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Cap X

‘Fake news’ is a moral panic

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New Direction | The Foundation for European Reform is an international partner of CapX, a digital service which commissions and aggregates the best news on popular capitalism from around the world.

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The problem with 'public ownership' of Facebook

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We're fighting Corbyn with freedom

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America's Syrian drift

The American presence in Syria never amounted to a serious attempt to remove the Assad regime. Now that the Kurdish YPG has turned its attention from fighting IS to Turkey, the US risks finding itself alone, estranged from its former partners. Turkey's operation in Afrin offers a chance to restore relations with a Nato ally, curb Russia and Iran, and weaken the regime.

Start tackling the poverty premium by measuring it

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Image courtesy of Wikipedia.org.

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Wanted: a plan for growth

The absence of big announcements in the Spring Statement was no surprise. Besides balancing the books, this government doesn't have an economic policy. There's no tax reform agenda, no plan to improve competitiveness, no idea how to boost growth. If the Tories embraced an ambitious economic plan, their lives would get a lot easier.

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New Direction | The Foundation for European Reform is an international partner of CapX, a digital service which commissions and aggregates the best news on popular capitalism from around the world.

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New Direction | The Foundation for European Reform is an international partner of CapX, a digital service which commissions and aggregates the best news on popular capitalism from around the world.

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New Direction | The Foundation for European Reform is an international partner of CapX, a digital service which commissions and aggregates the best news on popular capitalism from around the world.

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Oxfam is entitled to its own opinions. But not its own facts

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New Direction | The Foundation for European Reform is an international partner of CapX, a digital service which commissions and aggregates the best news on popular capitalism from around the world.

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The City cannot afford to be constrained by the EU's costly rules

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When Sweden went Right - and what the Conservatives can learn

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‘A BELIEF IN FREE TRADE EXPANDS OUR MORAL CIRCLE’

The Rt Hon David Gauke MP delivers a keynote address at New Direction’s working lunch “A Free Trading Europe”.

It is a great pleasure to speak at today’s event and to celebrate the virtues of free trade and the publication of David Ricardo’s Principles of Political Economy and Taxation.

At first sight, I am somewhat straying from my usual responsibilities as Secretary of State for Work and Pensions in addressing this subject. Indeed, when Dan asked me to speak at this event, I was initially hesitant. However, for these reasons, I was keen to participate. 

First, as a long-standing advocate for free trade, I was keen to make the case at such a crucial turning point for the country. 

Second, and this is the essence of my argument today, is that free trade – as one of the most effective forces for alleviating poverty known to humanity – is one of the great progressive causes.

It is, therefore, no coincidence that the history of free trade and the history of governments’ attempts to support the poor are so intertwined. Today, we celebrate David Ricardo’s contribution to free trade. But as Chris Renwick’s recent history of the origins of the welfare state, Bread for All, sets out, Ricardo was also a leading voice in reforms of the poor law.

Robert Peel’s conversion to the cause of free trade was as a result of the realisation of the impact of protectionism on the poor or, as he described them, the labouring classes.

Moving to the twentieth century, the early dominance of the Liberal Party was based upon twin commitments to protect the poor from the consequences of tariffs – with the support of former Conservatives such as Winston Churchill – plus strengthening welfare support. 

And when the Liberals faded they were replaced as the ‘workers party’ by a Labour Party just as committed to free trade. That party’s first Chancellor, Philip Snowden, was the last minister to resign from office on the principle of supporting free trade. He is remembered for his commitment to free trade and sound money and, as a consequence, is more venerated within Her Majesty’s Treasury than Her Majesty’s Opposition.

The economic case for free trade is a familiar one. The free exchange of goods and services benefits both parties. The larger the market, the greater the opportunity to specialise in an area of comparative advantage resulting in increased choice for consumers, increased competition amongst producers, and a more efficient allocation of resources. People, businesses and countries do what they are comparatively good at and stop doing what they are comparatively bad at. As a consequence, productivity rises and, with that, living standards. There are few economic doctrines that have the breadth of support amongst economists that applies to free trade.

The response to this is to say that this may well be the case but that the benefits and disbenefits of free trade are not evenly distributed. True. But, by and large, the beneficiaries of free trade have more often been the poor. That is certainly the case when looking at this matter at a global level where recent decades have seen an almost miraculous fall in absolute poverty around the world as countries such as China and India have liberalised their economies. 

But it is also the case that the poor have benefitted from free trade in our own history. This is largely because the poor spend a greater proportion of their income, and spend it on items which may be imported – particularly food. And this is why, as my earlier comments suggest, those most effective in furthering the interests of the poor – whether Conservative, Liberal or Labour – have, by and large, been strong supporters of free trade.

And it remains the case that free trade is as much, if not more, in the interests of the poorest in society as the richest. Let me give one illustration. According to the IFS, the poorest income decile in the UK spends 23 percent of their income on food. The highest earning decile spends just 10 percent. Consequently, reduced food tariffs would disproportionately benefit the poor, increased food tariffs would disproportionately cost the poor.

It is all the more important to make these arguments in favour of free trade now, for two reasons. First, as we have seen in recent years, arguments that were once seen to have been resolved are now being re-opened. Just because an idea works in principle and then works in practice does not mean that it won’t be challenged, undermined and, ultimately, abandoned by politicians tapping into populist mistrust. If you believe in free trade, you have to argue for it.

Second, it is now more important than ever that, within the UK, we make the argument for free trade because, following our departure from the European Union, we will determine our own trade policy. That should enable us to pursue policies that enable us to be a beacon for free trade. But we should also be aware that there are some who will seize the opportunity of Brexit to make our economy less open. When Jeremy Corbyn talks of taking advantage of the new flexibilities that leaving the single market will bring, he is not, I suspect, thinking about ambitious new trade deals with the rising economies.

I take heart from the Brexit campaign. The leading voices on both sides set out arguments that differed on how to achieve greater free trade; neither side challenged the desirability of free trade.

Those of us who were on the Remain side argued that the single market was a means of reducing non-tariff barriers within the European Union. The leading leavers – such as Dan Hannan, Boris Johnson, Liam Fox and Michael Gove – argued that the European Union had held us back from entering into free trade agreements with many of the rising economies.

In other words, it was a debate that accepted economic openness as an objective but differed as to the means of delivering that objective.

Of course, the British people concluded that we should leave the European Union. The question is now how we do it and, for the purposes of this gathering, how we do so in accordance with a desire to be a beacon for free trade.

So now, more than ever, it is important that we make the case for free trade. What are the challenges that we face? What are the misconceptions that we need to address?

First, we need to understand what free trade means. Free trade, as advocated by Adam Smith and David Ricardo and other classical economists, means the ability to both import and export. But the purpose of free trade is to improve the lot of the consumer. Or to put it another way, free trade enables us to consume more by accessing goods and services more cheaply than would otherwise be the case. Of course, an economy may need to export goods and services in order to afford to purchase imports – and as a country the UK does need to export more as a source of economic growth. But we should remember that the case for free trade made by the likes of Smith and Ricardo was not a criticism of autarky but a criticism of mercantilism.

Mercantilism essentially argued that the point of trade was to create jobs for exporters. In other words, it viewed trade from the perspective of the producer not the consumer. This resulted in an approach whereby exports were seen as good, imports bad. A country made a profit on the former, a loss on the latter. It wasn’t anti-trade, as such, indeed mercantilism was positively enthusiastic about exports. But it provides no intellectual bulwark against trade barriers to protect domestic producers and, therefore, pressures us towards protectionist measures.

Mercantilism may be intellectually discredited but it is remarkably persistent in its influence. There is something about mercantilism which ‘feels’ right. What Stephen Pinker would describe as ‘intuitive economics’. But it would be a profound mistake to pursue a trade policy that does not put the consumer first. That is why, in my view, the progressive case for free trade needs to be articulated strongly.

Second, any discussion about trade barriers will begin with tariffs. But it doesn’t end there. Tariffs may be the most obvious and comprehensible form of trade barrier but it is increasingly the case that non-tariff barriers matter more. This is, in part, because tariffs have generally fallen under WTO rules in recent years. But other factors have also changed the relative importance of tariff versus non-tariff barriers. Cross-border supply chains require an ability to move goods quickly from one country to another. This means that time barriers rather than tariff barriers can be critical. 

When it comes to services, regulatory requirements are of more consequence than tariffs. They are difficult to estimate because they are not always visible. But they still matter.

Given that opening up trade is increasingly about non-tariff barriers, this brings me to my third point. Free trade agreements are more complex than they once were. It is no longer the case of a discussion along the lines of ‘we will remove our tariffs if you remove yours’. Such a negotiation was, in any case, somewhat mercantilist and could be described as being ‘we will stop disadvantaging our consumers if you stop disadvantaging your consumers’. But at least it had the virtue of being simple enough that it could be resolved quickly. 

Now a negotiation will cover issues of consumer protection, environmental standards and the recognition of professional qualifications. From the perspective of maximising trade, one would want to minimise the degree to which different approaches in different countries prevents goods and services trading freely. Balancing that with a sovereign nation’s desire to establish its own regulatory regime for such matters is not a simple task. 

Nor is it insuperable. But my fourth point is that opposition to free trade will not necessarily be presented as a case for protectionism. Other justifications will be found.

Let me give a recent example. A bogus case that the Trans-Atlantic Trade and Investment Partnership – ‘TTIP’ – would result in the privatisation of the NHS was used by the anti-globalisation Left (and then taken up by others) to oppose what would have been a major breakthrough in free trade.

This is nothing new. At the risk of upsetting our American friends, historians have argued that the participants in the Boston tea party were more concerned about preventing cheap imports of tea than the principle of ‘no taxation without representation’.

And there are, after all, legitimate reasons why a country might have, for example, different food safety standards than another and seek to apply those standards to imports from that other country. The test of a regulation is whether the regulation is, in intent and effect, proportionate and relevant to its stated objective – such as food safety – as opposed to protecting the interests of domestic producers from better value competition.

And this brings me to my fifth and final observation about free trade. In terms of engagement with the outside world in the context of trade negotiations, our approach should be constructive and co-operative. Trade is not a zero-sum game. Where trade barriers are removed, this has overall benefits and a willingness to be open – whether through, for example, agreeing common standards or by recognising the regulations of other jurisdictions as being of equivalent standard, we can improve the welfare of our citizens.

So, in summary, what should be the approach of a country, such as the UK, seeking to be a beacon of free trade?

We should encourage trade – imports as well as exports.

We should be determined to address non-tariff barriers as well as tariff barriers.

We should recognise that free trade agreements are complex. But this should not put us off.

We should be wary of arguments that are not presented as a case for protectionism but, in reality, will be just that.

And our engagement with other countries should be positive, recognising the benefits that trade can bring, and constructive in addressing differences in regulations and standards, whilst still maintaining important consumer protections.

In the context of the negotiations with the European Union, the approach set out by the Prime Minister in her Florence speech is the right one. We want to minimise new trade barriers with the EU, which means that an implementation period followed by a deep and special partnership with the EU 27. But that we also need the ability to enter into new agreements with other countries so that we can go further to reduce trade barriers with countries outside the EU that represent a growing share of the world economy.

There is also another point that the Prime Minister, and Liam Fox as Secretary of State for International Trade, have consistently made. In our new circumstances, the UK must become a beacon for free trade. We must argue our case, and demonstrate to the rest of the world, that it is an approach that serves us all well.

I have focussed on economic matters today. The economic case is a strong one. And, as I have argued, the benefits of free trade are particularly significant for the poorest in society. It is a point too often missed in a debate in which the concentrated and organised voices of producers can be louder than the disbursed voices of consumers. Free trade is good economics and good economics should make good politics.

But in making the case for free trade, we should have confidence not just in the economic arguments. A belief in free trade is an essentially optimistic, generous and outward-looking approach. It sees foreigners not as potential enemies but as potential customers and suppliers. It brings people of different nations together not on the basis of the imposition of top-down political structures but organically on the basis of the mutual benefit involved in the free exchange of goods and services. It expands our moral circle.

Free trade is a great cause. It was a great cause 200 years ago and it is a great cause today. It falls on us to make that case again.

 

This speech was delivered at New Direction’s working lunch “A Free Trading Europe” on 16 October, 2017.

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Time to crack down on Russia Today and its destabilising propaganda

When Russia Today burst onto the scene a decade ago, it won praise for its 'fearlessness'. The mask has long since slipped, revealing the Kremlin-funded broadcaster to be the home to a motley array of cranks and the dangerous agent of a hostile foreign power. Why is it still tolerated in polite society?

More borrowing won't fix the housing crisis

Sajid Javid deserves credit for taking Britain's housing troubles seriously. In his time as Communities and Local Government Secretary, he has suggested cure after cure, only for them to go down like lead balloons. Unfortunately, his latest proposal - to borrow our way to more houses - doesn't get anywhere near the heart of the problem.

The EU cannot afford to punish Britain for Brexit

Hardliners in Brussels want to make an example of the UK for voting to leave the EU. They are driven on by a confidence that a no-deal scenario would hit the UK harder than the rest of Europe. But such an outcome would still be a major economic shock for the EU27. Why do the Eurocrats insist on playing politics with people's livelihoods?

Mutual respect is the only way to heal our divided politics

There is a real problem in Britain today: all too often, the only people taken seriously are those who can express themselves with the intellectual self-confidence that comes from academic study at university. As long as the intellectual elite fail to realise that those who know 'more' don't necessarily know best, our politics will remain broken.

Patents are the least bad solution to the public good problem

A new report argues that because pharmaceutical drugs are a public good, the patent system should be scrapped; big corporations shouldn't be allowed to get rich from something so important. But it is exactly because drugs are a public good that we need patents. Otherwise there'd be no incentive to invest in life-saving medical advances.

 

THE WARSAW INSTITUTE REVIEW | EU BUDGET AFTER BREXIT | UKRAINE 2018

Political life in Ukraine in the coming months will be determined by the election calendar and the international situation, and above all Russia’s relations with the West. In 2019, presidential elections (March) and parliamentary elections (October) should take place. The preparations for both of these events will determine political life in Ukraine in 2018, and will also affect the attitude of politicians in Kiev towards the conflict with Russia.

This article was originally published in The Warsaw Institute Review by Jan Gajewski

According to public polling, Ukraine’s biggest problems, in the eyes of its people, are: the conflict in Donbas, the economic and social policy of the government and corruption. In preparing for the re-election battle, the chief player, President Petro Poroshenko, will continue trying to skillfully play for time on the Donbas issue (delaying the implementation of the 2015 Minsk Protocol) , which is beneficial for Ukraine. The problem is that Poroshenko is behaving the same way regarding another matter, namely the fight against corruption. His evasions and delays on this issue not only harm the country, but also won’t help him in the election fight, which does not mean that he has no chance of winning. The problems in Ukraine today revolve around the absence of reliable leaders — there is little indication that this will change in the foreseeable future.

Conflict with Russia

The main external factor affecting all areas of Ukrainian life remains the conflict with Russia, in all its aspects, from the proxy war in Donbas, to the question of who Crimea belongs to, to gas and energy issues and more broadly, the economy. Conflict with Russia does not leave Ukraine with many geopolitical choices: we should expect further steps drawing Kiev closer with the West (EU, NATO). This is all the more so, since already two-thirds of the population support Ukraine’s membership in the North Atlantic Alliance, while support for entry into the EU is not far behind. Paradoxically, the war in Donbas, which increasingly binds Ukrainians to Europe, is also the biggest obstacle to integration. It’s also known that without the involvement of other countries, it won’t be possible to settle the problem of Donbas and Crimea. Political forecasts, both in terms of the West and Russia, however, indicate that a breakthrough is not to be expected in the near future. Each of the participants in the Minsk process has their own internal political problems, sufficiently important to the point that no one will push for a turning point in the crawling – basically stagnant – process of implementing the February 2015 Minsk agreement. And this situation suits the authorities in Kiev, who are blocking the implementation of the Minsk points — because it would mean ; hence, for example, the long delayed adoption by the parliament of a law giving the occupied territories autonomous status.

In the current domestic and international situation, the status quo seems to be the optimal situation for Ukraine, and even more so for the political team currently in power. The past three years have shown that the loss of Crimea and a large part of the Donbas by Ukraine has dealt a powerful blow to pro-Russian politics in the country. It’s not just a matter of compromising the overt behavior by Ukrainian politicians acting as allies of a neighboring country, with whom a de facto war is taking place. The Moscow camp on the Dnieper also lost most of its electorate that remained on the other side of the front. Today, the Kremlin has very limited options for influencing the decisions of Kiev “from the inside”. Besides, this is not the only advantage of the present situation. It is now on Russia, and not Ukraine, to ensure the economic survival of Donbas. It is true that support for a forcible solution to the problem is growing (the Ukrainian army is incomparably stronger today than in 2014 or 2015), but Kiev is aware that an attack would probably end with a Russian intervention, and above all, it would mean a loss of support for Ukraine from the West. So it remains for them to wait for more favorable circumstances, and until then, only periodically escalate the conflict in times politically favorable for Ukraine (Russia does this as well), if only as a pretext to postpone the implementation of the Minsk agreement.

Such a play for time also carries risks — more and more Ukrainians see that war is used by a large part of the political class (especially the rulers) and the oligarchs as a pretext to abandon or slow down reform. What’s more, accusations are starting to sprout up that many of whom derive political and financial benefits from the current stalemate. It can be expected that there will be increased pressure to solve the problem — in the direction of intensifying Kiev’s policy and there are signs of this already. For instance, in March, Poroshenko decided to formally recognize the grassroots blockade by veterans and nationalists of trade with the occupied territories, which has been taking place since January. A lack of resolution will cause more and more dissatisfaction, because it has a direct negative impact on the economy and people’s everyday lives. Over a period of three years after the outbreak of the conflict, very few buy the argument that changes are slow, or on hold, because of the war. The difficult external situation and social mobilization around the war in Donbas should be a catalyst for reform. In situations of bloodshed and patriotic outbursts, it should be easier to make the painful albeit necessary changes. But the oligarchs and political class don’t care for such changes. The promise of “de-oligarching” remains unfulfilled, similar to the fight against corruption. It’s no wonder that only 27% of Ukrainians today see a political leader who can be trusted in the country. By contrast, 62% believe that the country needs new leaders, and 70% do not trust the current political class — this is a potentially huge electorate to be by new politicians. This does not imply major changes but rather the triumph of disappointment, apathy, and the turning away from politics and public life. Only 38% of Ukrainians believe in a new Maidan, and only 20% are ready to participate in demonstrations.

The President’s Camp

One of the biggest disappointments for the political supporters of Maidan is the attitude of Petro Poroshenko — although it shouldn’t be, because when the Ukrainians elected him as president, they knew his past (characterized by, to put it gently, great political flexibility, which was reflected in his cooperation with both Viktor Yushchenko, and then with Viktor Yanukovych) and knew that he was one of the oligarchs. It’s hard to recognize Poroshenko as a radical reformer. Despite favorable conditions (mobilization around the war with Russia) he did not opt for profound changes in the state (an example being the weak fight against corruption and deal-making with other oligarchs), but rather settled for consolidating his position, raising the specter of defeat in the conflict with Russia and the return to power of the pro-Moscow camp on one hand, and radical nationalists on the other. At present, Poroshenko definitely dominates in Ukrainian politics, having not only a strong presidential administration, but also controlling the parliament, with a malleable prime minister, and controlling the prosecutor’s office and the security services. Poroshenko will play the lead role in the next two years. With the weakening of coalition partners, especially the People’s Front (who lost the post of prime minister) and the lack of sufficient attractiveness of the current opposition to the electorate (the majority of the parties and its leaders having compromised themselves earlier when in power), it is expected that Poroshenko will strive to further strengthen his influence due to the upcoming presidential elections. Given the poor ratings, his election for a second term will require ideas and effort comparable only to the re-election of Boris Yeltsin in Russia in 1996. The president’s actions will be focused towards the 2019 elections, as will the activities of most other state agencies. It will be in Poroshenko’s interest to maintain the status quo, i.e. to prevent the emergence of new and significant political centers in the country. The president will oppose the dissolution of the parliament, and even more so will be against a change of government. He will not take any risky steps, even in the area of reform.

We should assume that Poroshenko will want to use the head of government as a buffer even more now. Volodymyr Groysman is an obedient executor of the president’s instructions. In fact, the president will continue to use his broad The presidential administration will remain the actual center for administering the most important areas of the state. Meanwhile, the government and the divided parliament remain marginalized in this situation.

Groysman is a trusted colleague of Poroshenko, but his role as head of government allows him to build his own position. His main task was to stabilize the socio-economic situation last year and he dealt with that challenge. Despite the fact that he appears suitable, in the eyes of the West as well, Groysman has declared that he has no presidential ambitions. This is very important as it reduces any possible tension in the relationship between the two politicians and signals their even closer cooperation, which will probably take the form, at a certain point, where the head of government will be supporting the presidential campaign through his politics. Groysman’s position is strengthened in that the present shape of the parliament will not allow for the emergence of a new prime minister. This would mean early elections, and the majority of deputies don’t want this. No party or bloc of parties can count on a definitive success. Polling indicates that in the present situation the new Verkhovna Rada (parliament of Ukraine) would be even more fragmented than the present one. The five percent threshold is crossed by Batkivshchyna (11%), Petro Poroshenko Bloc “Solidarity” (9%), and Opposition Bloc (9%). A few other parties have somewhat less support, and the popularity of the People’s Front, which won the previous election, has evaporated (currently it only has 1–2% support in the polls). The purpose of the Front is to survive in the hope of rebuilding the confidence of voters before the 2019 elections, which is why it remains in the coalition.

The real leader of the People’s Front is the Minister of Internal Affairs Arsen Avakov, who seems to be one of the potential rivals to Poroshenko. He took over the ministry right after the Maidan revolution, then as a representative of the People’s Front and has remained in office — which testifies to his strength — even after the change of government. Out of the spotlight, he is building his own position as a strong candidate for the presidency. All the more so, that he is considered the leader of the “war party” and can get the support of veterans as the man who put in the greatest effort for the country during the first phase of the war. He sees Poroshenko and Groysman as his competitors; , and makes use of nationalist and Donbas veteran groups. The effectiveness of this tool is shown by events that took place in the first months of this year. The grassroots trade blockades against the occupied Donbas or the campaign against Russian banks in Ukraine, finally forced the government to adopt and implement many of these radical demands. The internal affairs minister has been subject to increasing criticism, scandals and more serious cases involving the use of firearms — and yet Avakov’s position seems stable. His dismissal could destroy the coalition government, especially since the Front itself has no one of Avakov’s caliber in the government that could replace him. Interestingly, the situation isn’t being taken advantage of by the opposition, especially Yulia Tymoshenko, whose Batkivshchyna leads in the polls. This can be explained by Avakov’s past — up until 2014 he was one of the leading activists in Tymoshenko’s party, and may still have information that would

The presidential camp is aware of the danger posed by Avakov’s activation of nationalists and veterans of the Donbas. This is a factor that could totally destabilize the country. It’s no accident that Groysman harshly criticized the veterans’ blockade of the Donbas, saying it was in Russia’s interest. However, Avakov won this battle. The interior minister holds a strong card in the form of former fighters against the Russians and rebels, members of the volunteer battalions. These battalions played an important role in the first phase of combat when the regular army and other official armed forces had been routed. Then, gradually, these volunteer troops were absorbed by the National Guard of the Ministry of Internal Affairs and the land forces of the army. The former volunteer battalions that now make up the National Guard units signal their loyalty to Avakov. In addition, he tolerates the independence of the Right Sector Voluntary Corps. Based on his reputation from the Donbas war period and his indulgence of the radicals, Avakov may decide to run for president under the banner of the “war party” and nationalist slogans. And he, not Yulia Tymoshenko, would be the mostrival for Poroshenko. The former prime minister has rebuilt part of her past political position, herself winning support similar to Poroshenko, while her party the president’s coalition in the polls. Tymoshenko may well have the ambition of becoming the informal leader of the entire opposition. Much will depend, however, on the opinion of Moscow and some Ukrainian oligarchs. The former is important in the context of possible support for Tymoshenko by the inheritors of the Party of Regions and generally the entire pro-Russian electorate, whereas the latter is necessary for financial reasons. Most important will be the attitude of Ihor Kolomoyskyi, who has already been both in a serious conflict and then friends with Poroshenko. It is worth remembering that he once supported Tymoshenko, when very few did. The president also knows that an open conflict with Kolomoyskyi could cost him dearly. Therefore, we will probably witness the efforts of various political forces vying for the favor of the oligarch, which will only strengthen him — both politically and in business. In any case, he already has a debt of gratitude from the ruling class. When there was a crisis within the coalition, and in February 2016 when Batkivshchyna and Self Reliance left it, the deputies controlled by Kolomoyskyi cast the necessary votes to appoint the government of Groysman.

Kolomoyskyi belongs to the “old oligarchs”, for whom, in post-Maidan Ukraine, the situation is no worse than before 2014, despite one of the main demands of the bloodied Kiev street protesters being to limit the influence of big business on the state. The problem is that the president himself is an oligarch and that under his rule the government has not only reached out to the old oligarchs but has also developed relationships with new ones. The power of big business is due to the weakness of the state (systemic corruption, lack of independent courts, politicization of law enforcement agencies, ineffective management). A tactical alliance of the new rulers with oligarchs is beneficial for both sides. The government has gained the support of deputies from oligarch-controlled groups in the parliament, unofficial sources of funding and media support — especially important before the elections. In return, the oligarchs were given a guarantee of personal security, protection of their interests and the possibility to continue lobbying. This silent arrangement explains the withdrawal of the new authorities from declaring the revision of many forms of privatizations which took place under Yanukovych. The president’s control over the Prosecutor General’s Office makes it possible to effectively torpedo certain uncomfortable investigations. A symbol of the untouchability of the oligarchs were the governments under Prosecutor General Viktor Szochin, who was replaced by Yuriy Lutsenko — also Poroshenko’s man. Not much has changed, as the prosecutor’s office remains a tool of the president, which means, for example, blocking any real fight against corruption.

Institutional and legislative conflicts related to this problem will have a negative impact on the situation in Ukraine. Moreover, before the election, one can expect a rash of information to appear compromising individual participants in their political lives. This could have prompted Poroshenko to sign the March 27 amendments to the law, in which anti-corruption activists are compelled to submit declarations of property, as politicians and state officials do. It is a weapon against investigative journalists who regularly disclose corruption — most of whom are financially supported and otherwise by non-governmental organizations (it is formulated in such a way as to force people to disclose property if they have anything to do with organizations covered by the law). The fight against corruption will face the resistance of bureaucrats and public officials, for whom “unofficial” material gain is something natural and a privilege they do not intend to give up. The authorities can always boast of the creation of the National Anti-Corruption Bureau (NABU) in April 2015 and the launch of an electronic declaration of assets system for politicians and officials in October 2016. But the tendency to tie the hands of the NABU can already be seen, which was created mainly under U.S. pressure. The head of the National Anti-Corruption Bureau was given his position to ensure his independence. Dismissal is only possible due to negative results of an audit, which is carried out by three people, designated respectively by the president, the government and the parliament. A problem is that the authorities are blocking the establishment of the Anticorruption Court; however, the biggest obstacle to the effective functioning of the NABU is obstruction by the Security Service of Ukraine (SBU), above all of the prosecutor general and courts. Many investigations are left incomplete, and the conflict between the NABU and the prosecutor’s office and SBU can be expected to grow.

Reforms

When it comes to reforms, their implementation and pace of which, and the fight against corruption with the current political system in Ukraine, the only chance for these to be successful will be with the continuation of external pressure, firstly from the United States and the International Monetary Fund. Taking into account the political perspectives and views of the current U.S. administration, it is expected that Washington will no longer be so active in urging Kiev to reform. The situation is different with the IMF. One of the most important tasks of the Groysman government in the near future will be to maintain good cooperation with the Fund. Despite differences and certain tensions, the IMF continues to give Ukraine successive loans which began under Yatsenyuk in 2015. The Fund has praised Groysman, chiefly for macroeconomic stabilization. The main achievement of this government has been the restoration of economic growth. While this is modest at only 2%, it is important that the downward trend, observed in 2014–2015, has been broken. In 2016, the Ukrainian economy returned to the path of growth after two years of decline (7% in 2014 and 12% in 2015) and in 2017 it is expected to grow by more than 2–2.5% according to various estimates and by 3–3.5% in 2018. Due to the restrictive monetary policy of the National Bank of Ukraine, inflation has fallen from 61% in April 2015 to 12% in spring 2017. However, a risk to the slowly rising Ukrainian economy will be social welfare spending — the closer the election, the larger it will grow. Groysman has already announced an increase in benefits for 5.6 million pensioners beginning on October 1, 2017, presenting it as a step towards modernizing the pension system. The problem is that this modernization is seen completely differently by the IMF. From the Fund’s side, pressure will increase on Kiev on two issues. First of all is pension reform, which means increasing the retirement age. Secondly, to give the green light for the sale of land (a moratorium imposed in the early 1990s is still in force). Meeting these two expectations may prove unrealistic. Such serious reforms given the state of the present coalition are unlikely. While there is a majority in the parliament, there is not a majority supporting the government, but rather who support the continuance of the current parliament until the end of the term.

In summary, it is difficult to expect a breakthrough in Ukraine in the next two years, both in external and, most of all, internal politics. With regard to the former, there remains an element of uncertainty associated with Russia’s policy (speculation of a possible escalation of the conflict in the fall of this year, although it is doubtful that Putin will decide on large-scale actions, not knowing their effects on the 2018 elections), while in the latter everything speaks of stagnation. Above all are the interests of Petro Poroshenko, but also the fears of most of the political class about early elections, as well as the calculations of oligarchs satisfied with the current state of affairs.

THE WARSAW INSTITUTE REVIEW | EU Budget after Brexit

In 2020, decisions will be made by the relevant bodies of the European Union, which will sanction its financial outlook for the years 2021-2027. The organization’s annual budgets will be constructed over the next seven years based on this framework.

This article was originally published in The Warsaw Institute Review by Grzegorz Górski, PHD

In recent months, the European public has received a variety of information on the direction of work on this new financial outlook. Already at this stage, from the Polish perspective, it must raise the utmost concern. In this context, it seems that attempts by the European Commission to exert pressure on Poland are becoming easier to understand. The European Commission first struck out at Poland under the guise of the “defense of democratic values”, an argument used exclusively in a clear attempt to reverse democratic electoral decisions in Poland through outside interference. Next, the European Commission launched further procedures under the pretext of bringing countries to heel (besides Poland, Hungary and the Czech Republic also became victims of this action) that were allegedly boycotting the EU mechanism of migrant relocation. Without delving too deeply at this point into the analysis of these two games being played by the European Commission, it must be said that the real reason for these actions is an attempt to lay the groundwork for radically reducing the financial benefits that Poland has thus far received from EU membership. Faced with the mounting budgetary problems of the Union, the simplest solution is to save money at the expense of the largest beneficiary of the EU.

Returning to the issue of the intentions of Brussels in the fundamental reconstruction of the budgetary principles of the European Union, two serious facts should be taken into consideration.

In first place is the report of the so-called “Mario Monti Commission”.[1] Several months ago, this document formulated the basic direction of changes in the new EU financial framework. Further expansion and next steps are being taken through the pronouncements in recent weeks of the new European Commissioner for Budget and Human Resources, Gunther Oettinger.[2]

In both cases, the authors of the positions point to the fact that the proposed solutions being prepared will be a serious threat to Poland’s current position. Next to France, Poland is the largest recipient of EU funds. While in the case of France these are funds received under the Common Agricultural Policy (CAP), for Poland, they also include resources from the Structural Funds and the Cohesion Fund. It’s easy to imagine, that by looking for ways to make the necessary savings, the suggested changes will lead to a radical reduction in the financial benefits of Poland’s membership in the EU, by changing the way money is spent in the area most critical to Poland.

Before we move on, it is necessary first to summarize the current financial benefits to Poland from our presence in the EU.

Financial flows to Poland in 2004-2016

Poland officially entered the European Union on May 1, 2004. From that moment on, it became a full-fledged participant in the formulation of the organization’s budget.

Starting from that point, until the end of 2016, Poland received over 135.72 billion EUR (600 billion PLN) from the EU budget.[3] At the same time, Poland’s contribution to the budget amounted to over 44.47 billion EUR (190 billion PLN). The balance of cash flows for this period was less than 91.1 billion EUR, which is around 400 billion PLN. That means that the average annual support for Poland is 7 billion EUR (30 billion PLN).

In relation to our national budget, this represents roughly 10% of annual revenue, and corresponds to approximately the annual forecast CIT (corporate income tax) in 2017. The total amount of EU funding is slightly higher than the planned national budget of 2017.

On average, it can be said that Poland received about two annual national budgets from the European Union over approximately 12 years. Not to underestimate the importance of these measures, it must be stated, however, that it’s difficult to characterize the scale of these financial benefits as an epochal and pivotal moment in Poland’s civilizational development.

It should also be pointed out that the largest contributions from the EU budget relate to expenditures:

for the Common Agricultural Policy (about 46.5 billion EUR in the indicated period, i.e. 210 billion PLN, or 16 billion PLN annually);
on the Cohesion Policy (over 27.1 billion EUR, i.e. 115 billion PLN, or 8.8 billion PLN annually) and
on Structural Funds (over 55.4 billion EUR, i.e. 240 billion PLN, or 18.5 billion PLN annually).

By adjusting the aforementioned amounts by the coefficient resulting from our contributions to the Union’s budget, the above items should be reduced by approximately 25%, which means that in real terms, annually they are actually:

12 billion PLN for the Agricultural Policy,
6.6 billion PLN for the Cohesion Policy and
14 billion PLN for Structural Funds.

Without entering into a more detailed analysis, it can be reiterated that, in real terms, these amounts are not overwhelming and certainly do not correspond to the popular, but largely mythological (or rather propagandistic) idea of the “stream of money flowing from Brussels”. They certainly played a role in spurring a number of areas of life in Poland, but these funds aren’t equal to various expenditures of the national budget, and can’t be conclusively regarded as a breakthrough factor for our country.

It should also be kept in mind that these averaged parameters had different dimensions depending on the year. In this way, it can also be said that the measures used in certain funding waves did not uniformly influence the harmonious civilizational progress of Poland.

In addition, it is important to be aware that since 2008, as the main beneficiaries of the Union, our contribution, created primarily as a percentage of GDP, has grown disproportionately faster. The economic stagnation in EU countries, which began in 2008-2009, with a relatively high GDP growth rate in Poland, has led to a progressive reduction in Poland’s real “return” from the EU budget.[4]

Brexit, the EU institutional crisis and the new financial outlook

Great Britain is a net payer into the EU budget. This contribution amounts to 12 billion EUR per year, almost twice the annual average “yield” for Poland. These funds will certainly not be in the budget as early as 2021. It can’t be excluded that problems will appear even sooner. The open attempt by major Western countries (Germany, France, Italy, Spain and the Benelux Union) to “punish” Great Britain for Brexit, which also serves as a kind of warning for potential imitators, may lead to a very hard breakup. And it will consequently mean a catastrophe for the Union’s budgets as soon as 2019 and 2020. If this happens, very serious effects will be felt even sooner in Poland. Poland’s focus on securing the social rights for Poles seeking to stay in Britain after Brexit is, in essence, a marginal issue in relation to the scale of the financial consequences of that country’s withdrawal from the EU.

It must also be kept in mind that in the work on the new financial outlook of the EU, Great Britain will no longer be taken into account. What does this mean for Poland? It’s not just a matter of the departure of a country which was a huge net payer into the common budget. Great Britain, a very rich country with a powerful economy, clearly drew the EU average upwards in all economic indicators. The exit of Great Britain will cause a very serious reduction of these averages. At the same time, the growth of Poland’s GDP and other parameters, against the background of stagnation in other leading countries, will automatically bring Poland closer to these EU averages. Poland will move very close to the position of an EU “average joe”. It is, however, a function not so much of the real progress of Poland, but of the aforementioned merciless mathematics. A country’s place in this informal EU ranking directly influences the decision-making process for the allocation of resources from the Structural Funds and Cohesion Fund. It seems that it is precisely the awareness of these consequences of Brexit among the Brussels bureaucracy,

But this is not the only critical issue we face. The gigantic migration problem, caused by Germany’s carelessness, makes it necessary to immediately increase the financial outlay against the resulting turbulence. Look at the huge costs of the As a result, the costs of discharging the critical situation in Syria, Jordan and Lebanon will inevitably also increase. Without these actions, there is little chance chance of putting a brake on the growing scale of the migration crisis. There will also be an increase in the cost of adaptation policies for hundreds of thousands, and soon enough, millions of migrants in the EU itself.

