, another initiative on investment is really needed; but they are not against the principle of a eurozone budget that goes on investment. They don’t agree with France’s Keynesian analysis of the eurozone but more-or-less accept that they need to invest more (in and out of Germany) and do something about their current account surplus.

    There are arguments within the German government on whether to accept the idea pushed by France and the Commission that there should be a common eurozone fiscal stance (Wolfgang Schäuble and Uwe Corsepius, Merkel’s chief EU adviser, are currently opposed). Apparently Schäuble is OK with the European Stability Mechanism evolving into a European Monetary Fund (perhaps because it would partially supplant the Commission, which he mistrusts). “If you want more solidarity, there have to be stricter rules on budgets and/or economic reform,” asserts a senior German.

    On the possibility of EU treaty change, Macron’s people echo Merkel. Don’t change the treaty for the sake of it, they say; first work out what reforms you need; but then treaty change should not be taboo. Maybe it will be best done at eurozone level, they say. A senior German says the first half of 2018 will be crucial for EU and eurozone reform – the heavy work needs to be done before the many rendezvous of 2019, eg Brexit, European elections and the new multi-annual financial framework for the EU budget.

    One senior French economist who is not part of the government but is greatly respected in the Elysée says his priorities for eurozone reform would be a bigger banking union backstop, and deposit insurance; and also more responsibility for economic policy being devolved to national governments, so that the growth and stability pact became less intrusive (he believes excessive micro-management fuels populism). He would trust financial markets to police excessive borrowing (national governments find it easier to make changes in response to market pressure than in response to Brussels’ dictats).

    He also urges the eurozone to create a ‘safe asset’ to break the ‘doom loop’ through which weak banks (like those in Italy) invest excessively in the bonds of their sovereigns. Instead banks should buy safe bonds. A European debt agency would buy existing sovereign debts, and repackage them into safe and less safe bonds. These purchases could be funded by the ESM but the various sovereign governments would still be responsible for paying their own debts – there would be no joint eurozone liability. If banks held such pan-eurozone bonds, the ‘doom loop’ would be broken, thanks to the diversification of risks. He thought Germany could accept this concept as long as it steered clear of eurobonds.

    The French finance ministry is against the idea of safe assets, since it likes to think that French bonds are becoming a respected standard. Italy is also opposed, as the creation of safe assets would send a message that some Italian banks are dodgy.

    In the French finance ministry, the priority is to keep to the 3% deficit rule, to gain credibility with Germany. The French and German finance ministries have set up a joint working group. This will not get far with eurozone reform before the German election, but is working on tax harmonisation, namely a common corporate tax base at 27. The French believe that if they and the Germans take the lead, others will follow. “We have decided to focus just on corporate tax bases, and leave aside consolidation, as that leads to difficult issues of allocating revenues and taxes,” said an official. He said it needed to be done at 27, since the attempt at an enhanced co-operation on a consolidated corporate tax base (involving a smaller number of countries) had failed.

    The French are no longer pushing for a financial transaction tax (FTT). The finance ministry never liked the idea. Brexit makes a difference; it would be harder to grab business from London with an FTT. In any case the EU’s efforts on the FTT have become stuck.

    France and Germany have “flipped over” in their views of the European Commission, says one Macron adviser. The French used to be the ‘inter-governmentalists’, while the Germans defended the Community method. Now it is the other way round. France is happy with a more political Commission, and likes Jean-Claude Juncker – eg his Keynesian approach to the euro. Germany is very concerned about the lack of respect for eurozone rules and doesn’t trust the Commission to fulfil its technical roles objectively. Even more than Hollande, Macron is pro-EU institutions (though I didn’t hear much said about the Parliament); his first ever guest for an Elysée dinner was Donald Tusk.

    The French government seems happy with the idea of Michel Barnier becoming Commission president and seems less keen to back Pierre Moscovici’s various ambitions (which extend to the Euro Group and the Commission presidency).

