Tag Archives: Poland

Poland’s Vision for the Euro

Posted by joshblack2 on

Radek Sikorkski’s speech in Berlin on European integration yesterday was too good to go unmentioned, even though it has already been picked over by newspapers as good as The Economist and the Financial Times. The Polish Foreign Minister is erudite and has a sound grasp of history, but it is the content of the speech, as much as it’s jokes and examples that makes it compelling.

The thrust of the argument is that the model on which the EU is based is flawed. It is singularly ambitious, but lacks the raw instruments of power. In place of the current hotch potch, the EU should be able to review national budgets and sanction governments that break the rules in a way that threatens growth. The Commission would be hacked back, to make policy making more effective, the Parliament fixed in one location to increase accountability and a large amount of discretion reserved for individual treasuries to maintain sovereignty over the means of growth.

That said, the move would entail a huge loss of sovereignty and could take years to execute. That does not make it worthless, but since the EU’s baby steps have failed to remove it from the rapidly approaching danger, it is an interesting signpost that will be acceptable to smaller countries because it is within the framework of the EU (though the Polish opposition have already called it more or less treasonous) and to Germany so long as it is robust.

The urgency within the EU is, or rather should be, increasing day by day. The latest piece of bad news is that Germany has now outstripped Italy and France in the market for credit default swaps, while borrowing on the back of national bonds has been affected by low take up (Germany) and high rates of interest (Italy). Credit default swaps are relatively new, poorly understood and even more badly regulated – they may not cause defaults, save in extreme cases such as when insurers go bust on the back of huge market shifts (AIG), but they increase the attractiveness of a default to unpatriotic fund managers (of the kind in this BBC video) and are dangerous for those entities being speculated on because:

a) They appear safer than useful creditors, such as industry or national governments;
b) They reward investors for spotting over-extended creditors, rather than growth areas; and
c) They can become a self-fulfilling prophecy.

As such, Europe would be well advised to understand, and most likely crack down on these financial instruments (as Nicholas Sarkozy has proposed and Angela Merkel appears to be considering – in the case of naked shorting only). This will not be popular and may limit the Eurozone’s ability to finance itself, as fund managers will not be able to hedge their bets. Hence the need for a new, credible financial instrument, the Eurobond while institutional reform gets off the ground.

Central Europe: A Forgotten Ally for Britain

Posted by joshblack2 on

When David Cameron was undiplomatically told, in comments that were crafted to be reported, to butt out of negotiations over the Eurozone by Nicholas Sarkozy, both he and the French President would have been pleased by the impression given to their domestic constituencies. As a political manoeuvre it is not quite on the scale of the war of Jenkins’ Ear or the Ems Despatch, but it served to remind concerned followers of the Prime Minister that he was not going to refrain from speaking his mind or advancing British interests in the notoriously closed-minded European Union.

Offending the EU and its members for the sake of domestic consumption has been Mr Cameron’s strategy ever since he took his party out of the European Conservatives grouping and set up a new, eurosceptic grouping in the European Parliament. The affair earned him a tongue-lashing from David Miliband, but if that was the worst of it, no more senior member of the Shadow Cabinet need retort than Baroness Warsi – keen as ever to go to war.

Yet the strategy of carping at the margins has failed, and embarrassingly so. France, an awkward partner, aside, the effect on Mr Cameron’s relationship with Angela Merkel has been disastrous. Last week the German Chancellor, undoubtedly the political centre of gravity in the EU at present, warned Britain to avoid substantial amendments to any new treaty to regulate the Eurozone. Mr Cameron could claim, with well-worn earnestness that ‘they started it’ but Ms Merkel could as easily repeat the claims of the British Labour Party, that is not a time to play politics in the midst of a serious crisis.

That Mr Cameron went alone to the meeting with Angela Merkel, as well as to see Jose Manueline Barroso and Herman van Rompuy, is revealing. Moreover, he did so at a point when the figureheads of Central European countries are substantially parroting his own agenda.