Already today, it is estimated that the cost of this policy will be, in modest estimation, a minimum of 10 billion EUR per year. After all, this does not include all the outlays on other elements proclaimed as a priority like common defense and security policy. This in particular concerns the protection of the EU’s external borders, which requires a huge amount of funding.

This means that for just these two reasons, namely Brexit and the migration crisis, there will be a need to either supplement the budget by an additional 25 billion EUR per year from 2021, or cut spending by that amount to shift the saved funds to new priorities. In addition, assuming that negotiations with the United Kingdom end badly, it will lead to a comparable gap in 2019-2020.

Already today, as mentioned earlier, Commissioner Oettinger has stated openly that finding such a huge amount of money can only happen by limiting spending in two spheres — in the Cohesion Policy and Structural Funds, and the Common Agricultural Policy, which together cover more than 70% of EU spending. It is clear that the margin of freedom under the CAP revision is extremely limited,[5] which, consequently, means that the cuts will have to come at the expense of Structural Funds and the Cohesion Policy, because it is rather difficult to imagine the consent of the Union’s main contributors to an even greater increase in benefits from the common budget. It also does not appear to be possible for all members of the Union to be allowed to introduce taxes to directly feed the budget of Brussels, because this solution would result in practically the total alienation of this center from any control by national governments.

But that is not all. Even within the confines of the Cohesion Policy and Structural Funds, significant changes are being proposed in the way they are spent, especially relevant to Poland. First of all, this includes increasing spending on fighting unemployment, which mainly affects Mediterranean countries. Fortunately, Poland has this problem behind it, at least for the time being, but it actually means further limiting EU funds for . In addition, it has been suggested that more funds be shifted to economic innovation and research. And in the use of these resources we remain outsiders and there is no significant improvement expected. Our scientific centers are entirely incapable of utilizing these funds, and none of the proposed solutions in Poland bring us closer to increasing these capabilities.

Consequences for Poland

It is clear today that there is little chance to maintain comparable financial benefits for Poland based on the forthcoming outlook of the EU budget. We would not be mistaken to assume that in the coming years, starting at the latest from 2021 (and unfortunately, maybe earlier) the net transfer of funds for Poland will oscillate around a relative equilibrium.[6]

We don’t know which direction the possible evolution of the CAP will take. However, given the various aspects of the ongoing debate, we can assume with great certainty that it will proceed in an even worse direction for Poland than the present situation. And it must be remembered that today, Polish farmers receive only two-thirds of the amount received by French, German or Italian farmers and half of what Belgian or Dutch farmers receive. This creates a situation that systematically restricts fair competition in the EU agricultural market and discriminates against Polish agriculture, under the guise of partial support. There can be no doubt as to what Poland and Polish agriculture would look like if Polish farmers received subsidies at the level of German farmers, and what the EU food market would look like if there was a level playing field for all countries.

However, if we omit the subsidies from the CAP, then Poland will in all likelihood become a net financial payer into the EU budget in this new financial era. It seems that the awareness of this state of affairs is completely unnoticed in Poland today.

We should emphasize that the proposed changes in the structure of EU spending will also drastically reduce the funds for regional policy that aims to equalize the standard the standard of living in various parts of Europe. Conducting this policy was one of the flagship undertakings of the European Union since its inception. From the Polish perspective, it was treated as a sort of compensation for cutting us off from the Marshall Plan, thanks to which the countries of Western Europe lifted themselves from the effects of World War II. We therefore have the right to treat the Cohesion Fund as a sort of redress for the effects of the war, from those that caused it (Germany, Italy and Austria), or those who, to a greater or lesser degree, collaborated with them (France, Belgium, Netherlands, Sweden, Denmark, Spain or Portugal), and despite this, benefited from American support.

There is one more important element relating to the Structural Funds. The claim made by certain European leaders, headed by Germany, that the funds transferred to Poland (among other countries) are an expression of their benevolence, is the pinnacle of cynicism. Since Poland’s association with the Union in 1991, these funds have been handed over to us solely as a form of opening up our market to unequal competition with European companies. Taking advantage of their upper hand at that time, often with the tremendous support of their own governments, they literally colonized Poland, gaining a disproportionate advantage over Polish companies in European markets. Forgetting that the small Polish market has become one of the four main consumers of European exports today, delicately speaking, is incredulous.

However, while looking at the formulated proposals for the new structure and preferences of resources under the Cohesion Policy and Structural Funds, it must be stated that from the perspective of the needs of Polish provinces, constructed mainly for the implementation of the Cohesion Policy based on EU funds, bluntly stated, will result in systematic disaster

It is easy to predict that all these actions will result in a drastic reduction of funds available to Polish territorial self-government. The particular prosperity of past years is certainly behind us and it will be necessary to create such systemic and financial solutions in order to generate the necessary development funds. Expecting that their problems will be solved by means of EU funds is not rational in light of the presented information. Today, we have to look for completely new solutions.

Against this background, two issues are worth considering. First of all, the question arises whether this radical change in our financial relations with the EU will be accompanied by a change in the attitude of Poles towards the presence of Poland in this organization. If it is possible to draw conclusions from earlier changes in the attitude of Poles to replacing the złoty with the euro, then we can expect that at the beginning of the 2020s, the overwhelming majority of Poles will want Poland to leave the EU.[7] Poles have a pragmatic attitude towards the euro and the European Union. The lack of real benefits of being in the EU will lead to a radical change in attitudes towards it. This is not unusual, as the attitude of most European nations to the European Union evolves in a similar way, with a close dependence on the real benefits to their nations from belonging to the EU. The Germans are of course the exception, for whom the euro and the Union are tools to achieve their hegemonic dreams.

Secondly, in light of the above projections, attempts to blackmail Poland with the reduction of benefits from the EU budget This threat, in the context of the real budgetary problems of the Union, is becoming more understandable as it can be one of the tools to generate savings at the expense of Poland and to allocate them to new priorities.

Poland is becoming aware of the changing situation, but can acquire entirely new opportunities in the ongoing negotiations with the European Commission. Bearing in mind that the annual EU budgets need unanimous support from the European Council, we should move on to more decisive action to influence the finances of this organization in the very difficult period ahead. Since Poland has at most two to three years of limited, but still real benefits from its presence in the European Union, it is best to exploit them as effectively as possible.

[1] For the full text of the report of the Mario Monti group see: http://ec.europa.eu/budget/mff/hlgor/library/reports-communication/hlgor-report_20170104.pdf. In addition to identifying new sources of EU revenue, the team also calls for the concentration of spending on strengthening the single market and the technological progress of EU economies, in order to make its budget more independent of member state contributions.

[2] The new budget commissioner presented his first proposals which went in the same direction as the ideas presented by the Monti group in early 2017: http://www.bankier.pl/news/new-company-eu-ds-budzetu’sreform-EU-financial-7492730.html.

[3] For the conversion of the euro (EUR) against the Polish złoty (PLN) I use the rate of 4.3 PLN per EUR. This averaging facilitates the presentation of the issues at hand.

[4] All data published on the website of the Ministry of Finance: http://www.mf.gov.pl/c/document_library/get_file?uuid=09c8b121-0a19-4960-a331-145bd2340f42&groupId=764034

[5] After the elections in France, it can be said with great certainty that major changes in agricultural policy will not take place. France, as the largest beneficiary of this construct, in the absence of the largest EU opponent of the CAP, the UK, will certainly not allow any major revisions to this program, which absorbs half of the EU budget.

[6] It is characteristic that even today we see systemic restrictions on the use of these resources. For example, the balance of transfer of these funds in April 2017 amounted to only 80 million EUR, which means that the monthly net impact to Poland fell in 2017 to barely 6 billion EUR. http://www.mf.gov.pl/c/document_library/get_file?uuid=90d98cf8-1201-4422-b9b2-b21c65640fb5&groupId=764034

[7] An April 7 CBOS survey yielded data showing that only 22% of Poles support the introduction of the euro. In 2002 it was 64%. In the same study, a record 88% of Poles supported Poland’s membership in the EU http://wyborcza.pl/7,75398,21703900,nowy-sondaz-cbos-polacy-chca-unii-europejskie-ale-nie-euro.html

The Warsaw Institute Review | Modern Patriotism

What characterizes the most dynamic and often the richest economies in the world? What is the common denominator that links diverse countries such as the U.S., Japan, South Korea and Germany – countries with their own traditions, history, culture and differing social and political systems and geography, playing the role of the economic hegemons of the modern world?

This article was originally published in The Warsaw Institute Review by Rafał Zgorzelski PhD

 

 

Regardless of their differences, the wealthiest and simultaneously most economically powerful countries share one common trait – economic patriotism, which consists of two elements: trade patriotism and consumer patriotism.

The notion of trade patriotism means actions whose main objective is to support the economy of the country through the public and private sectors. Good public administration has a positive impact on the development of native entrepreneurship in domestic and international markets. Creating conditions for the development of domestic enterprises and their promotion abroad should be the primary aim of the trade strategy of the state. This does not mean a lack of openness to foreign cooperation and capital investment, which can and should positively affect the development of the economy of the country. Besides, in the entire process of creating national wealth, good international agreements and conventions play a positive role, and build business relationships through which each party can and should achieve numerous benefits.

The essence of economic patriotism is not to thoughtlessly create barriers to the development of honest competition or to support the unequal treatment of suppliers, contractors or entrepreneurs in general through subjective criteria. For instance, in countries such as Germany, France, Japan and the U.S., state support is obvious, as is the establishment of cooperation between native entities wherever rational.

Even entrepreneurs paying taxes in their own country is an expression of economic nationalism, which may also lead to the development of a certain image in the market. Of course, entrepreneurs must have confidence that their decisions will be supported by the institutions of the state, which in turn will loyally support their interests. The existence of international competition and capital investments are therefore a good thing, but even the states cited above understand perfectly that their duty and the fundamental objective of their economic policies is to develop a strong class of entrepreneurs and build the wealth of their own societies. These interests will also be served by creating lasting relationships, ties and common interests, including economic ones, for the benefit of all participants of the market, while keeping in mind the primacy of the national interest, which is essential to the civilizational development of societies and states.

No less important for the development of national economies remains the element of consumer patriotism, present in consumer buying habits. Acquiring domestic products, such as fruits, vegetables, domestic beer and cheese, translates into an increase in tax revenues to the state budget and the development of domestic companies, thus raising funds for investment and job creation. This is how consumers perceive the reality in the United States or Germany, where through conscious choices of products and services that support their own economies, they contribute through individual buying decisions to increase the wealth of their own societies.

Economic patriotism, a term which is by no means to be confused with protectionism or interventionism, is now a trend that is clearly making a mark on the world. This is especially so in Western societies, where consumers, conscious of their purchasing decisions, are guided by both economic conditions as well as the values underpinning the acquired service or product, while the administration of the state strives to create favorable conditions for the development of domestic business, which in turn loyally supports the state. It is a far more developed phenomenon in Western countries and actively promoted by politicians, especially noticeable in the U.S., primarily from the time of the 2008 crisis, which was caused by the collapse of the credit market.

The turmoil caused in the markets and global stock exchanges had a sobering impact on the approach of both the United States as well as other societies in the world to economic problems. These events led U.S. companies to start reducing production and employment, to withdraw from foreign investments and, with the support of the state, to return production, services and capital to the nation. Economic patriotism flew on Barack Obama’s election banners when seeking re-election to the presidency in 2012. As leader of the Democratic Party, his platform ( “A New Economic Patriotism: A Plan for Jobs and Middle-Class Security”) encouraged the support of small and mid-sized domestic enterprises, the use of indigenous sources of energy and the improvement of tax collection in order to reduce the budget deficit.

Trade and consumer patriotism is even more strongly emphasized by Republicans in the U.S. For instance, the issue was clearly raised by Republican presidential candidate Donald Trump, during the 2016 election campaign. Indeed, Trump even demanded patriotism from companies, promising less regulation in return and the facilitation of business, including through tax cuts. However, he bluntly and openly announced that he will not hesitate to impose high tariffs on American companies, which seek to lower operating costs, including labor costs, by moving their operations or significant elements thereof (as was the case with Ford, who withdrew from plans to build a new $700 million plant in Mexico, instead opting for investment in Flat Rock, Michigan) outside the U.S., and then wanting to sell their goods in the country. U.S. President Trump was direct and stated that his administration will be guided by two simple rules: buy American and employ Americans. Trump thus wants American patriotism to have a very practical dimension, which is what modern economic patriotism is based on. It is not a matter of declarations, but taking action. It is worth noting that in the U.S., UK, Japan and South Korea, betting on economic patriotism is obvious, while one’s own worldview and political persuasion make little difference.

Today, economic patriotism is one of the most important development trends in mature economies and societies. Patriotism is understood as the cooperation of many entities and institutions that have their own, often divergent interests, yet through cooperation achieve great benefits that reach the rest of the country at the same time. The role of protecting and strengthening the interests of the state grows by shaping trade and consumer policy conducive to cooperation and expansion, creating good law, and supporting local companies. It is precisely economic patriotism that is one of the key elements in the success of the largest economies in the world.

Caring for Poland means taking care of Polish interests and having high standards, as supporting your own producers cannot mean promoting mediocrity, nor closing off cooperation with other economies of the world. Rather, it takes indispensable action to promote a properly defined idea of economic patriotism by identifying what function individual consumers, state authorities and entrepreneurs play in the economic circulatory system and showing why such an approach is meaningful.

Economic patriotism consists of the individual choices of entrepreneurs, consumers, and policy makers, including the shape of legislation which should support the development of the economy, as well as government spending. Economic patriotism also means supporting the investment of foreign capital in such a way that does not harm the interests and security of the functioning of the state, for example in the energy, railway and telecommunications markets.

In Poland awareness is increasing of the need to support the development of an independent economy based on partnership with the countries of the European Union and other economies around the world. At the core of the institutional transformation that initiated the political changes of 1989 was the conviction that the solutions offered by multinational corporations were definitely better – and synonymous with luxury -, which for Poles, weighed down by decades of communism, meant a can of Coca-Cola or jeans. An inferiority complex, alien to Western societies, was formed in relation to most things foreign.

In the meantime, Polish brands, including DRUTEX (the largest producer of PVC joints in Europe), FAKRO (a global market leader in roof windows) , CCC (leader of the Polish retail footwear market and its largest producer), CD Projekt (producer of popular video games, including those based on the series of novels by Andrzej Sapkowski, The Witcher), GINO ROSSI (one of the most respected Polish brands in the market of production and sale of footwear and footwear accessories), INGLOT (one of the world’s largest manufacturers of cosmetics), PESA (manufacturer of both conventional and electric trains and trams) and SOLARIS (one of the leading manufacturers of local and intercity buses, trams and trolleybuses in Europe) did not just cross Polish borders, but are taking the world by storm.

In recent years, throughout East-Central Europe, the importance of regional and local businesses, domestic entrepreneurs, as well as the steadily falling percentage of companies controlled by foreign investors, has gradually been increasing. Companies controlled by the state continue to play a big role, among which the dominant position is held by Polish companies such as PKN Orlen, PGNiG, KGHM, Lotos and PGE; enterprises strategically important to the functioning of the country. It is no accident that these companies draw the most attention; more than 65% of state-owned companies are situated in the energy sector. These companies play an important role in the efforts to build a strong and independent position for the Polish energy sector, as well as strengthening the position of East-Central Europe on the global energy map. Besides, it is the largest enterprises, in addition to the public administration, which are the flagships of the domestic economy.

In the opinion of this author, they should be the ones to create specific standards and best practices in business, and well as in the life of the entire state. This creates patterns and provides incentives and prospects for the development of small businesses, which through cooperation with major national players strengthens their market position, economic stability and potential growth. One can assume that in the long term, the creation of conditions for fair competition will positively affect the relationship between domestic and foreign enterprises.

An example of the powerful position of foreign capital in Poland is the trade dominated by grocery store chains such as the Portugese Biedronka, German Kaufland, Lidl and Real, the Danish Netto, British Tesco and the French Carrefour, Auchan, E.Leclerc and Intermarche. The food industry however stands out positively, in that Poles are increasingly willing to opt for native products, while the country’s dynamic domestic market is developing in organic foods, whose estimated value exceeds 700 million PLN ($175 million).

Today, Poland is a stable and reliable partner. In economic policy, a positive trend can be seen that strengthens the autonomy of the state and builds a strong and independent economic position in the world. The Polish government is turning away from the path chosen after 1989, which rested on a thoughtless approach that assumed that international capital had no nationality, and instead is emphasizing the need to nurture and support native entrepreneurship. The country is interested in foreign investments and good international cooperation, but it is also beginning to understand, based on the models of Western countries, the need to protect national economic interests. Poles, however, still have to develop a form of habitual economic patriotism.

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The Warsaw Institute Review | Central Eastern Europe Innovators Summit

The Polish economy, destroyed by communism, for years did not have suitable conditions to function on the basis of its own technology. Today, thanks to the fourth industrial revolution, Poland has a historical opportunity to build its own new brand in the world markets

This article was originally published in The Warsaw Institute Review by Paweł Szefernaker

 

 

After the ages of steam, electricity and automation, we are now living in the age of the fourth industrial revolution. Universal computerisation, digitisation and Internet access are changing our lives completely and are an opportunity for those who think innovatively. Central and Eastern Europe is a huge reservoir of people who are in their element in this reality. For years, Poland was dependent on technologies brought in from other countries and in many cases it will be difficult for us to compete with highly-developed economies in this field today. However, we can successfully compete in the sphere of digital and information technologies, by putting excellent engineers and programmers on the market.

German occupation and then Soviet domination both left a deep mark on the economy of the largest country in Central and Eastern Europe. Poland’s unwieldy industry failed to compete in terms of quality on world markets, which led to the collapse of its centrally-steered economy. Problems then deepened in the 1990s. The economic transformation conducted at the liberals’ bidding, with the participation of communist notables who took part in the process of changes, led to the selling-off of those national assets which could be of any value. As a consequence, Polish brands did not develop their own know-how, and our country specialised in assembling devices invented in foreign research centres.

At the same time, the free market released huge potential and energy of millions of ordinary Poles. Trade, services and then industries which did not require complicated engineering continued to develop faster. Poles became more and more aware of the free market economy; they had lots of ideas and a great desire for personal development, but our country did not offer such opportunities. Many outstanding professionals, after completing their education, and sometimes even before they undertook studies, went abroad, thus contributing to the prosperity of Western economies. It was only the digital age – which reduced distances and equalised opportunities in nearly all parts of the globe – that enabled Poles to use their creativity also in Poland. This is how corporate powers such as CD Projekt, the publisher of the cult game “The Witcher”, were built. Today, every discovery made by a Polish engineer can gain publicity; while they can find business partners, or acquire financing thanks to the Internet.

Central and Eastern European Innovators Summit

From the beginning of the 1990s, the late Lech Kaczyński – President of Poland in 2005-2010 and his brother Jarosław Kaczyński – Prime Minister in 2006-2007, and the current leader of the Law and Justice political party which has a majority in the Parliament and has formed the government, talked about the need to rebuild a strong and modern state. As a result of the implementation of the policy of a state which is stable, self-confident and invests in modern technologies, the Law and Justice’s conservative government has a plan today to act even faster and more efficiently in the sphere of innovations. At the end of March, the CEE Innovators Summit was held in Warsaw, attended by the Prime Ministers of the Visegrad Group (V4). This is Prime Minister Beata Szydło’s idea for Polish presidency in V4. Poland, Hungary, Slovakia and the Czech Republic jointly have the potential which would enable them to compete with highly developed countries. As a region, we truly have unique human capital. This is illustrated by statistics showing for instance the number of engineering studies graduates who can help us compete with the most innovative economies worldwide. Based on the OECD data (2012), V4 countries have nearly 150,000 graduates from these types of studies in total, whereas South Korea, today’s leader in world innovativeness rankings – around 160,000. More importantly, as part of the Visegrad Group we are in the lead in terms of the number of IT specialists. In 2012, there were around 26,500 graduates of such studies in our region, and only half that number in South Korea. The Warsaw Summit created scope for cooperation and exchange of experiences among start-ups, entrepreneurs, scientists, innovators and national administrations of our region of Europe.

The largest economies of the European continent channel their activities towards competitiveness built on technological innovations. Central and Eastern European states which – for historic and geopolitical reasons – could not participate in the implementation of previous industrial revolutions, and only benefited from their effects, have a historic opportunity of actively coming to the fore of countries which are leading the fourth industrial revolution. We realise that it all depends on whether – thanks to this increasing innovativeness – we seize the opportunity to achieve fast economic development.

Increasing the innovativeness of the Polish economy is one of the most important priorities of the current Polish government. An innovative knowledge-based economy should be a foundation for the growth of the national income and for raising the level of prosperity in Poland. Therefore, all actions undertaken by the Law and Justice’s government in the area of entrepreneurship are on the one hand intended to build good conditions for conducting business activity, and on the other hand to encourage businesses to boldly invest in the latest technologies. It is an important task for the Polish administration to ensure an appropriate framework for innovators through friendly regulations, among other things with regard to supporting innovativeness and the constant removal of any barriers that might appear. The Polish government’s goal is to create an effective ecosystem for developing innovations. Already during the first year of its activity, a cohesive system of various instruments awarding benefits and encouraging innovative activity was introduced, including a more business-friendly tax system (tax reliefs), a stable method of financing the commercialisation of scientific research and development work results, as well as a package of procedural facilitations. The new regulations address the most urgent needs of Polish innovators and scientists. Meanwhile, further initiatives in this area will be presented before the end of this year.

The manifestation of these priorities is the Strategy for Sustainable Development adopted by the Polish government.

Appreciating the importance of innovations, the Polish government appointed the Innovation Council whose tasks include the coordination of activities connected with increasing the innovativeness of Polish science and economics. The systemic proposals developed by the Council will be evaluated in consultations with representatives of non-governmental organisations and organisations of employers.

Admittedly, innovativeness is not a phenomenon reserved for the digital area; nevertheless it is in the digital world that it emerges the most. During the Innovators Summit, heads of the Visegrad Group states expressed their support for the establishment of a fully functional European single digital market. The purpose is the removal of barriers to the digital development of the EU and creating possibilities for European companies to get benefits of scale resulting from the existence of a large European market. Only through this way can we quickly build a competitive industry based on modern technologies. There is a large and unused potential for cooperation in the Visegrad Group countries in the area of digital economy. It is in our countries’ interests to present a uniform position which will constitute a counterweight to protectionist threats often appearing in the European discussion, or concepts aimed at deepening developmental differences between the EU regions. We should unambiguously support the elimination of all barriers for which there is no justification in the Treaty provisions. Only equal and non-discriminatory conditions for conducting activity on the EU market will enable our companies to compete with entrepreneurs from Western states, who are much stronger in terms of capital.

As a result of globalisation, competition in world markets has increased significantly in recent decades. Our region, if it wishes to be competitive, must invest in such capital which will give us an opportunity to compete against other – very often larger – players. Poland, although it does not top the innovativeness rankings as yet, has the greatest asset which should be strengthened and nurtured – high competences of Poles, their enterprising spirit, and a growing social awareness that innovativeness is a path to further development. This is the very capital – human capital – composed of creative, enterprising people, that breaks through all barriers, and that determines our strength. For years, this capital was often invested abroad, which increased the prosperity of other countries. Many of those who went abroad have succeeded in the largest innovative companies of the world. The CEE Innovators Summit is a strong accent of Poland’s presidency in the Visegrad Group. This is a signal not just for Hungarians, Czechs, Slovaks and Poles, but also for the rest of the world that governments appreciate this huge potential, which is dormant in the residents of our region.

Basis of cooperation among the Visegrad Group states

Thus, the basis for effective cooperation is the intellectual potential of the Visegrad Group countries’ citizens, their cultural similarities and common historic links. We are facing similar challenges and problems related to the implementation of an effective innovativeness policy. Common problems concern the establishment of a cohesive environment for start-ups, supporting research and development activity, as well as the jump from the absorption of ready-made technologies to the stimulation of innovations based on results of our own domestic research. Research and development cooperation with the “old EU” countries and building the society of “early users” and “early adapters”, willing to test and purchase innovative products, constitute a challenge.

It should be noted, that the V4 countries are implementing intelligent specialisation strategies on similar topics. This refers in particular to the automotive, telecommunications, electronic, and transport industries, as well as to the environment, and health foods. There is a large potential for the implementation of joint projects in the area of research and development, which could constitute the basis for competing with the “old EU” countries and allow the creation of realistic regional specialisations within the V4.

There are symptoms showing that other regions of the world see not only political but also economic potential in the Group. One of the examples is Japan, which together with the International Visegrad Fund is financing the V4-Japan Joint Research Programme that may be used by private or public research organisations or small- and medium-size businesses.

Often, particularly at European Union forums, arguments are used that the Visegrad Group is not cohesive, and that it presents different opinions and views. However, our strength is determined by the ability to cooperate despite differing outlooks. We are strengthened by the fact that we tighten our cooperation in those areas which we believe to be of key importance for the economic future of our region and of the EU. Crises affecting the European Union recently show that it is the duty of the Visegrad Group’s states to build institutions resistant both to political and economic unrest. For this purpose, the Prime Ministers of the V4 states signed the so-called Warsaw Declaration during the Innovators Summit. The main assumption of the Declaration is the reinforcement of cooperation with regard to research, innovations and digitalisation. Special objectives include the strengthened and extended regional cooperation of clusters and start-ups. Moreover, we would like to promote states from the Visegrad Group as research and innovation centres.

An important statement of this declaration is the separation of a dedicated budgetary line within the International Visegrad Fund, focused on the implementation of joint research and development projects.

First and foremost, we want the Warsaw Declaration to be the starting point for tighter cooperation among the countries of the region, which will increase the number of supranational research and development projects implemented by science and research institutions and enterprises from Central and Eastern Europe. It is important to establish good conditions for cooperation between entrepreneurs and scientists: only this way can our local businesses stand up to global competition in Western European and Asian markets.

The cooperation initiated thanks to the Innovators Summit constitutes a clear signal that both Poland and other states from our region are prepared to become fully involved in the challenges which our economies face in the 21st century, the age of innovations.

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The Warsaw Institute Review | Germany’s Inglorious Isolation

This article was originally published in The Warsaw Institute Review by Krzysztof Rak

 

 

 

The delicate position of Germany in the post–Cold War global order rested upon the art of diplomacy. Abiding by the warnings of Otto von Bismarck, German politicians sought for their country to have better relations with foreign powers than among themselves. This skilled, multi–instrument game maintained Berlin’s international position. Yet, the financial crisis destroyed the existing system of balance and, as Bismarck foretold, weakened Berlin’s position. This is proven by Germany’s growing isolation and the worsening of relations with its most important partners.

BISMARCK’S BALANCE OF POWER

During a visit to Washington, D.C. in March 2015, Minister of Foreign Affairs of the Federal Republic of Germany, Frank-Walter Steinmeier, said that Berlin wanted to play the role of a “responsible agent” (verantwortlicher Makler). Speaking several weeks later to the leadership of his party, the SPD, he left no doubt as to his intentions, arguing that “Bismarck’s legacy shapes German foreign policy to the present day.” He explained the policy’s essence to be one of realpolitik, which relies on “the analysis of reality and the subtle intuition of the interests and behaviors of other actors on the international stage.” Put simply, it is “the art of the possible.” This is also why “the central task of German foreign policy in the coming years is rebuilding broken trust, and a basis for cooperation in the area of security between Russia and the West.”

During the Congress of Berlin in 1878, the great powers were meant to come to an understanding about the new European order after the Russo-Turkish War. They did not want the peace to disturb the balance of power, which had been shifted by Russia’s military successes in the Balkans. Therefore, at the negotiating table, an “alignment” of relations was reached.

As the host of the Congress, Chancellor of Germany, Otto von Bismarck, sought to use the occasion to convince his partners that Germany was a power that was “saturated”. It had no desire for territorial gains and instead endeavored to keep the status quo. Germany, he claimed, had reached its optimal size. This is why Germany could afford to play the role of a “responsible agent”, an impartial intermediary who would facilitate agreement between the great powers, considering each of their interests fairly.

Bismarck believed that Berlin’s aspirations of hegemony would end in defeat, for other powers would easily be able to create a successful anti-German coalition. A year before the Congress, he explained his desire for “an overall political situation in which we are needed by all of the powers, and relations between them would prevent the creation of a coalition opposed to us.”

Germany’s strategic dilemma, called the “German Question”, was that they are too strong to serve as an equal component in the continental balance of power, but also too weak to destroy this balance and dominate. The only effective strategy in such a system is to contain its hegemonic aspirations and take responsibility for the balance of power in Europe.

Chancellor Merkel has applied the lessons of the “Iron Chancellor” (as Bismarck was commonly known). She was not lured by the temptation of continental hegemony. She patiently built strategic relations with the most important powers so that Germany could become an indispensable component of the global system. Merkel took advantage of the most favorable international situation in Germany’s history, in which Germany did not have a mortal, geopolitical enemy, nor did it have to fear the rise of a hostile coalition (as Bismarck described it, the coalitions nightmares – “les cauchemar des coalitions”).

Yet, the multifaceted crisis in Europe destroyed this system. This change in the status quo threatens Berlin with isolation in the international arena. One of the most important causes of this state of affairs was Germany’s inability to play the leading role in Europe. This became apparent during the attempt to tackle the financial, debt, migration and Brexit crises. Germany proved too weak to cope with them. This fell short of the expectations of its main partners, who had called for Germany to take on the role of continental hegemon and shoulder the weight of recovery actions. As a result, today Germany must cope with the challenge of isolation.

THE CRISIS OF “PARTNERSHIP IN LEADERSHIP”

The biggest problem affecting Berlin’s global position is the crisis in transatlantic relations. This has been triggered by the undiplomatic reaction of the German political class to the election of Donald Trump as President of the United States. Minister of Defense, Ursula von der Leyen (CDU), set the tone: “It was a serious shock for me when I saw how things are.” She continued, refusing to recognize any of Trump’s successes: “I think Trump realizes that votes weren’t cast for him, but against Washington.” This lack of courtesy can be explained by surprise at the result, yet those who made subsequent declarations intentionally sought to insult the president-elect. Minister of Foreign Affairs, Frank-Walter Steinmeier, proclaimed: “The result of the election is different than that which most Germans would have wished.” Moreover, he lamented the lack of specifics in Trump’s program and demanded explanations. Vice-Chancellor Sigmar Gabriel (SPD) outdid his colleagues by describing the president-elect as “a pioneer of a chauvinist and authoritarian International.”

Against this backdrop, Chancellor Merkel’s comments could seem subdued. She stated that the Federal Republic of Germany and the United States were “joined by a deep attachment to the values of democracy, freedom, respect for human dignity, regardless of origin, skin color, religion, gender, sexual orientation or political views” and to the newly elected president she proposed “close cooperation on the basis of these values.” Most commentators saw this choice of words as the setting of terms to Trump.

German politicians seem to forget that German-American relations were fundamental to the post–Cold War order. They were shaped by the doctrine of “partnership in leadership” which was worked out in Washington, D.C. in 1989. The Americans recognized that they were not in a position to independently impose their principles on the world, so allies would be needed to promote them. Wanting to maintain its position as global leader, the United States had to find appropriate partners. In northern Eurasia this was Germany, which, in the following two decades, took upon itself the burden of extending Euro–Atlantic institutions, NATO and the EU, to the east.

Following such harsh criticism from German politicians, it is difficult to imagine that the new President of the United States would perceive Germany as a strategic partner. On this occasion, the diplomatic breakdown could not be blamed on Trump. As noted by a commentator in the Frankfurter Allgemeine Zeitung, German politicians insulted the President of the United States, not Donald Trump. It could scarcely be believed that they did so unwittingly, since they know full well the distinction between the institution (office) and the person holding it.

The cooling of relations with Berlin might work to Trump’s advantage. He will certainly continue the policy of limiting the political and military presence of the United States on the Old Continent. The reluctance to cooperate on the part of the main European power could be a good pretext for further withdrawals of American forces and resources from Europe. This freed up potential would surely then be engaged in other parts of the globe.

The German authorities obviously did not see the asymmetry of interests. Clearly, the difference in potential between the Federal Republic of Germany and the United States shows that the partnership between the two countries was not equal. Militarily, the Germans are simply a client of the United States. This imbalance led to Merkel’s close consultation on her eastern policy with Trump’s predecessor Barack Obama. She was aware that European countries are militarily weak, and therefore lacked strength in peace talks with Russia. A condition of effective diplomacy in the conflict between Ukraine and Russia was the support of the United States, the most powerful military in the world.

Germany’s new problems were of its own making. Partnership in leadership was one of the most important factors in Germany’s special position in global politics. Berlin, having the potential to assume the role of a regional power, played in a higher league of global powers.

FRENCH-GERMAN DELUSIONS

The Paris-Berlin axis was the foundation of European integration. In the 1990s, both powers made the decision to accept central and southern European countries into their integrating structures. This envisaged the eventual membership of nearly 30 nations. This required a fundamental consideration of its current cooperation mechanisms, starting with decision-making processes.

European elites recognized that it was impossible to maintain the principle of homogenous integration, or the same level of integration advancement across all member states. Differentiation was obvious, thus there was a division of countries in terms of the extent to which they would cooperate. The EU was meant to become a structure resembling concentric circles, created by states similarly advanced in integration. The narrowest circle was to be created jointly by France and Germany. Since the decision to expand the Union was made in parallel with the introduction of a common currency, the first fundamental division between the Eurozone and the rest of the member states inevitably arose.

Today it is safe to say that the French–German attempts to build a European federal state have ended in defeat. A disastrous mistake had already been committed by Chancellor Helmut Kohl, one of the greatest advocates of federalism, as by agreeing to accept the Euro, he abandoned the possibility of creating a political union in Europe. According to his original plan, the new union was to stand firmly on two pillars: a common currency and a political federation. The French President François Mitterrand did not want to deepen political cooperation. First of all, he wanted to weaken a united Germany, and thus take away their most important geo–economic weapon, the Deutsche Mark. The French authorities wanted the Euro to ensure that Paris maintained its position of power in Europe.

Therefore, it should not be surprising that the Eurozone crisis is leading to some unrest between Berlin and Paris. The common currency did not realize the hopes invested in it and it was not a catalyst for integration. It led to the lowest ever credit rates being offered to the poorest, southern countries. Italian, Greek and Spanish leaderships began to irresponsibly put their countries in debt; in order to maintain their power they catered to every whim of their electorates. A new intangible wall arose in Europe dividing creditors and debtors. The anti-crisis measures, still ongoing after six years, have only deepened this division. Essentially, the Euro became a ticking time bomb placed under the foundations of European integration. Worse still, the political leaders not only have no idea how to bridge this divide, but they seem to not even recognize that one exists. New recovery programs depend on new loans which continue to drive debtors further into debt. These so-called anti-crisis measures do not help the southern economies, which are in dire condition, but instead merely delay the approaching catastrophe.

A segment of the German elite, most of all a group of respected economists, has long warned about the fatal consequences of introducing the Euro. However, politicians responsible for its introduction did not listen. And here they made a serious mistake, with direct political repercussions. Above all, the Eurozone crisis will prevent stability in Europe.

Such a conclusion can be drawn from the book published a year ago authored by Hans–Werner Sinn titled The Euro: From Peace Project to Bone of Contention (Der Euro. Von der Friedensidee zum Zankapfel). In 500 pages, the most influential German economist has made a diagnosis of what he describes as the disease plaguing the Eurozone.

The biggest surprise for political leaders may be the ascertainment that the so-called “transfer union” has been implemented in practice. This is a requirement of France and southern countries tied to it, that creditor-nations transfer huge sums to debtor-nations with the goal of evening out differences in development in the Eurozone. The mechanisms for evening out the levels of wealth and prosperity have long existed within the Union. This is the goal of the well-known structural and cohesion funds. Yet, these expenditures are a fraction of the GDP of the entire EU. Meanwhile, in the case of the transfer union the sums are much greater, perhaps over 10% of GDP. This is why the wealthiest countries oppose the idea and Berlin has repeatedly distanced itself from the proposal.

The problem is that despite the opposition of creditors, hundreds of billions of Euros are flowing from the north to the south of the continent. This is happening thanks to the policies of the European Central Bank, which are neither transparent nor in accordance with EU law. Ever since the financial crisis struck there has been a huge and ongoing loan operation directed toward the countries of southern Europe. At the same time, the EU is liable for the debts of member nations. Therefore, it breaks its own treaty, which clearly prohibits it (the “no bail-out” clause from article 125 of the Treaty on the Functioning of the European Union).

In March 2015, Sinn calculated that the debts of the six countries presenting the biggest problem in the Eurozone (Greece, Italy, Spain, Portugal, Cyprus and Ireland) had soared to almost 11 trillion Euro, or 335% of GDP of these countries. This means that the debt cannot be paid off and the creditors will have to accept losses.

