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British home affairs secretary Theresa May won the most votes in an internal Conservative Party ballot to choose the next PM held on Tuesday (5 July).
May won the support of 165 MPs, followed by Andrea Leadsom, a junior energy minister, on 66, and justice secretary Michael Gove, who was a prominent campaigner to leave the EU, on 48.
Former defence minister Liam Fox, who got the fewest votes, 16, was eliminated from the race and backed May. Pensions minister Stephen Crabb, who placed fourth with 34 votes, pulled out and also backed May.
Tory MPs will keep voting until there are only two-candidates left, then it will be up to the rank and file party members to choose the next UK leader, who will have to navigate the country through exit talks with the EU.
Thursday will see the second round of voting among MPs. The final victor will be announced on 9 September.
Before the vote, pro-Remain May came under fire for a TV interview in which she said the UK might eject EU migrants if EU countries do not allow British people to live and work on their home territories.
Her main rival, Andrea Leadsom said: “We must give them [EU workers] certainty. There’s no way they will be bargaining chips in our negotiation.”
Nicola Sturgeon, Scotland’s first minister said May’s stance on EU nationals living in the UK was “disgraceful” and “disgusting”. Even the pro-Brexit politician Nigel Farage criticised May.
May’s team clarified her remarks on Tuesday, saying: “Her position is that we will guarantee the legal status of EU nationals in Britain as long as British nationals living in EU countries have their status guaranteed too.”
However, this still suggested conditionality between EU national’s rights in the UK, and UK citizens living in the EU.
The first round of Tory voting was overshadowed by the flight of property investors from Britain and the pound hitting a three-decades low.
In a sign of the serious economic consequences of Brexit, the pound hit a new 31-year low, now down more than 12 percent since the referendum on 23 June.
Three funds investing in British property also said they were suspending trading because too many people were rushing to liquidate their assets.
The Bank of England tried to calm nerves on Tuesday, but cited commercial real estate as one of the risks sectors in the British economy.
Bank of England governor Mark Carney also said capital requirements for banks had been relaxed to free up money for loans for homes and businesses.
“The bank can be expected to take whatever action is needed to promote monetary and financial stability, and as a consequence, support the real economy,” Carney said.
Before the EU ballot, Leave campaigners dismissed economic concerns of the Remain camp as scaremongering and labelled their from economic projections “Project Fear”. They said that Britain would prosper once it became “independent” and free to negotiate its own trade deals.
UK-EU:160706:(09-JUL-16):The EU won’t let Britain dither around forever – here’s how it could force us to leave
Daily Telegraph 06-Jul-16
When it comes to gaming out the forthcoming EU-UK divorce talks, there are now two pretty clear scenarios emerging from the Tory election leadership contest.
In the ultra-blue corner is Andrea Leadsom, the Energy Minister and self-styled “woman-in-a-hurry”, who is committed to taking Britain out of Europe pretty much immediately, a move which will mean invoking Article 50 proceedings very soon after entering 10 Downing Street. This will appeal to committed Leavers, even if it will deeply alarm the City and UK business who are already rattled over the downstream consequences of Brexit.
In the other corner sits Theresa May, the highly experienced Home Secretary, who is much more coy about when Britain will begin the formal EU withdrawal process. She is clear that Article 50 won’t come before Christmas, and even then will be triggered only when the UK has a clear position on what it wants, and has perhaps even pre-negotiated a transition-agreement to soften and stabilise the process. That could potentially be months away.
Theresa May: I wouldn’t invoke Article 50 until the UK has secured better deals Play! 00:42
It is this second, open-ended approach that gives the European Commission and the other 27 EU member states palpitations, since it leaves Europe to suffer the consequences of British-created economic uncertainty that hurts Europe’s growth prospects too. That is also why, in one view of the forthcoming negotiation, delaying Article 50 – and leaving Europe and its creaky Italian banks to sweat the consequences – could increase UK leverage in any discussion over free movement and access to the single market.
“Theresa May knows that once Article 50 is triggered the UK has surrendered one of its last, best bargaining chips”
But that is also precisely why, despite some divisions in Europe over how to handle the negotiations, there is unanimity among the 27 on the basic point that the Brits need to “get on with it” once a new PM is elected and we’ve sorted out what we want. UK attempts to delay further risk stoking serous tensions before talks have even begun.
This is the reality of the UK-EU split. As with any divorce, the early commitments to keep it civilized are likely to evaporate when it comes to actually the dividing the spoils, and pondering the material consequences of living newly separated lives.
Andrea Leadsom: we need to get on with triggering Article 50 Play! 00:36
The timing of Article 50 risks being the first sticking point, since after 43 years of sometimes fractious cohabitation the interests of the EU and UK are in direct conflict with each other on this issue. Europe wants us to invoke so it can move on, while Britain – under Mrs May’s implied plan at least – wants to take its time, since she knows that once Article 50 is triggered the UK has surrendered one of its last, best bargaining chips.
(This is because under the Treaty as the two-year deadline approaches, if there is not unanimous agreement to extend the talks, the supplicant state – the UK – will face an invidious choice between no deal and the economic wilderness, and whatever deal the EU decides to offer us.)
Which brings us down to the brass tacks: if push comes to shove, can the EU force the UK to invoke Article 50? Well, not legally speaking. But according to Professor Damian Chalmers of the London School of Economics, one of Britain’s leading experts on EU law, the EU does have plenty of options that enable it to twist British arms.
