Commentaries

A camel for EU president?

A camel, says an old Middle East joke, is a horse designed by a committee.

The European Union is in danger of getting camels for its two new leadership positions — president of the European Council and foreign policy High Representative — because of the dysfunctional appointment process created by the Lisbon Treaty.

The secretive horse (or camel)-trading by which EU governments choose the 27-nation bloc’s top office-holders seems designed to deter strong candidates and produce lowest-common-denominator outcomes. Some of the most able potential contenders would rather stay at home than take the key jobs to Brussels.

The treaty does not provide for a democratic election because the EU is not a state, and national governments don’t want a European president with his own legitimacy. However, the rules also seem to set aside the basic principles and procedures that any private sector company or public authority would use to select the best CEO or manager.

In a normal selection process, the jobs would go to the best qualified candidates with a clear vision, relevant experience and a track record of achievement, normally after a series of rigorous interviews. But the treaty suggests that the need to share the spoils among large and small states, and countries from the north, south, east and west of Europe is more important than criteria such as ability, charisma or experience.

Should he stay or should he go? Miliband ponders

Should he stay or should he go?

British Foreign Secretary David Miliband could be Europe’s first foreign minister in all but name, with one of the most influential jobs in shaping the place of the 27-nation bloc on the world stage, if he is willing to risk leaving British politics for the next five years. That’s a big if.

Miliband is half of a “ticket” concocted by French and German diplomats to fill the two new top jobs created by the Lisbon treaty. The other half is Belgian Prime Minister Herman van Rompuy, the preferred candidate for president of the European Council. Officially, Miliband says he is ”not available” and is backing Tony Blair’s forlorn bid for the presidency. If he turns the role down, it could well to go to former Italian Prime Minister Massimo d’Alema.

The High Representative for foreign and security policy, with a big diplomatic staff, a multi-billion-euro budget and the additional position of senior vice-president of the European Commission, will arguably be more powerful than the European Council president, whose role is largely to prepare and chair quarterly summits. Miliband would bring dynamism, an incisive intellect and inspiring oratory to the job.

At 44, he is seen as the natural next leader of the Labour Party if, as expected, Gordon Brown loses the next general election. Given the average length of Britain’s political cycle since the 1980s, the centre-left party probably faces at least two parliamentary terms in opposition – roughly eight years. So Miliband would have time to burnish his international credentials in Brussels and return home before he turns 50, and before Labour has exited the political wilderness.

Another former Labour leader, Harold Wilson, famously said that a week is a long time in politics. Five years is an age. Other Labour politicians will fill the vacuum left by Miliband if he decamps to the continent. They may be less talented, but no one is likely to placidly keep the opposition leader’s seat warm until he is ready to make a triumphant comeback.

And don’t rule out smaller short-term considerations. A Miliband departure would cause an unwelcome by-election for Labour before the next general election.

If not Blair, who for EU Council president?

Within a couple of weeks, European Union leaders are going to choose the first president of the European Council now the Lisbon Treaty has finally been ratified.

It won’t be Tony Blair, given the opposition of his European Socialist comrades to the former British prime minister and the hostility of several west European governments. So it’s time to subject some of the other contenders to the same scrutiny that Blair has faced as the undeclared front-runner in this surreal race. Most of the 27 EU leaders appear to want a low-key, consensus-building chairman of their quarterly summit meetings rather than a high-profile globe-trotting statesman.

Opponents of Blair cited several grounds — his loyalty to George W. Bush and support for the Iraq war; the fact that he failed to bring Britain into the euro single currency or the Schengen zone of passport-free travel in his 10 years in power; the fact that he is a strong personality from a large member state. r. Let’s see how the other aspirants fare on those criteria, and what other skeletons they may have in their closet.

Mr Who for EU president? EU seeks anyone but Blair

Who will be the first president of the European Council of EU leaders? Anyone but Tony Blair. That is the only clear message to emerge from a European Union summit, where the appointments of the EU’s two new senior office-holders is not on the agenda but is on everyone’s mind.

The appointment process is typical of the surreal way in which the 27-nation bloc does business. The job is poorly defined in the Lisbon treaty reforming the EU’s institutions, which is expected to come into force in the next few weeks.  But it is clear that most leaders are looking for a consensus-building summit chairman rather than a high-profile president of Europe.

