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A more nuanced solution to Brexit

by Frank Schnittger Thu Oct 27th, 2016 at 11:43:42 AM EST

Discussion of Brexit has been almost exclusively based on the proposition that the UK will exit en bloc, and that the only possible exceptions to this are if Scotland were to vote for Independence, or N. Ireland were to vote to join a united Ireland.  But there are some precedents for more nuanced solutions to the fact that both Scotland and N. Ireland voted Remain.  For instance, Greenland and the Faroe Islands remain part of the Kingdom of Denmark but with substantially independent political institutions, and neither are part of the EU.

The Faroe Islands secured an opt-out when Denmark joined the EU in 1973 (the same time as the UK and Ireland) and Greenland voted to leave the EU in 1985. In both cases the decision was based on their desire to retain independent control of fish stocks in their territorial waters.  The UK already issues distinctive passports for residents of the Isle of Man and the Chanel Islands, and Jersey is neither a Member State nor an Associate Member of the European Union.
Jersey and the EU

Jersey is part of the European Union Customs Union of the European Community. The common customs tariff, levies and other agricultural import measures apply to trade between the island and non-Member States. There is free movement of goods and trade between the island and Member States. EU rules on freedom of movement for workers do not apply in Jersey.

So what if England and Wales exited the EU, but Scotland and N. Ireland remained? Both are substantially self-governing and have economic interests distinct from the rest of the UK. Their First Ministers have demanded a central role in the negotiation process and even Welsh first minister Carwyn Jones departed from Theresa May's "hard Brexit" position by insisting Wales wanted to retain full access to the European single market. Remaining part of both the UK and the EU would go some way towards appeasing both the Independence and Unionist voters in Scotland, whilst allaying Spanish fears of setting a precedent for Catalonian independence.

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Alan Dukes responds to my LTE

by Frank Schnittger Wed Oct 19th, 2016 at 01:30:27 AM EST

Alan Dukes, former Leader of Fine Gael, Leader of the opposition and Minister for Agriculture, Finance and Justice has responded to my letter to the editor criticising his original Irish Times article purporting to advise Theresa May on Brexit:
Preparing for realities of Brexit

Sir, - Frank Schnittger(October 17th) raised some objections to my "tongue-in-cheek" advice to Theresa May about Brexit ("Whitehall's Brexit advice to Theresa May", Opinion & Analysis, October 14th).

He is, of course, right to point out that the EU regards the four freedoms as indivisible. I agree with that, but the EU cannot demand that a state which is no longer a member should continue to take the same view. The EU trades with many states that do not attach the same value to the combination of these freedoms. The purpose of the UK's proposed "Great Repeal Bill" is clearly to lay the groundwork for an agreement with the EU on mutual recognition of standards post-Brexit unless and until the UK makes any specific change. It would be extremely difficult for the EU to argue that standards which it accepted up to the point of Brexit would no longer be recognised on the day after. Such recognition would not require the conclusion of a new trade agreement; all it needs is a bit of common sense.

Mr Schnittger casts doubt on the possibility of the UK simply taking over the terms of existing EU agreements with other trading partners. He does not explain why any other country would decide to treat the UK differently in trade matters simply because it had exited the EU. True, the situation in regard to new trade agreements with the UK would be more complex, but consider the CETA agreement with Canada. Conclusion of that agreement between the EU and Canada has (so far) been stymied as a result of its rejection by the regional parliament in Wallonia - EU ratification requires unanimity among the member states, and Belgium cannot now ratify because of the decision in Wallonia.

My guess is that the UK would signal its agreement to CETA post-Brexit. I hardly think that Canada would not welcome such a decision. Australia has signalled that a UK-Australia trade deal would happen post-Brexit. The UK is leading a group of northern European member states in an attempt to moderate the commission's proposals for tough anti-dumping measures against China. That could facilitate a UK-China understanding post-Brexit.

Mr Schnittger correctly points out that I made no mention of passporting rights in the EU and euro zone for UK financial service providers. I did, however, suggest that the City of London might not be without leverage in a negotiation.

The purpose of my "tongue-in-cheek" piece was to point out that there are viable options for the UK, for which we should be prepared. - Yours, etc,


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LTE: Alan Duke's "advice" to Theresa May on Brexit

by Frank Schnittger Sun Oct 16th, 2016 at 05:25:24 PM EST

Alan Dukes is a former chief of staff to Ireland's EU commissioner who subsequently held the three key cabinet ministries of Agriculture, Finance, and Justice, and then became leader of Fine Gael (the current Irish Governing Party) but who never won a general election to become Taoiseach. As such he is a member of a small band of people in Ireland who are regarded as knowledgeable and authoritative on EU affairs. (Peter Sutherland, former Irish Attorney general, EU Commissioner for Competition Policy, founding Director General of the WTO, Chair of Goldman Sacks International and currently Special Representative of the UN Secretary General for International Migration would be another).