The German economist is of the opinion that continuing the policy of transfers would end in catastrophe. Loans totaling hundreds of billions of Euros have not had positive effects. The economies of southern European countries are still in crisis. The only indicator that is growing is debt. Transfers are thus a play for time, only delaying the crash.

The best antidote to the debt crisis is discontinuing the transfer union, in other words, the EU giving loans to member states in debt. Sinn points to the examples of the United States and Switzerland, where the central government does not take responsibility for the debts of individual states or cantons. If the EU is to survive it should respect its own laws and allow member states with an irresponsible monetary policy to go bankrupt.

Sinn argues that Germany is not the victor in the Eurozone crisis. Indeed, it ultimately sowed the seeds for the breaking down of their European policy, which was conceived in the 1990s.

The Euro cannot be the main basis for integration, as instead of connecting, it divides, creating a fundamental conflict between debtors and creditors. This conflict threatens the very existence of the EU. France and Germany, the countries which were meant to be the “engine” of the EU, are arguing over the strategic direction to pursue next. Paris does not agree with having an actual political union, because it would mean, for example, the joint administration of their nuclear arsenals, when it only wants the wealthiest EU countries to take greater responsibility for Eurozone debts.

In the German political discourse, proposals are increasingly appearing to abandon the federalist concept and its main requirement of deep European integration. The former President of the Federal Industrial Association of Germany, Hans-Olaf Henkel, has been calling for the division of the Eurozone into two currency areas for years. One area would include Germany and the rich countries of northern Europe, and the other would accommodate France and southern European states, signifying a final break between Berlin and Paris. He argues that the current profits that Germany gains from exports thanks to the current shape of the Eurozone does not cover the huge expenditures required to prop up near-bankrupt states. His sensible economic argumentation, which converges with Sinn’s arguments, is still considered outlandish today. German elites and society cannot imagine Berlin divorcing itself from Paris. Their political habits would of course be changed. However, when the next stage of the debt crisis is revealed, when the average German realizes that he had to pay with his pension for the alliance with France, or when he has to choose between this alliance or a prosperous and comfortable old-age.

The absence of a uniform German position and a strategic compromise between the powers, means that, in the short-term, genuine reform of the EU should not be expected. France will not give up on the idea of forcing Germany to continue with the transfer union, given its strong support from Italy and other countries of southern Europe. This means that until the next wave of the crisis hits, Europe will remain in a clinch.

THE EASTERN POLICY WILDERNESS

The most surprising element of the impasse in transatlantic and European relations, is the worsening of relations with the most important players in Eurasia. In the normal course of things, the weakening of the western vector of German policy should bring with it the strengthening of the eastern vector. But there has been nothing of the sort.

The weakness of Berlin’s position was revealed by the war in Ukraine, during which Putin undermined the foundation of the entire post–Cold War order in Europe. The annexation of Crimea constituted the unprecedented violation of two fundamental principles: the inviolability of borders and the prohibition of the use of force in international relations. The Kremlin proved that “the end of history” is a baseless myth.

In this case, the would-be hegemon of Europe failed to deliver. As usual, Merkel was biding her time. She could have ended the crisis but she would have had to exhibit character and courage, choosing one of two methods. Either demonstrate the cynicism of state power and, in concert with others, “sell-out” Ukraine to Putin, or defend high values and decide on real sanctions against Moscow, which would have hit Russian energy exports. In reality, she chose the strategy of maneuvering, advocating simultaneously for supposed sanctions and cooperating with Russia in building the Nord Stream energy pipeline. Such a policy only encouraged Putin to make further attempts to destabilize the West. Only now are German elites becoming aware that the Kremlin is leading a brutal information war against them. But even this has not pushed them to undertake more decisive action against Moscow. Having American blessing for this type of irrational appeasement is only a partial explanation.

Following the weakening of relations with Moscow came the worsening of relations with China – the second most important power in Eurasia after Russia. The latest visit of the Vice–Chancellor of the Federal Republic of Germany, Sigmar Gabriel, to China in November 2016 brought a noticeable cooling between the two powers.

The foreshadowing of the visit was not promising from the start. Even before the departure of the vice-chancellor, the Chinese Ministry of Foreign Affairs summoned the German deputy ambassador and delivered a protest. The Chinese were dissatisfied with the German debate on Chinese investments, specifically the alleged American pressure to prevent the sale of one of Germany’s high-tech companies to the Chinese.

Matters soon worsened. In Beijing, Gabriel was to jointly appear with the Chinese Minister of Commerce, Gao Hucheng, before members of the Sino-German Economic Committee. Unexpectedly, the meeting was called off. According to the Frankfurter Allgemeine Zeitung, the cause of the cancellation was a statement by one of the Chinese trade ministers who made the accusation that in Germany a “hostile mood towards investment” prevailed. The same newspaper recalled the statement of the Chinese ambassador in Berlin who complained about the “growing protectionist tendencies” in Germany. In turn, Gabriel, as the newspaper reports, “didn’t leave the slightest doubt in Beijing that Chinese investments in Germany and Europe will be strictly controlled and if need be, thwarted.” He announced a harder line towards Beijing and a firm defense of German investors, who have complained of being discriminated against in China.

The growing crisis in relations between Berlin and Beijing should come as no surprise. The visit of Chancellor Merkel in June was already full of discord. The weekly Die Zeit referred to the situation in an article with the symptomatic title: “Sharp Conflicts with a Difficult Partner”. Both countries are geared towards exports and conflict between them was unavoidable, especially when the balance of trade increasingly favored the Chinese. In addition, one must consider the unparalleled scale of Chinese investments in Germany. Germany is wary that in this way the Chinese will obtain their own technology and innovations, thereby becoming more competitive in the global marketplace.

An even more glaring symptom of the crisis of Germany’s eastern policy is the cooling of relations with the countries of Eastern and Central Europe. Until recently, this region was regarded as Berlin’s exclusive zone of influence. For a quarter-century, Germany has blocked the emergence of any kind of coalition that could oppose it without difficulty. Germany grew accustomed to imposing its will on weaker clients. The hubris of power usually triggers a response. When Germany tried to force the Czech Republic, Slovakia and Hungary to accept a quota of immigrants last year, they rebelled, refusing to obey and for the first time organized a common coalition. Germany had lost control of its closest region.

 

***

 

Germany has found itself in a dire diplomatic situation. And the future does not seem promising either. In 2017, the German political class will be focused on the election campaign. The Social Democrats, who are losing ground, are grasping at anything to slow their downfall. With an absence of ideas for domestic policy, they will be fighting with the Christian Democrats on the field of foreign policy under the banner of building a European superstate and anti-Americanism. The biggest current asset of German diplomacy – a cross-party consensus in strategic matters – will be sacrificed for the sake of continuing the careers of uncharismatic politicians like Sigmar Gabriel. This will only deepen the isolation felt by Germany in the international arena.

The weakening of Europe’s dominant power brings with it many challenges. Great powers assume the role of regional stabilizers. When they lose strength, a power vacuum is created that must be filled. This is how a new equilibrium is created. This signals that a period of disorder and uncertainty awaits us in Europe. Vladimir Putin will certainly try to take advantage of this situation, knowing that a weaker Germany means a stronger Russia; this is why power is relative. He will not miss the opportunity to once again expand his sphere of influence. The most straightforward way to achieve this goal would be to agree upon a new arrangement between Moscow and Berlin. Germany, abating in strength, may not be able to resist such a temptation.

However, another outcome is also possible. Specifically, where the central European countries create a coalition which starts to compete on the European scene. However, even if such a coalition was to succeed, it would be too weak to play the role of a third power (the Visegrad Four countries account for less than 10% of the EU population, and only a few percent of its economy). That is why these countries could instead try to make a new agreement (taking into account their subjective role) with Germany and create a new system that would stabilize the situation in Central Europe. This, on the one hand, will require the changing of Berlin’s paternalistic attitude towards its former satellites, and on the other hand, greater effort and responsibility from Poland and her regional partners.

The German dilemma rests in the choice between two strategies, pursuing hegemony or a balance of power. The biggest paradox is the fact that the federalization projects serving to deepen European integration, have created the conditions for the dominance of Germany on the continent. The practice was inconsistent with theory, which suggested that the handing over of the scope of authority from nation-states to supranational institutions weakened the influence of state powers. With that in mind, the best way out from the current crisis seems to be a reform of the European Union which would bring balance between the main powers and small and medium countries. Essentially, this would mean a return to the principles which were in effect prior to the signing of the Treaty of Lisbon.

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The Warsaw Institute Review | Russia 2018

This article was originally published in The Warsaw Institute Review by Jan Gajewski

 

 

What’s it going to be like? Almost certainly with Vladimir Putin. And there is no better confirmation of this than the president’s mass replacement of his highest officials and collaborators. A new generation of “Putinocrats” is entering the political scene and their characteristics unambiguously indicate that in the coming years, the Kremlin court will serve one, concrete ruler.

These aren’t changes that suggest Putin’s departure, as could be seen in 2007. The regime is becoming ever more personalized; it won’t be dominated by a caste of former KGB officers, but by a czar and his courtiers, ready to fulfill his every wish without question. This kind of absolutism strengthens Putin on the one hand, but threatens the state on the other, since it is dependent on the life and death of a single person.

When asked delicately by the moderator, during the annual meeting of the Valdai Discussion Club in October, whether he would consider retirement from politics, Putin decisively rejected such a possibility. He assured the audience that he had no plans to leave. The actions of the president are even more convincing than his words. Changes within the regime are determined by two external phenomena: a shrinking pool of resources exploited by the elites (the economic crisis in Russia) and international instability, along with the crisis of relations with the West. The regime’s “face lift” is characterized by a decrease in the political importance of the members of the ruling elite. It can be seen not only in the dismissal of the “old guard”, but also the replacement of the majority of the lower house of the Russian parliament, the State Duma, in the September election. A pretext for making changes isn’t hard to find; it’s not an accident that law enforcement’s anti-corruption operations have clearly intensified in recent months, with the Federal Security Service (FSB) playing a key role.

Ever since he took power, Vladimir Putin has relied on a trusted group of people, including former KGB agents. The first to be removed from power was Viktor Cherkesov. The head of the influential FSKN (Federal Drug Control Service) lost Putin’s trust after airing dirty laundry to the press during the so-called “siloviki” war in Putin’s second term. In 2008, Cherkesov lost his position and was transferred to the Federal Agency for Armament Procurement, Military and Special Equipment and Logistical Resources (Rosoboronpostavka), and went into retirement several years later. Next in line was Vladimir Yakunin, also a former KGB officer, and someone particularly influential in politics as the head of Russian Railways, the largest employer in Russia, who was also the leader of the so-called “order of Russian Orthodox Chekists.” He fell into Putin’s disfavor and lost his positions in 2015.

The wave of compulsory retirements among the “old guard”, however, didn’t begin in earnest until the spring of 2016. In April, as a result of the liquidation of the FSKN and the Federal Migration Service, their long-serving leaders: Viktor Ivanov and Konstantin Romodanovski, linked to Putin from the beginning, were forced to resign. In May 2016, Evgeny Murov, head of the Federal Protection Service (FSO) was forced to retire. Putin also fired Evgeny Dod, head of RusHydro and Vladimir Dmitriev, head of Vnesheconombank (VEB). Last July, the FSB found a large sum of undeclared foreign currency in the apartment of the head of the Federal Customs Service (FTS). Andrey Belyaninov, who served in the KGB with Putin in the GDR, had to go. Finally, in August 2016, out of the blue, Putin dismissed Sergei Ivanov, Chief of Staff of the Presidential Executive Office, retired intelligence general, long-time Minister of Defense and a major candidate to succeed Putin. Only two Chekists remain from the “old guard”, operating in the business and political sphere: Sergei Chemezov (CEO of Rostec Corporation) and Igor Sechin (Executive Chairman of Rosneft). But they too, especially the latter, have to struggle to keep their heads above water. Those removed by Putin are usually assigned comfortable but minor positions. Vladimir Kozhin and Viktor Zubkov became presidential advisors, whereas Sergei Ivanov was appointed Special Presidential Representative for Environmental Protection, Ecology and Transport.

Many of them are now on supervisory boards of state companies: Zubkov in Gazprom, Murov in Zarubezhneft, the former head of intelligence, Mikhail Fradkov, in Russian Railways and Almaz-Antey. Some of them have retired such as Vladimir Yakunin, Viktor Ivanov, Andrey Belyaninov and Konstantin Romodanovski. “Putin is forcing out his old comrades and replacing them with younger subordinates. Those people reminded him of times when he wasn’t the boss yet… Now he needs executives, not advisors,” said political analyst Stanislav Belkovsky. Some political scientists make comparisons to 2003–2004 (after Putin had taken office), during which time the last influential members of Boris Yeltsin’s team were resigning.

Putin is surrounded by two types of people: bureaucrats and businessmen. The former still want something from the president, they engage in political intrigues and battle with opponents. The latter stay in the shadows, focused on draining the Russian economy thanks to the Kremlin’s favorable attitude. Putin’s oligarchs, such as Kovalchuk, Timchenko or the Rotenbergs, are resistant to purges, because they will be needed in the coming years as Putin’s business associates. In the meantime, the second generation of Putin’s elites is entering into key positions in the administration. Those tied to the KGB, born in the 1940s and 1950s, are being replaced by younger people whose careers started to develop after the fall of the Soviet Union. Yakunin (born in 1948) was replaced by Oleg Belozerov (born in 1969), Viktor Ivanov (b. 1950) was replaced by Andrei Chrapov (b. 1970), Sergei Ivanov (b. 1953) was replaced by Anton Vaino (b. 1972), Evgeny Murov (b. 1945) by Dimitri Kochniev (b. 1964). The ministers of the energy sector (Alexandr Novak, b. 1971), communications (Nikolai Nikiforov, b. 1982) or industry and trade (Denis Manturov, b. 1969) can also be included in this new wave. From Putin’s point of view, these are the best people for hard times. They owe their entire careers to the system that he created, if not to him personally, and they do not know any president from the times before he took office, which is very important psychologically.

Putin had been planning the purge at the pinnacle of power for a long time; it was just a matter of finding a suitable pretext. The pebble that started the avalanche was the move against the head of customs, Andrey Belyaninov. The blow was spectacular, since never before in Putin’s Russia had the security services acted in such a harsh and demonstrative manner against one of the president’s very own comrades, and one in such a high position to boot. On June 26, 2016, officers of the FSB entered Belyaninov’s home and office. They found cash in different currencies worth 58 million rubles or about $900,000 (the annual income of the head of the FTS is 13 million rubles). Searches were also conducted in the offices of Belyaninov’s deputies. The actions of the FSB and investigators were connected with the case of Dmitry Mikhalchenko, a businessman from Saint Petersburg, who had been apprehended a few months earlier on charges of smuggling alcohol (expensive cognac imported as construction sealant). Belyaninov was only called as a witness in the investigation, but two days later he was dismissed. He had headed the FTS since 2006, while before that he was the director of federal agencies for defense industry procurement and weapons export. Between 1978 and 1991 he was an intelligence officer at the KGB; he made a career in Moscow thanks to Putin, whom he knew from his days of service in the GDR.

Vladimir Bulavin became the new head of the FTS; for three years, he had been the Presidential Plenipotentiary Envoy to the Northwestern Federal District, but he is primarily known as a Lubyanka (KGB) man. He was in the KGB from the late 1970s; in post-Soviet Russia he continued his service: from 2001 he headed the FSB in the Volga Federal District, and in 2006 he became the deputy head of the FSB at the rank of general. When Nikolai Patrushev moved to the Security Council of the Russian Federation in 2008, Bulavin followed him as his deputy. In 2013 he became the Presidential Plenipotentiary Envoy to the Northwestern Federal District. It is difficult to include Bulavin in the new generation of Putinocrats (as in the case of the Head of the National Guard, Viktor Zolotov, or the Head of the Foreign Intelligence, Sergey Naryshkin) which proves that Putin still values loyalty above all. However, vacating the office by Bulavin started a wave of personnel shifts. On July 28, 2016, the Kremlin website published multiple presidential decrees. In one blow, Putin replaced three of the nine presidential plenipotentiary envoys in federal districts, abolished one federal district and appointed four governors.
The chain starts with the position of the Presidential Plenipotentiary Envoy to the Northwestern Federal District, which had just been vacated by Bulavin. The office was taken by Nikolai Tsukanov, who had been the governor of the Kaliningrad Oblast since 2010. This position then went to the head of the FSB in Kaliningrad, Yevgeny Zinichev, Putin’s former bodyguard. Another former bodyguard, Dmitri Mironov, became the governor of the Yaroslavl Oblast. Both the Yaroslavl and Kaliningrad oblasts are considered to be regions strong with the opposition. In 2009–2011 mass-scale protests erupted. At the time, the Kremlin reacted by promoting governors from the local elite. Now, in expectation of another wave of social discontent, “siloviki” were posted to Yaroslavl and Kaliningrad (although Zinichev was eventually moved to Moscow to become the deputy director of the FSB in October 2016). The third change took place in the Kirov Oblast, where Nikita Belykh, arrested on corruption charges, was replaced as governor by Igor Vasilyev, a former KGB officer and Head of Rosreestr (Federal Service for State Registration, Cadastre and Cartography) since 2014.

Along with the elimination of the Crimean Federal District, Oleg Belaventsev, who is believed to be a protégé of the Minister of Defense, Sergey Shoygu, lost his post as presidential envoy. He was moved to the same position in the North Caucasian Federal District, which had been vacated by Sergei Melikov, who had been trying to pacify the unruly region since 2014. A veteran of the Internal Troops, former commander of the elite Dzerzhinsky division, he returned to his roots: Putin named him the deputy head of Viktor Zolotov’s National Guard. Zolotov’s predecessor as commander of the Internal Troops of the Ministry of Internal Affairs, Nikolai Rogozhkin, who had been the Presidential Plenipotentiary Envoy to the Siberian Federal District since 2013, had to step down to be replaced by Sergei Menyailo. The latter, also a protégé of Shoygu, had been the governor of Sevastopol since 2014; he lost the fight with Sergei Chemezov’s (CEO of Rostec Corporation) man, Dmitry Ovsyannikov, Deputy Minister of Industry. The new governor of Sevastopol is the only person from the group of the ”July 28 nominees”, who has no connections with the security services.

While the shuffling of personnel in July applied primarily to regions, the purge at the central level was symbolically topped off by the dismissal of Sergei Ivanov. For years he was part of Putin’s inner circle. The two met in the Leningrad KGB before departing for their respective duty stations. Putin went to Dresden, and Ivanov, educated as an English philologist, to Scandinavia. After the dissolution of the KGB, Putin left the service, whereas Ivanov remained in intelligence, where he attained the position of deputy head of the Europe Department of the Foreign Intelligence Service. When Putin became the Director of the FSB in 1998, he made Ivanov his deputy. When Putin became president, Ivanov left the Lubyanka to become the Minister of Defense in 2001. At the end of his second term, Putin was choosing between Ivanov and Dmitry Medvedev as his successor. He bet on the latter; Ivanov did not even try to conceal his resentment. Despite this, he followed Putin again and became the Deputy Prime Minister in his government, later returning to the Kremlin as the Chief of Staff of the Presidential Executive Office.

He took over one of the most important positions in the country and started political intrigues against his rivals. He was supposedly behind the attacks on Prime Minister Medvedev and the campaign against Ramzan Kadyrov. The issue of the National Guard Act surely didn’t help him either. Ivanov’s officials prepared the project in such a way that the text, which had already been approved by the Duma, had to be quietly corrected before it was handed over for the president’s signature. This dismissal has a significant meaning for the functioning of the system, because, as noted by a former US intelligence analyst, John Schindler, “Ivanov was at the heart of Putin’s chekist, mafia government for two decades.” Moreover, in the area of foreign affairs, “regardless of the positions held, Ivanov was a failsafe communication channel to Putin, even in the most delicate situations. In contacts between the White House and the Kremlin this channel was the best and most important”, said the former Secretary of the State Condoleezza Rice in her memoirs about the former Chief of Staff of the Presidential Executive Office. Currently, Ivanov is the Special Presidential Representative for Environmental Protection, Ecology and Transport. This position was created especially for him. Meanwhile, it appears intriguing that someone like that still sits on the Security Council of the Russian Federation. Either Putin did not want to completely humiliate Ivanov, or he still may have plans for him in the future.

The new head of the president’s administration is a classic representative of the new wave in Putin’s regime; relatively young and trusted by Putin. Anton Vaino (b. 1972) comes from a distinguished family of Estonian communists. His grandfather, Karl, was the First Secretary of the Communist Party of Estonia from 1978–1988. After Estonia regained independence, the Vainos chose Russia. Anton started his career as a diplomat (specializing in Japan), but Putin quickly took him to the Kremlin. Since 2002, Vaino has been close to the president; he even became the Chief of Protocol, which is as close to Putin as one can be, just like his personal bodyguards. Naturally, the most influential person with an FSO background is the current head of the National Guard, Viktor Zolotov, who was the chief of Putin’s bodyguards, and later served in the Ministry of Internal Affairs to lay the groundwork for the creation of the new formation that would be exclusively loyal to the president. Three former subordinates of Zolotov have become governors, although this is not the end of their careers as envisioned by Putin. The above-mentioned Zinichev would travel with Putin around the country as a bodyguard. In June 2015, he became the Head of the FSB in Kaliningrad, and was promoted to the position of governor last year. After that short episode, he became the Deputy Head of the FSB. Dmitri Mironov also used to be a bodyguard and an aide-de-camp of Putin. In 2014 he was relegated to the Ministry of Internal Affairs, where he even became the Deputy Minister. Currently, he is the Governor of Yaroslavl. Tula Oblast, on the other hand, is governed by Alexey Dyumin, the deputy head of Putin’s security, who was later relegated to the Ministry of Defense, and to the GRU more specifically. He was one of the key people running the Russian “special operation” in Crimea. After the death of General Igor Sergun (the Director of the GRU) in January 2016, Putin wanted Dyumin to head military intelligence. The plan failed and now Dyumin – also known for playing the position of goaltender in hockey matches among Putin’s closest friends – is waiting for a new opportunity. Another of Zolotov’s men has become Head of the Presidential Administrative Directorate, i.e. the Kremlin’s major-domo. Vladimir Kozhin was replaced by Alexander Kolpakov, who previously had been the head of Department “B” of the FSO.

When Stalin was unable to deal with the internal problems of collectivization and industrialization, he got rid of his more experienced political collaborators at the famous “Congress of the Victors”, who understood what was going on and could question his decisions. Then, after the assassination of Sergey Kirov, the Great Terror started. There were successive phases of “cleansing” in the regime, the last one taking place in the final period of Stalin’s life. The mechanism was always the same. New comrades replaced the old ones that had been eliminated, such as Nikita Khrushchev, Georgy Malenkov, Andrei Zhdanov or Lavrentiy Beria. They were technocrats who placed power and their careers over any ideological misgivings, ready to obey every command. Times have changed, but Putin is taking advantage of the same mechanism. Of course today, officials who are pushed aside are no longer murdered.

What characterizes Putin’s current, transforming model of government? It is the end of the old system based on the consensus of the elite and a balancing of interests between clans (the most prominent example of that model was the so-called tandemocracy of 2008–2012). Instead of protecting the interests of the group standing at the apex of the regime pyramid, the goal of the system now seems to be to protect Putin himself. Instead of rule by a type of Politburo, one person will have all the power. It won’t be enough to assign loyalists to a majority of positions to ensure success. This is why Putin is creating a checks-and-balances system within individual institutions. As Sergei Ivanov was counterbalanced in the presidential administration by his mighty deputy Vyacheslav Volodin, now Anton Vaino is counterbalanced by Sergei Kiriyenko. Kiriyenko himself is “controlled” by Andrei Yarin, Head of the Presidential Domestic Policy Directorate. In turn, Alexander Bortnikov has competition at his side in the FSB in the form of Sergei Korolev as well as Zinichev. This system, where the head of an institution feels their deputy (and candidate for his successor) breathing down his neck, compensates for the lack of authentic political competition.

Most of the personnel changes in recent months have been made with the aftermath of the 2018 election in mind, and not what comes before it. In the case of some of the new nominees, it can be assumed that they have some particular, time-limited mission to carry out. It is all about ensuring that Vladimir Putin has full control over the most important regions and corporations in the period of major political changes and reconfiguration of the government around the time of the election. It’s still unclear when the election will actually take place; however, the recent purges might signal that it will happen sooner rather than later. According to the Ministry of Finance of the Russian Federation, funds will run out in 2017, whereas the presidential election is scheduled for March 2018. If Putin’s government is to introduce unpopular reforms, which seems unavoidable at the moment, it will not do so before the election. In early November, an interview was published with Valery Soloviev on the website of a popular tabloid. He is an analyst known for exceptionally accurate forecasts and predictions about the Kremlin’s decision-making. On this occasion, he suggested that Putin has some serious health issues and might step down in 2017. Interestingly, the interview disappeared after only a few hours, and Soloviev himself went silent. “There are no such discussions at the Kremlin,” commented Putin’s spokesperson about an early election.

The personnel revolution of 2016 shows, that Putin is unable to solve the regime problems by changing the system. He limits himself to personnel changes, although they may signal preparation for fundamental reforms in the future. Mass-scale changes are not an end unto themselves, but rather a means to achieve an overriding goal: reshaping the system. Putin is neutralizing potential resistance against changes that might turn out to be revolutionary. He is also forming a group of “oprichniks”, who will carry out the tasks given to them.

A lot depends on how much longer Putin will rule and what form the succession process will take. There are two possibilities: either the Yeltsin scenario, a behind-the-scenes consensus of major political forces, or a brutal war for power. In the face of recent events, the latter seems more likely. Earlier, Putin was the arbiter and center of balance for the interests of competing groups of elites. The conflict in Ukraine, the assassination of Boris Nemtsov and the war between the federal “siloviki” and Kadyrov, ruined this tacit agreement. Hence the current personnel changes. In effect the system has become even more personalized, which means that the weakening or the departure of the president poses a great risk to the Russian Federation. In October 2014, at the meeting of the Valdai Discussion Club, the deputy head of the presidential administration declared: “Today, there is no Russia without Putin!”.

This dependence of the country on its leader is a threat. Even in Soviet times, the general secretary of the Communist Party did not have such great power, as the death of Brezhnev, Andropov, or even Stalin, did not threaten the collapse of the entire system of government and an undermining of the foundations of the state. This time it might be different.

The Warsaw Institute Review | Starting Points for Developing a New Energy Policy for Poland

​This article was originally published in The Warsaw Institute Review by Piotr Naimski

 

 

  • Poland is to remain sovereign in the field of energy supplies. Energy production based on domestic energy resources must provide consumers with uninterrupted and competitive energy supplies. The importation of raw materials and energy can only be a supplement.
  • It is safe to assume that the demand for energy in Poland will not decrease before 2050.
  • Energy efficiency, understood as saving energy, will be an important factor contributing to energy security and the competitiveness of Polish industry.
  • Black and brown coal will remain the basic energy sources in Poland until 2050.
  • The use of coal as a raw material must be based on the latest, high-performance, clean technologies, both directly in power units and in the field of chemical coal processing.
  • We will maintain coal-based electricity generation of around 30 GW until 2050.
  • High-emission power plants, non-compliant with European standards and at the end of their lifecycle, will be replaced by new ones. This will mean a huge investment effort in the coming years.
  • We will achieve current climate policy commitments adopted by Poland in the Paris Agreement and those resulting from EU regulations. At the same time, we are determined to defend Poland’s right to choose its own path to achieve CO2 emission reduction targets.
  • The European emissions trading system should be applied in Poland by taking into account its exceptionally high (by European standards) dependence on coal as an energy source.
  • Further attempts to increase CO2 reduction commitments conflict with Poland’s economic strategy, they will be harmful to the energy sector and will reduce the competitiveness of Poland’s economy.
  • Renewable energy technologies will develop in Poland based on market principles of competition. The support models used in some EU countries cannot be duplicated in Poland, primarily due to the fact that end consumers of energy cannot bear the burden of the costs.
  • The strategic direction of research and investment will be energy storage and modern coal technologies. New, innovative solutions in this area will be supported by the government and energy companies, with participation from the state treasury.
  • Natural gas will remain an important raw material for the Polish economy. We will maintain our existing level of production and will complete the plan to diversify the types and sources of energy supply from abroad. We anticipate that in 2022 Poland will be connected by pipeline to the Norwegian continental shelf through the Danish transmission system.
  • Deliveries through the northern gas pipeline and from the Świnoujście gas terminal, as well as the anticipated linking of Poland with Lithuania, Ukraine, Slovakia and the Czech Republic through interconnectors, will enable the creation of a gas hub in Poland important for Central Europe.
  • The transmission of energy, natural gas, petroleum and fuels, as well as the availability of sufficient quantities of storage for raw materials and fuels, must remain an essential element for the security of supplies.
  • Poland’s energy security requires coordinated action in the international arena between those leading on this issue in the Ministry of Energy and other ministries, foremost in the Ministry of Foreign Affairs and the Ministry of the Environment, and strategic companies in the electricity, oil and gas sectors, with the state treasury playing a dominant role.
  • Poland must guarantee its participation in the creation of energy and gas markets at the European level to a degree safeguarding the interests of the Polish economy and the country’s energy security requirements.
  • Actions and investments undertaken on the basis of the strategy adopted for energy policy will determine the so-called “energy mix”, the share of different primary sources in meeting the country’s energy needs. Power generation technologies need to be tailored to the needs of the country, their capabilities and profitability, and not to the a priori energy mix of 2050.
  • Maintenance of strategic reserves of fuels and extraction potential, including protection of national strategic fuel deposits from construction that would prevent their future use, especially brown coal deposits.
  • Poland must methodically develop systemic heating as the primary means of supplying heat to consumers in high population density areas. In addition, in the mid and long term, the combustion of fuels in individual home installations should be abandoned, in favor of electric heating (including heat pumps), solar thermal connectors or other emission-free forms of supplying heat.

The energy sector should rely on the country’s own raw materials and technological resources and at the same time support the country’s overall economic and industrial policy. This especially means that these processes should be as cost-effective as possible to stimulate necessary investments and lead to the transformation of the government-established sector. It should be emphasized that decisions undertaken in the field of energy will both directly and indirectly influence other segments of the domestic economy. In this context, it is crucial to ask about the vision for change in the structure of the creation of added value to GDP. At present, with the multiplier effect, the energy sector generates nearly 8% of added value and creates nearly 600,000 jobs both directly and indirectly in related sectors.

 

The assumed transformation in the direction of a strong economy will require taking into account the challenges facing this sector. The most important ones include:

  • the need to implement highly capital-intensive investment plans related to the construction of new generation capacity and the modernization of existing network and manufacturing assets,
  • the decline in the profitability of the electricity sector and the deteriorating financial situation of domestic energy companies,
  • unstable investment conditions caused by EU climate policy and the expected price increases for CO2 emission allowances,
  • serious disturbances in the functioning of energy markets in Poland and other EU countries (caused in part by massive subsidies for renewable energy sources, often not covering full production costs, resulting in a lack of profitability for new investments),
  • practices observed in other countries based on protecting low energy prices for industry by shifting costs to individual consumers,
  • regulatory changes imposed by the EU not taking into account the specificities of the Polish energy sector.

 

It is worth pointing out that the investment direction indicated in the energy policy will have a significant impact on the future structure of energy production in our country. In turn, it will affect energy-related fuel production (black and brown coal mining, gas extraction, biomass production), production of equipment and machinery for the mining and power industries, and the condition of companies serving the energy sector. The conventional energy generation segment will be especially important, where the investment time is long, lasting 5-10 years and the life of the asset is nearly 40 years.

 

At the same time, when deciding on the construction of new power plants, account should be taken of their impact on the functioning of the National Electric Energy System and on the economic effectiveness of different change scenarios in the market environment, in particular on fuel costs and CO2 emissions.

 

The basic conditions for the successful transformation of the energy sector include:

  • stabilization of regulations covering the energy sector,
  • formulation and development of modern coal technologies (among others, the optimal selection of technologies for the Polish power industry using domestic and foreign solutions, including duoBLOCK technology, coal gasification, oxidation and CCU technology development),
  • coordinating mechanisms with the European Union to reduce the costs and risks of the development of modern, conventional energy and to obtain financing for new investments in conventional generators.

 

Without neglecting work on the development of a comprehensive strategy for the Polish power industry for the next 30-35 years, we must solve the immediate problems of coal mining transformation, which will ensure the supply of this raw material during this period. We need to provide financing for new investments in the power sector, including by introducing the power market and by the establishment of reasonable rules for the cooperation of energy and gas system operators with neighbors in the region, which does not undermine the sovereignty of the Polish state in this regard. Without the successful resolution of these issues, the implementation of the best long-term strategy will be impossible.

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When French voters decide between Emmanuel Macron and Marine Le Pen in Sunday's Presidential run-off, they have a clear choice: outward-looking, market-friendly centrism or xenophobic protectionism. The surprise is that the latter has proved popular among young French voters. Far-right politics is usually driven by older voters keen to turn back the clock. Why is France different?

Don't demonise payday lenders - let them help tackle poverty

For Britain's poorest, a credit crisis can be an almost daily occurrence. When they need a financial buffer, they can end up paying punitive overdraft fees and high payday loan rates. Worse still, they can end up at the mercy of illegal lenders. The Centre for Social Justice has a simple idea that could fix the problem: back-banking. Might it offer the poorest the financial support they need without creating an undue risk of default?

LATEST NEWS FROM PARTNER CAP X

What does it mean to be poor today? - What Paul Ryan wants from Europe - Give women the freedom to fix poverty - May has given Britain the election it desperately needed - It's not inequality that gets people angry - it's unfairness

What does it mean to be poor today?

Logic dictates that as societies become richer, social spending should decline. But the opposite is true in the West today. Why? Partly because poverty is broadly defined, and partly because social expenditure goes beyond poverty alleviation. The effect of this excessive generosity can be to disincentivise able-bodied men and women from working, robbing a nation of productive workers.

What Paul Ryan wants from Europe

To the Westminster audience he addressed this week, the most powerful Republican in Congress was something of an alien species: a morally unambiguous, super-fit policy geek. His expression of support for a UK/US trade deal claimed the headlines. But the meat of his talk concerned Russia. The language with which he denounced Putin was stark. And his reminder of the importance of Nato for European security couldn't have been clearer. 

Give women the freedom to fix poverty

One of the more frightening revelations in the UN's recent Human Development Report is that more than 100 countries forbid women from working in some professions. This is just one of the many ways in which women around the world are denied their economic freedom. As reforms in Ethiopia demonstrate, the economic liberation of women is not only the right thing to do, but a proven road out of poverty.

May has given Britain the election it desperately needed

Theresa May's announcement that she wants a general election may be a shock, but it is good for the UK's democratic hygiene. It gives the Prime Minister the opportunity she needed to secure a mandate for her ideological break with the Cameron government - and gives centrist and centre-left voters the chance to save Labour by demonstrating that the hard Left is an electoral dead end.

It's not inequality that gets people angry - it's unfairness

There are two opposing stories about our attitudes to inequality. Some psychological studies suggest mankind is innately averse to it. Others show not only that we tolerate a degree of inequality but that we actually prefer it. Yet this contradiction has been convincingly reconciled in a new paper. Its authors argue that when people appear to get angry about inequality, in fact they are worried about unfairness.

LATEST NEWS FROM PARTNER CAP X

Globalisation is slashing inequality - here's how - Hiding skeletons in the closet is bad for business - The East African famine shows how we're getting aid wrong - Lessons the IMF can learn from its mistakes in - Let them drink coffee - from disposable cups

Globalisation is slashing inequality - here's how

The tremendous growth in developing countries has cut poverty and relative inequality between states. This is because, in many areas, poor countries are making faster progress than rich ones in many areas. In some cases, such as malnutrition, this is because rich countries have very few further gains to make. In others, the rapid adoption of technologies and market-friendly reforms have delivered progress at breakneck speed.

Hiding skeletons in the closet is bad for business

Those at the helm of companies with dark chapters in their history might instinctively want to cover up their predecessors' transgressions. What they should realise is that, almost invariably, the truth will out one way or another. An honest reckoning with the past, even when it involves mistakes as serious Nazi collaboration, is the only defence against someone else telling a firm's story for them.

The East African famine shows how we're getting aid

Short-term thinking is a blight on aid spending. For every $1 spent preparing for humanitarian disasters, we save $7 in dealing with the consequences. And yet just 1 per cent of humanitarian aid goes on disaster risk management. The East African famine, which has put 16 million people on the brink of starvation, is the latest example of a crisis that could easily have been avoided, or at the very least ameliorated.