There has been some talk of the EU invoking Article 7 of the Lisbon Treaty – the so-called “genocide clause”, which enables the EU to throw out a member that has traduced the EU’s core values of “respect for human dignity, freedom, democracy”, et cetera. Otherwise known as the “nuclear” option, Article 7 did come up at a meeting of top EU officials in Brussels when they met after Brexit, but it was quickly set aside. Even so, the fact that it was even mentioned speaks to Europe’s profound anxiety on this point.
In reality, Britain has nothing to fear from Article 7. If Prof Chalmers closes one eye and squints really hard, he can just about see the EU 27 arguing that a UK failure to invoke Article 50 was a breach of the commitment to “respect democracy”. But if it came to the second stage of the Article 7 process and dishing out sanctions to the UK, a move which requires a unanimous vote, the idea is going absolutely nowhere. It’s a red herring.
But unfortunately for those who see the UK playing hardball over Article 50 the EU does have other options at its disposal if things get confrontational. The most obvious of these, says Prof Chalmers, is to use a qualified majority vote to pass laws specifically designed to punish the UK and squeeze national finances already under strain from Brexit-related uncertainty. These could, for example, include removing the City’s right to clear euros, or, say, changing terms of agricultural grants that would cut off funds to UK farmers.
In short, vicious targeted measures aimed at giving Britain the hurry-up. It would take seven to nine months to get the legislation through, but in Prof Chalmers’s view (and top eurocrats delight in saying the same) Europe can make things “pretty nasty, pretty quickly” if Britain delays unreasonably on Article 50 to try and weaken the EU’s hand.
Mrs May well understands the toughness of what lies ahead, a point made by her refusal to guarantee EU citizens’ rights in the UK, since that will be one of the UK’s few points of leverage in a negotiation where Britain holds few trump cards and the other 27 see as entirely self-inflicted.
Ultimately, it would be in no-one’s interest to reach the point of fisticuffs before the talks even began, all of which points to Article 50 being invoked sometime in early 2017. Any later than March and the tension starts to build rapidly, perhaps even sooner according to some countries’ officials.
Business Insider 05-Jul-16
Italy is on the cusp of tearing Europe apart but the economic and political crisis brewing in the nation is largely going unnoticed.
All eyes have turned to Britain’s vote to leave the European Union as having the most drastic political and economic impact onto the 28-nation state but if you look at the country’s economic data, bank issues, and the impending constitutional referendum coming up, Italy is like a bomb waiting to explode.
The Italian financial system, which to put it gently, is in a major state of flux right now. While Britain’s EU referendum in June was seismic in terms of having economic and political repercussions across the bloc, there is another referendum of equal importance, coming up in Italy in October, and the result could fundamentally alter the state of the already delicate Italian economy.
Italians will have a say on reforms to its Senate, the upper house of parliament, in October. The proposed reforms are widespread, and if approved could improve the stability of Italy’s political set up and allow Prime Minister Matteo Renzi to push through laws aimed at improving the country’s economic competitiveness.
If denied, Renzi’s government will most likely fall, plunging Italy back into the type of political chaos last seen after the ousting of former Prime Minister Silvio Berlusconi, according to Deutsche Bank. That, Citi says, makes the referendum “probably the single biggest risk on the European political landscape this year among non-UK issues.”
“If the referendum is rejected, we would expect the fall of Renzi’s government. Forming a stable government majority either before or after a new election could become extremely challenging even by Italian standards,” Deutsche Bank analysts led by Marco Stringa said in a note to clients in May. Fears that the reforms will be rejected have intensified since the eurosceptic vote won in Britain.
DB italy productivity Italian productivity is shockingly poor Deutsche Bank
A political mess can quickly turn into a cornucopia of financial and economic disarray. According to estimates from business lobby Confindustria, if Renzi’s reforms do not pass, it would push Italy into recession, lead to massive capital flight, and widen spreads on Italian debt.
Italy simply cannot afford any of those things at the moment.
Not only is the country in a state of economic and political turmoil — it has crushingly low productivity, a history of missing growth targets, and has generally underperformed the rest of Europe in recent years — but the country’s banking system is also in the midst of serious, serious problems.
“One theme which could dictate near term direction for markets and which arguably Brexit has reignited and brought back to the forefront is the ailing and fragile state of the Italian banking sector,” Deutsche Bank’s Jim Reid noted in his daily Early Morning Reid on Tuesday.
The country’s financial sector is plagued by an enormous surfeit of bad loans so great that the government was, in April, forced into rallying bank executives, insurers and investors to put €5 billion (£4.2 billion, $5.57 billion) behind a rescue fund for its weakest banks. The Atalante fund is designed to buy so-called bad loans from lenders and invest in their shares in the hope that the re-energized banks will lend more to businesses and spur growth.
However, Monte dei Paschi di Siena — the oldest bank in the world and weakest bank in Italy— is in possession of a bad loan book of around €47 billion (£39.9 billion) right now, and that has got the European Central Bank very worried. On Monday, the ECB’s banking supervisor insisted that Monte dei Paschi must cut that book by €8 billion by the end of 2017, and by another €6 billion by the end of 2018.