Alan Dukes has just written an article for the Irish Times which I have a hard time taking seriously. In it he purports to articulate the advice Whitehall is or should be giving to Theresa May on Brexit.  I can't make up my mind whether he was just taking the piss, but if so, many people may not have seen the joke.  So I was moved to write the following letter to the Editor:

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The difference a welfare state makes

by Frank Schnittger Fri Oct 14th, 2016 at 06:15:35 PM EST

Guest post by Prof. James Wickham. Professor Wickham was my Sociology Professor in Trinity College Dublin and is now Director at TASC (Think-tank for Action on Social Change - Ireland's independent progressive think tank);First posted: 13 Oct 2016 01:57 PM PDT


Two charts that tell very different stories about inequality in Ireland today...

Both charts show the Gini coefficient of income distribution: the lower the Gini coefficient the more equal the society.  The first (Figure 1a) shows Ireland as the most unequal society within the EU: the Gini is higher than for any other member state.

Gini: Market incomes 2013
Figure 1a Gini, market incomes 2013

By contrast, in the second (Figure 1b) shows Ireland to be boringly normal: Ireland's Gini is in the middle of the range.

Figure 1b Gini, disposable incomes 2013
[Source for both charts:  OECD Income Distribution Database (EU countries for which data available)]

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Brexit means Breakup

by Frank Schnittger Wed Oct 5th, 2016 at 09:54:35 PM EST

Theresa May made great play at the Conservative Party conference this week-end of the UK leaving the EU as one unit. Well she would say that, wouldn't she? I suspect that many Scots will have a different take on that, and the situation in Northern Ireland could well become unstable all over again. She also seemed to be hinting that the UK would be opting for a "hard Brexit" with very little in the way of special access to the Single market. Perhaps that is only an opening negotiating gambit - signalling to the EU that the UK won't be held to ransom in the Brexit negotiations.  

Brexit politicians seem obsessed with the notion that the EU can't afford to lose its export surplus to the UK and will thus be very anxious to offer the UK a good deal. But the UK receives only 4% of EU exports whilst the EU imports 40% of UK exports. It is easy to see which economy would be harder hit if no free trade deal is negotiated. Perhaps they also underestimate the degree to which the EU is a political project rather than just an economic arrangement. Having more or less declared war on the EU and everything it stands for, they may be surprised at the ferocity with which the EU will fight back.

But that announcement will also have sent shock-waves through the City and leading industrial businesses with complex supply chains and customers spanning many EU countries.  You can't run a just-in-time manufacturing operation with vital components stuck in customs awaiting clearance. Even more worryingly, Ministers have started talking about British jobs for British people, and Irish academics in leading British Universities have been asked to furnish their passports as part of a "nationality audit".

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Anti-migrant referendum in Hungary

by DoDo Sun Oct 2nd, 2016 at 07:08:50 PM EST

Today, there was a referendum in Hungary against the EU refugee quotas, one instigated by the right-populist government of prime minister Viktor Orbán and his Fidesz party. With an expected turnout of around 45% and an expected high rate of spoiled ballots, it looks like it will fail the validity condition (valid votes cast should be at least 50% of eligible voters) but the Against votes will be well over 90% of valid votes.

Given that, on one hand, the referendum was the government's initiative and thus the result won't change its policy, and on the other hand, it has no bearing on EU-level decisions for or against the quotas, it would appear markedly pointless. Except, the real goal seems to be the creation of a stepping stone for Fidesz to win the next general elections (in 2018). The propaganda campaign before the referendum was unprecedented in its shrillness and underhandedness even by Fidesz standards. Although it failed at getting the turnout necessary for validity, the result is still something that Orbán can use to keep power.

frontpaged - Bjinse

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Brexit and free trade

by Frank Schnittger Sat Sep 17th, 2016 at 11:59:12 AM EST

For anyone still unsure of what complexities await the UK as it tries to negotiate a good Brexit agreement, Nick Clegg and Peter Sutherland, the founding Director-General of the World Trade Organisation, have produced a good outline. In summary, they find that:

  1. A free trade deal with the European Union will be impossible to agree within two years
  2. That, therefore, an interim deal will need to be agreed to avoid a dangerous and extended period of uncertainty for British companies
  3. And that a new trade deal will result in significantly more red tape for British companies exporting to the EU as British exporters will also have to comply with complex `rules of origin' which require UK exporters to obtain proof of origin certificates from their national customs authorities and are estimated to increase trade cost by four and 15 per cent.