There are no officially declared candidates. But Blair has been the front-runner for months, with the public backing of French President Nicolas Sarkozy and of the British government. He was not in Brussels on Thursday, but his name was at the centre of debate in the summit corridors, with many people determined to kill his phantom candidacy off.

Before the summit began, his erstwhile European Socialist comrades agreed, according to Spanish Prime Minister Jose Luis Rodriguez Zapatero, that they would prefer the EU foreign policy chief job to go to a socialist. That effectively ruled out the presidency for Blair, since the Socialists have no chance of getting both jobs.

Veteran Luxembourg Prime Minister Jean-Claude Juncker meanwhile announced he is available for the top post even though he acknowledged he had little chance of getting it. Juncker’s kamikaze candidacy looks like a suicide mission to blow Blair out of the race. The two have been engaged in a long personal vendetta fuelled by Blair’s blocking of Belgian Prime Minister Guy Verhofstadt’s bid for the European Commission presidency in 2004, and his veto of an EU budget deal brokered by Juncker in 2005.

In British eyes, Juncker personfies “old Europe” — a federalist from a tiny country which prospers as a sort of giant safe-deposit box at the heart of a Franco-German Europe. For Juncker, Blair embodies London’s arrogant detachment from the EU. Despite his pro-European rhetoric, the founder of New Labour never brought his country into the euro single currency or the Schengen zone of passport-free travel in 10 years in power. “This is not about personal glory or an extended ego trip,” Juncker told the daily Luxembourg Wort in a clear swipe at Blair’s undeclared bid.

The likelihood is that neither Blair nor Juncker will find broad enough support among EU leaders, effectively cancelling each other out. That will open the way for a more consensual, insipid figure without either Blair’s globe-trotting stardom or Juncker’s federalist outlook. Several such potential candidates were preeening themselves at the summit.

Turkey’s EU bid fades with little drama

Turkey’s bid to join the European Union is fading away with surprisingly little drama because investors no longer see the prospect of accession as an essential policy anchor.

But EU leaders should keep Ankara’s entry negotiations alive on the back burner rather than trying to engage Ankara on alternatives to membership, as French President Nicolas Sarkozy would like to do.

In a version of the old Soviet workers’ joke, “they pretend to pay us and we pretend to work,” the buzz on Turkey in the European Commission’s enlargement department is, “they pretend they’re reforming and we pretend we want them”. (more…)

Ireland puts the EU show back on the road

The EU show is back on the road. Sixteen months after Irish voters brought the European Union’s tortured process of institutional reform to a juddering halt by voting “No” to the Lisbon treaty, the same electorate has turned out in larger numbers to say “Yes” by a two-thirds majority.

This is an immense relief for the EU’s leadership. After three lost referendums in France, the Netherlands and Ireland, and a record low turnout in this year’s European Parliament elections, the democratic legitimacy of the European integration process was increasingly open to question. The Irish vote will not completely silence those doubts. Opponents are already accusing the EU of have bullied the Irish into voting again on the same text, and of blackmailing them with economic disaster if they did not vote the right way this time.

Try this for size from a British Euro-sceptic, Lorraine Mullally of the Open Europe think-tank:

This is a sad day for democracy in Europe.  The Lisbon Treaty transfers huge new powers to the EU and away from ordinary people and national parliaments.  EU elites will be popping the champagne and slapping each other on the back for managing to bully Ireland in to reversing its first verdict on this undemocratic Treaty. But most ordinary people around Europe will not welcome this news, as they were never given a chance to have their say on the Treaty.  We should all be deeply worried about the way in which EU leaders have gone about forcing this Treaty on us.  Polls show that the majority of people across Europe want to be consulted on major transfers of power such as this – but politicians in Brussels aren’t interested in what the people want.

The fact that the turnout in Ireland was higher, and the majority larger than in the first referendum may blunt such arguments. But EU leaders will clearly learn one key lesson from the Irish precedent: the days of grand treaties on ever closer European union are over. With unanimous ratification by 27 member states required, the probability of at least one country rejecting change is just too high.