“The bank has immediately initiated discussions with the European Central Bank in order to understand all the indications included in this draft letter, and to present its reasoning before the final decision, expected by the end of July 2016,” Monte Paschi said in response to the ECB’s demands.
The news sent shares in all of Italy’s banks substantially lower, with Monte dei Paschi understandably bearing the brunt of the falls. Shares dropped more than 8% on Monday to just 0.3 cents, valuing the bank at €1 billion, according to the Financial Times.
Here is the incredibly depressing chart from Bank of America Merrill Lynch:
In total, the financial sector in the country has roughly €300 billion of ‘bad’ debt, which needs to be addressed one way or the other. This might not be such an enormous problem if it was not for the fact that, as previously mentioned, Italy’s economy is chronically weak. This in turn affects the ability of the country’s government to provide a viable bailout package for the banking sector. Government debt in Italy now stands at almost 140% of GDP, second only to Greece in eurozone in gross terms.
Online publication This is Money suggests that despite the assertions of Renzi that he is ready to provide assistance to bail out underperforming banks, Italy is actually around €35 billion short of having the required capital to do that.
There are now serious fears in Brussels, according to the Financial Times, that the Italian government will not be able to fund a rescue package for the banking sector.
Merkel Renzi Tsipras Matteo Renzi with Greek PM Alexis Tsipras and German chancellor Angela Merkel REUTERS/Yves Herman
That has led to Italy going to Brussels for assistance, something that has so far been rejected, as it would be in contravention of EU rules.
“We have established specific rules as far as recapitalisation of the banks is concerned,” German chancellor Angela Merkel said over the weekend.
“We can’t come up with new rules every two years. The Commission is ready to help, but so far it has not been convinced by what has been proposed by Italy.”
Despite that rejection, Renzi — who is now known in some circles as the “Demolition Man” for his efforts to shake up the Italian political system — is reportedly ready to bypass the EU and act unilaterally to protect the financial system.
“We are willing to do whatever is necessary [to defend the banks], and do not rule out acting unilaterally, although that would only be as a last resort,” a source “familiar with the government’s thinking” told the FT. Renzi himself has said he will not be “lectured by the schoolteacher.”
While several suggestions have been made — including boosting the size of the Atlante fund, and launching a separate fund, a sort of spin-off to Atlante, that will look to specifically buy up bad loans issued during Italy’s last recession — it currently looks like there won’t be a concrete solution to the banking crisis any time soon.
Add to this the fact that any fix created could get totally dismantled if Renzi and his party lose the reform referendum and the government falls. The Italian financial system is teetering on a precipice without much hope of a solution. Brexit may be the biggest problem facing Europe right now, but Italy isn’t far behind.
UK-EU:160706:(09-JUL-16):No wonder they wanted us to Remain: European markets crumble over fears of life without UK
EUROPE’S top stock markets were firmly in the red again today amid spiralling concerns for the European Union’s future without Britain.
On the other hand, London’s top index the FTSE 100 was reaping gains of around 0.4 per cent, after already touching the highest level in almost a year after the vote to leave the bloc.
Germany’s DAX was down by 1.73 per cent, France’s CAC by 1.71 per cent, Spain’s IBEX all down by 1.7 per cent and Italy’s FTSE MIB in the red by 0.43 per cent.
All three of the continental markets are below their pre-referendum highs, with Italy’s market worse hit and still down by around 10 per cent from the day before the vote to Brexit.
Investors are particularly worried about the future of Italy’s banks, which hold billions of pounds worth of bad loans.
Joshua Mahony, market analyst at trading platform IG, said: “Mainland European markets are suffering the most today, with the DAX, CAC and IBEX all heavily in the red as fear over the political and economic implications of a Brexit come back to the fore.
Frexit: Leader of the French National Front Marine Le Pen has pledged to hold a French referendum
Nexit: Dutch far-right Party for Freedom leader Geert Wilders pledged to make the EU membership a key issue in the next general election
Nexit: A whopping 88 per cent of people polled by a top Dutch newspaper said they would be in favour of an in/out vote along British lines
Auxit: Former right-wing Austrian Freedom Party candidate Norbert Hofer said his country should have a referendum within a year
Pexit: Law and Justice leader Jaroslaw Kaczynski said ‘The conclusion is obvious. We need a new European treaty’
Swexit: Before Brexit, Swedish MEP Peter Lundgren said Denmark and Sweden were already ‘on the brink’ of quitting, suggesting a ‘Nordic trading bloc’ led by Britain could be born
Denmark held a referendum last December, although with a much more limited impact: Danes decided against handing over more powers to the E.U
Hexit: Hungarian Prime Minister, Viktor Orban, warned that Europe needs to change its ways
Ixit: Italy’s Northern League leader Matteo Salvin will start a petition calling for an EU referendum, however his party scored a dismal 4% at the last election
“The EU 27 is a net benefactor of UK trade and given the fixation upon immigration policy, there is reason to believe that in just over two-year’s time trade between the UK and EU will not be as free as is currently the case.”
Today the Bank of England further helped boost confidence in Britain by stating that it “stands ready to take any further actions” to smooth any uncertainty and turmoil thrown up the vote to leave.
