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What Hollande’s Election Means

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Hollande’s at Presidential program can significantly slow down recovery of the European economy and worsen economic positions of France

Win of François Hollande at presidential election in France can significantly slow down recovery of the European economy form recession and worsen economic positions of the country thus facilitating lag of the French economy from German.

France has lower competitiveness than Germany. This is facilitated by high taxes, high budget deficit and high level of public debt. In 2012 public debt to GDP rate will be about 89% comparing to 85.8% in 2011. Similar dynamics requires strict measures for budget balancing which in fact is absent in Hollande’s program. That is why the new Head of State is unlikely to succeed in lowering public debt to 46.8% GDP by 2015 as indicated in his presidential election program.

According to the President’s election program budget deficit should be lowered to 3% GDP in 2013 and financial balance should be recovered by the end of term. For this purpose return to tax benefits is planned. However, dominating experience in applying tax benefits during 2008-2009 crisis shows that, in many cases, budget income losses due to their use are not compensated by advantages of such benefits. Administration of tax benefits leads to decrease of tax payment simplicity rates, thus, lowering country’s competitiveness. Benefit bet will obviously lead to substitution of labour with capital which will reduce employment and increase costs of creating new workplaces. In addition, they contribute to growth of abuse in tax system and lower project efficiency. Applying of tax benefit causes tax loss and, as result, the projects which should not be implemented in the absence of preferences become more economically advantageous provided actual subsidy on the part of the state. Thus, there are well-grounded opinions that such measures of stimulating economic growth will have long-term effect and compensate losses of budget revenues. That is, they can lead to the budget balancing, in particular, under conditions of active social policies. Here cancellation of the planned VAT increase should be added, which will cause revenues decrease. That is to say, the policy of stake at actions having unconfirmed future effect is extremely dangerous for current state of European economy.

It is obvious that implementing of the President’s program will already in 1 or 2 years make François Hollande to resort to foreign loans which will be more expensive for Paris than for Berlin. Necessary financial provision of social programs in 2013-2014 prospects will make the country’s government change its priority to budget balancing. As a result current roll to social policies is unlikely to receive support from Berlin what will obviously cause adjustments in Hollande’s future plans.

François Hollande’s plans concerning review of the European Budget Discipline Treaty formed by the former French president Nicolas Sarkozy and Chancellor of Germany Angela Merkel, will become significant problem for Eurozone. There are doubts that Europe will succeed in redirecting fiscal efforts of the European Union from austerity measures to growth. Instead of that France can obviously head movement of fringe nations relating to mitigation of austerity measures in Europe.

François Hollande’s policy provides evidence of an attempt to place bets on soft protectionism under conditions of severe competition. This is witnessed by the French President’s plans to adopt Directive on protection of public services in EU, protection of presence of local public services in rural areas, protection of marine economy and a new trade policy preventing all forms of unfair competition.

Significant doubts concerning effectiveness of the stated policy are caused by Hollande’s plans for with restrictions in bank sector with the view to eliminate toxic financial products, introduce tax for all financial operations and lower bank charges to restrict service costs charged by banks. Similar initiative will, provided its adoption by all EU Member States, change the existing system of financial flows in favour of countries which did not support it. At the G20 Summit only seven states of 20 agreed to introduce the “Tobin tax” while the rest of participants pointed at possible capital runoff to countries with more liberal tax legislation. Herewith, according to the European Commission’s forecast, introduction of the tax may slow down economic growth in alliance over a long period within 0.53%-1.76% range of GDP. At the same time positions of French banking establishments will worsen and their competitiveness will decrease having sharpened all their current problems.

An initiative relating to introduction of 75% tax for all incomes exceeding € 1 million and increasing the second in size tax to 45% comparing to the current 41%. Such approach to budget filling has already failed in Great Britain where it became reason for reducing foreign investments and significant capital runoff from the country.

Basic structural shortcomings of the French economy are high payroll taxes and labour market regulations. However, Hollande’s program does not solve neither of them while, on the contrary, offering to open series of consultations with trade unions.

According to out assessments high probability of continuing crisis phenomena in French economy and ineffectiveness of economic part in Hollande’s election program may, in the mid-term period, lead to strengthening of the ultra-right forces in the country.