For better or worse, the Lisbon treaty will be Europe’s rulebook for a generation. I reckon there won’t be another major overhaul of EU institutions for 20 years. Any further integration will take the form either of closer cooperation among groups of like-minded countries on issues such as defence, justice or taxation, or perhaps of limited, specialised treaties on policy areas such as energy and climate change.

The Lisbon treaty, and its predecessor, the defunct EU constitution, were never the federalist blueprints that their opponents claimed. But Lisbon does offer he prospect of somewhat more efficient leadership and decision-making in an enlarged Union. More decisions will be taken by majority vote instead of unanimity, notably on justice and home affairs. The directly elected European Parliament will have power over more legislation. And national parliaments will have a better chance to scrutinise, and send back, EU legislation.

Sarkozy looks to stash some cash under the mattress

On the face of it, France’s 2010 budget is just what the G20 doctor ordered. No early withdrawal of economic stimulus spending. Allowing the welfare system’s ”automatic stabilisers” to absorb the shock of the economic crisis. No raising of taxes or slashing of public spending until growth returns. A small shift away from tax on business towards taxation of carbon.

Of course the headline numbers are horrible and under normal circumstances would prompt disciplinary action by the European Union. The 8.5 percent forecast public deficit will be the highest in French history. Public debt will rise from 77.1 percent of GDP this year to 91 percent in 2013. The EU ceilings are a deficit of 3 percent and debt of 60 percent of GDP. But compared to Britain, Spain or Ireland, France’s deficit will look almost modest.

French governments traditionally make rosy growth assumptions at budget time, enabling them to forecast a deficit which often turns out to be bigger than planned. The European Commission then queries the growth assumption, leading to months of haggling between Paris and Brussels.

The novelty this year is that President Nicolas Sarkozy’s government has assumed lower 2010 growth (0.75 percent) than most private economists forecast. The consensus of private forecasts submitted to the government with the budget is for 1.1 percent growth next year. Some expect as much as 1.5 percent growth. If the more optimistic figures are right, Sarkozy will have a stash of cash under the mattress which he could spend to help win next year’s regional elections, for example by helping out angry milk producers, or use to cushion the impact of inevitable deficit cuts in 2011 — the year before he seeks re-election.

That might not reassure European officials, who fear Sarkozy will make no serious deficit cuts until after the 2012 presidential election. But it would be smart politics.

Germans vote for change; will they get it?

Germans have voted for change. A centre-right government with a clear parliamentary majority will replace the ungainly grand coalition of conservatives and Social Democrats that ran Europe’s biggest economy for the last four years.

This should mean an end to ”steady as she goes” lowest common denominator policies, and at least some reform of the country’s tax and welfare system. The liberal Free Democrats, who recorded their best ever result with around 14.7 percent, will try to pull the new government towards tax cuts, health care reform, a reduction in welfare spending and a loosening of job protection in small business.

Conservative Chancellor Angela Merkel, a cautious centrist, made clear in her first post-election comments that she she would not allow a radical lurch to the right. She promised to be the ”chancellor of all Germans” — old and young, entrepreneurs and workers — and said the conseravtives would be sufficiently dominant in the new coalition to prevail “in questions that affect social balance”.

The new government faces tough economic challenges in what is bound to be a more polarised political atmosphere, with the Social Democrats in opposition. The economy is expected to contract by at least 5 percent this year, and export-led growth is likely to return only slowly. Unemployment is set to explode in the coming months as short-time work schemes run out. The budget deficit is set to top 6 percent of gross domestic product next year, more than twice the EU limit. So 2010 will be an extremely difficult year. But there are some problems that are even more urgent.

The first big choice involves Germany’s ailing banks. Outgoing Finance Minister Peer Steinbrueck admitted last week that the public-owned regional Landesbanks “continue to pose an enormous systemic risk to our market”. The outgoing parliament passed a virtually useless “bad bank” law meant to encourage stricken financial institutions to put their toxic assets into state-guaranteed special purpose vehicles. The banks have so far spurned the system because it leaves the risk of losses with them rather than with the taxpayer.

Merkel and her new partners need to amend the law so that the state takes more of the risk, otherwise Germany faces a future of “zombie” banks that are too burdened with liabilities to lend to the real economy. That won’t be popular, with the left bound to claim that taxpayers are being forced to bail out wealthy bankers.