Lessons the IMF can learn from its mistakes in Mozambique

Not so long ago, things were looking up for Mozambique. It had successfully swapped civil war for democratic elections and discovered vast reserves of offshore natural gas. But what could have been Africa's boom nation instead became a cautionary tale of the damage that corruption and lax debt relief can collectively wreak. Will the IMF make the same mistake again?

Let them drink coffee - from disposable cups

A new University of Cardiff report calls for more government action to stop people using disposable coffee cups. Yet, given that a 25p charge for the cups deterred only a tiny fraction of consumers, we clearly value their convenience. In any case, we are already taxed for the environmental harm they do with a landfill charge. When the benefits outweigh the harm, as is the case here, it is economically illiterate to get in people's way.

 

 

UK Prime Minister’s letter to Donald Tusk triggering Article 50

Prime Minister Theresa May has written to European Council President Donald Tusk to notify him of the UK’s intention to leave the EU.

On 23 June last year, the people of the United Kingdom voted to leave the European Union. As I have said before, that decision was no rejection of the values we share as fellow Europeans. Nor was it an attempt to do harm to the European Union or any of the remaining member states. On the contrary, the United Kingdom wants the European Union to succeed and prosper. Instead, the referendum was a vote to restore, as we see it, our national self-determination. We are leaving the European Union, but we are not leaving Europe – and we want to remain committed partners and allies to our friends across the continent.

Earlier this month, the United Kingdom Parliament confirmed the result of the referendum by voting with clear and convincing majorities in both of its Houses for the European Union (Notification of Withdrawal) Bill. The Bill was passed by Parliament on 13 March and it received Royal Assent from Her Majesty The Queen and became an Act of Parliament on 16 March.

Today, therefore, I am writing to give effect to the democratic decision of the people of the United Kingdom. I hereby notify the European Council in accordance with Article 50(2) of the Treaty on European Union of the United Kingdom’s intention to withdraw from the European Union. In addition, in accordance with the same Article 50(2) as applied by Article 106a of the Treaty Establishing the European Atomic Energy Community, I hereby notify the European Council of the United Kingdom’s intention to withdraw from the European Atomic Energy Community. References in this letter to the European Union should therefore be taken to include a reference to the European Atomic Energy Community.

This letter sets out the approach of Her Majesty’s Government to the discussions we will have about the United Kingdom’s departure from the European Union and about the deep and special partnership we hope to enjoy – as your closest friend and neighbour – with the European Union once we leave. We believe that these objectives are in the interests not only of the United Kingdom but of the European Union and the wider world too.

It is in the best interests of both the United Kingdom and the European Union that we should use the forthcoming process to deliver these objectives in a fair and orderly manner, and with as little disruption as possible on each side. We want to make sure that Europe remains strong and prosperous and is capable of projecting its values, leading in the world, and defending itself from security threats. We want the United Kingdom, through a new deep and special partnership with a strong European Union, to play its full part in achieving these goals. We therefore believe it is necessary to agree the terms of our future partnership alongside those of our withdrawal from the European Union.

The Government wants to approach our discussions with ambition, giving citizens and businesses in the United Kingdom and the European Union – and indeed from third countries around the world – as much certainty as possible, as early as possible. I would like to propose some principles that may help to shape our coming discussions, but before I do so, I should update you on the process we will be undertaking at home, in the United Kingdom.

The process in the United Kingdom

As I have announced already, the Government will bring forward legislation that will repeal the Act of Parliament – the European Communities Act 1972 – that gives effect to EU law in our country. This legislation will, wherever practical and appropriate, in effect convert the body of existing European Union law (the “acquis”) into UK law. This means there will be certainty for UK citizens and for anybody from the European Union who does business in the United Kingdom. The Government will consult on how we design and implement this legislation, and we will publish a White Paper tomorrow. We also intend to bring forward several other pieces of legislation that address specific issues relating to our departure from the European Union, also with a view to ensuring continuity and certainty, in particular for businesses. We will of course continue to fulfil our responsibilities as a member state while we remain a member of the European Union, and the legislation we propose will not come into effect until we leave.

From the start and throughout the discussions, we will negotiate as one United Kingdom, taking due account of the specific interests of every nation and region of the UK as we do so. When it comes to the return of powers back to the United Kingdom, we will consult fully on which powers should reside in Westminster and which should be devolved to Scotland, Wales and Northern Ireland. But it is the expectation of the Government that the outcome of this process will be a significant increase in the decision-making power of each devolved administration.

Negotiations between the United Kingdom and the European Union

The United Kingdom wants to agree with the European Union a deep and special partnership that takes in both economic and security cooperation. To achieve this, we believe it is necessary to agree the terms of our future partnership alongside those of our withdrawal from the EU.

If, however, we leave the European Union without an agreement the default position is that we would have to trade on World Trade Organisation terms. In security terms a failure to reach agreement would mean our cooperation in the fight against crime and terrorism would be weakened. In this kind of scenario, both the United Kingdom and the European Union would of course cope with the change, but it is not the outcome that either side should seek. We must therefore work hard to avoid that outcome.

It is for these reasons that we want to be able to agree a deep and special partnership, taking in both economic and security cooperation, but it is also because we want to play our part in making sure that Europe remains strong and prosperous and able to lead in the world, projecting its values and defending itself from security threats. And we want the United Kingdom to play its full part in realising that vision for our continent.

Proposed principles for our discussions

Looking ahead to the discussions which we will soon begin, I would like to suggest some principles that we might agree to help make sure that the process is as smooth and successful as possible.

i. We should engage with one another constructively and respectfully, in a spirit of sincere cooperation

Since I became Prime Minister of the United Kingdom I have listened carefully to you, to my fellow EU Heads of Government and the Presidents of the European Commission and Parliament. That is why the United Kingdom does not seek membership of the single market: we understand and respect your position that the four freedoms of the single market are indivisible and there can be no “cherry picking”. We also understand that there will be consequences for the UK of leaving the EU: we know that we will lose influence over the rules that affect the European economy. We also know that UK companies will, as they trade within the EU, have to align with rules agreed by institutions of which we are no longer a part – just as UK companies do in other overseas markets.

ii. We should always put our citizens first

There is obvious complexity in the discussions we are about to undertake, but we should remember that at the heart of our talks are the interests of all our citizens. There are, for example, many citizens of the remaining member states living in the United Kingdom, and UK citizens living elsewhere in the European Union, and we should aim to strike an early agreement about their rights.

iii. We should work towards securing a comprehensive agreement

We want to agree a deep and special partnership between the UK and the EU, taking in both economic and security cooperation. We will need to discuss how we determine a fair settlement of the UK’s rights and obligations as a departing member state, in accordance with the law and in the spirit of the United Kingdom’s continuing partnership with the EU. But we believe it is necessary to agree the terms of our future partnership alongside those of our withdrawal from the EU.

iv. We should work together to minimise disruption and give as much certainty as possible

Investors, businesses and citizens in both the UK and across the remaining 27 member states – and those from third countries around the world – want to be able to plan. In order to avoid any cliff-edge as we move from our current relationship to our future partnership, people and businesses in both the UK and the EU would benefit from implementation periods to adjust in a smooth and orderly way to new arrangements. It would help both sides to minimise unnecessary disruption if we agree this principle early in the process.

v. In particular, we must pay attention to the UK’s unique relationship with the Republic of Ireland and the importance of the peace process in Northern Ireland

The Republic of Ireland is the only EU member state with a land border with the United Kingdom. We want to avoid a return to a hard border between our two countries, to be able to maintain the Common Travel Area between us, and to make sure that the UK’s withdrawal from the EU does not harm the Republic of Ireland. We also have an important responsibility to make sure that nothing is done to jeopardise the peace process in Northern Ireland, and to continue to uphold the Belfast Agreement.

vi. We should begin technical talks on detailed policy areas as soon as possible, but we should prioritise the biggest challenges

Agreeing a high-level approach to the issues arising from our withdrawal will of course be an early priority. But we also propose a bold and ambitious Free Trade Agreement between the United Kingdom and the European Union. This should be of greater scope and ambition than any such agreement before it so that it covers sectors crucial to our linked economies such as financial services and network industries. This will require detailed technical talks, but as the UK is an existing EU member state, both sides have regulatory frameworks and standards that already match. We should therefore prioritise how we manage the evolution of our regulatory frameworks to maintain a fair and open trading environment, and how we resolve disputes. On the scope of the partnership between us – on both economic and security matters – my officials will put forward detailed proposals for deep, broad and dynamic cooperation.

vii. We should continue to work together to advance and protect our shared European values

Perhaps now more than ever, the world needs the liberal, democratic values of Europe. We want to play our part to ensure that Europe remains strong and prosperous and able to lead in the world, projecting its values and defending itself from security threats.

The task before us

As I have said, the Government of the United Kingdom wants to agree a deep and special partnership between the UK and the EU, taking in both economic and security cooperation. At a time when the growth of global trade is slowing and there are signs that protectionist instincts are on the rise in many parts of the world, Europe has a responsibility to stand up for free trade in the interest of all our citizens. Likewise, Europe’s security is more fragile today than at any time since the end of the Cold War. Weakening our cooperation for the prosperity and protection of our citizens would be a costly mistake. The United Kingdom’s objectives for our future partnership remain those set out in my Lancaster House speech of 17 January and the subsequent White Paper published on 2 February.

We recognise that it will be a challenge to reach such a comprehensive agreement within the two-year period set out for withdrawal discussions in the Treaty. But we believe it is necessary to agree the terms of our future partnership alongside those of our withdrawal from the EU. We start from a unique position in these discussions – close regulatory alignment, trust in one another’s institutions, and a spirit of cooperation stretching back decades. It is for these reasons, and because the future partnership between the UK and the EU is of such importance to both sides, that I am sure it can be agreed in the time period set out by the Treaty.

The task before us is momentous but it should not be beyond us. After all, the institutions and the leaders of the European Union have succeeded in bringing together a continent blighted by war into a union of peaceful nations, and supported the transition of dictatorships to democracy. Together, I know we are capable of reaching an agreement about the UK’s rights and obligations as a departing member state, while establishing a deep and special partnership that contributes towards the prosperity, security and global power of our continent.

 

Theresa May

Prime Minister of United Kingdom

LATEST NEWS FROM PARTNER CAP X

Friedrich Hayek and the collective brain - Free speech is being shut down in South Africa - What is the French for entrepreneur? - Refugees need jobs not blankets - Can Britain overcome its innovation inertia?

Friedrich Hayek and the collective brain

It is 25 years to the day since Friedrich Hayek's death. Wrongly dismissed by the Left as a right-wing zealot, Hayek was a giant of economics as well as a thoroughly modern thinker. Long before the internet enabled us to share ideas in an instant, he realised that it was only through collective endeavour that meaningful human progress could be achieved. How is that collaborative effort best organised? Not by the state - but by the market.

Free speech is being shut down in South Africa

The case of Helen Zille would suggest that South Africa is falling short of the mark when it comes to the ability of government opponents to speak freely. The Democratic Alliance Premier of Western Cape made the mistake of suggesting that the legacy of colonialism was not entirely negative. The evidence is on her side. Nevertheless she may yet pay a high price for her candour.

What is the French for entrepreneur?

The French economy is not known for its economic dynamism or entrepreneurial verve. Stifling bureaucracy and rigid labour laws are just two of the reasons France has earned a reputation as a frustrating place to do business. Might that be changing? Last year, France received more rounds of venture capital funding than any other European country. The victor of this year's election must create an environment that will continue this trend.

Can Britain overcome its innovation inertia?

The UK is home to some of the best universities in the world. Its scientists win more than their fair share of Nobel Prizes. Why, then, has it produced so few world-beating tech companies – and what can the Government do to change that? Britain could learn much from the US, where along-standing commitment to competition, and diverse sources of funding have delivered a successful innovation system.

 

LATEST NEWS FROM PARTNER CAP X

Scottish independence is about identity, not economics - Five graphs that will change your mind about poverty - Can Merkel and Trump work together? - Antisemitism is once more a force in Western politics - Francois Fillon: The man who just won't quit

Scottish independence is about identity, not economics

On the face of it, Nicola Sturgeon goes into a second independence campaign with the odds against her: not only do the economic facts favour remaining in the Union, but most Scots are less than keen on another divisive referendum. Yet the deeper currents are, alas, running in her favour - independence is now about identity rather than economics, and that identity is more Scottish and less British than ever.

Five graphs that will change your mind about poverty

Over the last 20 years, global poverty has halved - and by 2030, it could be all but extinct. Yet remarkably, just 1 in 100 people appear to realise this: most of us are convinced that poverty is either staying the same or getting much worse. These charts show just how profoundly misguided that pessimistic take on the world is, and how much cause there is for optimism about the future..

Can Merkel and Trump work together?

Stormy weather postponed the German Chancellor's trip to meet the new US President - and it provides the perfect metaphor for the current state of American-German relations. Mr Trump claims that Angela Merkel has destroyed Germany, while his trade adviser has accused Berlin of currency manipulation. Mrs Merkel, for her part, will doubtless want to assuage fears at home about the threat of American protectionism.

Antisemitism is once more a force in Western politics

In the strange world of French politics today, you are more likely to find expressions of antisemitism from the Republicans than you will from the National Front. Le Pen has detoxified her party and Jew hate is taboo among modernised French fascists. But it's sweeping the rest of the political West. From Jeremy Corbyn's Labour Party to Donald Trump's America, that ugly old hatred is being unleashed in high places.

Francois Fillon: The man who just won't quit

In how many ways can the beleaguered Republican candidate for the French presidency shoot himself in the foot? But despite his alleged 'diversion of public funds', and the gift of €48,500 worth of bespoke suits, Fillon is hanging on in there - and his supporters are hanging on with him. Not only do they share his scorn for the metropolitan elites, but they believe his bone-headed stubbornness is just what the country needs.

LATEST NEWS FROM PARTNER CAP X

Where was the Chancellor's reforming zeal? - The capitalist who knew capitalism was only a third of what we need - Japan has much to lose from a US-China bust-up - Why the West can’t let Afghanistan go

Where was the Chancellor's reforming zeal?

Today, Philip Hammond delivered what was perhaps the dullest Budget in living memory, with none of the razzmatazz and giveaways of the Brown/Osborne eras. This is clearly the way he wants it, emphasising steady economic competency in a time of uncertainty. But the worry is that, by keeping their powder dry for Brexit, ministers fail to address Britain's current economic problems - and opportunities.

The capitalist who knew capitalism was only a third of what we need

Michael Novak, who died last month, realised that capitalism was as much about families and institutions as it was about figures and bottom lines. This won him plaudits from Margaret Thatcher, Pope John Paul II and others. With capitalism too often seen as just an excuse for the rich to line their pockets, those who still believe in its merits must now take up his arguments.

Japan has much to lose from a US-China bust-up

With its more aggressive neighbours on manoeuvres, it's no wonder Japan is pleased that Trump has effectively put China on warning. However, military shows of strength aren't the only things Shinzo Abe should be concerned about. With the White House yet to formalise its East Asian policy, and a potential trade war on Japan's doorstep, it may be the new US administration that needs taming rather than those who are sabre rattling closer to home.

Why the West can’t let Afghanistan go

The Western powers have been trying to fix Afghanistan for 15 years, without much success. With the Taliban on the march again and hundreds of thousands of Afghans fleeing to Europe, it might be tempting to stop throwing good money after bad. The problem is that if the West does decide to stop propping up Ashraf Ghani's government, things are liable to get much worse very quickly.

New Direction hosted the Hon. Tony Abbott MP, former Prime Minister of Australia

The breakfast’s conversation centred around solutions to current crises in Europe.

New Direction held a private business breakfast with the Honourable Tony Abbott MP this morning, chaired by Tomasz Poręba MEP. Tony Abbott MP was accompanied by Australian ambassador H.E. Mark Higgie. Also in attendance were David Campbell Bannerman MEP, Daniele Capezzone MP, Jackie Foster MEP, Ashley Fox MEP, Daniel Hannan MEP, Syed Kamall MEP, Karol Karski MEP, Ryszard Legutko MEP, and Andrew Lewer MEP.

The breakfast’s conversation centred around solutions to current crises in Europe, and the role the EU should or should not have in Europe’s future. Tony Abbott provided invaluable insights from his successful experiences in Australian government, with topics as varied as border security to global free trade to national unity.

Overall, the breakfast was both congenial and productive, exemplifying the work we do at New Direction.

LATEST NEWS FROM PARTNER CAP X

Triumphant Theresa May is reshaping British politics

Triumphant Theresa May is reshaping British politics

The Conservative victory in Copeland confirms Theresa May's political supremacy. But this is no accident: she has deliberately targeted the kind of voters her predecessor neglected. In the process, she is changing Britain's political playing field. The great divide now is not between Left and Right, protectionist and internationalist, but between communitarians and individualists.

Western aid has enabled South Sudan’s kleptocrats

When South Sudan became the world's youngest nation, there was optimism that the country would move on from violence and civil war. Yet as the UN declares a famine, it is clear, instead, that South Sudan is a failed state - thanks in large part to international aid. The West's billions helped to prop up a rotten government and discourage investment. In the process, we condemned South Sudan to failure.

Is this the most dangerous man in the world?

Peter Navarro is the man who's rewriting America's trade policy. The problem is, he has some very, very bad ideas. Not only is Navarro obsessed with surpluses and deficits, but he and his boss want to be able to rip up and renegotiate any trade deals they don't like, with little to no warning. This is a terrifying prospect, because it strips away the certainty on which exporters and investors depend.

Why Britain needs to share the wealth

Since Brexit, the focus in economic policy has been on foreign trade. Yet there is a larger problem that needs to be solved - namely, the collapse in ownership. Whether it is shares or homes, more of the wealth is being concentrated in fewer hands. The best way to build prosperity, as Margaret Thatcher knew, is to give more people a stake in society. So let's get cracking.  

LATEST NEWS FROM PARTNER CAP X

Theresa May’s Britain is starting to look like a safe haven - Brands make the economic world go round - How the market is taking on climate change - It's time to cut Greece loose

Theresa May’s Britain is starting to look like a safe haven

With the FTSE reaching record highs, manufacturing on the up and even the volatile pound settling down, Britain is looking in much better shape than many predicted after the Brexit vote. Instead, the markets are worried about the United States, France, Holland and of course Greece. While there is still a long way to travel, Britain's surprising stability reflects well on both its politics and its Prime Minister.

Brands make the economic world go round

Capitalism depends on trust. As we sit in a cafe sipping a cup of tea, we know we can trust that we will get a decent cuppa; that the money we pay with will not have lost its value; and that if we are scalded by a careless barista we can get compensation. In the modern world, brands are a proxy for this trust - helping ensure that society does not disintegrate into self-interested barter economies.

How the market is taking on climate change

The leading lights in carbon policy are no longer left-wing environmentalists, but the Chinese Politburo and the hard-headed capitalists of Republican America. China is due to launch the world's largest emissions trading scheme, while leading US politicians are proposing a revenue-neutral carbon tax. As falling renewable prices make coal extraction unviable, it looks like the market is driving energy policy in a new direction.

It's time to cut Greece loose

After years of austerity and billions spent on bailout funds, Greece's economy is actually more sclerotic than it was before the financial crisis - except now it has even more debt to pay off. The EU might not want to let Greece go, but it may find its fellow creditors less accommodating. In the absence of the growth and reform that were promised, it is surely time for the IMF to stop throwing good money after bad.

LATEST NEWS FROM PARTNER CAP X

Economic war between the UK and EU is in no one's interest - Trump and Bannon see the world through blood-splattered spectacles - China’s road to diplomatic dominance

Economic war between the UK and EU is in no one's interest

Britain's trade with Europe did not begin in 1973 and it will not end after today's Article 50 vote. Despite some of the more hysterical prognoses, Britain remains one of the largest and most important parts of the European economy. For all the rhetoric of pour encourager les autres, the EU has a £90 billion trade gap with the UK to fill - something which should persuade its wiser heads to maintain our centuries of common trade.

Trump and Bannon see the world through blood-splattered spectacles

Donald Trump is accusing the media of ignoring terrorist atrocities. But if anything, the press is biased the other way. It systematically over-focuses on the violent, spectacular and unpleasant, and ignores less arresting but far more important issues. The issue with Trump is that he and his adviser Steve Bannon take this tendency to the extreme, to the point where they see only the bad in the world.

China’s road to diplomatic dominance

China's plan to link the Silk Road with European markets brings a welcome boost to its own factories - they get to build the infrastructure which is currently advancing across Central Asia. But at what cost to the countries it crosses? With Chinese battleships appearing in Asian ports and complaints that trade is being used as a means of coercion, it looks like economic dominion isn't the only thing being plotted.

LATEST NEWS FROM PARTNER CAP X

Workers are losing out as monopolies corner the market - Somaliland is a lesson in how to build a nation without aid - Economic illiteracy is helping the bad guys win

 

Workers are losing out as monopolies corner the market

One of the most important phenomena in economics - which helps explain the Trump surge and much else - is that workers are getting a smaller and smaller share of the pie. Two new papers put the blame on the way in which markets are increasingly dominated by a few giant firms, which have greater leverage over consumers and their own staff. For competition to work properly, the game needs more than just a few players.

Somaliland is a lesson in how to build a nation without aid

Somaliland is a desperately poor place - partly because it is not even recognised as a state. Yet compared to its neighbours in the Horn of Africa, it is a beacon of political stability. Denied the Western aid doled out to other poor countries, its people have had to fall back on their own resources. In doing so, they have helped Somaliland avoid the dependency trap into which so many others have fallen.

Economic illiteracy is helping the bad guys win

Many explanations have been advanced for the surging popularity of populism, but one contributory factor has gone largely ignored - the fact that voters are by and large economically illiterate. That makes them easy prey for snake-oil salesmen promising policies that benefit the few but harm the many, or deliver short-term boom and long-term bust. So why not try teaching people the real facts of economic life?

LATEST NEWS FROM PARTNER CAP X

How to build a proper African free trade area - Could 2017 be the year of the super-hack? - Here's the real truth about inequality - Can India withstand the turbulent year ahead? - Are Chinese enterprises being taxed to death?

How to build a proper African free trade area

As the rest of the world turns away from big multinational trade deals, Africa is finally embracing them. This ambitious agenda to integrate its economies cannot come a moment too soon: with internal trade the lowest of any region in the world, at 10 per cent, and a heavy reliance on import duties, the continent urgently needs to get its economic act together if it is not to fall further behind.

Could 2017 be the year of the super-hack? 

The hacking attacks that affected millions of Twitter and Tumblr users last year could have merely been the appetiser. Experts are suggesting that this year could see cyber-vandalism that disrupts far more of the internet, potentially knocking much of it offline. In a connected world, everything from computers to toasters and lightbulbs can become subverted - and become a means of attack.

Here's the real truth about inequality

It's become an orthodoxy that British society is increasingly unequal. But there's a statistical sleight of hand at work here. When we measure income inequality, we take account of taxes and benefits. But when we measure wealth inequality, we strip out all the goodies the state provides - free schools, free hospitals, pensions, etc. Once those are taken into account, the playing field looks far more even.

Can India withstand the turbulent year ahead?

Towards the end of 2016, the world’s fastest growing major economy decided to withdraw every single 500 and 1,000 rupee note - 86 per cent of all currency in circulation. It remains to be seen what the economic fallout will be. The political repercussions, however, will be felt at the polls early in the year. Meanwhile, with Pakistan and China bristling, India is seeking to align itself with new friends on the world stage.

Are Chinese enterprises being taxed to death?

Has the tax burden on Chinese business reached economically lethal levels? One Chinese tycoon thinks so and has blamed heavy taxation for his decision to establish a manufacturing branch of his business in America. While it is impossible to measure the precise tax burden on any given enterprise, the opacity of the Chinese system is certain to drive producers away at a time when their investment is needed more than ever.

Prime Minister Theresa May’s Plan for Brexit

Prime Minister Theresa May set out the Plan for Britain, including the 12 priorities that the UK government will use to negotiate Brexit. New Direction invites you to read it.

"A little over 6 months ago, the British people voted for change.

They voted to shape a brighter future for our country.

They voted to leave the European Union and embrace the world.

And they did so with their eyes open: accepting that the road ahead will be uncertain at times, but believing that it leads towards a brighter future for their children – and their grandchildren too.

And it is the job of this government to deliver it. That means more than negotiating our new relationship with the EU. It means taking the opportunity of this great moment of national change to step back and ask ourselves what kind of country we want to be.

My answer is clear. I want this United Kingdom to emerge from this period of change stronger, fairer, more united and more outward-looking than ever before. I want us to be a secure, prosperous, tolerant country – a magnet for international talent and a home to the pioneers and innovators who will shape the world ahead. I want us to be a truly Global Britain – the best friend and neighbour to our European partners, but a country that reaches beyond the borders of Europe too. A country that goes out into the world to build relationships with old friends and new allies alike.

I want Britain to be what we have the potential, talent and ambition to be. A great, global trading nation that is respected around the world and strong, confident and united at home.

A Plan for Britain

That is why this government has a Plan for Britain. One that gets us the right deal abroad but also ensures we get a better deal for ordinary working people at home.

It’s why that plan sets out how we will use this moment of change to build a stronger economy and a fairer society by embracing genuine economic and social reform.

Why our new Modern Industrial Strategy is being developed, to ensure every nation and area of the United Kingdom can make the most of the opportunities ahead.

Why we will go further to reform our schools to ensure every child has the knowledge and the skills they need to thrive in post-Brexit Britain.

Why as we continue to bring the deficit down, we will take a balanced approach by investing in our economic infrastructure – because it can transform the growth potential of our economy and improve the quality of people’s lives across the whole country.

It’s why we will put the preservation of our precious Union at the heart of everything we do. Because it is only by coming together as one great union of nations and people that we can make the most of the opportunities ahead. The result of the referendum was not a decision to turn inward and retreat from the world.

Because Britain’s history and culture is profoundly internationalist.

We are a European country – and proud of our shared European heritage – but we are also a country that has always looked beyond Europe to the wider world. That is why we are one of the most racially diverse countries in Europe, one of the most multicultural members of the European Union, and why – whether we are talking about India, Pakistan, Bangladesh, America, Australia, Canada, New Zealand, countries in Africa or those that are closer to home in Europe – so many of us have close friends and relatives from across the world.

Instinctively, we want to travel to, study in, trade with countries not just in Europe but beyond the borders of our continent. Even now as we prepare to leave the EU, we are planning for the next biennial Commonwealth Heads of Government meeting in 2018 – a reminder of our unique and proud global relationships.

A message from Britain to the rest of Europe

And it is important to recognise this fact. June the 23rd was not the moment Britain chose to step back from the world. It was the moment we chose to build a truly Global Britain.

I know that this – and the other reasons Britain took such a decision – is not always well understood among our friends and allies in Europe. And I know many fear that this might herald the beginning of a greater unravelling of the EU.

But let me be clear: I do not want that to happen. It would not be in the best interests of Britain. It remains overwhelmingly and compellingly in Britain’s national interest that the EU should succeed. And that is why I hope in the months and years ahead we will all reflect on the lessons of Britain’s decision to leave.

So let me take this opportunity to set out the reasons for our decision and to address the people of Europe directly.

It’s not simply because our history and culture is profoundly internationalist, important though that is. Many in Britain have always felt that the United Kingdom’s place in the European Union came at the expense of our global ties, and of a bolder embrace of free trade with the wider world.

There are other important reasons too.

Our political traditions are different. Unlike other European countries, we have no written constitution, but the principle of Parliamentary Sovereignty is the basis of our unwritten constitutional settlement. We have only a recent history of devolved governance – though it has rapidly embedded itself – and we have little history of coalition government.

The public expect to be able to hold their governments to account very directly, and as a result supranational institutions as strong as those created by the European Union sit very uneasily in relation to our political history and way of life.

And, while I know Britain might at times have been seen as an awkward member state, the European Union has struggled to deal with the diversity of its member countries and their interests. It bends towards uniformity, not flexibility.

David Cameron’s negotiation was a valiant final attempt to make it work for Britain – and I want to thank all those elsewhere in Europe who helped him reach an agreement – but the blunt truth, as we know, is that there was not enough flexibility on many important matters for a majority of British voters.

Now I do not believe that these things apply uniquely to Britain. Britain is not the only member state where there is a strong attachment to accountable and democratic government, such a strong internationalist mindset, or a belief that diversity within Europe should be celebrated. And so I believe there is a lesson in Brexit not just for Britain but, if it wants to succeed, for the EU itself.

Because our continent’s great strength has always been its diversity. And there are 2 ways of dealing with different interests. You can respond by trying to hold things together by force, tightening a vice-like grip that ends up crushing into tiny pieces the very things you want to protect. Or you can respect difference, cherish it even, and reform the EU so that it deals better with the wonderful diversity of its member states.

So to our friends across Europe, let me say this.

Our vote to leave the European Union was no rejection of the values we share. The decision to leave the EU represents no desire to become more distant to you, our friends and neighbours. It was no attempt to do harm to the EU itself or to any of its remaining member states. We do not want to turn the clock back to the days when Europe was less peaceful, less secure and less able to trade freely. It was a vote to restore, as we see it, our parliamentary democracy, national self-determination, and to become even more global and internationalist in action and in spirit.

We will continue to be reliable partners, willing allies and close friends. We want to buy your goods and services, sell you ours, trade with you as freely as possible, and work with one another to make sure we are all safer, more secure and more prosperous through continued friendship.

You will still be welcome in this country as we hope our citizens will be welcome in yours. At a time when together we face a serious threat from our enemies, Britain’s unique intelligence capabilities will continue to help to keep people in Europe safe from terrorism. And at a time when there is growing concern about European security, Britain’s servicemen and women, based in European countries including Estonia, Poland and Romania, will continue to do their duty.

We are leaving the European Union, but we are not leaving Europe.

And that is why we seek a new and equal partnership – between an independent, self-governing, Global Britain and our friends and allies in the EU.

Not partial membership of the European Union, associate membership of the European Union, or anything that leaves us half-in, half-out. We do not seek to adopt a model already enjoyed by other countries. We do not seek to hold on to bits of membership as we leave.

No, the United Kingdom is leaving the European Union. And my job is to get the right deal for Britain as we do.

Objectives and ambitions

So today I want to outline our objectives for the negotiation ahead. Twelve objectives that amount to one big goal: a new, positive and constructive partnership between Britain and the European Union.

And as we negotiate that partnership, we will be driven by some simple principles: we will provide as much certainty and clarity as we can at every stage. And we will take this opportunity to make Britain stronger, to make Britain fairer, and to build a more Global Britain too.

Certainty and clarity
1. Certainty

The first objective is crucial. We will provide certainty wherever we can.

We are about to enter a negotiation. That means there will be give and take. There will have to be compromises. It will require imagination on both sides. And not everybody will be able to know everything at every stage.

But I recognise how important it is to provide business, the public sector, and everybody with as much certainty as possible as we move through the process.

So where we can offer that certainty, we will do so.

That is why last year we acted quickly to give clarity about farm payments and university funding. And it is why, as we repeal the European Communities Act, we will convert the ‘acquis’ – the body of existing EU law – into British law.

This will give the country maximum certainty as we leave the EU. The same rules and laws will apply on the day after Brexit as they did before. And it will be for the British Parliament to decide on any changes to that law after full scrutiny and proper Parliamentary debate.

And when it comes to Parliament, there is one other way in which I would like to provide certainty. I can confirm today that the Government will put the final deal that is agreed between the UK and the EU to a vote in both Houses of Parliament, before it comes into force.

A stronger Britain

Our second guiding principle is to build a stronger Britain.

2. Control of our own laws

That means taking control of our own affairs, as those who voted in their millions to leave the European Union demanded we must.

So we will take back control of our laws and bring an end to the jurisdiction of the European Court of Justice in Britain. Leaving the European Union will mean that our laws will be made in Westminster, Edinburgh, Cardiff and Belfast. And those laws will be interpreted by judges not in Luxembourg but in courts across this country.

Because we will not have truly left the European Union if we are not in control of our own laws.

3. Strengthen the Union

A stronger Britain demands that we do something else – strengthen the precious union between the 4 nations of the United Kingdom.

At this momentous time, it is more important than ever that we face the future together, united by what makes us strong: the bonds that unite us as a people, and our shared interest in the UK being an open, successful trading nation in the future.

And I hope that same spirit of unity will apply in Northern Ireland in particular over the coming months in the Assembly elections, and the main parties there will work together to re-establish a partnership government as soon as possible.

Foreign affairs are of course the responsibility of the UK government, and in dealing with them we act in the interests of all parts of the United Kingdom. As prime minister, I take that responsibility seriously.

I have also been determined from the start that the devolved administrations should be fully engaged in this process.

That is why the government has set up a Joint Ministerial Committee on EU Negotiations, so ministers from each of the UK’s devolved administrations can contribute to the process of planning for our departure from the European Union.

We have already received a paper from the Scottish government, and look forward to receiving a paper from the Welsh government shortly. Both papers will be considered as part of this important process. We won’t agree on everything, but I look forward to working with the administrations in Scotland, Wales and Northern Ireland to deliver a Brexit that works for the whole of the United Kingdom.

Part of that will mean working very carefully to ensure that – as powers are repatriated from Brussels back to Britain – the right powers are returned to Westminster, and the right powers are passed to the devolved administrations of Scotland, Wales and Northern Ireland.

As we do so, our guiding principle must be to ensure that – as we leave the European Union – no new barriers to living and doing business within our own Union are created,

That means maintaining the necessary common standards and frameworks for our own domestic market, empowering the UK as an open, trading nation to strike the best trade deals around the world, and protecting the common resources of our islands.

And as we do this, I should equally be clear that no decisions currently taken by the devolved administrations will be removed from them.

4. Maintain the Common Travel Area with Ireland

We cannot forget that, as we leave, the United Kingdom will share a land border with the EU, and maintaining that Common Travel Area with the Republic of Ireland will be an important priority for the UK in the talks ahead. There has been a Common Travel Area between the UK and the Republic of Ireland for many years.

Indeed, it was formed before either of our 2 countries were members of the European Union. And the family ties and bonds of affection that unite our 2 countries mean that there will always be a special relationship between us.

So we will work to deliver a practical solution that allows the maintenance of the Common Travel Area with the Republic, while protecting the integrity of the United Kingdom’s immigration system.

Nobody wants to return to the borders of the past, so we will make it a priority to deliver a practical solution as soon as we can.

A fairer Britain

The third principle is to build a fairer Britain. That means ensuring it is fair to everyone who lives and works in this country.

5. Control of immigration

And that is why we will ensure we can control immigration to Britain from Europe.

We will continue to attract the brightest and the best to work or study in Britain – indeed openness to international talent must remain one of this country’s most distinctive assets – but that process must be managed properly so that our immigration system serves the national interest.

So we will get control of the number of people coming to Britain from the EU.

Because while controlled immigration can bring great benefits – filling skills shortages, delivering public services, making British businesses the world-beaters they often are – when the numbers get too high, public support for the system falters.

In the last decade or so, we have seen record levels of net migration in Britain, and that sheer volume has put pressure on public services, like schools, stretched our infrastructure, especially housing, and put a downward pressure on wages for working class people. As home secretary for 6 years, I know that you cannot control immigration overall when there is free movement to Britain from Europe.

Britain is an open and tolerant country. We will always want immigration, especially high-skilled immigration, we will always want immigration from Europe, and we will always welcome individual migrants as friends. But the message from the public before and during the referendum campaign was clear: Brexit must mean control of the number of people who come to Britain from Europe. And that is what we will deliver.

6. Rights for EU nationals in Britain, and British nationals in the EU

Fairness demands that we deal with another issue as soon as possible too. We want to guarantee the rights of EU citizens who are already living in Britain, and the rights of British nationals in other member states, as early as we can.

I have told other EU leaders that we could give people the certainty they want straight away, and reach such a deal now.

Many of them favour such an agreement – 1 or 2 others do not – but I want everyone to know that it remains an important priority for Britain – and for many other member states – to resolve this challenge as soon as possible. Because it is the right and fair thing to do.

7. Protect workers’ rights

And a fairer Britain is a country that protects and enhances the rights people have at work.That is why, as we translate the body of European law into our domestic regulations, we will ensure that workers rights are fully protected and maintained.

Indeed, under my leadership, not only will the government protect the rights of workers set out in European legislation, we will build on them. Because under this government, we will make sure legal protection for workers keeps pace with the changing labour market – and that the voices of workers are heard by the boards of publicly-listed companies for the first time.

A Truly Global Britain

But the great prize for this country – the opportunity ahead – is to use this moment to build a truly Global Britain. A country that reaches out to old friends and new allies alike. A great, global, trading nation. And one of the firmest advocates for free trade anywhere in the world.

8. Free trade with European markets

That starts with our close friends and neighbours in Europe. So as a priority, we will pursue a bold and ambitious free trade agreement with the European Union.