And the above is only achievable with a great deal of good will and cooperation on the part of all 28 current members of the EU. Their 8 page report can be found here and is well worth a read in its own right.  Although primarily intended to describe the difficulties of negotiating a good Brexit deal which does as little harm as possible to the UK economy, it is also a systematic and detailed refutation of just about every claim made by the Leave campaign and by the UK Government ministers now leading the UK Brexit negotiating team.  In particular it describes the disastrous economic effects of the "hard Brexit" which will result if some sort of interim arrangements can't be agreed by the UK and all 27 remaining members of the EU on the expiration of the post A50 two year negotiating period.

Comments >> (162 comments)

Brexit Situation Report, mid-September.

by Colman Wed Sep 14th, 2016 at 09:00:13 AM EST

  1. No one in London has any real idea what they want from Brexit apart from mutually incompatible aspirations such as "stop free movement and full single market access".
  2. No one in London has a mandate for anything: they have some sort of mandate against EU membership, but it's advisory, meaningless and the vote was probably swung by an incoherent protest vote.
  3. No one in London has any idea how to deal with this.
  4. No one in London is brave enough to throw up their hands, say they've screwed it up utterly and start again.
  5. Meanwhile the London opposition have decided that internecine warfare is more fun than doing their job.
  6. No one in Brussels knows how to deal with this either, nor what outcome they'd like to see. Various countries have shopping lists of concessions they'd like to extract, many of which are as unrealistic as the UK aspirations.
  7. No one in Brussels is bothered trying to work out what can be salvaged of the UK membership: "good riddance" seems to be the prevailing view.
  8. As the UK economy slows and sinks the London government will impose more of the austerity that has increased polarisation and fed nationalism.
  9. The financial services industry is busily gearing up to leave London if/when Article 50 notification is given.
  10. The most likely outcome (at an arbitrary 40% chance) I can see is London giving Article 50 notification next year, followed by a failure to come to any useful agreement with the EU and the hardest possible Brexit two years later.
  11. The economic consequences aren't materialising yet, in part because a lot of people simply don't really believe that the government could do something that stupid.

Comments >> (38 comments)

Brussels doesn't have a clue either?

by Colman Tue Sep 13th, 2016 at 08:54:29 AM EST

This, by David Allen in the FT is fun:

To trigger the Article 50 exit process is, of course, a unilateral affair for a member state. But an exit agreement and a subsequent trade deal are bilateral matters, where both “sides” will have their own priorities and bargaining positions. There has been a great deal published about what the UK’s priorities and positions should and should not be; but that is only half a picture. In reality, Brussels currently has no strong idea what Brexit should look like either.

So looks like the EU is waiting for the UK to decide what it wants and plans to react to that. I suppose it would be presumptuous to do anything else.

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Brexit means Brexit. WTF???

by Helen Tue Sep 6th, 2016 at 12:47:24 PM EST

So, Theresa May has gone to her first G20 summit in China and responded to all questions about the UK's planned leaving of the EU with the appropriately inscrutable statement that "Brexit means Brexit".

Which, as more than one commentator has noted, may be the "what", but isn't an answer to "how". The problem is that the UK Govt doesn't yet know what it wants so can hardly formulate a plan to achieve it.  Brexit covers a multitude of positions, some achievable, many closer to fantasy. Until the govt decides where the limits of the possible and desirable overlap, "brexit means brexit" is not repetition for emphasis, it's just a meaningless twice over.

Frontpaged - Frank Schnittger

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Bending the Continuum in Political Space Travel

by epochepoque Sun Sep 4th, 2016 at 03:56:09 PM EST

It's been said that the political spectrum does not look like a straight line but resembles a horseshoe. More so in these times where the middle is hollowing out. Today's state election in Merkel's home state of Mecklenburg-Vorpommern (MV) and Berlin (two weeks from now) offer curious examples of left-right crossover.

Frontpaged - Frank Schnittger

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Global tax competition and its reduction

by Frank Schnittger Fri Sep 2nd, 2016 at 12:52:52 PM EST

The Apple case has highlighted the degree to which major global corporates have been able to avoid paying any significant amount of corporate tax at all, never mind just taking advantage of relatively low headline tax rates like Ireland's 12.5% rate. In addition, even headline tax rates have been declining globally, and many countries operate complex systems of exemptions which means that the actual effective rate paid by corporates does not bear any relationship to the headline rate.

