By Vulcan Consulting
Merkel secures fourth term but difficult coalition awaits
Last Sunday’s federal elections in Germany provided expected results as Chancellor Angela Merkel retained her position as leader of the largest party for a fourth straight term. However, the outcome left Ms. Merkel with an challenging parliamentary scenario as she negotiates to secure a working government majority.
The country’s two major parties, the conservative Christian Democratic Union-Christian Social Union (CDU-CSU) bloc to which the chancellor belongs and the Social Democratic Party (SPD) topped the polls but suffered their worst ever election results. Official results showed the CSU-CDU securing 33 per cent of the vote while the SPD won just 20.5 per cent, but most alarming for the two parties was the stunning success of the right-wing Alternative for Deutschland (AfD) party who will be the third largest party in the Bundestag with 12.6 per cent.
For first time in the post-war years, Germany will have a large far-right presence in parliament. This development highlights the growing frustration building in the country at the traditional parties and their policies, and reflects a mood we have seen across Europe in recent years. The AfD party experienced its biggest surge in the former Communist east Germany, gaining a massive 15 percentage point swing which came largely at the expense of the CDU/CSU.
Ms. Merkel now faces the challenge of forming a government. With the SPD ruling out joining any coalition and the Chancellor refusing to go into government with the AfD, it is almost certain that a Jamaican-style coalition (based on party colours) will form between the CDU-CSU and both the liberal Freedom party (FDP) and the Greens who both respectively secured 10.7 per cent and 8.9 per cent of the votes. Although, with the two likely junior coalition partners deeply opposed on various issues ranging from the eurozone to the environment, weeks of difficult negotiations await Ms. Merkel.
Disputed Brexit bill set to grow
One of the most contested Brexit negotiating issues, the financial liability owed by the UK as it exits the EU, looks set to continue to cause tension, as latest budget data released this week shows that the EU’s liabilities grew by almost 4 percent in 2016. With staff pensions alone rising by more than 5 percent, the UK faces paying a mounting Brexit bill that Brussels is adamant it must pay.
The financial liability owed by the UK is one of three issues that needs to be resolved before talks can move on to a future EU-UK trading relationship. Although Prime Minister Theresa May offered up to £20bn in last week’s Florence speech, the EU believes the actual figure is five-times the size of that. It is one of the trickiest areas of the negotiations and with reports that the soaring EU pensions could add several billion more to the bill, the impasse around how much Britain owes could deepen.
The EU is unable to publish a final figure of the bill up until the very end of Brexit negotiations as Brussels needs to take into account costs that will continue to rise until then, not just current liabilities. EU officials are well aware that any final figure will be politically impossible for Prime Minister Theresa May to sell to the British public, as well as her party colleagues and sources close to the talks have acknowledged that a grand total may never actually be revealed.
Macron lays out ambitious vision for the future of Europe
French president Emmanuel Macron has unveiled an expansive plan to radically transform the EU. Speaking to students at the Sorbonne University in a 100-minute address, the President made a number of bold proposals ranging from the economy of the Union to its military needs. The changes, Monsieur Macron believed, would allow the EU to finally end the ‘’civil wars’’ that had been threatening it for the past several years and to help it become an economically ‘’sovereign’’ powerhouse like that of China or the US.
On the area of the economy and Eurozone reform, he called for a new EU prosecutor to investigate breaches of international trade rules, a European financial transaction tax, a eurozone budget, financial transfers to boost harmonization and number of other key elements. Of particular note was his urge to boost harmonization of corporate tax bases and a gradual EU-wide convergence of corporate tax rates.
In light of the recent and continuing migration challenge facing Europe, a harmonized asylum system and greater power to the European Asylum Office to process joint claims was proposed. The French president also addressed the growing issue of security and defence, pressing for an EU-wide intelligence academy, increased defence spending and the creation of a ‘’military intervention force’’ by 2020.
The impassioned wide-ranging speech was met with rapturous applause several times by the audience and was warmly received in Brussels, as well as a number of EU capitals. The European Commission president Jean-Claude Juncker labelled it ‘’a very European speech by my friend Emmanuel Macron’’. However, the reception in Berlin between the likely new government junior coalition partners was mixed with the Greens praising Macron’s vision while the liberal Freedom Party shooting down any kind of Eurozone budget. The chances of Macron’s plan being embraced in Berlin are significantly reduced in the context of the German socialists exiting the Government.
Catalonian leaders push ahead with Independence referendum
Political leaders in Spain’s north-eastern region of Catalonia are pressing ahead with plans to hold a vote on independence this Sunday the 1st of October despite extreme efforts by the Spanish government to block any chance of the referendum going ahead. Madrid has made numerous efforts to derail the vote, such as legal action, police deployments and economic sanctions.
The non-binding referendum has already been declared illegal by Spain’s Constitutional Court and deep rifts are emerging both across the country and within the region of Catalonia over the drive for independence. On Wednesday of this week, the Catalonia High Court ordered national and regional security forces to prevent any activity connected to the setting up of likely polling stations.
With only two days until the planned vote, this already tense standoff is set to grow considerably as hundreds of thousands of expected Catalan voters will face off with police when they try to vote on Sunday. The European Commission has so far stayed away from the dispute but the Green Group in the European Parliament has officially asked the Commission to act as mediator between Madrid and Catalonia.
The central government has already threatened to remove the Catalonian President, Carles Puigdemont, from office and businesses from within the region have warned that the political instability, violence and legal uncertainty could deter investment and hurt the economy. However, despite numerous threats and warnings from courts and businesses, a vote on Sunday looks almost certain to take place and will only add to the deep rift dividing the country.
Google complies with Commission as it revamps shopping service
Internet giant Google has begun the process of changing its website to comply with the demands set by the European Commission in order to avoid any further fines. It comes three months after the tech company was fined €2.4 billion by the Commission for abusing its positions on its online shopping service. Beginning yesterday morning (Thursday 28th September), Google’s shopping service treated its own ads the same ways as ads from external services.
The move is hugely significant as it marks the first time that a technology giant like Google was forced to change following on from a major antitrust ruling. The American company still has two ongoing antitrust cases in Europe and similar internet companies are facing growing regulatory scrutiny both here and in the United States. This latest ruling sets a precedent for what regulators can achieve as they attempt to control the growing influence and power of major internet companies.
Sunday 1st October: Catalan Independence Referendum
Mon 2nd – Thurs 5th October: European Parliament Plenary Session (Strasbourg)
Wednesday 4th October: ECB Governing Council non-monetary policy meeting
Wed 4th – Thurs 5th October: Meeting of the Basel Committee on Banking Supervision
Compliments of Vulcan Consulting, member of the EACCNY