This agreement should allow for the freest possible trade in goods and services between Britain and the EU’s member states. It should give British companies the maximum freedom to trade with and operate within European markets – and let European businesses do the same in Britain.

But I want to be clear. What I am proposing cannot mean membership of the single market.

European leaders have said many times that membership means accepting the ‘4 freedoms’ of goods, capital, services and people. And being out of the EU but a member of the single market would mean complying with the EU’s rules and regulations that implement those freedoms, without having a vote on what those rules and regulations are. It would mean accepting a role for the European Court of Justice that would see it still having direct legal authority in our country.

It would to all intents and purposes mean not leaving the EU at all.

And that is why both sides in the referendum campaign made it clear that a vote to leave the EU would be a vote to leave the single market.

So we do not seek membership of the single market. Instead we seek the greatest possible access to it through a new, comprehensive, bold and ambitious free trade agreement.

That agreement may take in elements of current single market arrangements in certain areas – on the export of cars and lorries for example, or the freedom to provide financial services across national borders – as it makes no sense to start again from scratch when Britain and the remaining Member States have adhered to the same rules for so many years.

But I respect the position taken by European leaders who have been clear about their position, just as I am clear about mine. So an important part of the new strategic partnership we seek with the EU will be the pursuit of the greatest possible access to the single market, on a fully reciprocal basis, through a comprehensive free trade agreement.

And because we will no longer be members of the single market, we will not be required to contribute huge sums to the EU budget. There may be some specific European programmes in which we might want to participate. If so, and this will be for us to decide, it is reasonable that we should make an appropriate contribution. But the principle is clear: the days of Britain making vast contributions to the European Union every year will end.

9. New trade agreements with other countries

But it is not just trade with the EU we should be interested in. A Global Britain must be free to strike trade agreements with countries from outside the European Union too.

Because important though our trade with the EU is and will remain, it is clear that the UK needs to increase significantly its trade with the fastest growing export markets in the world.

Since joining the EU, trade as a percentage of GDP has broadly stagnated in the UK. That is why it is time for Britain to get out into the world and rediscover its role as a great, global, trading nation.

This is such a priority for me that when I became Prime Minister I established, for the first time, a Department for International Trade, led by Liam Fox.

We want to get out into the wider world, to trade and do business all around the globe. Countries including China, Brazil, and the Gulf States have already expressed their interest in striking trade deals with us. We have started discussions on future trade ties with countries like Australia, New Zealand and India. And President-Elect Trump has said Britain is not “at the back of the queue” for a trade deal with the United States, the world’s biggest economy, but front of the line.

I know my emphasis on striking trade agreements with countries outside Europe has led to questions about whether Britain seeks to remain a member of the EU’s Customs Union. And it is true that full Customs Union membership prevents us from negotiating our own comprehensive trade deals.

Now, I want Britain to be able to negotiate its own trade agreements. But I also want tariff-free trade with Europe and cross-border trade there to be as frictionless as possible.

That means I do not want Britain to be part of the Common Commercial Policy and I do not want us to be bound by the Common External Tariff. These are the elements of the Customs Union that prevent us from striking our own comprehensive trade agreements with other countries. But I do want us to have a customs agreement with the EU.

Whether that means we must reach a completely new customs agreement, become an associate member of the Customs Union in some way, or remain a signatory to some elements of it, I hold no preconceived position. I have an open mind on how we do it. It is not the means that matter, but the ends.

And those ends are clear: I want to remove as many barriers to trade as possible. And I want Britain to be free to establish our own tariff schedules at the World Trade Organisation, meaning we can reach new trade agreements not just with the European Union but with old friends and new allies from outside Europe too.

10. The best place for science and innovation

A Global Britain must also be a country that looks to the future. That means being one of the best places in the world for science and innovation.

One of our great strengths as a nation is the breadth and depth of our academic and scientific communities, backed up by some of the world’s best universities. And we have a proud history of leading and supporting cutting-edge research and innovation.

So we will also welcome agreement to continue to collaborate with our European partners on major science, research, and technology initiatives.

From space exploration to clean energy to medical technologies, Britain will remain at the forefront of collective endeavours to better understand, and make better, the world in which we live.

11. Co-operation in the fight against crime and terrorism

And a Global Britain will continue to co-operate with its European partners in important areas such as crime, terrorism and foreign affairs.

All of us in Europe face the challenge of cross-border crime, a deadly terrorist threat, and the dangers presented by hostile states. All of us share interests and values in common, values we want to see projected around the world.

With the threats to our common security becoming more serious, our response cannot be to co-operate with one another less, but to work together more. I therefore want our future relationship with the European Union to include practical arrangements on matters of law enforcement and the sharing of intelligence material with our EU allies.

I am proud of the role Britain has played and will continue to play in promoting Europe’s security. Britain has led Europe on the measures needed to keep our continent secure – whether it is implementing sanctions against Russia following its action in Crimea, working for peace and stability in the Balkans, or securing Europe’s external border. We will continue to work closely with our European allies in foreign and defence policy even as we leave the EU itself.

A phased approach
12. A smooth, orderly Brexit

These are our objectives for the negotiation ahead – objectives that will help to realise our ambition of shaping that stronger, fairer, Global Britain that we want to see.

They are the basis for a new, strong, constructive partnership with the European Union – a partnership of friends and allies, of interests and values. A partnership for a strong EU and a strong UK.

But there is one further objective we are setting. For as I have said before – it is in no one’s interests for there to be a cliff-edge for business or a threat to stability, as we change from our existing relationship to a new partnership with the EU.

By this, I do not mean that we will seek some form of unlimited transitional status, in which we find ourselves stuck forever in some kind of permanent political purgatory. That would not be good for Britain, but nor do I believe it would be good for the EU.

Instead, I want us to have reached an agreement about our future partnership by the time the 2-year Article 50 process has concluded. From that point onwards, we believe a phased process of implementation, in which both Britain and the EU institutions and member states prepare for the new arrangements that will exist between us will be in our mutual self-interest. This will give businesses enough time to plan and prepare for those new arrangements.

This might be about our immigration controls, customs systems or the way in which we co-operate on criminal justice matters. Or it might be about the future legal and regulatory framework for financial services. For each issue, the time we need to phase-in the new arrangements may differ. Some might be introduced very quickly, some might take longer. And the interim arrangements we rely upon are likely to be a matter of negotiation.

But the purpose is clear: we will seek to avoid a disruptive cliff-edge, and we will do everything we can to phase in the new arrangements we require as Britain and the EU move towards our new partnership.

The right deal for Britain

So, these are the objectives we have set. Certainty wherever possible. Control of our own laws. Strengthening the United Kingdom. Maintaining the Common Travel Area with Ireland. Control of immigration. Rights for EU nationals in Britain, and British nationals in the EU. Enhancing rights for workers. Free trade with European markets. New trade agreements with other countries. A leading role in science and innovation. Co-operation on crime, terrorism and foreign affairs. And a phased approach, delivering a smooth and orderly Brexit.

This is the framework of a deal that will herald a new partnership between the UK and the EU.

It is a comprehensive and carefully considered plan that focuses on the ends, not just the means – with its eyes fixed firmly on the future, and on the kind of country we will be once we leave.

It reflects the hard work of many in this room today who have worked tirelessly to bring it together and to prepare this country for the negotiation ahead.

And it will, I know, be debated and discussed at length. That is only right. But those who urge us to reveal more – such as the blow-by-blow details of our negotiating strategy, the areas in which we might compromise, the places where we think there are potential trade-offs – will not be acting in the national interest.

Because this is not a game or a time for opposition for opposition’s sake. It is a crucial and sensitive negotiation that will define the interests and the success of our country for many years to come. And it is vital that we maintain our discipline.

That is why I have said before – and will continue to say – that every stray word and every hyped up media report is going to make it harder for us to get the right deal for Britain. Our opposite numbers in the European Commission know it, which is why they are keeping their discipline. And the ministers in this government know it too, which is why we will also maintain ours.

So however frustrating some people find it, the government will not be pressured into saying more than I believe it is in our national interest to say. Because it is not my job to fill column inches with daily updates, but to get the right deal for Britain. And that is what I intend to do.

A new partnership between Britain and Europe

I am confident that a deal – and a new strategic partnership between the UK and the EU – can be achieved.

This is firstly because, having held conversations with almost every leader from every single EU member state; having spent time talking to the senior figures from the European institutions, including President Tusk, President Juncker, and President Schulz; and after my Cabinet colleagues David Davis, Philip Hammond and Boris Johnson have done the same with their interlocutors, I am confident that the vast majority want a positive relationship between the UK and the EU after Brexit.

And I am confident that the objectives I am setting out today are consistent with the needs of the EU and its member states.

That is why our objectives include a proposed free trade agreement between Britain and the European Union, and explicitly rule out membership of the EU’s single market. Because when the EU’s leaders say they believe the 4 freedoms of the single market are indivisible, we respect that position. When the 27 member states say they want to continue their journey inside the European Union, we not only respect that fact but support it.

Because we do not want to undermine the single market, and we do not want to undermine the European Union. We want the EU to be a success and we want its remaining member states to prosper. And of course we want the same for Britain.

And the second reason I believe it is possible to reach a good deal is that the kind of agreement I have described today is the economically rational thing that both Britain and the EU should aim for. Because trade is not a zero sum game: more of it makes us all more prosperous. Free trade between Britain and the European Union means more trade, and more trade means more jobs and more wealth creation. The erection of new barriers to trade, meanwhile, means the reverse: less trade, fewer jobs, lower growth.

The third and final reason I believe we can come to the right agreement is that co-operation between Britain and the EU is needed not just when it comes to trade but when it comes to our security too.

Britain and France are Europe’s only 2 nuclear powers. We are the only 2 European countries with permanent seats on the United Nations Security Council. Britain’s armed forces are a crucial part of Europe’s collective defence.

And our intelligence capabilities – unique in Europe – have already saved countless lives in very many terrorist plots that have been thwarted in countries across our continent. After Brexit, Britain wants to be a good friend and neighbour in every way, and that includes defending the safety and security of all of our citizens.

So I believe the framework I have outlined today is in Britain’s interests. It is in Europe’s interests. And it is in the interests of the wider world.

But I must be clear. Britain wants to remain a good friend and neighbour to Europe. Yet I know there are some voices calling for a punitive deal that punishes Britain and discourages other countries from taking the same path.

That would be an act of calamitous self-harm for the countries of Europe. And it would not be the act of a friend. Britain would not – indeed we could not – accept such an approach. And while I am confident that this scenario need never arise – while I am sure a positive agreement can be reached – I am equally clear that no deal for Britain is better than a bad deal for Britain.

Because we would still be able to trade with Europe. We would be free to strike trade deals across the world. And we would have the freedom to set the competitive tax rates and embrace the policies that would attract the world’s best companies and biggest investors to Britain. And – if we were excluded from accessing the single market – we would be free to change the basis of Britain’s economic model.

But for the EU, it would mean new barriers to trade with one of the biggest economies in the world. It would jeopardise investments in Britain by EU companies worth more than half a trillion pounds. It would mean a loss of access for European firms to the financial services of the City of London. It would risk exports from the EU to Britain worth around £290 billion every year. And it would disrupt the sophisticated and integrated supply chains upon which many EU companies rely.

Important sectors of the EU economy would also suffer. We are a crucial – profitable – export market for Europe’s automotive industry, as well as sectors including energy, food and drink, chemicals, pharmaceuticals, and agriculture. These sectors employ millions of people around Europe. And I do not believe that the EU’s leaders will seriously tell German exporters, French farmers, Spanish fishermen, the young unemployed of the Eurozone, and millions of others, that they want to make them poorer, just to punish Britain and make a political point.

For all these reasons – and because of our shared values and the spirit of goodwill that exists on both sides – I am confident that we will follow a better path. I am confident that a positive agreement can be reached. It is right that the government should prepare for every eventuality – but to do so in the knowledge that a constructive and optimistic approach to the negotiations to come is in the best interests of Europe and the best interests of Britain.

Conclusion

We do not approach these negotiations expecting failure, but anticipating success.

Because we are a great, global nation with so much to offer Europe and so much to offer the world.

One of the world’s largest and strongest economies. With the finest intelligence services, the bravest armed forces, the most effective hard and soft power, and friendships, partnerships and alliances in every continent.

And another thing that’s important. The essential ingredient of our success. The strength and support of 65 million people willing us to make it happen.

Because after all the division and discord, the country is coming together.

The referendum was divisive at times. And those divisions have taken time to heal.

But one of the reasons that Britain’s democracy has been such a success for so many years is that the strength of our identity as one nation, the respect we show to one another as fellow citizens, and the importance we attach to our institutions means that when a vote has been held we all respect the result. The victors have the responsibility to act magnanimously. The losers have the responsibility to respect the legitimacy of the outcome. And the country comes together.

And that is what we are seeing today. Business isn’t calling to reverse the result, but planning to make a success of it. The House of Commons has voted overwhelmingly for us to get on with it. And the overwhelming majority of people – however they voted – want us to get on with it too.

So that is what we will do.

Not merely forming a new partnership with Europe, but building a stronger, fairer, more Global Britain too.

And let that be the legacy of our time. The prize towards which we work. The destination at which we arrive once the negotiation is done.

And let us do it not for ourselves, but for those who follow. For the country’s children and grandchildren too.

So that when future generations look back at this time, they will judge us not only by the decision that we made, but by what we made of that decision.

They will see that we shaped them a brighter future.

They will know that we built them a better Britain."

 

What is really happening in Poland

Vice Chairman of the ECR Group Prof. Ryszard Legutko MEP and President of New Direction Tomasz Poręba MEP discuss what is really happening in Poland regarding to the Constitutional Tribunal. Read this essential anwser to last Timmermans's article on Poland.

In his article published on 7 December Frans Timmermans repeats false arguments raised in connection with the Polish dispute regarding the Constitutional Tribunal.

Not supported by credible or substantive arguments, he provides a diagnosis that the rule of law in Poland is allegedly under threat. Before we point out the elementary mistakes in the reasoning of Commissioner Timmermans, we feel compelled to express our basic doubt about his legitimization to call on the government of another country to take action which falls under the exclusive competence of the state. Mr. Frans Timmermans has called on the Sejm not to pass laws on the Constitutional Tribunal, suggesting that they should be reviewed prior to their entry into force, and has demanded that the President of Poland undertake concrete actions regarding the taking of the oath of office from specifically identified persons. Such actions have no basis in European treaties and do not fall under the competence of the European Commission.

The following questions in turn raise substantial reservations:

1. The false assumption that legislative provisions allow to swear a Constitutional Tribunal judge into office before the end of the term of office of his/her predecessor

The term of office of the Sejm and of three Constitutional Tribunal judges expired in autumn of 2015. The ruling PO-PSL coalition, wanting to avoid a situation that would give the new Sejm (in which it would probably not have a majority) the option to determine the composition of the Constitutional Tribunal, decided in June 2015 to push a law through parliament that would make it possible to elect new judges before the term of office of their predecessors expired. But the new law did not set any concrete time limit for the election of new judges, and legal provisions are very clear about this – judges may assume office once they take the oath of office, which may not be administered before the term of office of the outgoing judge of the Constitutional Tribunal expires.

Frans Timmermans had no grounds to state that the three judges of the Constitutional Tribunal should have been elected by the previous Sejm.

2. The false assertion that the Constitutional Tribunal was empowered to rule on the validity of the election of Constitutional Tribunal judges

Timmermans repeats the incorrect view expressed by the opposition, the Venice Commission and the President of the Constitutional Tribunal that the Constitutional Tribunal in its judgement of 3 December 2015 ruled that the election of the three judges which was held in October 2015 was legal, while the election of the other two judges was invalid. As it has been said many times during public debate, the Polish Constitutional Tribunal does not have the competency to review the validity of the election of the judges of the Constitutional Tribunal. The Tribunal did not more than to review the compliance of the provisions of the Act on the Constitutional Tribunal of 2015 with the Constitution. Hence it reviewed the contents of the norm, and not whether it was enforced.

However, Frans Timmermans obstinately argues that “The decision to elect three new judges was abrogated by the Constitutional Tribunal in its ruling of 9 December 2015, which said that under the Constitution, the President of the Republic of Poland should take an oath from three judges, who were lawfully elected by the previous Sejm. Unfortunately, the Polish authorities did not comply with those rulings. So far, the three judges who were lawfully elected by the previous Sejm have not been sworn in by the President.”

By adhering to this argument, Timmermans shows that he knows neither the chronology of events relating to the Tribunal which occurred in autumn of 2015 nor their legal substance. And so:

First, on 25 November 2015, the 8th Sejm found the resolutions appointing Constitutional Tribunal judges of October 2015 to have no legal force. This action was autonomous of the Constitutional Tribunal's judgment of 3 December 2015.
Second, on 9 December 2015, the Tribunal did not quash the election of the three judges of the Constitutional Tribunal who had been appointed on 2 December 2015 and were sworn into office by the President of the Republic. As previously noted the Tribunal does not have the competency to review the validity or legality of the election of the judges as reaffirmed by the court in its decision of 7 January 2016 to discontinue proceedings in this case. It should also be noted that the Tribunal in its judgment of 9 December 2015 reviewed provisions that did not constitute grounds on which the judges were elected on 2 December 2015. The legislative provisions reviewed by the Tribunal entered into force three days after the Constitutional Tribunal judges had been elected and sworn into office by the President.
Third, the Constitutional Tribunal’s judgement on the review of the constitutionality of the provisions of the Act on the Constitutional Tribunal cannot bind an organ of public authority to act in a certain way in a concrete situation. So the Tribunal could not have obligated the President of the Republic of Poland to take the oath of office from a person identified by name. A judgement such as this one can only serve as an impulse to amend a statute.

So the assertion that Polish authorities have failed to adhere to the judgement of the Constitutional Tribunal is manipulative.

3. False assertions about the government’s attitude towards judgements made by the Constitutional Tribunal

Frans Timmermans has again criticised the Government of the Republic of Poland for not recognising the Tribunal’s judgement of 9 March 2016 and for refusing to publish it. He went as far as to stress that from that moment the Polish government has stopped recognising the rulings and judgements issued by the Constitutional Tribunal.

Not wishing to comment on the scandalous undertone of his assertions, let me just show how absurd they are on their merits. Every judgement of the Constitutional Tribunal that was issued in accordance with the law has been published in the relevant official journal. The assertion that the government has not recognised the rulings issued by the Constitutional Tribunal since 9 March is also untrue. The reason why rulings issued in accordance with the law, constitutional complaints and questions of law are not published is because the President of the Constitutional Tribunal is acting illegally by not applying provisions of the Act on the Constitutional Tribunal and by not asking the Chancellery of the Prime Minister to publish the judgements. Instead he tries to “order publications” which he is not authorised to do under the law as it stands.

4. The issue of the European Commission recommendation

Frans Timmermans recalled that the European Commission issued a recommendation to Polish authorities, concluding that there is a systemic threat to the rule of law. He claims that the situation has not changed since the recommendation was issued. The author has not responded in any way to the answer provided by the Government of the Republic of Poland to the recommendation and to the critical remarks found in that answer that addressed gross mistakes made by the European Commission in its review of the case of the rule of law in Poland.

Timmermans thinks that the Constitutional Tribunal is partially paralyzed because the three judges allegedly elected by the previous Sejm are not participating in its work. But he fails to take note of the fact that the legally elected Sejm of the Republic of Poland found the resolutions concerning the election of these persons to be invalid.

Timmermans also fails to take note of the fact that the President of the Constitutional Tribunal has breached the law by not allowing the three judges of the Constitutional Tribunal, elected on 2 December 2015 and sworn in by the President of the Republic of Poland as required by Polish law, to adjudicate.

5. The issue of legislative work on new bills on the Constitutional Tribunal

Frans Timmermans notes that three new bills on the Constitutional Tribunal are now in the process of legislation. It appears, however, that either he has not familiarised himself with them or he has failed to comprehend their meaning. He argues, for instance, that all of these bills give the President of the Republic of Poland the right to nominate a person “acting as the President of the Constitutional Tribunal.” He goes on to say that this “openly violates the Polish Constitution as far as the procedure of electing the President and Vice-President of the Tribunal are concerned.”

It’s not true. The President of the Republic of Poland will be able to appoint a person to act as the President of the Constitutional Tribunal only under the last act, which contains implementing provisions. This is an extraordinary institution; its nature is special and temporary. It should serve in a situation when the Constitutional Tribunal fails to elect or elects in breach of the law candidates for its President. Only a judge of the Constitutional Tribunal can take on the duties of an acting President of the Constitutional Tribunal. The President of the Republic of Poland, as the guardian of the Constitution, has to have instruments that would allow him to resolve constitutional problems.

Mr Frans Timmermans’ unfamiliarity with the Polish Constitution is also shown by the fact that the Constitution of the Republic of Poland does not contain a procedure for the election of the President and Vice-President of the Constitutional Tribunal. Article 194(2) of the Constitution provides solely that “The President and the Vice-President of the Constitutional Tribunal shall be appointed by the President of the Republic from amongst candidates proposed by the General Assembly of the Judges of the Constitutional Tribunal.” The legislator that is the Sejm decides about the rest. For this reason the institution of a judge acting as President of the Constitutional Tribunal cannot violate the constitutional procedure for electing the President and Vice-President.

6. The issue of the illegal composition of the Constitutional Tribunal and its independence

Timmermans expresses concern about the future, claiming that a Constitutional Tribunal whose composition is illegal and which does act as an independent organ will not be able to perform its basic function. But he expresses no reservations about the work carried out by the Constitutional Tribunal after 9 March 2015. The Constitutional Tribunal has blatantly violated the law since then by continuing to issue rulings made by judicial formations that do not conform to the Act on the Constitutional Tribunal.

In this situation, we have to acknowledge Commissioner Timmermans’ letter with sadness and concern. It shows an embarrassing ignorance about Polish law, facts and the developments connected with the conflict regarding the Constitutional Tribunal. We would expect a person in such a senior position not to engage in a smear campaign in the media, but instead to address Poland’s position regarding the European Commission’s opinion basing on its merits and not to overstep his competences.

Prof. Ryszard Legutko, Tomasz Poręba, Members of the European Parliament

Source: Rzeczpospolita/ Poland.pl

LATEST NEWS FROM PARTNER CAP X

Why the Left should embrace the sharing economy - Don't worry, Italy won't bring down the banking system - What can Britain learn from the world’s best schools? - The far Right is far from finished in Austria - Private healthcare in rural India is cheaper and better

Why the Left should embrace the sharing economy 

The sharing economy is changing the fabric of the global economy - and it is the worst-off who are benefiting the most. From the streets of Stafford to the favelas of Rio, the sharing model is granting the young, the elderly and the "just about managing" a level of independence and choice that was previously impossible. And the Left's absurd resistance to this change is holding back the very people they purport to champion.

Don't worry, Italy won't bring down the banking system

In the first of two pieces responding to Italy's resounding rejection of Matteo Renzi's constitutional reforms - and of his government - Richard Walker argues that predictions of a new financial crisis are overblown. Italy's public finances may be shot, but its banks are in good enough health to weather the political storm.

What can Britain learn from the world’s best schools?

The PISA rankings are out and once again, Britain is lagging behind: one in five 15-year-olds in England are not meeting the very basic standards in numeracy and literacy. The Government’s proposal to bring back grammar schools is unlikely to solve the problem, either. Instead, we should be looking to Finland, Canada, Japan at the top of the PISA rankings, and re-assessing our fundamental ideas about what is possible with education.

The far Right is far from finished in Austria 

Austria's presidential election may have seen a narrow defeat for Norbert Hofer and the far Right - but this is no time to get complacement. Hofer's narrow defeat should serve as a wake-up call to the Austrian establishment, argues Dalibor Rohac, which has overseen a system of patronage and influence based on loyalty rather than merit and left voters with no real choice.

Private healthcare in rural India is cheaper and better

In India, primary health care is ostensibly available for free from public health clinics and hospitals. And according to official statistics, these public providers deliver roughly the same quality of treatment as private providers. Yet even in Madhya Pradesh, one of the poorer states in India (with a GDP per capita of $1,500), 70 per cent of primary care visits are to private, fee-charging providers. What's going on?

 

LATEST NEWS FROM PARTNER CAP X

Italy’s referendum is a choice between stagnation and catastrophe - Fidel Castro and the wilful blindness of the Left - Skyscanner’s sale shows Britain is open to Chinese business - Meet Johannesburg’s unlikely new 'capitalist crusader' - The pursuit of Danish happiness

Italy’s referendum is a choice between stagnation and catastrophe

The Italian referendum this Sunday is ostensibly to approve or reject the constitutional reforms passed by parliament in April. But it is far more important than that. Prime Minister Matteo Renzi has effectively turned it into a vote of confidence - and given the parlous state of the country's accounts, he will be judged specifically on his economic performance. Consequently, the result will either shore up or shake Italy’s current political framework, to possibly devastating effect. It's no wonder the rest of Europe is watching nervously.

Fidel Castro and the wilful blindness of the Left

Even though he oversaw the impoverishment of his country, the immiseration and isolation of his people, and the torture of political dissidents, former Cuban dictator Fidel Castro has been lauded by Jeremy Corbyn as "an internationalist and a champion of social justice". This shouldn't be entirely surprising, given what we know of the Labour leader's hard-Left leanings. Nonetheless, the logic by which he justifies the sentiment is extraordinary. It is surely time for a little self-examination.

Skyscanner’s sale shows Britain is open to Chinese business

The sale of one of the UK's leading tech companies to a Chinese rival has been greeted with raised eyebrows. But it is welcome news. With other Western countries imposing restrictions on Chinese takeovers, Britain's more liberal policies make it ideally placed to attract investment - especially important as it looks to replace its ties to Europe with links to higher-growth parts of the world.

Meet Johannesburg’s unlikely new 'capitalist crusader'

Herman Mashaba has broken several moulds. Johannesburg's mayor is the first since apartheid not to come from within the ruling ANC party, and the first to be born not into wealth but in a township. Mashaba therefore represents not just a capitalism of opportunity and prosperity, but a threat to the corrupt ruling class. And if successful, he could be the spearhead for a wider pro-market movement within South Africa.

The pursuit of Danish happiness

Denmark has ranked first in the World Happiness Report for three years out of the last five. What is it that makes Danes so happy? Average household disposable income is considerably less than the OECD average - but that's partly because they spend significantly fewer hours in the office, with an average working week of only 37.3 hours. Is it this that makes them happy - or are there other factors at work?

 

LATEST NEWS FROM PARTNER CAP X

Western capitalism is broken – here’s how to fix it - Ukraine’s unhappy anniversary - Why have young Americans lost confidence in their country? - Fake news is not going anywhere soon

Western capitalism is broken – here’s how to fix it

A decade has now passed since the start of the Great Recession, and it seems the next generation will be paying for it for the rest of their lives: less likely to be as rich, safe, or healthy as the last. What has gone wrong? Western capitalism has turned into an increasingly dull and predictable club where no one is signing out. The good news is that this stagnation, like progress, is neither inevitable nor automatic.

Ukraine’s unhappy anniversary

Monday marked the third anniversary of the protests that removed President Yanukovych from power. But Ukraine still sits at 130th on the world corruption index, with $12 billion disappearing from the budget annually, and the IMF is likely to withdraw funds unless the political establishment cleans up its act. With a Trump presidency looming, Ukraine is looking increasingly friendless - and vulnerable.

Why have young Americans lost confidence in their country?

Surveys of US students have found that they are not just ignorant about Western institutions, history and culture, but increasingly sceptical of them. Very few attribute their quality of life to the triumph of the basic principles of democratic capitalism - including reason, free speech and equality of opportunity. Instead, they see the system as greedy, selfish and unfair. What's gone wrong?

Fake news is not going anywhere soon

In the wake of the US presidential election, fake news has spread moral panic like a virus. Yet it is mostly a demand-side problem - because the audience themselves are fuelling its creation. The bigger threat to society is if governments and tech companies become swept up in the frenzy and overreact - for example by relying on the kind of top-down controls that so often edge into censorship.

 

THERESA MAY | FREE MARKETS CONTINUE TO BE THE BEST WAY TO CREATE PROSPERITY

If we believe in capitalism, free markets and free trade, we must be prepared to adapt and change, writes Prime Minister May.

If we believe in capitalism, free markets and free trade, we must be prepared to adapt and change, writes the Prime Minister.

At the Lord Mayor’s banquet in London last week, I set out Britain’s global opportunity. I said we can lead the world in understanding the extent to which some people — often those on modest to low incomes living in rich countries like our own — feel left behind by the forces of capitalism, and in embracing a new approach that ensures everyone shares the benefits of economic growth.

In the Autumn Statement this week the chancellor will set out this new direction. This government will continue the tasks of bringing the deficit down and getting our debt falling so that we live within our means, while doing more to boost Britain’s long-term economic success. We will set out reforms to tackle low productivity and — crucially — provide targeted help to ordinary working families who are struggling to get by. We are a government that is not afraid to act to ensure the benefits of economic growth are shared by all.

We will show that capitalism and free markets continue to be the best way to create prosperity, spread opportunity and give people the chance of a better life.
But if we believe in capitalism, free markets and free trade, we must be prepared to adapt.

If we are to maintain confidence in a system that has delivered unprecedented levels of wealth and opportunity, lifted millions out of poverty around the world, brought nations closer together, improved standards of living and consumer choice, and underpinned the rules-based international system that has been key to global prosperity and security for so long, we need to ensure it works for everyone.

This is not a task for government alone. So on Monday at the CBI’s annual conference, I will ask British business to work with me: helping to shape this new approach, setting the template for others to follow, and calling out what is bad in order to promote what is just and good.

The government will step up with a new industrial strategy that will get the economy firing on all cylinders, back Britain’s strengths in areas such as science and innovation, and tackle longstanding problems like low levels of productivity and the historic imbalance towards London and the south-east.

Britain will be the global go-to place for scientists, innovators and tech investors. We will invest an extra £2bn a year in R&D by the end of this parliament; set up an Industrial Strategy Challenge fund to back scientific research and development of technologies such as robotics, artificial intelligence and industrial biotechnology; and review our tax regime to encourage and support innovation.

We will not just back the innovators, but the long-term investors, too. For while the UK ranks third in the OECD for the number of start-ups we create, we are 13th for the number that go on to become scaled-up businesses. The government will act to turn our bright start-ups into successful scale-ups, launching a patient capital review led by the Treasury that will examine how we can break down the obstacles to long-term investment in innovative firms.

Just as government must take a new approach, so business needs to change.
I will always be one of the strongest advocates for the role businesses play in creating jobs, generating wealth and supporting a strong economy and society. Yet we must recognise that when a small minority of businesses and business figures appear to game the system and work to a different set of rules, the social contract between businesses and society fails — and the reputation of business as a whole is undermined.

I am asking British businesses to work with me to change this. It will mean establishing the best corporate governance of any major economy, ensuring the voices of employees and consumers are properly represented in board deliberations and reforming executive pay. This will be essential to ensure business maintains and — where necessary — regains public trust.

It is an ambitious agenda but it reflects the scale of the effort required for the change we need. It will help us grasp the opportunity to lead the world in shaping a new economic approach that works for everyone. Let us seize that opportunity this week and let us build a stronger, fairer Britain together.​

If we believe in capitalism, free markets and free trade, we must be prepared to adapt and change, writes the Prime Minister.

At the Lord Mayor’s banquet in London last week, I set out Britain’s global opportunity. I said we can lead the world in understanding the extent to which some people — often those on modest to low incomes living in rich countries like our own — feel left behind by the forces of capitalism, and in embracing a new approach that ensures everyone shares the benefits of economic growth.

In the Autumn Statement this week the chancellor will set out this new direction. This government will continue the tasks of bringing the deficit down and getting our debt falling so that we live within our means, while doing more to boost Britain’s long-term economic success. We will set out reforms to tackle low productivity and — crucially — provide targeted help to ordinary working families who are struggling to get by. We are a government that is not afraid to act to ensure the benefits of economic growth are shared by all.

We will show that capitalism and free markets continue to be the best way to create prosperity, spread opportunity and give people the chance of a better life.

But if we believe in capitalism, free markets and free trade, we must be prepared to adapt.

If we are to maintain confidence in a system that has delivered unprecedented levels of wealth and opportunity, lifted millions out of poverty around the world, brought nations closer together, improved standards of living and consumer choice, and underpinned the rules-based international system that has been key to global prosperity and security for so long, we need to ensure it works for everyone.

This is not a task for government alone. So on Monday at the CBI’s annual conference, I will ask British business to work with me: helping to shape this new approach, setting the template for others to follow, and calling out what is bad in order to promote what is just and good.

The government will step up with a new industrial strategy that will get the economy firing on all cylinders, back Britain’s strengths in areas such as science and innovation, and tackle longstanding problems like low levels of productivity and the historic imbalance towards London and the south-east.

Britain will be the global go-to place for scientists, innovators and tech investors. We will invest an extra £2bn a year in R&D by the end of this parliament; set up an Industrial Strategy Challenge fund to back scientific research and development of technologies such as robotics, artificial intelligence and industrial biotechnology; and review our tax regime to encourage and support innovation.

We will not just back the innovators, but the long-term investors, too. For while the UK ranks third in the OECD for the number of start-ups we create, we are 13th for the number that go on to become scaled-up businesses. The government will act to turn our bright start-ups into successful scale-ups, launching a patient capital review led by the Treasury that will examine how we can break down the obstacles to long-term investment in innovative firms.

Just as government must take a new approach, so business needs to change.

I will always be one of the strongest advocates for the role businesses play in creating jobs, generating wealth and supporting a strong economy and society. Yet we must recognise that when a small minority of businesses and business figures appear to game the system and work to a different set of rules, the social contract between businesses and society fails — and the reputation of business as a whole is undermined.

I am asking British businesses to work with me to change this. It will mean establishing the best corporate governance of any major economy, ensuring the voices of employees and consumers are properly represented in board deliberations and reforming executive pay. This will be essential to ensure business maintains and — where necessary — regains public trust.

It is an ambitious agenda but it reflects the scale of the effort required for the change we need. It will help us grasp the opportunity to lead the world in shaping a new economic approach that works for everyone. Let us seize that opportunity this week and let us build a stronger, fairer Britain together.
 

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If Trump declares a trade war, China will fight back

US-China relations could be about to go downhill very fast. If the President-elect's campaign rhetoric is to be believed, Mr Trump is very keen to impose punitive trade tariffs on Chinese goods as soon as he can. Roughly 70 per cent of the US's total trade deficit is with China, a country whose export market is stagnating. As relations between the two powers are already chilly, China would have no qualms about retaliating - and a Sino-American war wouldn't just be about trade.

At the Marrakech climate conference, Trump casts a chilling shadow

The Paris Agreement was dependent on American voters supplying a climate-friendly successor to President Obama. This has not happened. For those from the developing world, Donald Trump endangers the subsidies promised to help them cope. Yet the country for whom a Trump administration represents the greatest strategic dilemma is Britain, who will not be looked on kindly for planning to phasing out the importation of American coal.

Britain’s relationship with India must be about more than trade

When she left India last week, Theresa May boasted that she had sealed £1 billion of deals. Reviews in the Indian press were less kind: the country is not only waiting to see what happens with Brexit, but still upset over the recent tightening of visa restrictions. In any event, Britain's obsessive focus on trade blinds it to the wider shared interests which could help the two countries build a far stronger relationship.

It’s official: Western politics is now defunct

The US has managed to come full circle, replacing its first black president with a reprehensible demagogue - and it's progressive liberals who were responsible. For decades, they conveniently forgot about those who weren’t benefiting from free trade and open borders. Now, faced with the horrifying outcome of that indifference, they cannot continue to ignore the not-so-silent majority.

Rethinking overpopulation

The world isn't as overcrowded as we might have thought. Australia has the most extreme population concentration in the world with half of its 23 million residents packed into a handful of spaces. Nearly half the population of the whole of North Africa lives along the banks of the Nile River. In fact, the maps produced by the World Economic Forum show that 50 per cent of the world's population lives in a mere 1 per cent of its land.

 

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Why we must make the moral case for free trade

At the heart of the recent comeback of protectionism is the idea that free trade creates and exacerbates inequalities - and therefore that protecting people from it is a good thing. But restricting trade doesn’t make you compassionate, or preserve the dignity of your fellow citizens: it makes you an advocate of legally enforced discrimination that will worsen relations between countries.

Losing hearts and minds – the failed drug war in Afghanistan

Opium production in Afghanistan rose by 43 per cent in 2016, and now accounts for more than 80 per cent of the world’s illicit opium. Since 2002, the US has spent $12 billion trying to eliminate poppy production in the country - but its confused and counter-productive strategy has actually made things worse. That has had appalling consequences in America as well as Afghanistan.