First, there is Slovakia, the most reluctant contributor to the bailout of Greece. As the second poorest member of the Eurozone, it is not hard to see why, especially as the financial crisis has already claimed one government.

Second; Poland, whose Prime Minister, Donald Tusk has just accomplished the unique feat in post-Cold War Polish politics of being reelected. Moreover, Poland has the honour of being the only economy in the EU not to go into recession in the past four years. In an eloquent and wide-ranging speech to Parliament, Mr Tusk set out his plans to tackle a looming pension gap, reform farmers’ national insurance and promote growth through the tax system. In practically the same week, the Polish EU Presidency settled on a 2% rise in the EU budget to keep pace with inflation, contrary to the more profligate demands of the European Parliament, which wanted 5%.

Third; Hungary, whose Prime Minister, Victor Orban recently spoke at the London School of Economics. Mr Orban admitted, in Steve Hilton-esque terms, that his country had a ‘growth problem,’ but that it was well poised for investment nonetheless through its renewed infrastructure and culture.

Finally, Romania, who alone in the EU seem to be speeding towards some form of growth.

The thread linking these countries is a wariness of the Eurozone, of which only Slovakia is a part. Hungary, which is threatened with a downgrade to ‘junk’ status by the ratings agencies (and a politically unreliable government), may be the hardest to believe when they call for stringent benchmarks (Mr Orban specifically questioned the timing of the higher capital quotas for banks, now 9%), but it is nonetheless in the interests of these countries, as of all, that the Euro is maintained by common standards of solvency to avoid devaluation or the attentions of short sellers.

Poor countries largely, they are understandably keen to see investment in infrastructure and their economies continue. Having caught up to some extent with the established EU members, that could be either focused in key areas or come from the private sector, so long as there are credible markets to their east.

In a pithy turn of phrase, Mr Tusk pointed out that in the EU, everyone is invited to dinner. However, if you are not at the table, you are most likely on it. This is the distinctive attitude that Britain has taken to the EU, and it is unlikely to be constructive. It has alienated Germany with its defence of finance and has failed to seek new allies amongst the governments of Europe. Having given up a share of the rebate under Tony Blair, it has failed to push for the removal of protectionist subsidies in favour of ones that open up investment and undertaken the same hectoring tone of President Obama over the Greek debt crisis; sort out your mess so I can jolly well carry on blaming you for my own.

Perhaps the only point on which Mr Cameron could conceivably differ from those Central European countries named above is over Russia, where Mr Cameron has recently been touting Britain as open for business. Overturning uneasy British relations with Russia is not a bad decision but it should be recognised that as an emerging market, Russia will naturally look for partners to do business with, if the political costs are not too high. At the moment, pushing for the expansion and reform of the EU would not hurt Mr Cameron’s relationship with Vladimir Putin, and should be strongly considered, if Messrs Tusk, Orban and Radičová still see fit to associate with Britain amidst its own growth problem.

_______________________

Postscript: A really good article from MP Denis MacShane on the Conservatives’ EU isolation at Progress makes similar points.

The EU Changes Tack on its Eastern Partners

Posted by joshblack2 on

I have written previously on the relatively subdued response to the arrest of Ukraine’s opposition leaders and the implications of this for Ukrainian President Victor Yanukovych. In doing so, I may well have given the impression that European leaders were being soft, when the reality is that Poland, the current holders of the EU Presidency, were intent on using soft power to remedy the ills of Ukraine’s clannish politics.

Appeasement need not be the word to describe that policy, although the likelihood is that it was on many a tongue in more realist circles. The pressure on Ukraine, and indeed on Belarus from Moscow to join Dmitry Medvedev’s customs unions has political and economic clout, while expansion fatigue following the tortuous process of adopting an EU Constitution and the Eurozone crises have all but ruled out the possibility of full membership of the EU for Ukraine. Poland’s foreign ministry appeared to have decided that at a potential turning point in Ukraine’s history, they cannot afford to be encouraging the pro-Russian tendency in the Party of Regions.