Last week brought news that Israel and Turkey are set to restore full diplomatic ties, ending the six-year impasse that followed Israel’s interception of the Gaza-bound Mavi Marmara. Though reconciliation talks have been frequent over the past three years, the breakthrough was made in the context of a worsening security environment in the Middle East; one within which the Turkish Government has fared particularly badly.
The bilateral agreement – formally announced last Monday and signed by the respective foreign ministries last Tuesday – will see a normalisation of relations between the two former allies with increased diplomatic, economic and security cooperation to follow.
Israeli Prime Minister Benjamin Netanyahu has heralded the deal as “an agreement of strategic importance” that will improve stability in the region. Whilst Israeli-Turkish rapprochement is certainly a welcome development, particularly given the complex security challenges faced by both nations, it may be too soon to start celebrating. As Michael Koplow adeptly points out, this newfound reconciliation rests “on a house of cards that will be easily blown over at the first sign of Israeli-Palestinian trouble”.
Background: Behind the Souring of Relations
During the late 1990s and early 2000s, Israel and Turkey enjoyed a period of intense defence and intelligence cooperation. Turkey’s relations with its neighbours were fraying, it needed Israel as a buttress against a well-equipped Syrian military and it desired steady access to Israel’s sophisticated military technology. For its part, Israel believed Turkey could act as a “valuable mediator”, improving its relations with the Arab world.
Despite strategic cooperation reaching an all-time high, relations began to fall apart under the leadership of current Turkish President Recep Tayyip Erdogan (President since 2014; Prime Minister and leader of the Justice and Development Party between 2003 – 2014). Erdogan’s rise to power led to this rupture for two main reasons: his vocal distaste of Israel – classifying Zionism as a ‘crime against humanity’ and accusing Israel of committing genocide against the Palestinian people – and his strengthening of civilian control over the Turkish military (the major advocate of strong defence ties with Israel).
Relations grew strained in late 2008 following Operation Cast Lead, Israel’s three-week offensive into Gaza, which brought to a halt Turkey’s mediation efforts between Israel and Syria. Tensions came to a head after a heated exchange over Gaza broke out at the 2009 World Economic Forum, during which Erdogan launched into a tirade against Israeli President Shimon Peres and stormed off the stage. Ties officially collapsed in May 2010, however; the fallout of Israel’s interception of the Mavi Marmara ship which resulted in 9 Turkish citizens being killed when they attacked Israeli commandos. The Turkish-sponsored flotilla was attempting to break Israel’s naval blockade of Gaza.
In the years since, attempts at reconciliation have been marked by a series of stops and starts. Of Erdogan’s three conditions for normalisation (a formal apology, financial compensation for the families of victims, and a lifting of the Gaza blockade), the first was met in March 2013 at the urging of US President Barack Obama and the second was brokered in 2014 when both parties agreed upon the amount for compensation.
Netanyahu’s apology for Israel’s ‘operational failures’ was expected by many – including policymakers in Washington – to pave the way for normalisation; both leaders can be criticised for taking another three years to reach that point.
Terms of the Deal
On the whole, the deal’s terms are good for Israel. As agreed to back in 2014, Israel will set up an US $20 million fund to compensate families of the Turkish nationals killed in the Mavi Marmara raid. In return, Turkey will offer all Israeli military personnel involved in the incident protection from civil and criminal prosecution now and into the future. The Turkish Parliament will also pass legislation to cancel any existing legal claims against IDF officers – a creative way to bypass the court’s refusal to drop the cases. This is a controversial move given the wide public support within Turkey for the victims’ families and the IHH (the Turkish NGO that organised the flotilla) – already, #IsraeilinDostuErdogan (Erdogan, friend of Israel) has begun trending on Twitter with clear negative connotations.
From Israel’s perspective, the deal’s most significant achievement is gaining Turkey’s tacit acceptance of its maritime blockade on Gaza. As mentioned above, Erdogan had long insisted that normalisation would require Israel to lift the blockade, a demand that would have compromised Israeli security and fundamentally altered its Gaza policy. While this security arrangement will thus remain in place (thanks to some ‘creative diplomacy’ by negotiators), Turkey has agreed to send its humanitarian aid to Gaza via Israel’s Ashdod port. It will also build new infrastructure including a 200-bed hospital, a power station (in conjunction with Germany) and a water desalination plant – indeed, as Netanyahu explains, it is in Israel’s interests to improve Gaza’s electricity and water conditions.
Israel was not successful in all its demands: in particular, Turkey refused to expel Hamas from its soil, though it promised to prevent Hamas from planning and executing terrorist attacks against Israel from Istanbul (including the gathering of funds for such purposes). There is no indication of how this will be monitored, however, or how strictly Turkey will enforce this commitment, given the close ties between Erdogan and Hamas chief Khaled Meshaal. Turkey has agreed to pressure Hamas to return the bodies of Israeli soldiers missing in Gaza, but again, this may just be lip service – such decisions are more likely to be made by Hamas’ military wing rather than its political wing (with which Turkey has greater influence).
Whilst some commentators hope that the rapprochement may help to prevent another round of fighting in Gaza (or at least allow Turkey to act as a mediator), former National Security Advisor Major-General Yaakov Amidror is more cautious, stating:
“Turkey doesn’t have the influence people think they have on Hamas. At the end of the day, the conflict in Gaza will be influenced by Hamas in Gaza.”
Nevertheless, Amidror believes the deal has huge potential in terms of security gains for Israel in the long term, once trust has been restored on both sides.