Zuma’s disastrous rule goes on as a corrupt elite robs South Africa blind

In South Africa, the corrupt and unloved president’s political survival is a matter of surprise – and distress. Jacob Zuma, though, is unconcerned with the health or wealth of his party, still less his nation. Instead, he lines his own pockets while a cabal of corrupt cronies ransacks the country. The results have been disastrous for South Africa's economy, society and politics.

The door is closing on peace in Columbia

Referenda may seem like the purest manifestation of democracy, but they are a favourite tool of leaders who rely on deceit and mendacity. Voters in Colombia have just rejected a laboriously negotiated peace accord between the government and the Revolutionary Armed Forces of Colombia. If peace becomes a matter of electoral politics, so will pretty much everything else – throwing Colombian democracy into a long period of political instability.

 

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Georgia and the politics of personality - How the West should punish Putin - Don’t fear the population explosion, human ingenuity will feed us all - Is social media creating a Stasi capitalism?

Georgia and the politics of personality

Georgia's recent election may have been hailed by the EU and OECD as "free and fair", but at heart it was a power struggle between the country's exiled former president and an opposition bankrolled by the country's richest oligarch. Georgia's democracy may be the best of a bad bunch, but if it wants to play a full role in the Western-based institutions it aspires to join, it will have to move beyond the grasp of its two leading men.

How the West should punish Putin

The talk of a new Cold War ignores one salient fact - one of the superpowers is missing. Militarily and economically, Russia is a shadow of its former self, which is why the Kremlin now has to rely on tame Western bankers, craven media outlets and naked bluff to advance its interests. To confront Russia, we don't need troop build-ups and aircraft carriers - just some backbone.

 Don’t fear the population explosion, human ingenuity will feed us all

Tom Hanks may be a fan of Malthus, but his prophecy of overpopulation wreaking havoc on the world is as wrong today as it was 200 years ago. This is thanks to new farming methods which has succeeded in producing more food on less land. Population doom-mongers may always be with us, but history shows their pessimism is no match for human ingenuity.

Is social media creating a Stasi capitalism?

An insurance company has publicised a new service which it hopes will analyse the Facebook posts of first-time car owners, looking for evidence that they’re well-organised, and conscientious and therefore safe on the roads. Human beings have an innate aversion to being watched by machines. But more than that, it is alarming way of thinking to connect a person's driving capabilities and habits to their use of exclamation marks online.

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Profit shouldn’t be a dirty word in drug development - Merkel’s party slumps, but don’t count her out for 2017 - Using coffee grounds to save lives - Uganda’s refugees enriched Britain. Could Syria’s do the same?

Profit shouldn’t be a dirty word in drug development

The UN High Level Panel on Access to Medicines argues in a new report that medicines would be cheaper if governments replaced markets in drug development. Yet the market-based system has been an enormous force for progress and medical innovation over the past 100 years. If the goal is to improve public health, the UN should be looking at ways to embrace the market, rather than replace it.

Merkel’s party slumps, but don’t count her out for 2017

Angela Merkel's party, the CDU, has suffered its worst ever performance in the Berlin elections. It took only 18% of the vote, losing control of the city's government. More alarmingly for the Chancellor, the populist AfD party gained around 13% of the vote, largely thanks to its heavily anti-immigration rhetoric. What does that mean for Merkel's chances of keeping the top job in next year's federal elections?

Using coffee grounds to save lives

Scientists have discovered an innovative way to reduce waste from the coffee industry - and at the same time help remove other toxic chemicals from the environment. By adding sugar and silicone to coffee grounds, the researchers were able to make a foamy brick that was easy to use as a filter: one test piece successfully removed 99% of lead and mercury ions from contaminated water within 30 hours.

Uganda’s refugees enriched Britain. Could Syria’s do the same?

Having been forced to leave by Uganda’s dictator Idi Amin, 27,000 Ugandan Asians were resettled in Britain in 1972. As it turned out, Amin's economic self-destruction was Britain's gain: in Leicester alone, 30,000 jobs have been created by Ugandan Asian businesses. Even as attitudes towards immigration turn more hostile, we should look to this example of how Britain was repaid for its kindness towards those in genuine need.

Germany and the EU cannot afford to drive hard bargain over Brexit

In his latest article, Dr Gunnar Beck discusses future Brexit negotiations. Dr Gunnar Beck is a barrister and reader in EU law & Legal Theory at the University of London.

At the latest European Council special summit meeting in Bratislava many EU leaders and the presidents of the EU Commission, Council and Parliament affirmed their views that the United Kingdom will not be allowed selective access to the Union’s single market in goods and services without free movement of labour. Meanwhile there are some indications that Germany seems to be softening her stance on Brexit.

On 17 August Michael Roth, Germany’s Minister of European Affairs said, “Given Britain’s size, significance, and its long membership of the European Union, there will probably be a special status which only bears limited comparison to that of countries that have never belonged to the European Union.” Roth’s more conciliatory stance seems at odds with the EU’s official stance as well as Chancellor Merkel’s comments shortly after the Brexit referendum that Britain would receive no special treatment, nor would she be allowed to retain full access to the single market without free movement of labour.

Roth’s comments have not gone unnoticed in the British press. The initial response was a negotiating tactic which has been exposed when Theresa May refused to trigger Art. 50. Merkel has since avoided any strident comments on the subject, and is reported privately impressed at the helm of Britain’s post-Brexit government. Publicly, Merkel will try to avoid a rift with French and other govenments who insist there will not be selective single market access for the UK, and so Germany’s emerging position is being communicated on a more junior level. It allows the German government to begin the process of shifting the ground while not appearing to change its mind (yet).

Germany, of course, is in no position to dictate its preference for a ‘soft Brexit’ option to other member states, the perceived softening of her position nonetheless is significant. For it illustrates what few commentators realise or as yet admit, namely, how weak Germany’s and the EU’s negotiating position actually is. Moreover, Merkel’s established policy of ‘buying off’ dissenting voices within the EU with further German money and further integrationist measures usually ensures agreement in the end. She favours that approach despite the crippling long-term costs for Germany, because, apart from the immediate increase in Germany’s EU budget contributions following Brexit, the costs of further integration, especially in the eurozone, can usually be disguised, kept off the official budgetary statistics and accounted for on the balance sheets of central banks of rescue funds or simply be spread out over long periods of time.

Chancellor Merkel is committed to ‘ever closer integration’ at no matter what cost and wants to transform Germany into the ‘moral superpower’ of the 21st century. With considerable skill she has disguised the true cost of the euro rescue and shifted the book value of Germany’s total loans and guarantee exposure to the balance sheets of the European Central Bank, the European Stability Mechanism and the Bundesbank which have become ‘bad banks’ where non-performing assets can be bunkered without being written off. Officially, the cost to the Federal budget has been limited to a few dozen billion euros since 2010. Meanwhile Merkel’s policies are paid for principally by German tax payers who would otherwise benefit from tax cuts, better public services and infrastructure and savers. According to a study of Germany’s Postbank, German savers lost EUR 125bn from 2011 to 2015 in terms of interest income due to the ECB’s ultra-loose monetary policy. And Merkel’s open door to migrants, according to the German economic research institute Institut der deutschen Wirtschaft (IW) will cost €50 billion in 2016 and 2017 alone, whilst the Mannheim-based ZEW has found that the costs will escalate to nearly €400 billion over the next 20 years, assuming optimistically that most of these refugees eventually find work. If integration fails or many more refugees arrive, the costs will be significantly higher.

With subdued domestic demand, Germany and the EU depend on trade-induced moderate growth including close trading relations with Britain. Nine EU countries send at least 5% of their total exports to the UK. In Germany whose economy is highly export-dependent, that percentage is about 7.5% of total exports. In 2015 Germany’s trade surplus with the UK alone was a staggering €51bn, about 20.5% of Germany’s entire trade surplus.

If anything, these figures understate Germany’s economic dependency on Britain. In 2015 around 36% of Germany’s total exports went to the Eurozone. However, under the so-called TARGET2 payments systems operated by the European Central Bank, Germany’s balance of payments surplus with the eurozone is financed not by the transfer of foreign currency reserves, gold or other near-liquid assets to Germany but by an open-ended overdraft facility granted by the Bundesbank. Under this peculiar system, the exporter is paid but not by the importing country but Germany’s central bank, i.e. the German public at large, which never receives payment from the importing country but a mere credit note from the importing country’s central bank. As of July 2016 the Bundesbank’s TARGET2 balance stood at over €660bn. That sum is the total debt owed by other eurozone central banks to the Bundesbank, which is unlikely ever to be repaid. The Bundesbank, in other words, has become another ‘bad bank’ financing the current account deficits of other eurozone members. Germany’s trade surplus with the eurozone therefore is little more than a massive ‘accounting trick.’ If German eurozone exports were paid for in the same way as her other exports, Germany would be a much richer country. That Germany is moderately prosperous at all despite this fact, is owed in large measure to her ‘real’ non-eurozone trade surplus. Germany and, by analogy, other export-driven eurozone economies depend on trade with the UK as a key trade partner outside the dysfunctional eurozone much more than is commonly realised.

Moreover, the EU as a whole is not in a position to withstand further financial turmoil which would be the inevitable concomitant of difficult and protracted Brexit negotiations. Italy’s banks are neck-deep in non-performing loans (NPLs). Official data estimates the total amount of NPLs at around 200 billion euros at around 8% of total loans. However, Wells Fargo, the U.S. investment, put the NPL ratio as high as 15% of their loan portfolios or around €350bn. Banca Monte dei Paschi alone, according to the ECB, had nonperforming loan exposure of at least €46.9 billion in 2015.

ECB President Draghi is well aware of the EU’s fragility. According to ECB and Italian political sources he has assured his former colleagues at Goldman Sachs and other investment banks that Germany cannot do anything to put trade relations at risk. Due to ongoing euro crisis measures and increasing costs of her refugee policy, Germany’s economy and public finances are likely to weaken while German unemployment should start rising again from next year.

Of course, the EU’s negotiating position will not be determined by Germany alone but a compromise. However, Draghi also reportedly expressed confidence that French and Commission resistance to concessions to Britain could be overcome and that, in return, Merkel was open to agree to French demands for a eurozone finance ministry after the 2017 German election and to make available additional bail-out facilities for Italy’s moribund banks which, like previous bail-outs, can be largely kept off the government’s balance sheet.

If the UK government plays its hand well and offers minor concessions and an apparent compromise – not a capitulation - over free movement of labour, it will be able largely to choose its terms of renegotiation. By postponing the official start of withdrawal negotiation until 2017 Theresa May has made a promising start.

 

Latest News from partner CAP X

Seven ways in which human ingenuity helps the planet - Hooray! It turns out that capitalism works after all - Theresa May has the power to curb tax avoidance – she should use it - Mao’s legacy suggests a path for change in China - How Oxfam gets it wrong on equality -

Seven ways in which human ingenuity helps the planet

Watching the news, it can be easy to feel pessimistic about the state of the environment. But Professor Jesse H. Ausubel has shown how technological progress is allowing nature to rebound. Over the last 26 years, Europe gained 212,122 square km of forest area. And between 1961 and 2014, global cereal yields per unit of land increased by 154% - meaning that humanity now produces far more food using less land.

Hooray! It turns out that capitalism works after all

The latest sensation in economics has been the 'elephant chart' - an image showing how globalisation, while bringing wealth to the East, has wreaked havoc among lower-income earners in the West. But it turns out that the facts don't match up. A new analysis shows that the picture for most people in most developed countries is one of growth rather than stagnation. In other words, free markets work.

Theresa May has the power to curb tax avoidance – she should use it

A 17-word amendment to the recent Finance Bill enables the government to force UK multinationals to declare publicly in which countries they really create value and where they pay their taxes. This isn't about punishing companies - it's about levelling the playing field so that small firms can compete on equal terms with the multinationals. Let's just hope the Prime Minister uses the power Parliament has given her.

Mao’s legacy suggests a path for change in China

Forty years after the death of the Great Helmsman, China's rulers in Beijing find themselves facing new challenges both internal and external - in particular unrest in Hong Kong and escalating tensions over North Korea. How they choose to tackle them, and whether they learn the right lessons from their predecessor, will do much to determine the path that China takes.

 

Latest News from partner CAP X

How we are beating hunger in 5 graphs - Three things you need to know about Polish immigration - How the sharing economy is transforming lives in Indonesia - Trade should be at the top of Temer's To Do list -

Three things you need to know about Polish immigration 

New ONS figures show that Poland has overtaken India as the most common foreign country of birth for UK residents: there were 831,000 Polish-born UK residents in 2015. Before you panic, here are three things to remember. Polish people make exceptional contributions to the economy and British life; EU immigration has benefitted Britain; and even Brexiteers understand the importance of immigration to the UK economy.

How we are beating hunger in 5 graphs

As recently as 1992, over a quarter of the world’s population was undernourished. Yet despite population growth, the number of undernourished persons has fallen from over 950m in 1992 to about 685m in 2015, a 28% reduction. The amount of food produced per person worldwide is now 20% greater than it was in 2005. Thanks to the Green Revolution and subsequent innovations, we are producing more food per hectare.

How the sharing economy is transforming lives in Indonesia 

The informal sector currently absorbs 80% of the Indonesian workforce. A group of tech start-ups are helping to transform society - not just by bringing in services like ride-sharing, but by bringing Indonesians into the formal economy. Teaching people how to use their smartphones and instructing them in basic financial literacy might not sound glamorous, but it could be the key to modernizing the economy.

Trade should be at the top of Temer's To Do list

Michel Temer formally took the place of Dilma Rousseff as Brazil's President after her impeachment yesterday. Reining in inflation, tackling corruption, privatizing state-owned enterprises, and cutting the budget deficit are all top priorities for the new president. However, if he wants to get a handle on the anaemic economy he is inheriting, Temer will also need to focus on Brazil’s nightmarish trade regime.

Latest News from partner CAP X

Australian government in turmoil as vote count continues - The rise and fall of the democratic ideal

Australian government in turmoil as vote count continues

The Australian Federal Elections failed to produce a clear winner on the weekend, raising the prospect of prolonged political instability. A spokesman for the Australian Electoral Commission has told press that a result may not be known for another week, if then. The Coalition has won at least 68 seats and the Labor Party is on track for 71. Neither can command a majority, leaving Australia currently without a government.

The rise and fall of the democratic ideal

Racial and ethnic divisions have seemingly widened, and the past year brought greater attention to police violence and impunity in democratic countries. The complex interplay of regional powers, jihadist groups, and urgent humanitarian priorities in war-torn nations like Syria represents a challenge to peace and stability. The leaders of the free world have fallen short as democratic principles come under threat in their own countries.

Indivisible Security

Polish MEP Anna Fotyga reflects on the history of the security of her country and provides compelling advice on how NATO can strengthen its deterrence and defence against Russia.

In the second half of the 1940s, major steps were taken to finally consolidate the West in both military and economic terms. The creation of NATO on the 4th April 1949 and the provision of the ‘Marshall Plan’ for Europe are considered to be milestones on this path. During this same period, in Poland, armed partisan groups were engaged in combatting the communist regime imposed on us by the Yalta agreement. The last of those fighters were captured and killed by communists in October 1963. Our future was bleak despite the huge contribution in fight against Nazi Germany. In almost all of Central and East European (CEE) countries people continued to defy the USSR throughout the decades of the cold war.

We saw the prospect of a better future realised with the victory of Polish Solidarity and the subsequent collapse of the Berlin wall.

Nations of my region were jubilant not only after regaining their sovereignty, but also after the reaffirmation of this status by joining the NATO alliance. We were naturally aware of the ongoing diplomatic efforts vis-a-vis Russia. However, it was important that no third country was granted a veto right in NATO decisions. The principle of self-determination of sovereign nations as stipulated in fundamental UN and OSCE documents is still valid.

After years of meandering policies, despite Western efforts, Russia finally decided to go its own way. Russia openly disregarded international obligations, threatened territorial integrity of certain neighbouring countries such as - Ukraine and Georgia, as well as being engaged in social, economic or political destabilisation of many others. Most recently, this dubious activity is visible also in the place of our utmost concern - Syria.

Despite many years of NATO’s existence, due to Russia in the East and radical Islam from the South, we still face challenges to our security. During his recent visit to Warsaw (30 May 2016), Jens Stoltenberg, the Secretary General of NATO, underlined that during the Warsaw Summit, the Alliance will take decisions to strengthen its deterrence and defence, as well as step up efforts to project stability beyond its borders. Effective deterrence requires greater financial efforts, in particular from Europe. We have to dedicate even more than required by the already agreed expenditure goals. The cooperation between NATO and the EU may bring real added value, provided we, the Europeans, focus on the use of existing tools at our disposal. We are capable of preventing conflicts and introducing effective post-conflict rehabilitation by use of diverse meaures.

We, the NATO and EU countries must stand united in combatting terrorism, as after the Paris and Brussels terrorist attacks, the menace seems to be as palpable as ever. 

Unity, both in practical and ideational terms, is necessary to tackle the challenges, as common perception of threats is still important for our societies. The Russian aggression in Ukraine changed the geopolitical situation in CEE. The people of this region have become sensitive to security issues and therefore support for both political and budgetary endeavours furthering military security has risen. One by one, countries of my region have launched national programs aimed at fulfilling NATO requirements. Countries like Poland and Estonia have already reached the NATO defence expenditures target. We are aware of the necessity to engage in peacekeeping and stabilisation operations in south, deployed within NATO, UN or EU formats. We have modernised our armies, we are training people in territorial defence tasks, but nevertheless, to be able to maintain this ambitious program we need to have a strong NATO presence in our part of Europe. Such measures will enable necessary empowerment of Europe in defence matters.

By Anna Fotyga MEP 

 

 

 

 

 

A NATO fit for purpose

In light of the upcoming NATO Warsaw Summit, Anders Fogh Rasmussen discusses the increasing threat that Russia poses on Europe's Eastern Flank and gives his opinion on the action that NATO should take to secure the region's future.

Russia’s aggression against Ukraine and its ambition to revive the Cold War conflict have reminded us that the West needs to protect its societies and values against tyranny and oppression. The peace, security, and democratic stability we have enjoyed since the end of the Cold War, can no longer be taken for granted. The key objective at the Warsaw Summit should be to revert this alarming trend and deliver a clear strategy for a Europe whole and free.

At the Warsaw Summit NATO should face the new security environment imposed by Russia and agree policies that can enhance deterrence and defence. We in the West should hold no illusions about Russia’s intentions and its willingness to apply raw force. We have seen that in Georgia and Ukraine. Unfortunately, Russia is no longer a partner, but a revisionist state determined to create a new Iron Curtain. One can only wonder why the leaders in Kremlin want to revive an old conflict, when they could offer their public a peaceful and prosperous future with the Western world as a trusted partner. Instead Russia has opted for a competitive relationship. Western inaction would in the Kremlin be interpreted as an open invitation for Russia to continue its assertive policies toward NATO members and partners.

The key question to be asked at the Warsaw Summit is whether the present NATO deployment and deterrence can prevent a Russian attack on allies that border Russia? I think this is a big question mark. I fear a scenario where Russia could use the cover of a snap exercise to create a small invasion of NATO territory. NATO allies would face the choice of surrendering territory and credibility or risk a costly escalation involving a Russian military with highly sophisticated, layered air defences. As is always the case, prevention is less expensive and more effective than treatment.

After a decade of divestment, NATO’s reduced defence posture of the post-Cold War era is not sufficient to deter the Russian threat. I am hopeful that the Alliance has reached a turning point with regard to its military spending. In Central Europe alone, spending was up 13 percent in 2015, and the United States has sent an important message with its decision to quadruple its military budget for Europe in 2017. The UK, France, and Germany have all announced plans for modest spending increases in the coming years. In total this will help deter Russian aggression.

The NATO decision to create a spearhead force and rotate military forces in its Eastern allies on a permanent basis has been an immediate and necessary step taken following Russia’s illegal actions in Ukraine, but they are unlikely to be sufficient. In order to create credible deterrence, the West should establish a more permanent presence in Eastern Europe, for as long as necessary. One could question whether NATO’s military bases would be of greater use in the Eastern than the Western part of Europe.

At the Warsaw Summit allies would also have to agree on a strategy to boost NATO’s hybrid warfare capabilities. In Ukraine, Russia demonstrated the efficacy of ‘hybrid warfare’ and unveiled how ill-prepared NATO was to grapple with a military action below the threshold of overt invasion.

However, Russia’s threatening tactics are not confined to conventional weapons or hybrid warfare. Under President Putin, Russia has enhanced its reliance on nuclear weapons and is engaged in dangerous nuclear brinkmanship and threats. Nuclear deterrence is a taboo among NATO allies. And rightly so, it is weapon we should never seek to use.  But in the current security environment we have to keep all options open. NATO needs to use the full spectrum of tools at its disposal to create an effective deterrence.

Russia will do whatever it can to dilute the outcome of the Warsaw Summit. It will argue fiercely that NATO presence in Eastern Europe is in violation with the 1997 NATO - Russia Founding Act. We should remind Russia that this is a self-inflicted wound. Their illegal actions in Ukraine have dramatically changed the European landscape and forced NATO to respond in defence of its allies.

Russia’s actions have unveiled its real intentions. Moscow aims to undermine the law-based principles of European security and the liberal world order that the United States established following World War II. NATO reacts to Russia’s assertive behavior because its member countries have an interest in the preservation of the international system – which has secured peace and prosperity on the European continent since World War II. I find it quite apprehensible as democracies and law-based societies have a natural stake in preserving this global security order.

Russia will play a long game, and NATO allies and partners in cooperation with the EU and key international players should be ready to do the same thing. The Warsaw Summit comes at a crucial time in history. The Summit should send a clear message about the resilience of the Alliance and agree on concrete steps to counter threats to our way of life.

By Anders Fogh Rasmussen 

 

 

 

 

 

 

 

 

 

Warsaw NATO Summit: Time to act

Tomasz Poręba discusses the ever-growing threat coming from Russia and the importance of the upcoming Warsaw NATO Summit in order to strengthen Europe’s eastern border.

Contrary to the popular belief prevailing since the end of the Cold War, the end of the military standoff between NATO and Soviet Union did not mark a new era of peace and safety. Under the rule of Vladimir Putin, Russia is once again trying to assert itself as a world power and regain lost influence and prestige by pursuing an increasingly aggressive and revanchist policy.

The Kremlin is also seeking to distract Russian citizens from the country’s growing internal problems. There is turmoil in the Middle East and North Africa, civil war in Syria, and conflicts in Yemen and Libya, bringing to life radical Islamist movements that loathe all things Western and have sworn to bring their war to European and American soil. This in turn has pushed an unprecedented wave of migrants towards Europe. Almost all of the EU  is touched by open or frozen conflicts, unrest and civil war, while its citizens are exposed to the threat of terrorism.

Both Europe and NATO face unprecedented threats on many different fronts. These range from conventional warfare through the expansion of terrorist groups, radicalisation of our own citizens and – last but not least – dangers posed by the information warfare and propaganda fuelled mainly by Russia. Therefore, the Warsaw Summit is timely and should be used as an opportunity to decisively respond to these new forms of threats, which also include hybrid warfare and cyber-attack.

Despite predictions by numerous experts that future warfare will predominantly belong to special forces and not tanks and artillery, the situation in Eastern Ukraine (and to some degree in Syria) clearly shows that this is not the case, at least not yet. The threat posed by Russia is much bigger than it has been since the end of the Cold War. As Antoni Macierewicz, Polish minister of defence, underlined when talking about preparation for the NATO Summit in Warsaw, in August 2009, one year after the meticulously planned aggression against Georgia, Putin had said that Moscow wanted to change the political configuration in Europe and move towards separate agreements between Russia and individual, chosen countries.

But Moscow’s vision of “divide and rule” went far beyond diplomacy. What has followed – including the annexation of Crimea, aggression against Ukraine and intervention in Syria on the side of Assad regime – clearly shows that the Kremlin is determined to pursue its goal of working on different fronts and using a variety of tools. Therefore, the Warsaw Summit should be used as a key platform to strengthen NATO’s eastern flank and to project stability beyond our borders. Today it is not only Ukraine, but also Moldova and Georgia that are under threat.

The second major challenge for the security of NATO countries is terrorist groups such as ISIS aqnd al-Qaeda. NATO should be ready to militarily counter and fight terrorist groups which use partisan tactics and often melt into civilian populations or use human shields on their soil. This requires a completely different way of thinking about warfare, especially in cities and densely populated areas. The other side of this coin is the need to dismantle terrorist cells operating in our own countries.

Another directly linked threat is the spread of radicalisation among young people. Europe’s population is suffering from terrorist attacks led by radicals and militants who have either been trained abroad or recruited by terrorist organisations in Europe and the Middle East. These individuals often have European citizenship and are therefore much more difficult to track. We also have to remember that experienced Islamist fighters may – and almost certainly do – infiltrate the waves of refugees coming to Europe.

Last but not least, we have recently witnessed the revival of a threat which was previously very creatively used by the Soviet Union – information warfare targeting both NATO and the EU. The strategic communications employed by Russia are not only undermining security on Europe’s Eastern border, it is also targeting our partners like Ukraine, Georgia and Moldova. The “weaponisation of information” by the Kremlin is a well-thought through and well-funded strategy and should be regarded as a threat equal to more traditional ones. NATO is aware of the problem and its Stratcom Centre of Excellence in Latvia does a great job at exposing Russian lies and manipulation.

The importance of the crucial Warsaw 2016 NATO summit this month should not be underestimated. Wales 2014 saw the alliance change direction to face a more dangerous world but Warsaw 2016 will decide if the needed level of support and commitment to this change is fully carried out.

LATEST NEWS FROM ACROSS THE GLOBE WITH PARTNERS CAP X

Is China facing a New Cultural Revolution? - Ukraine is in geopolitical limbo, but is drifting Westwards - Rajoy now willing to lead a minority government - Liberty and Austrian economics in the principality of Liechtenstein

Is China facing a New Cultural Revolution?

It is the worst time for human rights in China since the Tiananmen massacre. Since 9 July last year, over 300 human rights lawyers and their associates and relatives have been detained and harassed. It is time for the UK to speak out publicly and consistently about human rights in China, to consult with dissidents to explore what steps would be most useful, as part of our responsibilities under the Sino-British Joint Declaration.

Ukraine is in geopolitical limbo, but it is drifting Westwards

Ukraine is trying hard. It has voluntarily adopted over 4000 European Union technical standards over the last 3 years and introduced a new government website, Prozorro, where all state purchasing must be published in an attempt to improve relations with the EU. Ukraine will remain in geopolitical limbo, a long way off FTAs, for a good time to come, but it is clear that despite the glacial pace of reform, it is still slowly drifting westwards.

Liberty and Austrian economics in the principality of Liechtenstein

Liechtenstein is the only state in which direct democracy is fully developed: it would only take action from half of its 35,000 citizens to pass or abolish any law or regulation. In such a tight-knit community, this creates a sense of security from the expansionary nature of government, an almost private business-like relationship with the state. Thanks to Liechtenstein, we are now able to prove that Liberty works.

Rajoy banking on a Socialist abstention to become Spain’s next PM

Spanish Prime Minister Mariano Rajoy's winning Popular Party still lacks a parliamentary majority after securing 137 seats in the 350-deputy chamber in the repeat elections held on Sunday. If he fails to secure a coalition with the Socialist Party, a partnership they maintain they will not enter, Rajoy will have to rely on a Socialist abstention in a Congressional investiture vote, which would allow him to take office with a minority government.

E!Sharp |  The Digital Economy: Still regulating from the analogue era

Roslyn Layton discusses investment in telecom infrastructure and the role of regulators on the market

Over the last 20 years, computing, communications, and content have come together in a process of convergence. Many think this is a coming together of equals, but it is not. The computing component wins over communications and content.

But these industries are still regulated as if they are in silos, meaning that some industries have more or less regulation than the others with which they compete. Some get to innovate while others don’t. Consumers are thus deprived of innovation from more actors in the ecosystem, as well as the competition that emerges when more actors are allowed to participate.

Investment in telecom infrastructure matters for many reasons. It creates the physical infrastructure for information and communications technology, provides a stable vehicle for savers to put their money for retirement, and it fertilizes the digital ecosystem, which has positive impacts for workers, startups, and technologies.

In 2003, the EU counted for one-third of the world’s private investment in telecommunications infrastructure; today it’s less than one-fifth. The EU had six handset manufacturers accounting for half of the world’s phones; now there are none in the Europe anymore. The EU had a continental agreement on the 3G/UMTS standard which became the global mobile standard, but 4G eclipsed 3G, and now the EU is racing to catch up with the US and Asia. There is a hope that the EU can win again with 5G, a wireless technology that is as fast as fiber, but that is unlikely as the EU faces a gap of €100 billion to realize the vision.

Much damage has been done to consumers by regulators and competition authorities under the premise of controlling prices. Europeans enjoy low mobile prices, not because of regulation, but because of technological development. WhatsApp and Skype offer free SMS and long distance. This forces operators to bundle their services; getting free voice and SMS is increasingly common with mobile internet packages.

What regulators have succeeded to do with a decade of access regulation, essentially regulated reselling of network service, is to reduce the incentive for investment. EU Regulators have deterred the rollout of fibre because of artificially low copper prices. This is a signal to the market that reselling copper access is more attractive than investing in next generation wireline technology, namely fibre to the home (FTTH). It’s no surprise that three-quarters of wireline broadband subscriptions in the EU are digital subscriber line (DSL), a broadband service over copper. Moreover the countries with new FTTH deployments are Spain, Portugal and Norway where copper prices are flexible.  

Competition authorities make it worse by deterring the mergers that operators need to get a business case to invest in networks. Mobile providers thus are required to maintain 75 percent redundancy in their operations rather than investing in new networks.

There is no better illustration of convergence that the fact that internet companies are bigger and more profitable than the telecom and cable providers that deliver them. Google, Apple, and Facebook each have over 1 billion users. The market caps of these companies are larger than most EU member nations. Netflix with 80 million customers in 190 countries is larger than any cable company in the world.

The EU should encourage the participation of all parts of the ecosystem, but instead it adds rules which make partnerships more difficult. Denmark and The Netherlands demonstrate how net neutrality policy works in practice. Both are similar countries with advanced, competitive broadband markets and high digital adoption. The Netherlands imposed a hard net neutrality law in 2012 and has seen the rate of its locally made startups decline. The country is an innovation-free zone because actors are afraid to try anything for fear of being fined. In Denmark however, where self-regulation has worked since 2011, the rate of locally produced mobile apps has not only increased, but they have been exported to other EU countries.

Unlike The Netherlands, the Danish model allows the freedom of the actors to partner in the digital ecosystem to serve consumers with the most innovative products at lowest cost. This should be the norm in the EU, but it’s not. Google and the groups it funds, a pseudo-consumer lobby called Save the Internet, are working to ensure that upstarts can’t challenge the search giant. Tell BEREC not to make the implementation rules for net neutrality any worse than they already by sending comments to the forthcoming public consultation. The EU needs all the innovation it can get from all sectors.

Latest News From Across The Globe With Partners Cap X

New Direction | The Foundation for European Reform is an international partner of CapX, a new digital service which commissions and aggregates the best news on popular capitalism from around the world.

America is relatively safe and tolerant

The recent killings of 49 innocent club goers in Orlando, Florida, have raised, once again, the issues of tolerance and violence in American society. But America has become dramatically safer. Today, you are twice as likely to be struck by lightning in the US than be a victim of a mass shooting. The US is also getting more tolerant: in 2002, only 38% of Americans believed that LGBT relationships were morally acceptable. Now that number is 63%.

Should Sky be a limit? Where creativity and commerce collide

Hello Games ran into trouble when they decided to call their new video game "No Man's Sky". It turns out that broadcasting company Sky plc does in fact "own" the "sky" and routinely challenges anybody who would seek to use "sky" in the name of a product. Hello Games has been fighting a copyright battle for three years, begging the question: when does a corporation step into a space that should rightly be protected for the public?

This Australian Party Has a New Voting Idea That Could Radically Change Politics

The blockchain technology developed for Bitcoin allows users both total anonymity and complete transparency. So could it also be the basis for a new kind of politics? A new party in Australia wants to find out. The Flux party promises to "upgrade democracy" by letting Australian voters use an app to tell elected proxy senators how to vote in parliament. Flux, with the help of blockchain, wants to take return power to the people, directly.

THIS WEEK’S MUST READ NEWS FROM CAPX | NEW DIRECTION

New Direction | The Foundation for European Reform is an international partner of CapX, a new digital service which commissions and aggregates the best news on popular capitalism from around the world.

 

 

The new political geography against China

President Obama's lifting of the embargo for sale of offensive weapons to Vietnam, along with the announcement of a Japan-Vietnam military agreement, could signal a new anti-Chinese coalition. Smaller Asia-Pacific countries are increasingly taking their grievances over China's stubbornness about currency exchange rates and the South China Sea to the US. China may have underestimated the complex dynamics occurring in the region.

We spend 99.3 percent of our money on ourselves

Although a poll suggests Britain’s global lead in helping the world’s poor is a source of pride for Brits, aid spending is facing opposition. Parliament is due to debate the budget today after the likes of Ukip’s Nigel Farage have waged war against it. But only 0.7% of the public purse is set aside for international aid. Claiming that its eradication will somehow fix all manner of domestic ills is Scrooge-like and false.

Ugandan President Museveni: 'This Is Our Continent, Not Yours'

Yoweri Museveni, who has ruled Uganda for three decades, in an interview with Spiegel the West's role in fostering African Islamist terror, his opposition to the International Criminal Court and whether he is himself abusing his power.

Thanks to This Startup, Mongolia’s Nomads Can Finally Get Their Mail

Delivering the mail in rural Mongolia is no easy feat, as about 30% of the population is still nomadic. A London-based startup has a solution. What3Words has developed an app that records GPS coordinates to 9-square-metre plots and simplifies them into a three-word combinations to mark a specific location a map. The Mongol Post will use the system to improve access for residents who live in makeshift housing without a designated address.

Security in Europe - How to Change the Negative Trend

Defence Minister of Poland writes about Russia and the future of NATO : "Russia defines and achieves its goals in a different way. Russia does not accept any norms or values which were made up beyond its territory. Russia is now the biggest threat for the global security.”

Disturbed security in Europe

Within just two years, the security of Europe dramatically deteriorated. The Russian invasion of Ukraine in Crimea and Donbas in 2014 led to major violations of international law and international order. Then mass-scale migration crisis occurred, only partially related to the humanitarian disaster in the Middle East. So far, Europe was unable to find an effective solution to them. Unfortunately, more and more events suggest that this still may not be the end of problems, as the tensions in international relations are rising even above the Cold War levels. The NATO Summit in Warsaw should be an important step to tackle these challenges effectively.

First, we have to identify reasons for which all of this occurred. Sadly enough, it has to be stated that the analysts and policy planners either underestimated or ignored some of the dangerous processes that have been taking place for several past years. Before the present migration crisis started, Spain experienced the crisis of the cayucos in the Canary Islands back in 2006, whereas Italy has had permanent problems with Lampedusa since at least 2011. In the same time, the conflicts that caused the massive inflow of migrants in 2014-2015 were already brewing. Millions of refugees from Syria have been living in refugee camps in Turkey, Lebanon and Jordan since at least 2011.

On the other hand, before the terrorists also known as "the little green men" invaded Crimea and led to the annexation of the peninsula by Russia, and to the outbreak of war in Donbas, Russia performed a mass-scale cyberattack on Estonia in 2007 and militarily invaded Georgia in 2008. We saw two mysterious air crashes: of the Polish Tu-154 in Smolensk in April 2010 and the Malaysian Airlines flight MH-17 in July 2014. Circumstances of both bear characteristics typical to acts of terror. For several years, the West experienced increasingly frequent provocative behaviours of the Russian military, especially air forces, as well as verbal threats, propaganda, disinformation and intensified espionage. In fact, the present crisis has been developing for years and what we see now is merely a consequence of the past negligence.

More to come

Spring 2014 marked an end to the fairly peaceful period of European history. Hybrid war launched by Russia and the subsequent annexation of Crimea brought to mind some of the most dreadful historical memories of Europe. It was frequently compared to Anschluss of Austria by Germany in 1938, Munich Agreement of 1938 and the Soviet invasion of Czechoslovakia in 1968. Having said that, how can anyone deem any scenario impossible? If we already experienced a cyber and hybrid war, why would we disregard the possibility of a conventional one? We cannot close our eyes or turn our heads away from the manoeuvers of the Russian army that exercises the possible conflict with NATO, including preventive nuclear attacks. We cannot disregard the increasing Anti-Access/Aread Denial (A2/AD) means adopted by Russia. The deployment of missile systems in Syria, Kaliningrad and other places significantly reduces NATO defensive potential. What is more, the irresponsible provocations, border incidents and air space violations increase the tension to a hardly bearable level.