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Europe

Who are the ‘Willing’ in Central Europe – Axis of the 1930s coming back ?

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The idea of an “axis of the willing against illegal migration” between Italy, Germany and Austria has been proposed by Sebastian Kurz, Austria’s right populist leader. He spoke about it with German Interior Minister Horst Seehofer, a Bavarian conservative who shares the Austrian chancellor’s views on tighter border control. Kurz said fighting illegal immigration will be a top priority for Vienna’s EU presidency from July 2018. Kurz and Seehofer met on the same day as Merkel’s “integration summit,” leading to media reports about serious political clashes between Germany’s coalition parties.

“We shouldn’t wait until we have a catastrophe, like in 2015,” Kurz said, referring to the refugee crisis when German Chancellor Angela Merkel opened her country’s borders to hundreds of thousands of migrants. “Instead it is important to act on time.”

Kurz’s meeting with Seehofer means the German minister was unable to attend Merkel’s “integration summit” happening the same day in Berlin. Referring to media reports that this was meant as a snub to the German leader, Seehofer said his reason for not attending was the presence of a journalist, Ferda Ataman, who opposed German deep state and has compared his policies on migration to the Nazis.

“I cannot be part of an integration summit where there is one participant who in an article compared my strategy on homeland to the homeland understanding of the Nazis,” Seehofer told reporters.

Seehofer takes a much harder line than Merkel on immigration and was expected to present a “migration master plan” this week. That has been postponed, but Merkel’s Christian Democrats (CDU) and Seehofer’s Christian Social Union (CSU) hope to find a compromise on the plan this week, Seehofer said.

“From my point of view, it would be ideal to secure the external borders of the European Union,” Seehofer said after the meeting with Kurz. Dismissing voices about the brewing putch within the German ruling coalition, he continued: “I promised Chancellor Kurz that on the question of strengthening the external borders he has my full support as interior minister.”

Seehofer, after talks with yet another government that of Italy, notably with a populist Interior Minister Matteo Salvini, said the new government in Rome is also keen to build a partnership with Vienna and Berlin on security, counterterrorism and migration. Seehofer and Salvini are in ‘full agreement’ on how to secure the EU’s external borders, the German minister said.

Concluding, youngish and hawkish chancellor Kurz said: “In our opinion we need an axis of the willing in the fight against illegal migration.”

This choice of words raised a few eyebrows, as a previous “Axis” between those three countries carries much darker historical undertones, as does former US President George W. Bush’s “coalition of the willing” in Iraq. But the Austrian chancellor didn’t seem to care.

Home troubles

An “axis of the willing” would inevitably be seen as an anti-Merkel alliance. Even further, “perhaps the end of the grand rapprochement between the Atlantic and Central Europe” – says prof. Anis H. Bajrektarevic whose long standing claim is that one EU turns into five Europes in times of crisis and externally induced stress.

Mr. Salvini, who heads the far-right League, attacked Ms. Merkel during Italy’s recent election campaign and demonstrated his harsh stance on immigration by refusing to let a rescue boat with more than 600 migrants dock in the country. He stands for pretty much everything Ms. Merkel opposes: unilateral national action and a merciless approach to asylum-seekers. “The good life is over for the illegals, they’re going to have to pack their bags,” he said recently.

And on top of a new cross-border alliance against her, Ms. Merkel is facing enough domestic troubles as defiant conservatives are pressuring her into toughening her immigration policy by means fair and foul.

Mr. Seehofer, whose right-wing Christian Social Union is trying to woo sympathizers of the anti-immigrant Alternative for Germany (AfD) ahead of a regional election in the CSU’s home state of Bavaria in October, has drafted a package of measures to curb the number of asylum-seekers coming to Germany.

They include turning away refugees at the border if they have already registered in another EU country — a step that Ms. Merkel rejected on Monday because it would amount to a reversal of her open-border policy and undermine her efforts to find a pan-European agreement on how to deal with refugees. The chancellor’s veto was the spark that reignited the simmering asylum dispute with her Bavarian ally.