At this weekend’s summit in Sopot, Poland (near Gdansk and the Russian enclave of Kaliningrad), the opposite position appears to have gained the upper hand. Carl Bildt, the Swedish foreign minister, has been an enthusiastic proponent of the EU using what diplomatic might it can muster to persuade the Ukrainian government to release Yulia Tymoshenko, amongst others and indeed, it is he who is quoted, along with France’s Alain Juppe, as degrading Ukraine’s hopes even of a Partnership Agreement.

Writing in the Washington Post this week, Ms Tymoshenko warned of the implications of the Yanukovych government’s policies for Ukraine. EU accession, never viewed as enthusiastically by the majority in Ukraine as in Central Europe on account of the large Russian minority population, will probably not see this weekend’s sanction as a reason to evict Mr Yanukovych.

Nonetheless, there is a residual fear amongst Ukrainians of being considered a failed nation. Many disappointing years have passed since Ukraine’s increasing distance from Western European markets and endemic corruption prompted sustained street protests. Mr Yanukovcyh is dependent on good relations with the outside world at least as far as the IMF is concerned, and perhaps also including trade and investment. To that extent, his expressions of confidence in the process of negotiating with the EU may be bluster.

N.B. This article, written a few days ago, gives a flavour of the very different expectations of some politicians; http://euobserver.com/895/32305

Dare Ukraine Face Europe’s Quiet Outrage?

Posted by joshblack2 on

It is more than fortunate that I do not make predictions for a living. Just a week after writing that the case against former Prime Minister, Yulia Tymoshenko, offered little threat to President Victoy Yanukvych, the news came through that she had been arrested for contempt of court.

The international reaction to the news was all of a kind. The arrest has been universally condemned, including by Russia, as well as the West. Moreover, the arrest threatens to destabilise the delicate balance that foreign governments have been treading between wariness over the trial and the desire not to interfere in the Ukrainian judicial system.

In an excellent editorial for the Moscow Times, the Swedish Foreign Minister, Carl Bildt, argues that the trials (including those of other politicians from the previous government) ‘provide the clearest indication yet that Ukraine, despite assurances by Yanukovych’s government, is developing in the wrong direction.’ Germany has called the trials ‘regrettable‘ and the France has summonded the Ukrainian ambassador to discuss the matter. Crucially, the Visegard Group (founded to champion the European claims of the former communist Eastern Europe after 1991) has also been applying pressure, although it is from America that the boldest accusations of political motivation have come (John McCain has even argued for the government to secure Ms Tymoshenko’s release, as step relatively few public figures have taken).

Unfortunately, the response has not been without some chaos. It was initially reported that France’s outspoken ambassador had been recalled after he called the trial politically motivated (even before the arrest). Few governments have gone as far as newspapers such as the Washington Post, which says that the Ukrainian government is making a choice between its European destiny and its short term security. Russia’s President, Dmitry Medvedev is meeting with Mr Yanukovych, but it is unclear to what extent the trial will be raised.

More importantly, as I have argued previously, the EU has made a Partnership Agreement with Ukraine such a high priority that it is almost unconditional. Poland, current holder of the EU Presidency, sees the best way forward as locking Ukraine into Europe to exclude Russia. Foreign investment is flooding back into Ukraine and the IMF still backs the government. As such, Mr Yanukvych has little to fear from the West.

Whether he has anything to fear from Ukrainians remains to be seen. There have been street protests in favour of Tymoshenko, with calls for the Foreign Minister to resign. So far these have not reached anything like a critical level, although with winter looming a sudden economic shock could bring the government’s popularity down dramatically. Another advantage is that Ukrainians are still largely jaded from Ms Tymoshenko’s period of government, the tribulations of the Orange Revolution and the economic crisis. However, were a heavyweight poitical figure to emerge with a considerable amount of charisma, Mr Yanukovych might end up facing the barrell of a ballot box.

http://www.dailymotion.com/embed/video/xkepx8?width=320