In the same time, the migrations from the East and South bring social changes to Europe that are difficult to analyse and predict. About a million migrants from the Middle East and North Africa (MENA) region entered the EU through Greece and Italy and another wave from Ukraine came to Poland only. Regardless of political correctness, which to a large extent is a reason of the present troubles, it has to be noticed that there is a strong correlation between the wave of Muslim migrants and the terrorist attacks and acts of sexual violence in Western Europe (Paris, Brussels, Germany). It also must be stated openly that not all the migrants are genuine refugees, that they are penetrated by radical Islamists, organized crime and that the entire phenomenon is used to achieve political purposes by the third parties.

What shall we do?

Europe has to realize that the threats mentioned above should be treated as one complex peril and challenge. They are interdependent and they are a part of a wider geopolitical scheme. There is one long frontline along the EU/NATO borders from Norway to Spain. The division on Eastern and Southern flank is not much relevant. Therefore, the foremost necessity is the unity of the EU and NATO members in designing an applicable solution to the problem. Internal conflicts between the members of the Western community may only decrease the resilience of them to the threat.  In particular, this Summit needs to show the world that we are united and stand as one.

Situation awareness is another factor of effective response to the challenges faced by the West. We need an increased intelligence cooperation which would help to paint a better picture of what is actually taking place around us. But we need also a realist analysis, taking under consideration all kinds of perils, even those that may not seem very probable at the moment. Hardly anyone could predict Crimea and the migrant crisis back in 2013. Just a year later they became reality.

However, there is one exception to that. The late President of Poland Lech Kaczyński and his party (Law and Justice, now ruling in Poland) argued during the NATO Summit in Bucharest in April 2008 that this kind of expansion of Russia could have taken place and that Ukraine and Georgia should become members of the NATO. As we know, this concept was rejected. The war in Georgia broke in August 2008.

The EU and the NATO have to cooperate in a complementary way. They have unique competences and capabilities that combined together may bring the necessary solutions to the problems defined above. The concepts of the EU Global Strategy and the 360-degree NATO defence will have to be effectively implemented.

Without cooperation of the two organizations, we will not be able to properly respond to the existing and emerging threats. The migration crisis can only be stopped by solving the problems that caused them. This requires both terminating the armed conflicts in the MENA region as well as the economic aid in reconstruction of countries affected by them. As far as the aggressive and hawkish attitude of Russia is considered, only the combination of economic sanctions and military deterrence may bring back stability and ensure security of Eastern Europe. Speaking of the latter – it has to include real reinforced presence of military force, not just declarations. This is why the NATO Summit in Warsaw is so important. It simply has to bring answers to the arising questions about the future of our security.

 

Antoni Macierewicz, Defence Minister of Poland

 

THIS WEEK’S MUST READ NEWS FROM CAPX | NEW DIRECTION

New Direction | The Foundation for European Reform is an international partner of CapX, a new digital service which commissions and aggregates the best news on popular capitalism from around the world.

 

How to unlock India’s potential

If India eliminated all its distortions it would generate over 200m new jobs, and reduce absolute poverty to zero. It would also be the fifth largest economy in the world, and in GDP per capita terms, it would rise from being ranked 169th to being ranked 67th. Modi's government must push structural reform even in the teeth of great resistance. The stakes for the Indian economy, the Indian people and the relief of poverty could not be higher.

Consumer protection in the digital age: has innovation displaced regulation?

Milton Friedman was right in thinking that while many people want the government to protect the consumer, a much more urgent problem is to protect the consumer from the government. As the digital economy expands, top-down government regulation is being made unnecessary by forms of private governance. These turn out to be as effective as actual laws, but significantly less lengthy, expensive, and invasive.

How much do you actually know about the Greek Crisis?

Here are the basics: there was a financial crisis in Greece, which due to the fact that it initially threatened the Eurozone stability, was handled by the Troika – a coalition of the IMF and the EU. So how has the Troika been performing? 3 adjustment programmes, 12 reviews, 220bn Euros and 7 years down the road, the results are abysmal: 179% debt, 0% growth, 25.1% unemployment and no improvement in sight for Greece.

Making liquid fuel from sunlight, water and air

Scientists have devised a system that produces liquid fuel from sunlight, pure carbon dioxide, and water. And they have done it at an efficiency of 10%. In other words, one-tenth of the energy in sunlight is captured and turned into fuel. That is much higher than natural photosynthesis, which converts just 1% of solar energy into the carbohydrates used by plants. This could be a milestone in the shift away from fossil fuels.

NEW EUROPE | EU MUST BE ATTENTIVE TO US PRIVACY OBSTACLES

In his latest article, Amjad Bashir discusses data protection and its impact on EU-US relationship.

Last year’s European Court of Justice decision on “Safe Harbour” arguably caught both the European Union and United States somewhat by surprise, forcing them to reopen negotiations on a policy area that neither side had any real desire to readdress.

The ruling, which effectively nullified the existing arrangement facilitating data transfers between the EU and the US, gave the affected parties little choice but to work out a new agreement as quickly as possible.

With a preliminary accord on “Privacy Shield” having been reached, the ratification process has screeched to a halt, having been sucked into the stereotypical Brussels political quagmire. Endless discussions, hearings and working groups have not helped to generate any of the positive momentum which this agreement needs.

As a matter of fact, the Brussels bubble has spent so much time caught up in self-generated navel-gazing, that it may have missed out or ignored key developments on the other side of the Atlantic. Complications that could mean an even rockier road ahead for Safe Harbour’s successor.

In the United States, the Federal Trade Commission (FTC) has long been the country’s main privacy regulator enforcing essential consumer protection. However, last year, the Federal Communications Commission (FCC) took it upon itself to reclassify broadband internet service providers (ISPs) as “common carriers” outside the FTC’s jurisdiction.

Quite significantly, on March 31st, the FCC put forward a series of new privacy protection proposals for the ISP sector. However, these rules don’t apply to over-the-top communications service providers, who happen to be the ones handling the most user-generated data. This approach clearly does not reflect the way in which the internet really works.

Unless and until that decision is reversed either through legal action or through the US Congress which will ultimately have a final say on the matter, as it stands, the United States has two privacy regulators overseeing the digital economy.

Though it’s not a done deal, the FCC, thanks to its power grab, now handles major ISPs like Verizon, Charter, and Sprint while the FTC continues to oversee everyone else, including GAFA (Google, Amazon, Facebook, Apple) and beyond.

It’s an arrangement that would certainly raise eyebrows from a European perspective. Currently, a distinction is made by the EU between telecoms providers and other data processors, with additional “ePrivacy” rules applying to the telecoms providers.

Nevertheless, the debate is increasingly moving towards removing this distinction by applying, for example, ePrivacy rules to over-the-top communications service providers (such as WhatsApp and Skype) as well. There is increased awareness in Europe that data protection risks associated with companies such as Google are as great or greater than those associated with other internet service providers, and that old distinctions must be revised in order to keep up with industry developments.

Coming back to discussions on Privacy Shield, the Court of Justice decision stipulated that for a deal to be struck, the US must have data protection rules that are “essentially equivalent” to those of the EU. In the ensuing negotiations, the US did indeed repeatedly insist that the protection it provides is “essentially equivalent”, however, these arguments were based on the old blueprint applied by the FTC.

What we are seeing now in the United States is a glaring double standard. In discussions with the EU, the Americans insist that FTC rules are fair and robust, providing protection that is as good as what is on offer in Europe, and that the problem largely stems from a misunderstanding.

However, in domestic discussions, the authorities have decided that these same rules are not good enough for US citizens. Furthermore, there are valid concerns, as voiced by FTC Commissioner Maureen K. Ohlhausen, that this new set-up in the US, under which two separate authorities deal with the same issue, will lead to inefficiencies and inconsistencies in their approach to data protection.

As mentioned earlier, these developments could not come at a worse time in discussions with the European Union. With the talks on whether to accept the Privacy Shield finely poised, and data protection authorities, the parliament, and the commission all looking to weigh in, the EU does not need its negotiating partner suddenly changing its position. All this can and will inevitably lead to are endless talks, and worse still, further disputes.

What the EU needs from the US right now, on the other hand, is a negotiating partner that can be relied upon to stick to its position, both on home turf and abroad, and with which it can work efficiently to safely facilitate transfers of data, the lifeblood of the digital economy.

THIS WEEK’S MUST READ NEWS FROM CAPX | NEW DIRECTION

New Direction | The Foundation for European Reform is an international partner of CapX, a new digital service which commissions and aggregates the best news on popular capitalism from around the world.

Clashes over constitutional abuse in the Congo

Last Thursday, opposition militia organised widespread demonstrations against President Joseph Kabila across the Democratic Republic of Congo. They are accusing Kabila of trying to delay elections until he can change the constitution to allow him to run for a third term. The imminent delay of the elections has raised fears among DRC’s international allies that ultimately the massive country is moving toward a violent collapse.

Vote Leave’s anti-immigration system is deeply flawed

Governments are incapable of picking individual winners, let alone planning an entire economy’s ever-changing manpower needs. The area of fastest employment growth in Britain is care for the elderly. These are low-skill jobs that young Britons spurn. A skills-biased points system would deprive elderly Britons of proper care. And it would damage British businesses that rely on EU migrants to pick fruit, clean offices and much else.

Donald Trump’s foreign policy endorsed… by North Korea

North Korea is one of the most militarised countries in the world, capable of wiping out Seoul. Donald Trump suggested withdrawing US troops from South Korea, and now a North Korean newspaper has called him a “far-sighted presidential candidate”. That the government of a country which routinely imprisons, tortures and murders its own citizens wants Trump to become President of the US is a sign of just how dangerous he is to global stability.

Socialism and self-delusion

To explain our insane fascination with socialism, many point to a growing body of research which suggests that we are by nature envious of those who amass disproportionate wealth and power. Our stone age brains also find it difficult to comprehend, let alone appreciate, extended trade and specialisation. But another explanation for socialism's persistent appeal is our power of self-delusion, and ability to hold onto beliefs that are patently not true.

How Much Debt Is Too Much in China?

In the first quarter of 2016, Chinese debt rose to 237% of GDP, a level comparable to that of the US or the Eurozone and much larger than most developing economies. How much longer can China continue to use the same stimulus tools, with the ballooning credit that comes with them, to postpone a reckoning with its slowing economic growth? Yukon Hang, Francesco Sisci, Derek Scissors and Houze Song debate China's prospects.

Centralism, Corruption and Underdevelopment - Romania’s Way Out

Dr Adrian Papahgi explores how centralism and fake decentralisation have brought problems to EU regions and why the EU should return to its original design by being a body that promotes subsidiarity.

Centralism seems to be encoded in Romania’s political DNA. Communist centralism was engrafted upon an earlier tradition inspired by nineteenth-century France, so that the unholy trinity centralisme, étatisme, dirigismebecame an article of faith of the Romanian state. Against this background, crony capitalism and state-induced corruption have been common currency since the collapse of communism.

Centralism has a double articulation in Romania. It is historically inherited and geographically replicated. The centralism of Bucharest is reproduced in the forty-one counties, each ruled rather feudally by a president of the county council, aptly nicknamed ‘local baron’ in contemporary folklore. The ‘decentralisation’ effected by post-communist governments has mostly meant just the reinforcement of a secondary level of centralism. The flow of public money went from the central government down to the barons, and from these to their feudal clients, the mayors. The more influential a baron within the governing party, the more financing he received from the central government; the more compliant a mayor, the more eligible his infrastructure projects. This system provided a convenient way of blackmailing mayors, who often switched parties in order to get their projects funded, and thus to ensure their own re-election. 

This pseudo-decentralised scheme has predictably generated corruption and stagnation. The lasting political and economic power of barons suffocated the counties, and hindered any attempt at regional reform. Each baron was jealous of his own fiefdom, and seldom cooperated regionally with other barons in order to develop much needed services, such as regional hospitals or transportation.

Few decentralisation initiatives taken by the central government over the past decades had in mind the common good, or the sound values of localism and subsidiarity. Prerogatives were devolved to local authorities that had no money to cope with them, and thus kept depending on subsidies from the government. Big cities managed to get along, but small towns and the all too numerous rural communities entered a prolonged state of indigence, or even bankruptcy.

Fake decentralisation also meant the creation of so-called ‘deconcentrated’ authorities, suspended in a limbo between local and ministerial control, and ruled by the unwritten rules of political influence and corruption. The agencies governing water, forests, energy or transportation generated great fortunes for a few well-connected businessmen. Under the disguise of decentralisation, the socialist government led by Victor Ponta (May 2012-November 2015) attempted to transfer the ports of Galați (on the Danube river) and Constanța (at the Black Sea) to local authorities controlled by socialist barons. Instead of being privatised, many state-owned agencies and enterprises functioned as piggy banks for the barons and the parties in power.

The way out of this state of things involves two apparently contrary measures. On the one hand, real subsidiarity should free the local communities from their feudal overlords, the barons and the ministers. The greatest share of money should be spent where it is produced, which would allow more areas to become sustainable. Wealth is contagious, and competition among regions will further stimulate economic growth through innovation, low taxation and business-friendly regulations. On the other hand, unsustainable rural communities should merge and become viable administrative units, or enter metropolitan areas, with integrated transportation and better public services.

To quote just an example, Cluj, Romania’s second largest city (over 320,000 inhabitants) is one of the welfare poles in the country due to the presence of important universities and innovative industries. As a result, the population of former villages around Cluj has boomed. With 7,000 to 20,000 inhabitants each, these populous outskirts lack proper schooling, medical or transportation infrastructure. The solution is to integrate these communities into a metropolitan area, rather than to expect overcrowded yet undermanaged entities to build the much-needed roads, schools and hospitals by themselves, or through the good will of barons and the government.

Zooming out of Romania, now, a glimpse at the Eurostat map presenting the GDP per inhabitant in purchasing power standard by NUTS 2 regions in 2013 discloses the undeniable effects of centralism.

In federal or decentralised countries, the discrepancies between the capital city and the richest regions tend to be lower than in countries with a centralist tradition. For historical reasons, countries like Italy, Austria and Germany are the best examples, and their wealthiest regions can be richer than the capital city. In the new EU member states, only the regions around the capital cities have managed to exceed the EU average of relative wealth; interestingly, this also concerns East Germany. In Romania, the gap between the richest and the poorest region is particularly high: the Bucharest region reached 131% of the EU average in 2013 (higher than Lisbon, and comparable to Lombardy and Madrid), whereas the Northeast region is struggling to reach one third of the EU average.

A long tradition, inscribed in the Maastricht Treaty, but going back, through the Quadragesimo Anno Encyclical, to Thomas Aquinas’ commentaries on Aristotle’s Politics, stresses the commonsensical truth that bigger communities include smaller ones, all the way down to the basic community – the family. Unlike most modern nation states, the European Union was born subsidiary. It would be a shame if centralism rather than subsidiarity were allowed to dominate the common philosophy and political practice of the Union. Countries like Romania, still struggling with the nefarious effects of communism, would not benefit by the addition of a further layer of centralism to the already existing ones. In joining the Union, Romanians hoped to find a bulwark against the corrupt practices of centralised national power, and to obtain the enfranchisement of local communities. This expectation remains plausible if the Union does not abdicate its original design.

Adrian Papahagi, PhD is Associate Professor of Mediaeval Studies at the University of Cluj, Romania and a founding member of the M10 Party.

THIS WEEK’S MUST READ NEWS FROM CAPX | NEW DIRECTION

New Direction | The Foundation for European Reform is an international partner of CapX, a new digital service which commissions and aggregates the best news on popular capitalism from around the world.

 

Localisation would help alleviate global suffering

Local NGOs are the first to respond when a crisis hits. They are the ones digging people out of the rubble days before external agencies are flown in. But only 0.2% of humanitarian funding went directly to local NGOs in 2015. The idea of the all-knowing western aid worker is increasingly out of date. We must commit to putting more of the power and resources in the hands of those that know how to use it.

‘Fintech’ is taking on the Goliaths of the financial world

FinTech’ may sound alien and complicated, but it is in fact deceptively simple. It is just the use of technology to change the way we use money, making things cheaper and more convenient. As other European countires layer on heavy regulation to control alternative finance, there has never been a better time to invest in British FinTech. No wonder 42% of all FinTech investment in Europe is being placed in the UK.

The science is in: GM crops will save the world

The battle of genetically modified foods is being waged in a mire of confusion and bad science. This week, the Royal Society has published a report that dispels the most damaging myths about GM crops, proving they are safe and environmentally beneficial. The green lobby has succeeded in branding a technology that could alleviate world hunger as unnatural and sinister, akin to science fiction horror stories. Now science is fighting back.

The City could survive Brexit, but it would be badly damaged

Apocalyptic visions of overseas banks simply shutting up shop in the UK should be dismissed. Nevertheless, the path outside the EU would be one of prolonged uncertainty for the City of London. According to widely accepted research, Brexit would result in the loss of 70,000 jobs and up to 9.5% of gross value added in financial services by 2020. The EU would work to actively undermine the City’s pre-eminence as Europe’s main financial hub.

Dear Progressives: Using Uber Doesn’t Make You a Monster

The Guardian recently found that left-leaning users veer right on regulating Uber and Airbnb. But this does not mean we are seeing a rise in exploitation, or moral double-standards. Uber and Airbnb make travel and accommodation easier, as did the Internet and the telephone - technologies that hardly turned us into ethical monsters. If you’re concerned about human well being you should embrace markets and competition with glee, not guilt.

Time to deliver on the Digital Single Market

It is high time to deliver on the promises of the Digital Single Market (DSM). It will fuel European economic growth, and a way to make the everyday life of businesses and consumers easier, writes Tomasz Poręba.

It is high time to deliver on the promises of the Digital Single Market (DSM). It will fuel European economic growth, and a way to make the everyday life of businesses and consumers easier, writes Tomasz Poręba.

The European Commission’s Digital Single Market strategy turned one year old last week and so far, no single big step has been taken. We should bear in mind that the digital economy is today the single most important driver of innovation, competitiveness and growth. This year it is expected that almost half the world’s population – three billion people – will be connected to the internet. Deplorably, the European Commission is once again wasting time while other economies have already seized the importance of the DSM. For instance, in the last five years, the development of mobile applications alone created 500,000 jobs in the USA. It is crucial to take a leaf out of United States’ book.

In the EU, it is currently estimated that the digital economy is worth in excess of €400 billion annually, but only if the EU goes in the right direction. To that end, it is crucial that the European Commission makes life easier for businesses operating in the Digital Single Market.

As the digital economy expands, there are more and more opportunities for companies across Europe to grow, create jobs and help consumers to secure a better deal. But all too often these opportunities are stifled by burdensome regulations and differing national regimes. Without real coordination between member states, the Digital Single Market will never been achieved. The labour market will feel the impact first.

Therefore, my vision for the Digital Single Market is one which is digital by default, where it is even easier to operate online across Europe than it is to do things offline in a single state. Where online businesses go through administrative processes once, not 28 times, and where football fans can stream matches, they have already paid for wherever they go. It is extremely urgent to spread this information to all stakeholders, to ensure we do not miss this great opportunity.

As a result, we urgently need to see policy recommendations for the EU’s 2020 Digital Economy Agenda. It is perhaps the Brussels’ most ambitious economic goal since the launch of the euro in 2000, but this time we should turn it into a real success story.

Concretely what does it mean? Let’s take one recommendation on the regulatory framework: the telecom policy recommendations for the European Commission’s 2020 Digital Agenda underline the need to improve the institutional and regulatory framework and creative incentives for investment but unfortunately miss the importance of allowing market actors to organise. Without the opportunity for private actors to make the necessary investments, we will sadly drop the ball. The European Commission needs to pick up its pace.

Connectivity requires private sector investment in next generation access technologies that can deal with the volume of data that will be passing through these networks in the gigabit society – and at the speeds that will be expected. If we fail to facilitate access to the market, this strategy will have dramatic and damaging results for the European economy.

Companies must be allowed to take the business decisions necessary to make these investments and be able to achieve economies of scale across Europe.

I firmly believe that this requires two things. Firstly, a forward-looking approach to mergers and consolidation should be implemented. The EU must confront the challenges of the future rather than be caught up in the problems of the past. With new technologies and developments meaning that new operators compete with traditional telecoms providers, the old model concerning whether a market has three of four telecoms operators has become outdated. If we want truly pan-European companies, then we must first allow them to harness synergies at national level.

The second important goal would be to reduce the fragmentation of the market. US companies have the benefit of a single market, allowing them quick access to consumers across the country and the ability to quickly scale. European countries do not yet have this luxury in the EU market, which is divided in 28 directions and across many dimensions. With measures such as the upcoming free flow of data initiative, we must hope and insist that the Commission starts to deal with certain aspects of this fragmentation and with the barriers to the single market that we are seeing.

At the moment, we see European high speed broadband coverage lagging behind regions such as Japan and South Korea. We see black spots and regions where coverage simply does not reach. If we want to be a major economic actor, it is crucial for the European Commission to become more active in that sector.

Instead of just paying lip service, let’s emulate the countries that we have praised and truly embrace our telecoms and digital single market.

We have heard from the Commission that 2016 will be the year that it moves into delivery mode for the Digital Single Market. It is time to put this right by completing the Digital Single Market once and for all and unlocking the growth that this market could generate.

THIS WEEK’S MUST READ NEWS FROM CAPX | NEW DIRECTION

New Direction | The Foundation for European Reform is an international partner of CapX, a new digital service which commissions and aggregates the best news on popular capitalism from around the world.

 

 

As Venezuela craters, appeal of socialism remains

Venezuela is descending into chaos: hyperinflation, empty shops, out-of-control violence and the collapse of basic public services. But this will not be the last time we hear of a failing socialist economy. Why do we persist in trying to make socialism work? Evolutionary psychology suggests that our modern skulls house Stone Age minds. In other words, humans are by nature envious, resentful and prone to ignoring examples of true success in the global economy.

The myth of American sovereignty

The idea that America does not surrender sovereignty - as some Brexiteers say - shows a complete misunderstanding of how the laws, rules and standards of the modern globalised world are actually created. International interactions today require harmonised rules. If we want to trade with Europe with any sort of ease, we will have to adopt many EU determined standards anyway.

Will the EU Ratify the Paris deal on time?

175 states have signed the Paris Accord but it will only come into force when the 55 states responsible for 55% of global emissions ratify the deal via their national parliaments. There is a danger the Accord will be enacted before the EU has ratified, as it waits for the coordination of its 28 members. And that assumes MPs from across the EU actually support the Agreement. In light of recent elections across the EU, can this be assumed?

Time to promote freedom in the Maldives

The trial on false charges of “terrorism” and 13 year sentence for former President Mohamed Nasheed is just one example of human rights abuses in the Maldives. The UN Working Group on Arbitrary Detention has ruled Nasheed's imprisonment illegal under international law, but the Maldives government has taken no notice. The UK must increasingly apply pressure, and if that doesn't work, sanctions should be considered.

THIS WEEK’S MUST READ NEWS FROM CAPX | NEW DIRECTION

New Direction | The Foundation for European Reform is an international partner of CapX, a new digital service which commissions and aggregates the best news on popular capitalism from around the world.

 

Why free trade works

Across the world, a rising tide of nationalism and protectionism seems to have taken root. Trade has become a dirty word in even the US election cycle. The attack on free trade has been accompanied by an equivalent attack on free market capitalism. But free markets have done more for humanity than any other system. Global growth increased by 1,000% between 1947 and 2001. Worryingly, we are now witnessing a slow-down.

France and Brexit: The Good, the Bad and the Ugly

If Britain votes to leave the EU, it will be to François Hollande that all eyes will turn. You can’t help feeling that the French President might almost prefer Brexit: get the Brits out, then reinforce the old ideas of European Union before they fall apart. His rivals among the French political elite are less integrationalist and more wary. France may envy the democratic choice the British face, but it also lives in fear of the consequences.

The end for Dilma Rousseff, a new era for Brazil?

After more than 20 hours of debate, Brazilian Senators voted by 55 to 22 to suspend President Dilma Rousseff. Rousseff's impeachment could be the catalyst Brazil needs to root out corruption and to restore stability to a country wracked by debt and inflation. Or it could signal a spiral into lawlessness and civil unrest. The backlash against those who have turned Brazil’s economy from an emerging giant into a cautionary tale will not end here.

Cameron’s corruption-gate?

David Cameron has been caught on tape insulting visiting dignitaries - describing Nigeria and Afghanistan as "fantastically corrupt". But his remarks were not untrue. The countries were ranked at 136 and 167 respectively on the corruption perception index. Cameron and President Buhari of Nigeria still seem to see eye to eye on their joint mission to tackle corruption, going into Cameron's now well-advertised anti-corruption summit this week.

The end of the Republic?

As the authority of elites fades, as Establishment values cede to popular ones, views and identities can become so magnificently diverse as to be mutually uncomprehending. When all the barriers to equality have been removed; when everyone is equal; when elites are despised and full license is established to do “whatever one wants,” you arrive at late-stage democracy. This, Plato warned, is the time when a would-be tyrant often seizes his moment.

THIS WEEK’S MUST READ NEWS FROM CAPX | NEW DIRECTION

New Direction | The Foundation for European Reform is an international partner of CapX, a new digital service which commissions and aggregates the best news on popular capitalism from around the world.

China needs to recognise that the rest of the world is not the enemy

China has been the greatest beneficiary of the wave of globalisation promoted since the 1990s – more so than either the US or Europe. Yet the Communist Party, which came to power on a nationalistic agenda with a xenophobic streak, remains deeply suspicious of foreign influence. This insular outlook not only threatens to undo the progress China has made by opening up its markets, but would also be suicidal for the Communist Party.

Ted Cruz: the presidential candidate who made children cry

On Tuesday, Ted Cruz dropped out of the Republican race and marked the occasion by elbowing his wife Heidi in the face. It was a clumsy end to what had been a clumsy campaign. Cruz looked like the ideal fit for Republicans who felt a compelling urge to vote for a political outsider, but his inability to inspire and connect with voters soon became clear. Here was a guy who has a copy of the US Constitution swinging where his heart used to be.

Will a robot take your job?

The robotics revolution is not the first time that humanity has had to deal with profound economic change. From the development of agriculture ten millennia ago to the industrial revolution, we have progressed from farming and feudalism to democracy and capitalism, and humanity has adapted. Today, we are witnessing the dawn of a robotics revolution. And if past truly is prologue, humans will adapt.

German treasury loses $1bn a year due to dividend tax avoidance.

ProPublica has unveiled details of tax-avoidance schemes known as dividend-arbitrage. US managers briefly lend out some of their stocks to German investment funds and banks that by law pay no tax on German dividends. The shares are then returned after the dividend is paid. Div-arb has been an open secret on Wall Street for years but now faces scrutiny about its legality.

One President away from disaster. Why the Philippine election threatens to break an economic winning streak.

President Benigno Aquino has made the Philippines an Asian success story - it is now one of the fastest growing economies in the region. But none of the five candidates in the election on May 9th appear likely to continue his reforms. The frontrunner wants to drown criminals in Manila Bay and has joked about gang-rape. His closest rival is dodging criminal investigations. Can present growth trends continue with one of these people in charge?

THIS WEEK’S MUST READ NEWS FROM CAPX | NEW DIRECTION

New Direction | The Foundation for European Reform is an international partner of CapX, a new digital service which commissions and aggregates the best news on popular capitalism from around the world.

Chernobyl: a personal recollection

Marian Tupy grew up in the Czechoslovak Socialist Republic, and remembers the response to the Chernobyl tragedy 30 years ago. The Soviets insisted that their nuclear technology was second to none, so when the power plant exploded, they denied that anything was wrong, even as their comrades were being slowly poisoned by radiation. But eventually Chernobyl gave rise to the movement that consigned communism to the dustbin of history.

Cruz is pro-UK but where would Trump put Britain in a queue?

Ted Cruz declared yesterday that "if Brexit takes place, Britain will be at the front of the line for a free trade deal with America, not at the back." He also declined to give advice to the UK, believing, radically, that Britain’s future in Europe is a matter for the British people to decide. It's a shame Cruz has just been trounced in the five north-eastern primaries, as we must now wait to see where Trump, almost unstoppable, will put Britain in his line.

Are the elites on the wrong side of history?

Are the liberal elites about to succumb to that favourite feature of university examination papers, “a historical watershed”? In the first round of the Austrian presidential election, Norbert Hofer, the insurgent right-wing candidate, led with 36.4%. Marine Le Pen similarly heads the polls for the presidential election in France, while Donald Trump is on track for the US Republican nomination. The progressive dogma is fighting for its life.

Albania deserves an apology for Remain campaign’s xenophobic attack

Last week Michael Gove pointed to Albania among a list of countries that trade with the EU while not being in it. The Remain campaign jumped on this, declaring: “The Leave campaign want us to quit the single market and be like Albania. Seriously.” How is this acceptable? Albania deserves our friendship and understanding, rather than mocking insults by smug, metropolitan Remainians who are forever lecturing others about xenophobia.

Hillary Clinton Is Queen of the Sharing Economy

Listening to Hillary Clinton's promise to "crack down on bosses who exploit employees by mis-classifying them as contractors" could lead you to assume she is against the sharing economy. But after leaving the White House, the Clintons earned 99% of their income from independent contractor gigs. They prove the sharing economy is more than Uber and Airbnb. It is about allowing workers to more easily market and provide their productive capital.

THIS WEEK’S MUST READ NEWS FROM CAPX | NEW DIRECTION

New Direction | The Foundation for European Reform is an international partner of CapX, a new digital service which commissions and aggregates the best news on popular capitalism from around the world.

Do workers need capitalists? New lessons from Yugoslavia’s socialist experiment

Yugoslavia was one of the fastest growing economies post WWII. Perhaps surprisingly, its slowdown started in 1965 when control of production shifted away from the state, towards the work councils. Whilst wages increased, they imposed barriers to entry for new workers, and unemployment soared. It is a lesson that not only the economy suffers when it lacks “capitalists”, but so do workers that fall outside of the privileged, established groups.

Free market feminism #1: Few women on top in the egalitarian Nordics

The Global Gender Gap report ranks Iceland as the most gender equal country in the world followed by Norway, Finland and Sweden. But on closer inspection, there are some strange findings. Nordic countries have the lowest share of women in management in Europe as well as surprisingly low numbers of female business owners. It seems that extensive welfare policies in the Nordics, though designed to aid in women’s progress, are in fact hindering it.

The Brexit fantasy would lead to a messy divorce

Britain would suffer enduring damage by separating from the huge, wealthy market on its doorstep. With exports to the UK accounting for just 3% of the rest of the EU’s GDP, Germany and France would have the upper hand in trade negotiations. Expect to see German car manufacturers raising trade barriers and French farmers keeping out low-cost British food. In other words, Vote Leave, Lose Control.

7 risks in voting Remain

The Remain campaign confuses familiarity with certainty. Having kept the pound and stayed out of the Schengen Zone, we have plenty of external options. Yes, some of them carry risk. But so does staying put. Did you know Juncker wants an EU army? Or that the little-discussed Five Presidents’ Report, official Brussels policy, sets out plans for deeper fiscal and political union, and pooling of decision-making. Don't say you haven't been warned.

Republicans are people too

Young Republicans are sympathetic to the issues of inequality and crony capitalism but are unconvinced by the left’s solutions and are cautious of identifying as Republican in an overwhelmingly Democrat Liberal Arts College generation. The GOP's failure to find a unifying and inclusive leader has left Trump to fill the void. But the debacle of Trump could prove to be a moment of creative destruction so desperately needed for the party.

THIS WEEK’S MUST READ NEWS FROM CAPX | NEW DIRECTION

New Direction | The Foundation for European Reform is an international partner of CapX, a new digital service which commissions and aggregates the best news on popular capitalism from around the world.

China adds Nigeria to its African Empire

China has extended Nigeria a $6bn loan to fund infrastructure projects, coinciding with the countries' agreement that the Chinese renminbi is free to flow among banks in Nigeria, and accounts for at least 10% of Nigeria's foreign exchange reserves. Already, 80% of this bilateral trade is Chinese exports, and with Nigeria relying on China for rail, power, agriculture and mining projects, Africa's cash cow finds itself in the palm of China's hand.

Is Dilma done for?

President Dilma Rousseff has faced the first vote on her impeachment. Millions of protestors want Rousseff and her cronies gone - the country is in crisis, and the President's name remains tarred by the biggest corruption scandal in Brazilian history. But if Rousseff goes, who is the alternative? The next two officials in line for the presidency are as unpopular as she is. Are new elections on the horizon?

The great Mario Vargas Llosa understands the importance of business and the petty bourgeoisie

Capitalists owe much to Mario Vargas Llosa, who recently received the “Living Legend Award” at the Library of Congress. We live in a world of ever increasing mutual dependency, and we rely on other people’s cooperation for most of our daily endeavours. Llosa rejuvenated this argument and made it more cogent for millions through his writing. His eye for businessmen as humane characters, rather than deceitful shysters, inspired many more.

Tax and the City: Is our only duty to obey the law?

The row over David Cameron's tax affairs illustrates one of the central dilemmas in economics and politics. He paid his taxes and it was all within the law. But is that enough? It didn't used to be. In the UK the shift stems in large part from the City revolution in the 1980s and changes that resulted in assumptions about duty and obligation to others. Iain Martin asks CapX readers to offer their views.

Subsidiarity Bringing our Work Closer to Citizens

Sajjad Karim's article examines the principle of subsidiarity and the role of national parliaments. Sajjad Karim's Annual reports 2012-2013 on Subsidiarity and Proportionality will be discussed and voted by the EP this week.

I often find myself having to convince my colleagues in the European Parliament (EP) that the word 'subsidiarity' should not be feared, that it does not undermine our work in the EU institutions.

I remind them that it is a key element of bringing our work closer to citizens' daily lives.

Now more than ever the issue of subsidiarity is particularly relevant, with the Prime Minister's reform agenda, including his recent letter to Donald Tusk, President of the European Council, calling for commitments to subsidiarity by EU institutions to be 'fully implemented'.

Even the President of the Italian Republic, Sergio Mattarella - who addressed MEPs at the last plenary session in Strasbourg - spoke about the principle of subsidiarity, saying new relations with member states are required.

To start, this can be done by ensuring that national parliaments participate more actively in the legislative process.

David Cameron has outlined the important role that national parliaments play and has stated that he would even like to see the role of national parliaments enhanced where "groups of national parliaments, acting together, can stop unwanted legislative proposals."

This is an objective I have been working towards in my role and while it is not the most popular idea within the EP, there is definitely scope for a system to be established.

However, these details would need to be fleshed out. Calling this a 'veto' right or a 'red card' for national parliaments would be very difficult to sell to my parliamentary colleagues from the federalist groups.

Before continuing, I would like to reiterate what the Lisbon Treaty states in Article 5:

'The principle of subsidiarity aims at determining the level of intervention that is most relevant in the areas of competences shared between the EU and the EU countries. This may concern action at European, national or local levels. In all cases, the EU may only intervene if it is able to act more effectively than EU countries at their respective national or local levels."

It is crucial to remember this idea when deciding whether action should or should not be taken at an EU level.

The Dutch government embodied this notion perfectly in a recent subsidiarity review (2013), proclaiming the “time of an ‘ever closer union’ in every possible policy area is behind us” and saying “European where necessary, national where possible”.

They are also keen to play a key role in promoting this agenda through their incoming Dutch EU Presidency during the first half of 2016, which incidentally could work well for the Prime Minister and his reform agenda.

My work as rapporteur on the Annual Subsidiarity and Proportionality reports also helps to promote David Cameron's reform agenda and some of the conclusions drawn from my 2012-13 report are optimistic, which I will outline below.

The number of reasoned opinions from national parliaments regarding subsidiarity has increased compared to 2010 and 2011, a positive development since it means national parliaments are more engaged.

However, there is more that could be done because opinions are generally limited to a few chambers, so others should be encouraged to be more active. Furthermore, there seems to be differing interpretations of the principle of subsidiarity among national parliaments.

It was also decided that the yellow card procedure should be easily implementable for national parliaments, as there are several circumstances where difficulties have been reported.

The yellow card allows a third or more of national parliaments, acting together, to vet and temporarily block draft laws proposed by the Commission. For legislation in the sensitive area of justice and home affairs, the threshold is lower at a quarter.

Several parliaments have also expressed their interest in a green card mechanism. This would aim to enhance political dialogue with national parliaments and would give them the opportunity to suggest constructive proposals for the Commission's consideration. This could include ideas for legislative proposals, but also proposals for withdrawals and amendments to existing legislation.

The left are particularly sceptical of this idea though, as the EP does not have this right and consequently are keen to protect the Commission's 'right of initiative'.