Über-muttisummoned

The two held late-night crisis talks on Wednesday with Markus Söder, Mr. Seehofer’s successor as Bavarian premier, and with Hesse state premier Volker Bouffier, a senior figure of Ms. Merkel’s Christian Democratic Union who is running for re-election in the fall.

However, the two-and-a-half-hour talks failed to deliver a breakthrough. Ms. Merkel did compromise with the CSU’s plan to turn away asylum seekers at the border, but she also proposed this to be first agreed bilaterally with other European countries during the upcoming EU summit later this month, in order to avoid unilateral decisions from Berlin that could further jeopardize the EU’s shaken unity. “It makes sense to wait two more weeks until the summit to find solutions jointly with partner countries,” she said.

For the Bavarians, however, that offer wasn’t enough. Mr. Söder said on Thursday that hoping to reach bilateral deals so soon was unrealistic. “We don’t believe that in two weeks it will be possible to achieve something that has been impossible for three years,” he said. The hawkish Bavarian leader added that instead, creating a fait accompli as soon as possible might force the rest of the EU to adopt a common solution at last.

Rescue plan

An unbending CSU is instead looking into ways to strong-arm Ms. Merkel’s CDU into adopting its proposed immigration plan in the days ahead. The Bavarians are mulling submitting it to a vote within the CDU/CSU parliamentary group in the Bundestag on Friday, as they believe a majority of Ms. Merkel’s CDU lawmakers would side with them. They were probably looking at a survey tabloid Bild published on Thursday. The country’s most-read daily asked all 246 conservative lawmakers in the Bundestag whether they sided with Ms. Merkel or with the Bavarians. Of the 70 who answered, just three backed the chancellor. But that was before she made her compromise on Wednesday night.

On Thursday, CDU lawmakers abruptly interrupted a parliamentary session to hold a group meeting on Ms. Merkel’s latest offer. It turns out that, after Bundestag President Schäuble, who long served as Ms. Merkel’s finance minister, gave a “moving” speech on the future of Europe, the Christian Democrats overwhelmingly endorsed their leader’s proposal after all.

The Bavarians are still digging in their heels, though. The CSU announced that it will make its next move known after an internal summit scheduled for Monday. Some are saying that Mr. Seehofer could disobey the chancellor, his boss, and enforce his plan. The Bavarian party could also break with its sister party, the CDU, as a last resort — but this highly unusual move in Germany’s post-war history could topple the chancellor and plunge the country into a political crisis.

Or Mr. Seehofer still has his axis with Mr. Kurz and Mr. Salvini to fall back on. In the long run, the trio may indeed find a way to defeat a weakened Ms. Merkel and march the EU into unknown.

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The Aegean Dilemma: Turkish-Greek Complexity Challenging European Solidarity

Alexandros-Ioannis Papamatthaiou

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On the 12th of February2018, a Turkish coast guard patrol rammed into a Greek patrol boat near the Imia islands (Kardak in Turkish). The pair of uninhabited islands has been a source of dispute between Greece and Turkey since a military crisis in 1996, which almost resulted in war. The collision has been the climax of a number of Turkish violations on Greek territorial waters and airspace, which have damaged Greek-Turkish relations and escalated the tensions between the two countries. In this article I argue that Turkey’s geopolitical advantages over the US and the EU embolden it to pursue an ambitious foreign policy in the Aegean Sea, while its toxic domestic politics necessitates that it must do so. This combination creates a ticking time bomb for crisis in the Aegean Sea.It is time for the EU to act.

Turkey’s control of refugee flows has EU hands tied

The Syrian crisis has increased Turkish power over European nations that receive the greatest part of refugee flows. Currently, over 2.5 million Syrian refugees reside in Turkey. Turkish officials have threatened to force an influx of Syrian refugees into Europe, a situation that would destabilize already complex tensions within European states and further the far-right political crisis of Europe. The potentiality of this development provides Turkey with a favorable bargaining position over many Western European governments, which are interested in actively averting extremist actions against immigrant populations in order to prevent sectarian divide.