From a diplomatic standpoint, ambassadors will be sent back to the capitals and Turkey has agreed that it will not block Israel from joining international organisations of which it is a member. This is a significant gain that will likely lead to greater NATO-Israel collaboration – already, Israel is on track to open an office at NATO; opposition to which was dropped by Turkey during negotiations as a gesture of goodwill.
Normalisation will also pave the way for substantial economic cooperation, particularly as Israel looks to create a market for the large reserves of natural gas it has discovered in the Mediterranean. Since the souring of its relationship with prime trading partner Russia (following its downing of a Russian fighter jet near its border with Syria in November 2015), Turkey has been seeking to decrease its dependence on Russian gas. This rift was seen by many within Israel as an economic opportunity – but one that looked soon to close following Turkey’s recent overtures towards Russia. Though not formally part of the reconciliation agreement, the deal will facilitate further discussion about building a pipeline to transport Israeli gas to Turkey and then perhaps on to Europe. Israeli energy minister Yuval Steinitz, having met with Erdogan in Washington this March, has identified gas as an important bilateral opportunity.
That Israeli-Turkish rapprochement comes now – and not three years ago – is best understood by taking a look at Turkey’s current geopolitical situation. It is no coincidence that Erdogan announced his reconciliation with Israel and reached out to Russian President Vladimir Putin to apologise for the plane incident on the very same day.
Although the potential for energy cooperation was a clear incentive for both parties, the key driver behind normalisation was Erdogan’s urgent need for a “foreign policy reset” of which Israel is only one target. Over the last half-decade, Erdogan, together with his former foreign minister turned prime minister Ahmet Davutoglu (who resigned this May), pursued a disastrous foreign policy agenda in the Middle East that has left Turkey diplomatically isolated at a time when it faces its gravest security challenges (most clearly illustrated by the Istanbul airport suicide bombings last Tuesday 28 June).
According to Soner Cagaptay and James F. Jeffrey of the Washington Institute for Near East Policy:
“The Erdogan-Davutoglu team has created more foreign policy problems for Turkey than ever seen in the country’s modern memory. [They] attempted to make Turkey a standalone Middle East Power, [believing] this could be achieved by breaking with the United States when necessary and taking an active role in regional conflicts. Unfortunately, that policy has failed on virtually every front. Turkey’s ties with Egypt, Israel, Russia and Syria all ruptured.”
Asli Aydintasbas of the European Council on Foreign Relations adds:
“Turkey had been going through a deep sense of isolation for the past few years, having switched from its famous ‘zero problems with neighbours’ policy to a place where it had no neighbours without problems. This was the loneliest point in the history of the republic – Qatar and Saudi Arabia looking like the government’s only real friends.”
If we look back to the time of the Mavi Marmara incident in 2010, Turkey was at the height of its regional power, attempting to realise its goal of Middle Eastern hegemony. Erdogan was in the midst of implementing his ‘zero problems’ policy and expanding his reach, making amends with the Iraqi Kurds, Iran, Syria and Greece and opening relations with Armenia. Getting behind the Palestinian cause and becoming a key player in the conflict was viewed as the way to win over the Arab world (or at least, the Arab street). Turkey no longer viewed Israel as a necessary or convenient ally and the flotilla incident highlighted just how expendable Israel had become.
Times have changed. Today, as Armin Rosen points out:
“Turkey is far weaker, less stable, and more vulnerable than it was the night the Shayetet 13 commandos fast-roped onto the deck of the Mavi Marmara. Over the past six years, Turkey has gone from being a soft-and-hard power-leader at peace with a range of difficult neighbours to a country just hoping to steer itself through a period of regional chaos and incipient civil war.”
During that period, the Turkish-backed Muslim Brotherhood regime of Egypt was removed from power, greatly reducing Turkey’s regional influence. Erdogan refuses to recognise the current Egyptian government, referring to President Abdul Fattah al-Sisi as an ‘illegitimate tyrant’ and thereby transforming Egypt into a major adversary. Even more problematic is the fact that the civil war in neighbouring Syria is dragging on into its fifth year, continuing to embroil Turkey in the intractable conflict.
As Armin Rosen explains:
“The Syrian conflagration has caused nothing but problems for Turkey, which has supported the removal of president Bashar al-Assad since the conflict’s outset. It isn’t just Assad’s survival or the presence of some 2.7 million Syrian refugees that’s stymied Ankara: ISIS has carried out repeated attacks inside Turkey while opposing stances towards the Assad regime have threatened to bring Ankara and Russia into conflict. Turkey has seen its military and political influence in northern [Syria] reduced as ISIS and then Syrian Kurdish fighters took over nearly the entirety of the Syrian-Turkish border. To make matters even more complicated, the Syrian Kurds are generally allied with the PKK, the Kurdish militant faction that’s fuelling a renewed insurgency in eastern Turkey.”
For years, Israeli-Turkish negotiations were one-sided, largely based around what Israel had to give to Turkey to achieve normalisation. However, as Turkey’s regional standing continued to plummet, it became clear that it was negotiating from a position of weakness. This agreement brings benefits to Turkey and Israel while satisfying the full demands of neither; in this way, it has allowed both leaders to present the deal to their publics as a “victory of sorts”.