This distorts competition in a number of ways: It advantages the bigger multinational players at the expensive of smaller local businesses which cannot claim such exemptions. It encourages a race to the bottom in corporate taxation amongst countries competing for FDI. It reduces the tax take for cash strapped states seeking to maintain social services, and increases the power of wealthy corporates relative to to democratic states. It can be argued that this is the dominant engine driving the increase in global inequality more generally.

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Ireland to appeal Apple Ruling

by Frank Schnittger Tue Aug 30th, 2016 at 08:25:39 PM EST

The European Commission has made a ruling charging Ireland with giving illegal state aid to Apple and ordering Ireland to collect €13 Billion in back taxes due - a figure that represents c. 6% of Ireland's total national debt. Apple has a market valuation of $571bn, a cash pile of $230bn, and an expected $53 billion in free cash flow this year, making the ruling material but hardly terminal from a corporate point of view. Apple shares are down less than 1% on the day.

Irish Finance Minister Michael Noonan is recommending that the Irish government appeal the finding to the European Court. Yes, you read that right.  The Irish Finance Minister doesn't want the money. Apparently collecting the money would damage Ireland's ability to attract multi-nationals like Apple to Ireland in the first place.  Noonan is also concerned that the ruling might be seen to imply wrong-doing by Irish tax officials and that it represents an encroachment by the Commission of Ireland's sovereign right to determine its own tax policies.

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Sarkozy's auto-da-fe

by Migeru Wed Aug 24th, 2016 at 02:29:58 PM EST

Cross-posted on The Court Astrologer.

In his satire Candide, published in 1759, Voltaire pokes fun at the way the Portuguese Inquisition persecuted jews who had falsely converted to Catholicism:

After the earthquake had destroyed three-fourths of Lisbon, the sages of that country could think of no means more effectual to prevent utter ruin than to give the people a beautiful auto-da-fe; for it had been decided by the University of Coimbra, that the burning of a few people alive by a slow fire, and with great ceremony, is an infallible secret to hinder the earth from quaking.

In consequence hereof, they had seized on a Biscayner, convicted of having married his godmother, and on two Portuguese, for rejecting the bacon which larded a chicken they were eating[7]; after dinner, they came and secured Dr. Pangloss, and his disciple Candide, the one for speaking his mind, the other for having listened with an air of approbation.
Fast-forward to 2016, and Sarkozy's extremism is indistinguishable from Voltaire's satire.

Frontpaged - Frank Schnittger

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Stiglitz: Reform or Divorce in Europe

by Melanchthon Tue Aug 23rd, 2016 at 02:45:51 PM EST

Joseph Stiglitz just published an interesting analysis of Europe's economic and political situation: Reform or Divorce in Europe.

He points to four kinds of explanations for the current dire situation Europe is facing:

  • blame the victim (public debt, welfare state and labour-market protections)
  • bad leaders and policies (insufficent economic skills, austerity, structural reforms...)
  • blame European bureaucracy and regulations
  • an ill-designed euro

Frontpaged with minor edit - Frank Schnittger

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Arms races and obesity

by Colman Fri Aug 19th, 2016 at 01:01:02 PM EST

This is nice and clear from Chris Dillow:

There’s a nice headline in the Times today:

Make us sell healthy food, supermarkets implore May.

This invites the obvious reply: if you want to sell healthy food, why don’t you just do so?

The answer lies in competitive pressures. If any individual supermarket tries to cut salt in its products or refrains from special offers on unhealthy foods, it would lose market share to rivals.

Each individual supermarket’s rational attempts to maximize profits thus leads to an outcome which none of them really wants – the over-marketing of unhealthy food. This is an example of an arms race, a process whereby individually rational behaviour has results which are collectively undesirable. Here are some other examples:

This is the sort of thing states are meant to fix. But free markets!

Comments >> (4 comments)

Will a Brexit agreement require ratification by 28 Member states?

by Frank Schnittger Thu Aug 18th, 2016 at 02:04:41 PM EST

Luis de Sousa raises an important point. Will a Brexit agreement require ratification by 28 Member states, or can it simply be agreed, by majority vote of the EU Council as provided for in Article 50 of the Lisbon Treaty? He quotes legal opinion to the effect that all 27 remaining member states would have to ratify any trading agreement post Brexit: EU Law Analysis: Article 50 TEU: The uses and abuses of the process of withdrawing from the EU

In this context, it should be noted that (contrary to what is sometimes asserted), there's no legal obligation for the remaining EU to sign a free trade agreement with the UK. The words `future relationship' assume that there would be some treaties between the UK and the EU post-Brexit, but do not specify what their content would be.