In addition, the waning desire of the Turkish administration to join the EU has removed any leverage the EU had over Turkey. In the past, Turkey has been willing to engage in bilateral talks with Greece over territorial disputes, mainly in an effort to withdraw Greece’s veto over its potential membership in the EU. However, Brexit and the emergence of anti-European movements in founding members like France and Italy, has caused Turkish officials to have second thoughts about the prospect of joining a union on the verge of collapse, according to reports. This development has reduced the bargaining advantage Greece previously enjoyed.

The US is unlikely to react in the event of a crisis

Since the time of the Cold War, American policymakers have viewed Turkey as a key ally against the Soviet Union and now Russia. The proximity of Turkey to Southern Russian cities favors the deployment of strategic nuclear weapons, while, most significantly, the Bosporus and Dardanelles straits create a double chokepoint that checks Russian maritime activity from the warm ports of the Black Sea. This means that in the case of conflict, if Turkey cooperates, Russia’s supply lines from the south could be shut down.

The location of Turkey, north of the Levant, gives Turkish leaders influence in Middle East matters as well and the ability to affect the political situation in both Syria and Iraq. The proximity of Turkey to the Syrian conflict allows it to intervene militarily as it did through Operation Olive Branch in Afrin in January. Turkey also holds a large portion of the Tigris and Euphrates river basins, which hydrate the majority of agricultural land in Syria and Iraq. In the past, Turkey has used its control over these river flows as a bargaining tool to curb Kurdish militant activity along its borders with the two countries.These geopolitical facts give Turkey a unique advantage in influencing politics in the Middle East, both directly through military operations and indirectly through river flows.

Turkey’s capacity to contain the Russian navy in a time of a crisis, its ability to directly get involved in the Syrian war, and its influence on the prosperity of Iraq, gives influence over key American strategic objectives: namely, keeping Russia under control, maintaining peace in the Middle East, and ensuring the stability of oil outflows. Despite the status of both Greece and Turkey as members of NATO, the US is unlikely to risk bringing Turkey and Russia closer diplomatically and tempting Turkey to intervene more often in the Middle East.

How are Turkish domestic politics exacerbating the conflict?

Turkey’s militarism is informed by the institutional friction between Turkish politicians and the Turkish army. Since the death of Ataturk, the Turkish army has assigned itself the role of the protector of Ataturk’s ideals. Frequent army intervention in Turkish politics through coups has made politicians apprehensive of the army and ready to externalize the army’s domestic pressure into international operations. After the coup attempt of 2016, President Erdogan has become increasingly determined to preoccupy the army with military operations and maintain stability domestically, as he concentrates power through institutional change and purges political and intellectual dissidents. Turkey’s leaders have also been empowered by public support. The Turkish public has a deep historical understanding of the Turkish identity, the memory of the Greek invasion of 1919, and the unfairness of the Treaty of Lausanne. President Erdogan’s popularity after the failed coup attempt of 2016 has enabled him to empower these conservative opinions and silence opposing Euro-friendly voices in Turkey.

Greek leadership has also done its part to worsen the tensions. The Greek Minister of Defense, Panos Kammenos, leader of the nationalist minority party in Greece’s coalition government, has been vocal on Greece’s expansion of territorial waters, mainly as a feat to maintain his party’s share of the vote. Historical tensions between the two countries, as well as President Erdogan’s public and institutional empowerment and Greece’s current diplomatically inept administration have fueled Turkish nationalist sentiment against Greece, counterbalancing against public support for European integration, and emboldening Turkey’s aggressions in the Aegean.

What are the objectives of Turkey?

Turkish perceptions and expectations of European and American passivity embolden Turkey to act in calculated aggression according to its favorable estimation of the balance of power. Turkey’s primary goals are to increase its claim on maritime territory that may contain potential oil reserves in the Aegean Sea and to hinder Greek efforts to expand territorial waters according to proposed international law [1]. These objectives constitute a reversal of the Treaty of Lausanne, which gave Greece control of the entire Aegean archipelago, and essentially landlocked the Turkish western coast. In a highly complex domestic climate, if Turkish policymakers judge that tensions have risen enough to even minimally justify translation of rhetoric into action, then Turkey is likely to annex the Imia-Kardak islands in a symbolic statement of intent, or even to potentially claim control over Kastelorizo, which would extend Turkey’s continental shelf into the southeast Mediterranean Sea.

Why should the EU care? What can be done?