The deal has one chief caveat that must be acknowledged, however, which Michael Koplow terms its ‘fatal flaw’: that is, its success depends upon continued quiet in Gaza, which, he claims, is a long shot. Conditions in the Gaza Strip have not improved since the last round of fighting in 2014 and another flare-up is looking increasingly likely, if not inevitable. Renewed conflict could very realistically spell the end of the recent Israeli-Turkish detente.
As Koplow explains:
“The Turkish public still has low opinions of Israel, and Erdogan will be forced to recall his ambassador at the first sign of Palestinian civilian casualties, not to mention what will happen if any nascent Turkish building projects are struck by Israeli fire. Israel, meanwhile, would be hard pressed to retain normal relations with Turkey once Erdogan began his instinctual verbal broadsides against Israel, which in the past have included comparing Israel to Hitler and calling Zionism a crime against humanity.”
Indeed, while rapprochement is certainly a step in the right direction, it has not reversed years of suspicion and animosity between the two governments. Bilateral relations are unlikely to return to the glory days of the late 1990s – at least not in the short term and not without a workable solution to the Israeli-Palestinian conflict.
As Major-General Yaakov Amidror concludes:
“At the end of the day, the Israel-Turkey reconciliation agreement boils down to interests; not trust, and certainly not sympathy. This deal will not usher in a new golden age in Jerusalem-Ankara relations, but it will normalize relations with a major Middle Eastern power.”
Chatham House 07-Jul-16
On balance, a British withdrawal from the EU would bolster Russia’s preferred geopolitical narratives and make it more difficult for the West to counter Russian power plays.
For all its pretences toward the primacy of sovereignty, the Russian leadership is rarely shy about venting its views on the foreign policies and geopolitical orientations of other states. Yet on the question of Britain’s membership of the European Union, the Kremlin has been relatively silent. Overt efforts to swing the UK one way or another are few and far between. An assessment by former NATO official Ben Nimmo of stories in the sanctioned parts of Russian media has found a small numerical bias in favour stories promoting the advantages of Britain leaving the EU, but overall, the evidence is slim. And despite the most prominent remain campaigners, including Prime Minister David Cameron suggesting that a vote to leave would be a boost for Vladimir Putin, Russia’s ever-vocal embassy in the UK has released a statement claiming that it has no view on the matter. But as one former Western government analyst put it to me recently, it is important not to let prima facie evidence overrule common sense. It is probable the Kremlin does have a view, even if it is disputed internally, and identifying this can help determine the effect on UK-Russia relations if Britain votes to leave the EU and what the future trajectory of the relationship might be if it remains in.
The views from Russia
Despite the official line, opposing views on how Britain ‘should’ vote have been expressed, even in the officially sanctioned Russian press. One particular strand has suggested that Russia would be better off if Britain remained in the EU because Brussels mollifies some of Britain’s supposedly ‘Russophobic’ tendencies. Meanwhile, the analyst Dmitry Suslov has argued that it is Europe’s fragmentation which is responsible for the poor state of Russian-European relations, so a more joined-up Europe would improve Russia’s relations with all the member states, including the UK. Though he doesn’t say so, such a rapprochement presumably depends on whether a more cohesive Europe would accommodate Russia’s perceived interests in possessing areas of control beyond Russia’s borders. A further Russian-espoused argument favours a vote to remain, for fear that Brexit would make either Germany or NATO (or both) stronger − which would be to Russia’s disadvantage. However, it is surely more credible that, from a Russian perspective, a diminished EU following a UK exit is also going to weaken NATO and give Russia a louder voice in European affairs. Sergei Utkin, another prominent analyst, and Alexey Pushkov, the chair of the Duma’s foreign affairs committee, have suggested that the UK will be looking for new friends once it has shunned Europe. Russia, they say, will be waiting with open arms. Other Russian arguments in favour of a withdrawal include: the EU has rejected Christian values so Britain should reject the EU; and Europe is disintegrating, so the Russians currently living inside it are better off returning to Russia. Logically, then, Russia’s beleaguered opposition leaders should be calling for the opposite of what they believe the Kremlin desires (for they, like the Russian government they loathe, can also take a zero sum approach). And indeed they do. Gary Kasparov, for example, has written that if Putin wants the UK to leave the EU, the obvious choice must be to remain in. Such a cacophony of viewpoints leads to several possibilities: First, there is no single view from Russia on the outcome of Britain’s EU referendum − perhaps not even from the Kremlin. Second, in the greater scheme of things, it does not matter very much. Russia has bigger problems. Third, that multiple views constitute the effective deployment of smoke and mirrors: the putting-out of several viewpoints in order to confuse. Fourth, that the Kremlin does have a view – that the UK’s withdrawal from Europe is preferable – but it knows its reach is limited in the UK (possibly even detrimental) and thus has resolved to do very little. There is probably some truth to all these explanations, but there are good reasons for thinking the fourth is the most persuasive. It can be inferred that from the Kremlin’s perspective, a British split from the EU would erode or destroy the unanimity of action – most visibly manifested in sanctions – that Russia’s behaviour has been engendered among EU member states. A departure from the EU surely strengthens the disintegrative processes already at work in Europe and validates the notion that Russia is, in fact, a European power too, and it is the US that is alien – or at least that Europe is continentalist with Russia as a partner, rather than being outside on the edge of a united continent. These inferences, regarded as conspiracy in some articles in the Russian press, are given further credence considering Russia’s closer relations with political parties throughout Europe which have anti-European sentiments (and, for the most part, hard right-wing views). Mostly, however, they are inferences borne from common sense, considering Russia’s broader worldview. Russian foreign policy is part-based on the notion that the euro-Atlantic world, represented not only by NATO, but also the EU, is in plateau before decline, and consequently both organisations are seen to be suffering from centrifugal forces. A UK exit from the EU would reinforce that wider Russian perception.