Fixing the banks is more urgent than cutting taxes or curbing public spending to revive the economy. That also means merging the Landesbanks, shrinking their activities and privatising as much as possible. The Germans must also be ready to allow healthy foreign banks to buy up sickly German ones. That is the logic of the European single market, to which a centre-right government is likely to be more committed.

Germany will have to change Opel deal after election

It looks increasingly clear that Germany will have to change its deal to aid carmaker Opel once Sunday’s general election is out of the way.

The European Commission has signaled to Berlin that promising 4.5 billion euros in loan guarantees to only one of the two bidders for General Motors’ European arm to preserve all four German production sites and most Opel jobs in Germany may breach EU rules on state aid to industry. EU regulators want to know why Chancellor Angela Merkel and four German states offered the money to back car parts maker Magna’s bid but not for financial investor RHJ International’s, and on what conditions. 

With Britain, Spain and Belgium’s Flanders region — all hosts to Opel production sites – crying foul, the EU executive is under strong political pressure to intervene. British Business Secretary Peter Mandelson has questioned the viability of Magna’s business plan in a letter to the Commission.  Brussels reaffirmed in a statement on Wednesday that Germany could not attach political conditions to the company’s restructuring plan or tie its hands. 

The European Commission will not accept that State aid granted under the Temporary Framework is conditional upon the implementation of a specific business plan, previously discussed and/or negotiated with Member States, which defines the geographic distribution of restructuring measures, without leaving to the beneficiary undertakings the possibility to revise their plans if necessary.

State funding under the Temporary Framework is meant to tackle the financing problems due to the credit crunch, and cannot be used to impose political constraints concerning the location of production activities within the internal market. The beneficiary undertakings must therefore retain full freedom to develop their economic activities in the internal market.

Even the Commission’s German vice-president, Guenter Verheugen, long regarded as the German car industry’s best friend, has told his countrymen that one EU country cannot be allowed to buy a favourable solution for its workers at the expense of another. He has offered the Commission’s help to bring all the Opel host countries together and work out a joint state aid plan for Opel to be monitored by Brussels.

In theory, that means Berlin ought to sign Magna and its Russian partner Sberbank a blank cheque which might lead to a plant in Antwerp or Luton or Zaragoza being kept open instead of an assembly line in Bochum, if the Belgian, British or Spanish site is more efficient. That would be hard for German taxpayers to swallow.

Push comes to shove in EU-Dutch bank spat

Push is coming to shove in a stand-off between the European Commission and the Dutch government over the future of state-rescued banks. The outcome has implications for the whole of Europe.

Markets should watch Brussels’ actions on ING, ABN AMRO and Fortis Bank Nederland carefully because they will set a precedent for forthcoming decisions about British, German or Irish banks that could reshape the European banking landscape. They may also determine whether, and when, taxpayers can expect to recover their investments in the banking sector.

EU competition czar Neelie Kroes this week withheld approval of a government guarantee for the bulk of a 28 billion euro portfolio of ING bad loans. The European regulator, whose job is to ensure state aid does not distort competition, said the guarantee required further investigation because the Dutch government may have illegally subsidised the bank by overvaluing the assets.

Compounding the Dutch problems, Deutsche Bank has pulled out of a deal to buy some of the operations of ABN AMRO, the Dutch lender. Brussels had originally ordered the sale when it allowed Fortis to buy ABN AMRO’s Dutch retail banking operations in 2007. Though Fortis has since been broken up, the Dutch government still wants to merge the two retail banks, both of which are now under state control.

The initially proposed deal would have left the Dutch taxpayer with a potential 300 million euro loss on the assets, which include commercial bank HBU. The government may yet reach a compromise with Deutsche or be able to sell other Fortis or ABN assets to meet the Commission’s conditions.

Nevertheless, the issues at stake between Kroes and her countrymen are broadly the same as those with Britain, Ireland or Germany.

The Commission aims to maintain a level playing field by making state-aided banks shrink their balance sheets by spinning off or winding up activities. This is designed to compensate  healthy banks for the distortion of competition with taxpayers’ money. Brussels also seeks to ensure that bailed-out firms have a viable future without public funds. And it aims to ensure adequate consumer choice by averting excessive concentration and promoting vigorous domestic and cross-border competition.