This point is politically significant because while the withdrawal arrangement would be negotiated by a qualified majority, most of the EU's free trade agreements are in practice `mixed agreements', i.e. requiring the consent of the EU institutions and ratification by all of the Member States. That's because those agreements usually contain rules going outside the scope of the EU's trade policy.  While it seems likely that in practice the remaining EU would be willing to enter into a trade agreement with the UK (see, for instance, the `gaming' exercise conducted by Open Europe), the unanimity requirement would complicate this.

In short, this legal opinion considers a Brexit agreement to consist of mainly transitional measures to facilitate the departure of the UK from the EU, which may or may not include special arrangements for ongoing free trade. I think we are in danger of confusing the process by which an exit agreement between the UK and EU might be reached, and the content of what it might contain.

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A 2nd referendum to resolve Brexit?

by Colman Wed Aug 17th, 2016 at 09:07:18 AM EST

The often-sensible Jon Worth writes in a well-referenced post on his blog (how old-fashioned!):

The way out of this impasse might just be – and whisper this quietly – the promise of another referendum, with the deal negotiated to leave the EU as one option, and remaining in the EU as the other option. This is the line that Labour leadership contender Owen Smith is pushing. Essentially the original Leave campaign was an impossible combination of utopias – some voted Leave to restrict migration, some did so thinking there would be no economic cost to leaving (and even that so-called Norway option now seems questionable), and others thought leaving would save the NHS, but as this infographic outlines, a trade-off between these different Brexit options is necessary. Robert Peston’s Facebook note explains this further. I’m pretty sure that no negotiable Brexit option would be adequately appealing enough to make it more appealing that remaining in the European Union. And that is before taking into account all of the rest of the EU Member States’ demands towards the UK.

This matches my sense of a possible political outcome: the other possibility is running an election on the basis of competing Brexit plans, but that doesn't seem likely given the divisions within the parties. No plan for Brexit has support - the only thing clear about the referendum result is that it leaves the desired outcome unclear.

A proper referendum, with clear choices, preferably legally binding would clean this mess up.

Comments >> (30 comments)

Is Brexit without invoking Article 50 possible?

by Frank Schnittger Sat Aug 6th, 2016 at 11:49:22 AM EST

In a long an spirited discussion over The Brexit Negotiation Process, Colman made a point which has not been adequately addressed:


Brexit without article 50 is also possible.

So is some sort of face-saving operation for the UK (which would, if it was anti-immigrant, fit nicely into the agenda of a lot of EU leaders).

Is this really the case?

A few preliminary points need to be made:

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Ireland's Post Brexit strategy

by Frank Schnittger Wed Aug 3rd, 2016 at 03:13:21 PM EST

The Brexit vote has already had an effect on consumer confidence and investor sentiment in the UK with the Governor of the Bank of England warning of the likelihood of at least a technical recession in the near term. A prolonged period of uncertainty is unlikely to improve that outlook in the medium term, but at least the UK can use Sterling devaluation, monetary policy easing, and reduced rates of corporate tax to mitigate its worst effects in the short term. That is, however, of no comfort to Irish exporters to the UK who are heavily dependent on the UK market - especially the small and medium sized indigenous sectors of the economy.

Indeed the whole Irish economy is heavily integrated with the UK economy although that dependency has reduced markedly since entry into the EU. Exports to the UK currently amount to c. 14% of total exports  with the USA, Belgium and Germany accounting for 20%, 13% and 8% respectively. An official report for the Irish Government has estimated that Brexit could result in an average 20% reduction in trade flows between Ireland and the UK and the OECD has estimated that Ireland's GDP will be reduced by 1.2% as a result.

That official report is also pessimistic that Ireland can make up the difference by increasing its share of FDI that would otherwise have gone to the UK.  Despite the proclamations of popular economists like David McWilliams that "Brand Britain is ours for the taking", it estimates that the ability of Dublin to attract business from London will be limited by Sterling devaluation, reduced UK corporate tax rates, and a shortage of suitable office space, housing and schools in the greater Dublin area. Nevertheless, the shape of the Irish government and corporate response to the Brexit crisis (or opportunity) is now becoming clear:

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