Relations in or out
In addition, the UK has been a reasonably strong supporter of EU sanctions on Russia. That support is probably secure for the next renewal point in July, though it will inevitably erode with time − note, for example, the recent ‘fact-finding mission’ to Russia by the Commons foreign affairs select committee with its chair, Crispin Blunt, announcing beforehand, that it was time to move on from sanctions and ‘re-engage’ (delivered in code as ‘something we are going to have to look at’). More influential still is the commercial lobbying by those for whom profit is more important than international security. There has been no explicit commitment from the EU or the UK that sanctions will remain in place for as long as Ukraine remains partly occupied − and many countries desire a return to business as usual. However, Crimea remains annexed. Ukraine, therefore, remains partially occupied, and sanctions are for now holding, with some credit for that due to the UK and its weight in Europe. Being free of EU constraints could, in theory, give the UK the opportunity to impose further, tighter sanctions – as the US has done. But there is no evidence that this is on the agenda of those advocating withdrawal. Indeed, some of those calling for the UK to leave are open admirers of Vladimir Putin and his strongman policies at home and abroad, and have blamed the crisis in Ukraine on the EU’s supposed imperial ambitions. The more likely avenue if the EU is rejected by British voters is that, unencumbered by rules from Brussels on financial operations, a UK acting alone would be tempted to widen its doors even further to off-shore Russian investments, the sources of which cannot be readily identified − to corrosive effect. The UK and Russia are not especially heavily invested in each other’s countries. Indeed there is potential for a great deal more when relations are not so sour. But the implication of this whole debate − that Britain’s relationship with Russia is unique and of importance to both parties – has merit, at least considering their precious P5 memberships and the heavy concentration of that investment in just three industries – finance, energy and real estate. Thus there is all to play for. And the Kremlin knows it. It is logical, therefore, to assume that given a choice, Russia would, on balance, prefer the disharmony and uncertainty in the EU created by the UK’s exit from Europe.
The coming confrontation
Regardless of the result of the referendum, the UK will need to work with its European allies if it is to develop an effective response to Putin’s Russia. Few people on either side of the referendum debate, and in Europe more widely, have realised that Russia is actively engaged in harming the West with a variety of measures from cyber attacks to financial corrosion to propaganda dissemination – all types of coercion in their own way. The necessary and inevitable operational conclusion has most certainly not yet been reached (because it is unpalatable): that the West, eventually, will have no choice but to degrade Russia’s economy, through sanctions and other pressure points, to the point where it backs down – that is, assuming the West wishes to retain the post-Cold War security system and defend the sovereignty of the nation states around Russia borders that the Kremlin wishes to control. This is a difficult policy to arrive at for any nation constrained by its own values such as the UK; policy-makers are simply not there yet. But while they catch up, on balance, being inside the EU with as much unity as possible gives the West the best shot at being successful in bringing Russia round to acceptable norms of behaviour in the longer term − as it will have to do.
The Israel Missile Defense Organization and the US Missile Defense Agency have successfully conducted a test to check the integration of the two countries defense systems. While the test was conducted last month, it was only announced yesterday. The test simulated an attack in which thousands of rockets and missiles from Iran and Lebanon are fired at Israel, and the US and Israel respond with six different missile systems including Arrow 2 and 3, THAAD, and Patriot missiles. Called the “integrated ground test” Israeli officials said it was the first test of its kind and had been conducted successfully. The focus was on connecting the missile systems to the US radar to detect the rockets. The Israeli Defense Ministry hailed the test as “another milestone in the missile defense program, which is a cooperation between the US and Israel.” It comes as Israel marks the tenth anniversary of the second Lebanon war, a 34-day conflict between Israel and Hizbullah guerillas in Lebanon, during which Hizbullah fired hundreds of rockets at northern Israel. Israel has developed several missile systems to shoot down rockets, including Iron Dome for short-range rockets from the Gaza Strip, and Arrow 2 and 3 for longer-range rockets.
British Home Secretary Theresa May and Energy Minister Andrea Leadsom will compete for the leadership of the Conservative Party after a July 7 vote by lawmakers eliminated Secretary of State for Justice Michael Gove from the running, Reuters reported. May captured 199 votes and Leadsom won 84, while Gove came in third place with 46 votes. Following the day’s vote, about 150,000 party members from around the country will choose between May and Leadsom, with a final result expected by Sept. 9. In the lead-up to the Brexit vote, May quietly supported the campaign to remain in the European Union. Leadsom, on the other hand, openly advocated leavinge the bloc, a stance that could play better with the Conservative Party’s voter base. Whoever it is, the next party leader and prime minister will have the task of negotiating the United Kingdom’s next move following the momentous referendum.
A perfect storm is brewing for Italian prime minister Matteo Renzi. The once golden boy of European politics is now facing the strongest political and economic headwinds since coming to power two and a half years ago.