    THE RIFT WITH THE EAST

    A lot of people in Paris are unconcerned about the dangers of a new fault-line emerging, driven by tensions between Brussels-Berlin-Paris and the ‘Visegrad four’ over refugee quotas, eurozone integration and rule of law issues. Some key officials seem to imagine that if France and Germany support a particular policy, that is enough to get the whole EU moving. Nevertheless Macron’s advisers say that he is concerned about the fault-line; he met the V4 leaders just before the last European Council. Though he has been critical of Hungary and Poland in public, he believes in talking to them as much as possible.

    REFUGEES

    France will give Germany more moral and political support on refugees than in the past, eg backing the EU’s quota scheme and refraining from criticism of Germany’s openness. But it won’t take in more refugees itself; that is politically impossible, however much the Italians complain. The Germans say they think Macron understands how much Schengen and refugees matter to them. Says one senior German: “The German political class thinks migration and refugees is much more important than the euro crisis; another refugee crisis could destroy the government, while EMU’s problems are merely an inconvenience.”

    ECONOMIC PHILOSOPHY

    Macron talks a lot about the need for ‘l’Europe qui protège’ – this is because, say his advisers, the EU needs to show that it makes a difference to peoples’ lives. Hence the importance of tackling refugees, strengthening defence and recalibrating economic rules.

    Macron has made a big thing of reforming the posted workers’ directive – which everyone in France thinks has undermined the pay and conditions of French workers. The Germans appear to be supportive on this issue. Macron also talks of fairer trade and new rules on foreign investment.

    Should we be worried by Macron’s talk of protectionism? One eminent friend, who is a strong economic liberal, says this talk is 2/3 just for domestic consumption, but 1/3 genuine. “Macron is confused on anti-dumping: he is wrong that we have much weaker defences than the US. But he is right that China plays unfair on investment rules. He is right that you should have reciprocal investment rules – but wrong to apply same principle to trade. Nevertheless Macron is basically a free trader. For France, he is liberal.”

    The friend says that concerning rules for foreign investment, the EU should set a framework, and then the various national rules would have to fit within that framework. “That would increase our leverage with China. Germany would agree. The Central Europeans and the small countries are wrong to oppose the idea of an EU framework.”

    DEFENCE

    I heard differing accounts of how strongly Macron is committed to European defence. Some of his advisers believe that he really wants a strong EU role, even taking on in the long run territorial defence (paid for by other countries, especially Germany, if it boosts its defence spending). Others say he worries that too strong an EU role could hasten American withdrawal from Europe.

    France and Germany disagree on ‘permanent structured co-operation’ (PSC), the Lisbon treaty provision that allows an avant-garde group in defence. Germany wants a looser structure that allows everyone to join in projects. France wants it to be more ambitious, demanding and restricted. The two are negotiating on the entry criteria and binding commitments required for PSC.

    In an age of Trump, Merkel wants a stronger EU role in defence; she has accepted the new EU defence fund, to invest in defence technology and research. As part of the fund the Commission has floated the idea of a European financial instrument that could pool capital and raise money from private markets and make defence capability acquisitions on behalf of the member-states. It has also picked up the old French suggestion that money spent on joint capability development and procurement could be excluded from calculations of national budget deficits.

    In previous years, Germany has blocked such proposals, suspicious of the EU introducing eurobonds ‘through the back door’. But the chancellery and the defence ministry have been supportive of the defence fund. And some in Paris hope that Schäuble, should he stay in office after September’s election, might also change his mind and support financing mechanisms that pool liabilities at least in the field of defence.

    The French now take Germany’s promises to spend more money on defence and reform its armed forces a bit more seriously than they did. However, as one French official put it, “Merkel is better than the CDU, which is better than the SPD”. The SPD, like some in the German armed forces, is reluctant to embrace defence reform. The French know that the future of defence co-operation between Paris and Berlin will depend to some degree on Merkel’s next coalition partner.

    Charles Grant

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    For friends of the CER: A note from Paris:\nBrexit, the euro and relations with Germany, July 2017

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    Simon Tilford speaks with Sky's Ian Brady on the EU's frustration with Britain over its lack of preparation for the Brexit negotiations.

     

    18 July 2017

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    Sophia Besch speaks to Henry Ridgwell as France's military head has resigned after a clash with President Emmanuel Macron over budget cuts.

    20 July 2017