However, I am aware that in the course of the current Inter-Institutional Agreement negotiations, the EP negotiator, Guy Verhofstadt, is calling for the Commission to respond to the EP's non-legislative reports within three months to inform the EP how it intends to react. As a result, there is definitely scope for the green card.

It's also important that we encourage national parliaments to contribute to legislation at an earlier stage in the process. Including the perspectives of national parliaments in the course of preparatory work, such as green or white papers produced by the Commission will help to enhance political dialogue and reduce the democratic deficit.  When objections or concerns are raised by national parliaments, these should be thoroughly evaluated and not disregarded.

Next year I will be continuing my work as subsidiarity rapporteur, this time on the 2014 report. I am keen to build on what was achieved in the last report and add new elements, such as fleshing out the details for the green card.

Another priority is to address the idea of the previously mentioned 'red card' and how this would work in practice. Calling it a 'red card' or 'veto' is unpopular in the EP, so re-naming it or perhaps incorporating it into the Green card may be the way forward.

I will also propose to look at how we can include national parliaments more in our work from a practical perspective and more initiatives that could be considered to coordinate the reasoned opinions from national parliaments.

2016 looks to be an interesting year for subsidiarity. We could be on the verge of real and positive change in the EU.

THIS WEEK’S MUST READ NEWS FROM CAPX | NEW DIRECTION

New Direction | The Foundation for European Reform is an international partner of CapX, a new digital service which commissions and aggregates the best news on popular capitalism from around the world.

The writing is on the wall for Brazil’s Dilma Rousseff

With Brazil's sharp change in its economic fortunes, blantant corruption, mismanagement of growth dividends and protectionism President Dilma Rousseff's hold on her office looks increasingly untenable. 

Misplaced Arab nostalgia has produced a generation of Jihadists

Islam is experienced more as a civilisation than a religion - and referring to a general Islam is meaningless. Bomb-planting jihadists are as much Arabs as they are Muslims, and their nostalgic references are drawn from a largely imaginary Golden Age in the past. Eradication of terror will not come through demonising Islam but through identifying the objective, barely theological sources of this neo-jihadism.

South Africa’s highest court fights for democracy by rebuking Jacob Zuma

Any doubt over South Africa's Chief Justice, Mogoeng T. Mogoeng’s impartiality were dispelled last Thursday. In one eloquent judgement, he eviscerated President Zuma for corruption and breach of his constitutional responsibilities. In doing so, Mogoeng has preserved, for now, South Africa’s beleaguered democracy. Zuma now faces impeachment. We wait to see if the ANC-dominated Parliament rally round him or opt for self-preservation.

Nigeria’s Sovereign Wealth Fund yields N26.3bn income in 2015

Nigeria Sovereign Investment Authority who manage Nigeria’s Sovereign Wealth Funds, have generated N26.3 billion income in 2015, a 67% increase over the N15.77 billion in 2014. The increase has been attributed to investment in high-growth private equity funds across Sub-Saharan Africa.This year's fund will be invested using the existing ratio of 40% in infrastructure, 40% in the Future Generations Fund and 20% in the Stabilisation Fund. 

Pakistan’s economy is stuck in first gear

Accounts of Pakistan's economy have put economic managers in a state of deceptive comfort. The reform discussion is something IMF is either deliberately missing or glossing over. Pakistan’s economic governance is split across 10 ministries and to unlock real economic potential they must all agree on reform. They must now bring down revenue deficit to zero, divert commercial credit to the private sector and continue to roll back the state.

THIS WEEK’S MUST READ NEWS FROM CAPX | NEW DIRECTION

New Direction | The Foundation for European Reform is an international partner of CapX, a new digital service which commissions and aggregates the best news on popular capitalism from around the world.

Capitalism can kill class

Britain led the world in abolishing the slave trade, and by outlawing racial and sexual discrimination. But four hundred years after the Sumptuary Laws were introduced, the country's class-based divisions still persist. The one real solution we have found to date lies in open markets and private ownership. Through lowering the costs of clothes and food, Capitalism can smash down class hierarchies.

The uneasy opening to Cuba

America’s opening to Cuba has filled many observers with considerable ambivalence. The Castro brothers are liars and criminals who have never apologised for their crimes. But the policy of isolating the island has failed. Cuba is not poor because of the US trade embargo, but because it produces nothing that the rest of the world needs. The embargo gave the Castros an excuse for their island's poverty, and it was time to try something different.

Mexico’s Rising Poverty Rate: ‘The Idea of a Free Market System Doesn’t Exist in Mexico’

Mexico’s rising poverty stands in stark contrast to much of Latin America, the study found. Ricardo Fuentes, executive director of OXFAM Mexico, said that crony capitalism, efforts at reform hobbled by a lack of the rule of law, and anemic economic growth are at the root of the problem.

Palmyra’s ruined beauty shows there is a better way

Talk has already turned to whether Palmyra can – and should – be rebuilt. But what may never be rebuilt is the tradition the city incarnated – the idea that while Syria was a Muslim country, it was one that saw the value in other heritages and cultures, that the present can be enriched by the past, that there is beauty in ancient and modern, Christian and pagan.

The myth of the brokered convention

The Donald Trump phenomenon is that what is Sunday’s conventional wisdom looks like egg-on-face dumb stupidity by Friday. Trump, who presents himself as an outsider, railing against the “unfairness” of a brokered convention, is geared up to win one. Yet among the despairing GOP elites, the Myth of the Brokered Convention remains a powerful one, sustaining hope of a last-minute reprieve from their worst nightmare. 

New Direction representation at the Raisina Dialogue in Delhi

Geoffrey Van Orden MEP and Prof. Michael Clarke represented New Direction at the "Raisina Dialogue" in Delhi 1-3 March 2016 looking at key strategic issues in Asia.


Geoffrey Van Orden MEP and Prof. Michael Clarke represented New Direction at  the "Raisina Dialogue" in Delhi 1-3 March 2016. 

The event was organised by the Indian Ministry of External Affairs and the ORF think-tank, a partner of New Direction. 
Geoffrey and Michael were key platform speakers and panellists, to an audience that included former Prime Ministers, Ministers, senior military officers, diplomats and senior officials from Asia and beyond.


Geoffrey spoke in the first panel of the Conference on the subject of "Whither European Union?" He described the many crises afflicting the EU, often of its own making. At a conference when "Asian connectivity" was being discussed he warned against simplistic notions of trying to replicate the EU's development. He described some of the changes in Britain's relationship with the EU sought by Prime Minister Cameron and the nature of the debate in the UK that will culminate in a referendum on 23 June. 


Both Geoffrey and Michael Clarke spoke in a subsequent panel on "India's Strategic Posture and possibilities for Partnership with Key Liberal Democracies". They explored  future challenges to an India coming to terms with her new-found status as a regional power and potential global economic giant. The US/Indian Joint Strategic Vision for the Asia- Pacific and Indian Ocean Region was significant, and there were other partnership options, not least with Japan and with the UK which will be in a position to deploy a carrier battle group East of Suez by 2020.​
 

THIS WEEK’S MUST READ NEWS FROM CAPX | NEW DIRECTION

New Direction | The Foundation for European Reform is an international partner of CapX, a new digital service which commissions and aggregates the best news on popular capitalism from around the world.

Britain must detoxify its politics or face its own Trump moment

Europeans have been watching the rise of Trump with a mix of horror, sadness and macabre fascination. But there is a warning to us on this side of the Atlantic from the Trump phenomenon and the ugly way it’s developing. If we allow our politics to become ever more personal and demonise politicians who do still try to find common ground, then we have set the scene for Britain’s Donald Trump.

Sugar cane and surpluses: a bitter solution for the sweet problem

The sugar industry in Pakistan has a bitter history of powerful sugar mill owners and government restrictions on domestic and external trade. Putting imports in the hands of the market would not only bring costs down, but allow farmers to collect the yield immediately, preserving the sucrose content and so increasing its value. The government needs to exit the entire value chain to ensure the welfare of growers, consumers and producers.

The ECB’s easy money is making Europe’s economic crisis worse

Low interest rates are just a way of temporarily postponing problems. People who save less and spend more now are just consuming money they planned to spend in the future today. We're living on credit, which is not spending more - just spending sooner. We would be better off chipping away at public and private debts, and choosing structural reforms that make our labour and manufacturing markets more flexible.

Chávez’s toxic legacy is killing Venezuelans

Venezuela is suffering a healthcare crisis: 80% of medicines in the country are in short supply. Misguided socialist policies, including import tariffs and price controls, have caused crippling shortages. But President Maduro has rejected emergency aid. To accept would be to acknowledge that the state has systematically impoverished its citizens, by clinging to a broken ideology which denies them bread and paracetamol.

For how much longer can Belarus remain Europe's last command economy? 

Belarus is the last non-market economy in Europe, with the private sector contributing only 30% to national GDP. With declining competitiveness, growing structural distortions, and ever more dependence on Russia, is the Belarussian miracle over? The country needs to open up its economy, develop a competitive financial sector, and promote legal reforms. But so far, fundamental change has been seen as challenge to the political regime.

EU Commission failing to properly enforce trade agreements

The EU will not reap the full benefits of foreign trade unless the Commission improves its handling of trade complaints, warns Ian Duncan.

We operate within a common market of nearly 500 million customers. The 28 member states of the EU can trade beyond their own borders without tariff or hindrance. The next step forward for the European Union is the brokering of similar trade arrangements beyond our shores.

With the implementation of the Lisbon treaty in 2009, such foreign trade became the exclusive responsibility of the EU, with the European Commission responsible for leading negotiations on behalf of the 28 member states. Whether negotiated multilaterally (through the World Trade Organisation) or bilaterally (under the direction of the EU) free trade deals are the heart of any growth and jobs strategy.

However, the benefits that flow from such agreements are realised only if the terms agreed are fully implemented and enforced by all concerned. Although the EU has concluded 30 free trade agreements, the enforcement of these agreements by the European Commission is patchy at best.  

When this fact was first drawn to my attention I was slightly dubious. How bad could the enforcement really be, I thought? Well, rather than speculate, as Secretary General of New Direction - the Foundation for European reform, I decided to commission a report into the EU's enforcement of its trade agreements

The report, 'Paper Tiger? Free trade agreements as if binding pacts mattered,' authored by Simon Evenett of the University of St. Gallen in Switzerland, made for troubling reading. Evenett discovered that for the last three years for which data is available, the European Commission has resolved only 10 per cent of the trade complaints per year. By any standard, this is poor. So is the Commission's ambition of raising this to 20 per cent per year.

This unambitious target is compounded by the Commission's approach, which is to target the smallest of trade complaints. Over half of trade complaints resolved to date involve EU exports of no more than €63m. This might seem like a high figure but it must be remembered that EU trade is valued at €1 trillion each year.

Alongside the Commission's unambitious target and focus on the small cases, the failure to resolve long standing cases - some dating from 20 years ago - remains a problem that must be addressed. Further, since the year 2000, the Commission has been less and less likely to seek the involvement of the World Trade Organisation (WTO) in dispute settlement. Last year the Commission brought no cases to the WTO at all.  

A particularly damning finding of the report is the fact that the EU is no more successful in tackling protectionism by nations with which it has a free trade deal, than with nations with which it does not, somewhat undermining the value of these agreements in the first place.

The conclusions of the report could not be clearer. The Commission must hold trade partners to account. Without this the EU as a whole will be seen as a paper tiger on the global economic stage. Free trade agreements are the bedrock of growth, but they are not worth the paper they are written on if they are not enforced. I hope that this report encourages the Commission to be more ambitious and to aim high.  Getting trade conditions right can make all the difference.

Let the inquiry into the Volkswagen emissions scandal begin

New Direction Secretary General Dr Ian Duncan MEP highlights that despite its rhetoric, the European Commission has not been stringent enough on enforcing emissions regulation as shown in the Volkswagen emissions scandal.

Back in 2013 a German discovered that there was something dodgy with Volkswagen’s vehicle emission claims. Quite right, I hear you say, that the scandal should be uncovered by a German. Sadly it was uncovered by John German, a self-confessed ‘simple engineer from Michigan,’ working for the San Francisco-based International Council for Clean Transport (ICCT). John had asked his team to test the German car company’s emissions. When the results were returned, they made absolutely no sense.

German and his team tested and re-tested the car emissions. Each time the result came back the same. It was funny. Not funny, ha-ha, but funny, as in VW appeared to be making a claim for the emissions from their vehicles that could not be replicated in any test. The irrefutable conclusion of John German and his team was that Volkswagen cars ‘on the road’ emitted 40 times more nitrogen oxide than they emitted in the laboratory.

Standard vehicle emissions tests are conducted in a laboratory, on a treadmill. From German’s research, it became apparent that the sophisticated software hot-wired into the VW car was able to detect when vehicle was being driven on a treadmill, and apply an emission reduction protocol. However, when the car was subject to real road trials, with changing terrain and traffic, the ‘cheat device’ automatically turned off and emissions soared.

German had uncovered a consumer scandal of enormous significance. At the time of writing, Volkswagen has admitted that nearly 11 million vehicles were fitted with ‘cheat device’ software, whose sole purpose was to give a false emission reading when the car was tested under laboratory conditions.

In an interesting aside, as an MEP I have regularly been bombarded by folks telling me that the proposed EU-US free trade agreement (TTIP in the Euro-jargon) would inevitably lead to a dumbing down of the EU’s high environmental standards to the deplorable levels found in the US. If the unfolding VW scandal is anything to go by, the EU will have to up its game to meet those across the pond. High standards unenforced are worthless.

It seems that warning lights did flash back in 2011. The European Commission’s Joint Research Service (JRS) published a study showing that the emissions of modern diesel cars were much higher than should be. By 2013 the JRS declared:

‘Sensors and electronic components in modern light-duty vehicles are capable of ‘detecting’ the start of an emissions test in the laboratory … Some vehicle functions may only be operational in the laboratory, if a predefined test mode is activated. Detecting emissions tests is problematic from the perspective of emissions legislation, because it may enable the use of defeat devices that activate, modulate, delay, or deactivate emissions control systems with the purpose of either enhancing the effectiveness of these systems during emissions testing or reducing the effectiveness of these systems under normal vehicle operation and use.’

The JRS further noted that while such ‘defeat devices’ were generally prohibited, ‘exceptions exist […] to protect the engine against damage and to ensure safe vehicle operation,’ exceptions which, ‘leave room for interpretation and provide scope, together with the currently applied test procedure, for tailoring the emissions performance.’

In receipt of this clear warning back in 2011, and affirmed in 2013, the European Commission took no action. Why? Why did they do nothing with this telling information? A couple of answers could be advanced: a (misplaced) trust in the automotive industry and its integrity, perhaps? An absence of the necessary on-road testing facilities or concern as to their cost? Both are certainly possible explanations. How about a way too cosy relationship between the car makers and the Commission? Or between car makers and certain EU member states? Those too need be considered.

In truth the answer isn’t clear. It is for that reason that the European Parliament has set up a Committee of Inquiry into the VW Emission issue. I will sit on the committee alongside fellow UK Conservative MEPs, Julie Girling (who has done a power of work into emissions issues) and Dan Dalton (who sits on the Internal Market Committee; after all this is a distortion of the common market).

When the Committee begins its work (at present the whole shebang is delayed whilst the two biggest political groups in the Parliament wrangle over the chairmanship). The Committee will convene public hearings, call witnesses from the engineers who design the cars to the current and former CEOs who managed the company. It may even call some of the politicians who sit on the VW Board. It will examine each and every alleged misdemeanour. It will delve into the whole ‘cheat device’ technology and the ethos that underpinned it. And when the Committee is done, it will report to the full Parliament.

It is important to remember that the Parliament is not alone in its desire to find the truth. The inquiry will run alongside criminal investigation in the EU and the US. In January, the US Federal Government lodged a complaint against Volkswagen, seeking punitive fines estimated at $46 billion. The EU has no power to impose such fines and so Member States are picking up the baton. So far, German law firm Nielding & Barth have pledged to lodge proceedings in a regional court in Brunswick where the majority of VW car parts are manufactured. The suit will be filed on behalf of 66 institutional investors in Volkswagen, the details of which are still confidential.

Setting aside all the legal niceties, the prospect of serious fines, and the prospect of prison time for some, larger questions remain. What impact has the deceit had upon the health and wellbeing of those who breathe the air in our cities? And what impact has this deceit had upon our wider ambitions to arrest global warming to 2°C?

And after all is said and done, the EU must review its emissions law, not the targets (although that time too is coming) but the enforcement and the penalties. We must have confidence that when we a company claims its cars have low emissions, they actually do. And if they make a false claim, they must know that the full force of the law will fall upon them.

As the globe grapples with the challenge of climate change, we must be sure that everyone is on the same side. The Paris Climate Change accord has accelerated global ambitions, but the challenge will be tough enough without ‘cheat devices’.

So, let the work of the Committee of Inquiry into Volkswagen begin.

Dr Ian Duncan 

THIS WEEK’S MUST READ NEWS FROM CAPX | NEW DIRECTION

New Direction | The Foundation for European Reform is an international partner of CapX, a new digital service which commissions and aggregates the best news on popular capitalism from around the world.

How Marco Rubio’s campaign went down in flames

To combat Donald Trump's vulgarism, Marco Rubio should have maintained his gravitas and presented himself as a serious candidate. Instead, his judgment let him down in a spectacular manner and he got down in the gutter and rolled around, in a poor attempt to 'out-Trump' Trump. In Rubio's misjudged approach to tackling his rival, he may have unintentionally revealed that he is not the candidate his supporters thought he was.

Investment dragons can slay poverty

In developing countries, SMEs make up 45% of total employment and account for 4 out of 5 new jobs. Yet these companies which drive the engine of the global economy find it desperately hard to access the finance needed to keep growing. Now five charities have launched a new investment platform to bridge the finance gap, and soon the poverty-busting power of good enterprise will start getting the headlines it deserves.

Government gridlock still destabilising Spain

For the first time in Spain’s democratic history, a candidate for Prime Minister failed to win a confidence vote. Spain has now gone three months without a government. A quick look at the electoral maths shows there is no possible combination of parties prepared to work together that can add up to a majority. With the anti-establishment Podemos party holding most of the cards, there is no end in sight for this mind-bending stalemate.

America’s war on birth control is set to increase poverty rates

Poverty in the US is set to increase, and not as a result of growing incomes at the top but something much more basic: a crackdown on family planning services. This is increasing the birth rates of the poorest women (60% of births to young unmarried women in the US result from unplanned pregnancies) and shows the ability for women to control their own fertility is just as important as a welfare state in eliminating poverty.

Why the sharing economy is a victory for popular capitalism

Capitalism is often charged with the exclusive and increasingly concentrated ownership of the means of production. But the means of production are spreading among people more than ever. It seems to be that two concurrent forces, both triggered by market economy, are leading to its own collapse: the pursuit of boosting productivity and lower prices; and the growing interconnection of people. Will it be that where socialism has failed, technology can succeed?

THIS WEEK’S MUST READ NEWS FROM CAPX | NEW DIRECTION

New Direction | The Foundation for European Reform is an international partner of CapX, a new digital service which commissions and aggregates the best news on popular capitalism from around the world.

Trump: the monster in the Republican midst

For years, the GOP's grandees have allowed and exploited bigotry within its ranks. Now the party is facing its own Frankenstein's monster. The apoplectic rage against so many aspects of modernity and demographic change has now spilled over into an all-out assault on the very concept of liberal democracy. All we can hope is that the sheer unthinkable, shaming awfulness of a potential Trump presidency will force the US to come to its senses.

China has enjoyed the limelight, now it must experience the spotlight

President Xi Jinping declared in October that all countries need to continuously improve and strengthen human rights protections, yet there is little sign that he is following his own advice. New evidence shows that Beijing is sending agents out of mainland China to target and kidnap pro-democracy activists. Britain now cannot allow its trade relationship with China stop us from speaking out against blatant violations of freedom.

Uber is bringing harmony to discordant Indian streets

Navigating the bedlam that is Kolkata's streets can feel like a death-defying nightmare. The idea of driving in lanes is ignored and usually, if you’re foreign-looking, you’ll find haggling cab drivers down to double the local going rate almost impossible. But thanks to the pre-calculated route fare of the Uber app, the days of paying through the nose for a trip to a destination that may or may not be the one you wanted are over.

Will Argentina be the last of the sovereign creditor crack-ups?  

Argentina has agreed to a $4.65bn payment to its holdout creditors, ending 14 years of bitter legal battles. While the move is politically painful for President Macri, as it will push up inflation and be unpopular with the opposition Congress, it marks the beginning of Argentina's slow return to global credit markets. This podcast explains the ramifications the deal has for sovereign borrowers, including Venezuela who are forecast to default soon.

Angola is recycling guns from its civil war into steel to rebuild the country

Although Angola's civil war ended in 2002, tanks and guns remain strewn across the countryside. A local business has launched the ADA steel mill which uses this debris scrap metal for steel production, aiming for an eventual capacity of half a million tons per year. Not only does this cut steel import costs by $200m in foreign currency reserves, it is also a step in the direction of diversifying Angola's oil-reliant economy.

An EU Subsidiarity Court as a Means to Keep the ECJ in Check

The author, Pieter Cleppe, discusses the idea of having a EU Subsidiarity Court as a means to keep the ECJ in check.

The European Court of Justice (ECJ) in Luxembourg is the final arbiter when it comes to interpreting the EU Treaties. This Court has done many good things for the cause of removing barriers between European countries, as for example condemning Germany for not allowing a French liquor, Cassis de Dijon, onto its market. At the same time, The Court has been accused of violating the principle of subsidiarity, which it is supposed to protect. As former German President Roman Herzog has pointed out: 

“Judicial decision-making in Europe is in deep trouble. The reason is to be found in the European Court of Justice (ECJ), whose justifications for depriving Member States of their very own fundamental competences and interfering heavily in their legal systems are becoming increasingly astonishing. In so doing, it has squandered away a large part of the trust it used to enjoy.”

After having reviewed some of the ECJ’s decisions, Herzog has concluded that the “the ECJ undermines the competences of the Member States even in the core fields of national powers”. Furthermore, he noted that “the ECJ deliberately and systematically ignores fundamental principles of the Western interpretation of law, its decisions are based on sloppy argumentation, it ignores the will of the legislator, or even turns it into its opposite, and invents legal principles serving as grounds for later judgments." Also the former President of the Belgian Constitutional Court, Marc Bossuyt, has lamented that the ECJ has been extending its competences, creating a serious threat of a "government by judges”.

That the ECJ has occasionally served as a motor on the EU machine, instead of as a check, should perhaps not even be personally blamed on ECJ judges. In history, also other Constitutional Courts in federal states, like the US Supreme Court, have tended to favour centralisation over time. Moreover, the preamble of the EU Treaties instructs the ECJ to help realise “ever closer union”. While it’s disputed what the actual legal significance of this is, the ECJ’s current President, Koen Lenaerts, has himself admitted the ECJ uses the preamble as a guide. He also said that vague text in the EU Treaties has often been inserted “quite deliberate” when politicians can’t agree, so it is left to the ECJ to fill in the gaps when problems arise.

From 2010 on, the Lisbon Treaty has expanded the powers of the  ECJ, allowing it to wade into the area of EU justice and home affairs cooperation, for example, and enabling it to use the EU's Charter of Fundamental Rights as a basis to judge national legislation, ever increasing the scope of the EU’s influence.

An example of the ECJ overreaching was its “Mangold”-ruling from 2005, whereby it banned a German measure which temporarily allowed 52 year-olds to conclude temporary employment contracts without restrictions, in order to help them to find a job. Previously, one needed to be at least 58 year old. The ECJ didn’t even invoke a directive which would have been violated, but claimed that a "general principle of community law", a ban age discrimination, hadn’t been respected. One can only guess what this – otherwise laudable principle - has to do with the EU’s core mission to remove barriers between countries. The German Constitutional Court ruled in 2010 on the issue. While it agreed with the content of the ECJ’s assessment, it more importantly recalled explicitly that it is its job to check whether the balance of competences between the EU and its member states has been respected.

This brings us to how the ECJ can be kept in check. One of the proposals which we’ve made with Open Europe is to create an EU Subsidiarity Court, through changing the EU Treaties, taking advantage of the increasing support across Europe for EU reform. This institution would be composed of the presidents of the Constitutional Courts of the member states. One would be able to file appeal against any ECJ decision on the grounds of “subsidiarity” or distribution of competences. Apart from that, unrelated to a specific case, member states would be able to drag the EU Commission, not much more innocent than the ECJ in this regard, before the Subsidiarity Court, through a so-called “reverse infringement procedure”, to force it to change EU legislation where the EU violated national sovereignty.

Much like in the Belgian and French legal order the “Court of Cassation” only reviews whether the legal procedure has been respected, without delving into the specific facts of any case, such an EU Subsidiarity Court would only be able to overrule the ECJ if ECJ judges would once again have abused their mandate to subject policy areas to EU control, for example by making up a “general principle of community law" in order to justify declaring specific national laws invalid.

Naturally, national Constitutional Courts would need to hire more staff and those member states without a national Constitutional Court would need to create a new independent judicial body specialized in the distribution of competences between the EU and its member states. The fact that the Subsidiarity Court would be independent and superior to the EU machinery while remaining an integral part of the national legal order would make it into a proper intergovernmental nanny for the ECJ. 

 

Pieter Cleppe

The late Supreme Justice Scalia leaves US climate policy on life support

ND Secretary General Ian Duncan MEP examines why President Obama's 'Clean Power Plan' has been derailed by the late US Supreme Court Justice Antonin Scalia.

It is said that when Metternich, sometime Austrian Foreign Minister, heard of the death of his French counterpart, Talleyrand, he opined, ‘I wonder what he meant by that?’ The quote passed through my mind when I learned of the death of US Supreme Court Justice Antonin Scalia. A central figure in so many of the landmark decisions taken by the court since appointed by Ronald Reagan in 1986, it was hard to believe that his passing was not part of greater legal commentary.

One of Justice Scalia’s last acts was to derail President Obama’s flagship policy, the Clean Power Plan by which the government intended to reduce emissions by a third within fifteen years of coming into force. By 5 votes to 4 the Court voted to uphold the complaint of 27 US States and various industry bodies and so delay introduction of the Clean Power Plan until all lower court lawsuits against it have been heard.

I was surprised to read the Court’s decision, principally because the day before I was at the US Department of Energy in Washington DC, where all the officials spoke of was the Clean Power Plan and its role in delivering America’s climate change commitments. They were clearly not expecting Antonin Scalia and the US Supreme Court pals to intervene. (You can read the legal arguments here behind the Courts decision here).

Needless to say the remainder of my visit, ostensibly to discuss the role of cap and trade schemes in greenhouse gas emissions reduction, was dominated by the unexpected Supreme Court spanner tossed into the works. The first reaction in many I spoke with, especially those who had cut their teeth on the US Clean Air Act of 1963, was that this was the first time that a federal regulation be overturned by the Supreme Court without having first been challenged in a lower court. The second was that whilst the US could still (just about) meet its climate change commitments, agreed at the UN Climate Conference in Paris, the future was anything but certain.

Representatives of the US Departments of State and of Energy were quick to point out that the Clean Power Plan was just one small part of the Clean Air Act and covers only the power sector (not cars, industry or agriculture). They were equally quick to point out that behind the scenes the US had steadily tightened rules governing methane and NOX emissions and invested record amounts in renewable energy. (Though worth remembering that several of the renewable energy tax incentives will expire in 2020, and without them it is debatable whether the inexorable upward trend in US renewable energy will continue).

However, the Supreme Court decision does risk taking the shine off President Obama’s Climate Change gingerbread, for one simple reason, which quickly dawned the morning after the decision, the issue will not be resolved quickly and certainly not this side of the US Presidential election. This may well matter. Recall that one of the key challenges of the Paris talks was to secure a ‘kinda binding’ agreement that did not require ratification by the Republican-dominated US Congress. The reason, the Congress would be unlikely to ratify, just like it would not ratify the Kyoto Protocol in 1997. Throw into the mix the prospect of a Republican president and you see the problem.

In the meantime neither Hillary Clinton nor Bernie Sanders, the US Presidential Democratic contenders, seem overly keen to welcome the arrival of climate change as an election issue, animating as it does the Republican base more than the Democratic one, and it is no fun fighting on the back foot in a tight race. Indeed to date neither of the Democratic candidates have been particularly vocal on the issue of climate change.

The Clean Power Plan was not meant come into force until 2022, so there could just about be time to sort all this out. The first stage in the process will be a handing down of the decision to the DC District Court for consideration and ruling. Thereafter this ruling will be returned once more to the Supreme Court, likely to be sometime in 2017, because the wheels of US justice turn grindingly slow. And let’s not forget each stage of the legal wrangle will draw the ire of the Republicans.

Let me indulge in a little crystal ball gazing. If Congress remains in the hands of the Republican Party, and the Presidency too falls to the Republicans, and the incoming Republican President nominates a Republican-leaning Supreme Court Justice to replace the late Antonin Scalia the prospects for the Clean Power Plan do not look rosy. Nor one might argue do the US Commitments to the wider questions of climate change.

Setting aside spherical prognostications, a more imminent issue confronts President Obama. He is due to sign the Paris Accord on the 22nd of April. Given that the US’s Intended Nationally Determined Contributions (INDC; now metamorphosed into a NDC) was based upon the Clean Power Act and the Clean Power Plan it remains to be seen how credible will be an American President adding his name to an accord when one of the central tenants of his commitment is currently mired in the courts. That being said no one state-side I spoke with believed that President Obama wouldn’t sign the accord, credible or incredible as that may ultimately appear.

So as I boarded my flight back to Scotland I mulled the vagaries of life. Justice Scalia was in seeming good health when I arrived in the States, and so was the US Clean Power Plan. A week later one was dead and the other on life support. A week is indeed a long time in politics. I have a sneaking suspicion that Justice Scalia would be rather proud of his role in the befuddlement of the Clean Power Plan. Whilst his name will be write large in the annals of the US Supreme Court, he will almost certainly merit a footnote in the history of climate change.

Dr Ian Duncan 

THIS WEEK’S MUST READ NEWS FROM CAPX | NEW DIRECTION

New Direction | The Foundation for European Reform is an international partner of CapX, a new digital service which commissions and aggregates the best news on popular capitalism from around the world.

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Brave Gove should be forgiven by Cameron, but might not be

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How the Bronx bounched back

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Russian influence in Bulgaria - a threat to Europe?

The attitudes toward Russia in Bulgarian politics, society and economy reveal modern Russian foreign policy undermining European solidarity. Tomasz Poręba discusses the Russian interference in European affairs through the Bulgarian case.

It is time that we properly understand Russian activities in Bulgaria, especially in light of recent developments taking place in Ukraine, Syria, and a number of Eastern European countries. Using its old divide et impera tactics, Russia is challenging the unity among EU Member States by taking advantage of a number of different factors including economic links or support for political parties which have especially strong ties with Moscow (like Ataka in Bulgaria). It is time we look closer at Putin’s game, a big part of which is a conflict in the East of Ukraine, and react before it is too late. 

If the Ukrainian conflict has taught us anything, it is that Russia has recently diverted much of its resources and focus from mobilising hard power in protecting its interests to soft power, including funding media outlets and political parties. This shift can be seen very clearly in Bulgaria which is suffering from Moscow’s harmful interferences.

 In November 2006, Vladimir Chizhov, Moscow’s Ambassador to the EU, famously called Bulgaria “Russia’s would-be Trojan horse in the EU”. Although Bulgaria has long been regarded as the European country most vulnerable to Russian influence, there is no place for a passive reaction from the European side.

The Bulgarian case precisely identifies this new aspect of the Russian influence across the EU.  It describes in detail the ongoing game played by the Russian regime and neatly sums up the contemporary Russian policy towards its former Near Abroad and its attempts to undermine European unity.

By using gas exports as a political weapon in Bulgaria, Russia has succeeded in undermining European solidarity by creating political and economic rifts. As a result, Kremlin (and Gazprom) benefit from these divisions and retain the status of main supplier, while using Bulgaria to promote the reviving of the now aborted South Stream project. With ongoing talks about the second pipeline of North Stream, we cannot neglect previous experiences that we faced with Russia.

However, energy is only one of many ways in which Russia interferes in Bulgarian domestic political and economical life. It has increased its role in the Bulgarian banking system and real estate market, with their most recent purchase of almost 64,000 houses by Russian citizens in Varna and Burgas. With regard to (dis)information, Russia exerts a firm influence by generously funding Bulgarian media both at local and national level. Through a variety of means and channels, Russia is able to broadcast its propaganda throughout Bulgaria.

In the area of army and defence industry, the influence of Russia can also be felt. While Bulgaria continues to rely on the heritage of the soviet period for their military equipment, NATO unsuccessfully tried to modernize it and to increase interoperability with the Alliance.

One could argue that one of the main pillars of the common market is the opportunity to invest abroad, which usually has nothing to do with geopolitics. However, the Bugarian case proves otherwise. For instance, when talking about Western sanctions against Russia, the reluctance of Bulgaria can be explained by its tight economic links with Russia and the pro-Kremlin Ataka party. When some Bulgarian politicians started a debate on defence and security, which has shown the true extent of Russian interference in Bulgaria, pro-Kremlin parties caused a political crisis. Those are only two of many examples of the negative Russian impact on Bulgaria that can be found.

The Bulgarian case should be used by policy advisers and politicians to help them better understand Moscow’s way of acting and to reshape our policy towards Russia. It is important to be aware that before being able to compete in the external dimension, we must secure our internal fundamentals first.

 Tomasz Poręba 

PM’s statement following Cabinet meeting on EU settlement: 20 February 2016

The PM made a statement in Downing Street on Saturday 20th following a Cabinet meeting on Britain's new settlement with the European Union.

Statement by UK Prime Minister on the Britain's new settlement with the European Union:

Last night in Brussels I set out Britain’s new settlement with the European Union.

This morning I have just chaired a meeting of the Cabinet in which I updated them on the special status we have secured for Britain.

And the Cabinet agreed that the government’s position will be to recommend that Britain remains in a reformed European Union.

Now I want to speak directly to the British people to explain why.

We are approaching one of the biggest decisions this country will face in our lifetimes.

Whether to remain in a reformed European Union – or to leave.

This choice goes to the heart of the kind of country we want to be. And the future that we want for our children.

This is about how we trade with neighbouring countries to create jobs, prosperity and financial security for our families.

And it is about how we co-operate to keep our people safe and our country strong. I know there will be many passionate arguments over the months ahead.

And individual Cabinet Ministers will have the freedom to campaign in a personal capacity as they wish.

But my responsibility as Prime Minister is to speak plainly about what I believe is right for our country. I do not love Brussels. I love Britain.

I am the first to say that there are still many ways in which Europe needs to improve – and that the task of reforming Europe does not end with yesterday’s agreement.

And I will never say that our country couldn’t survive outside Europe.

We are Great Britain – we can achieve great things. 

That is not the question in this referendum.

The question is will we be safer, stronger and better off working together in a reformed Europe or out on our own. I believe we will be safer in a reformed Europe, because we can work with our European partners to fight cross border crime and terrorism.

I believe Britain will be stronger in a reformed Europe because we can play a leading role in one of the world’s largest organisations from within, helping to make the big decisions on trade and security that determine our future.

And I believe we will be better off in a reformed Europe because British businesses will have full access to the free trade single market, bringing jobs, investment and lower prices.

Let me be clear. Leaving Europe would threaten our economic and our national security.

Those who want to leave Europe cannot tell you if British businesses would be able to access Europe’s free trade single market or if working people’s jobs are safe or how much prices would rise.

All they are offering is risk at a time of uncertainty - a leap in the dark.

Our plan for Europe gives us the best of both worlds.

It underlines our special status through which families across Britain get all the benefits of being in the EU, including more jobs, lower prices and greater security.

But our special status also means we are out of the parts of Europe that don’t work for us.

So we will never join the Euro, we will never be part of Eurozone bailouts, never be part of the passport-free no borders area, or a European Army or an EU super-state. 

Three years ago I committed to the British people that I would renegotiate our position in the European Union and hold an in-out referendum.

Now I am delivering that commitment.

You will decide.

And whatever your decision, I will do my best to deliver it.

On Monday I will commence the process set out under our Referendum Act.

And I will go to parliament and propose that the British people decide our future in Europe through an in-out referendum on Thursday 23rd June.

The choice is in your hands.

But my recommendation is clear.

I believe that Britain will be safer, stronger and better off in a reformed European Union.

The link for the video of the speech is here: https://www.gov.uk/government/speeches/pms-statement-following-cabinet-meeting-on-eu-settlement-20-february-2016 

THIS WEEK’S MUST READ NEWS FROM CAPX | NEW DIRECTION

New Direction | The Foundation for European Reform is an international partner of CapX, a new digital service which commissions and aggregates the best news on popular capitalism from around the world.

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