In an environment of European reluctance and American rejection of involvement, the clock is ticking before the Turkish administration could make bolder moves. The crucial coming election could be the catalyst in materializing Turkish threats over the annexation of disputed territory. In the ever-increasing tense domestic politics of Turkey, political rivals try to outdo each other on anti-Greek rhetoric, resulting in heightened public expectations of conflict. Under the current circumstances, if Turkey escalates the conflict, then the EU stands to lose in all possible scenarios. If the EU intervenes, then Turkey may retaliate with the release of Syrian refugees into the continent, which will increase the influence of the far-right and break the EU from within. If the EU fails to act, then trust in its institutional power will wane, discouraging potential members from joining and increasing the separatist sentiments inside member countries.

The Aegean Dispute sheds light into the most important institutional anomaly of the EU: the absence of political unification to support economic integration.The European experiment has been successful in integrating economic activity within the continent. However, it now teeters with an unstable equilibrium, between further integration and outright demise. The Aegean dispute offers both a challenge and an opportunity for Europe: EU policymakers must look into ways of integrating security strategy, through cooperation agreements, security guarantees and investment into border control, while also moving towards an integrated and centrally-organized immigration plan for Europe. Tighter border security in the Balkan Peninsula will stop Turkey’s use of refugee flows as a bargaining chip and also appease nationalist sentiment in European countries, while security agreements will halt Turkish aspirations in the Aegean Sea and improve public trust in the EU’s institutional power. If the EU wants to remain relevant far into the future across the greater European continent, then it must start behaving as boldly and strategically as Turkey has over the past several years. If it doesn’t it will simply be outmaneuvered and, potentially, replaced as a major political voice in the global community.

[1] Wolff  Heintschel von Heinegg Der Ägäis-Konflikt: Die Abgrenzung des Festlandsockels zwischen Griechenland und der Türkei und das Problem der Inseln im Seevölkerrecht. (Berlin: Duncker und Humblot, 1989)

 

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Catalonia would have been facing severe problems had it broke away from Spain

Bahauddin Foizee

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Catalan independence referendum, held in late-2017, had thrown Spain and Catalonia into severe political crisis and has created uncertainly for the foreign investors inside Catalonia.

What fate would the Catalans have embraced had Catalonia broke away from Spain after referendum?

Catalans from all walks of life would have suffered severe problems had the pro-independence camp got what they wished for in the referendum.

Here’s some food for thought for the Catalans who voted in the referendum and who didn’t, and for the ones who had been a keen spectator from Europe and elsewhere.

State Structures

Inception of an independent state requires the setting up of the essential state structures, including central bank, tax authority, judicial system, social security, a diplomatic service, a central bank and even an army.

Though most of these state structures/elements are available to Catalonia as an Spanish state/province, there are obvious concerns whether these elements are self-sufficient and mature enough to take the responsibilities of a newly born state.

Chaos

Had Catalonia become a sovereign state, a greater political uncertainty would have arose. There would be political chaos between the ones who opted for independence and the ones who didn’t.

The ones who sought to remain with Spain, or atleast didn’t actively support pro-independence campaigns, could have ended up facing rage and infuriated gestures from the opposite camp immediately after independence (had it been achieved).

Debt, currency, exodus of businesses

Moreover, Catalans would then have to assume a significant part of Spain’s debt. They would have to find a currency other than the Euro, as Spain would veto Catalan membership in the Euro Zone.

Without a confirmed currency in the market and with political uncertainty, there would have been a likely evacuation of multinational and Spanish companies from Catalonia to other parts in Spain. Already some multinational and Spanish companies either left or declared to leave Catalonia immediately after last independence referendum.

Access to EU market

If the membership to the European Union (EU) was delayed after Catalonia’s independence, Catalan products would have lost the privilege of unrestricted access to the EU market.

This newly independent state would have lost the leverages of entering into the EU member states’ markets as a free trade zone – a leverage its commercial products enjoy now as Spanish products.

Duties on Catalan goods and services would have been imposed not only by Spain, but also by other EU member states. Moreover, in times of economic disasters, Catalonia could not have called upon the help of the European Stability Mechanism (ESM) and the European Central Bank (ECB).

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