The most pressing concern are Italian banks, and more specifically the €360 billion of bad loans weighing on their books.
Italy’s prime minister Matteo Renzi has staked his career on winning October’s constitutional referendum. (Photo: ec.europa.eu)
They are mostly a legacy of Italy’s record double-dip recession between 2008 and 2014, and they have limited lenders’ capacity to offer new loans to businesses and households, throttling Italy’s timid economic recovery.
On the back of these concerns are Italian bank sector share prices which have been falling strongly since the start of the year. In the wake of Britain’s vote to leave the European Union, this has turned into panic selling, focusing especially on the world’s oldest lender, the 500-year-old Monte dei Paschi di Siena (MPS).
In the two weeks since the 23 June Brexit referendum, MPS shares have lost 50 percent of their value, and are now worth less than €0.27, their lowest level ever. The fact that a little more than two years ago, stock in the Siena-based lender was worth almost €9 gives a measure of its spectacular fall from market grace.
MPS has long been the weak link among major Italian banks – it has required two state bailouts and several recapitalisations since the 2008 financial crash – but investors are now fleeing from it because the European Central Bank (ECB) has asked it to cut down its bad loans baggage – worth almost €45 billion – by 25 percent over the next two years.
“We are working intensely with the authorities to quickly find a structural and definitive solution for non-performing loans,” MPS chief executive Fabrizio Viola said Thursday (7 July), after a board meeting that discussed the ECB demands.
Collision path with Brussels
“Our people are working with even more intensity and vigour to overcome also this difficult moment and once again attest our credibility,” he added.
The difficulty for MPS is that getting rid of bad loans quickly means selling them at reduced prices, exposing the bank to major losses that would leave it short of capital.
In its current state, few private investors would dig into their pockets to back a recapitalisation, leaving the onus on the Italian government, which already owns a 4-percent stake in the bank.
This sets Renzi on a collision path with Brussels, as the latest rules put shareholders and creditors on the first line in case of a bank’s rescue, rather than taxpayers – a bail-in rather than a bailout. This has been done to avoid a repetition of what happened after the 2008 financial crash, when European governments – but not Italy – spent hundreds of billions of euros to rescue banks.
Echoing arguments already used by Rome to navigate around EU deficit targets, Renzi says he does not want to break the bail-in rules, but is seeking flexibility in their application.
The sticking point is not whether Italy can extend public aid to banks – this is allowed under extraordinary circumstances, and MPS’ plight easily qualifies as extraordinary – but whether banks’ creditors should lose some of their money as a contribution to the rescue, as foreseen by the regulation.
This would be political dynamite for the Italian premier, especially after the experience of last autumn, when bail-in rules were applied for the resolution of four regional banks and their bondholders lost all their investment.
One of them was a pensioner who then committed suicide – the government took opposition flak for that death and it was probably the turning point in Renzi’s political fortunes.
Last month, Renzi’s Democratic Party (PD) suffered embarrassing local election defeats, losing mayoral races in Turin and Rome to candidates from the Five Star Movement (M5S).
In recent days, two polls have suggested that the PD was on course to lose the next general elections against its populist, eurosceptic opponent.
With a crucial a referendum on constitutional reforms looming in October, the prime minister cannot once again be seen to be putting ordinary Italians’ savings at risk for the sake of rescuing banks.
Renzi has staked his career on a referendum win. He promised to quit politics if voters reject the reforms his government has proposed, and warned that the country would slide back into political chaos if they were rejected.
Pressure is on to resolve the Italian banking imbroglio before 29 July, when stress tests by the European Banking Authority are expected to expose the frailty of MPS and perhaps of a few other lenders.
‘Italy could go under’
Analysts say Italy’s approach will likely be two-pronged, with capital injections in stricken banks and an expansion of a private bank rescue fund that could help MPS and others by buying their bad loans.
With typical bluster, Renzi says he is on top of it all, and has even tried to turn the tables on Germany.
At a press conference in Rome with his Swedish counterpart Stefan Lovfen on Wednesday, he said the issue of non-performing loans in Italy “has to be resolved, can be resolved and is being resolved”. But he added that it was 100 times smaller than the derivatives problem “of other, important banks” – a pointed reference to Deutsche Bank.
Nevertheless, the financial and political heat is on Rome, rather than Berlin, amid widespread perceptions that the banking problem in the eurozone’s third-largest economy could escalate into the next big crisis after the Brexit shock.
“A solution should be found quickly or the world’s oldest bank could fail and bring down the rest of Europe’s embattled banking sector with it. The EU needs to show flexibility or Italy could go under,” Neil Wilson of British trading firm ETX Capital warned on Wednesday.
UK-EU:160708:(09-JUL-16):Government business has all but come to a halt. There is no plan. There is currently no leader who can provide one.
Jerusalem Post 08-Jul-16
The tremors from the Brexit earthquake, in which Britain voted to exit the European Union, are still rippling around the globe.
The vote has torn families and friendships apart. The prime minister, David Cameron, announced his resignation following the collapse of his gamble that the public would vote to remain. Now political paralysis has set in.
Government business has all but come to a halt. There is no plan. There is currently no leader who can provide one.
The Conservative Party has started its leadership election process which will install a new prime minister. This is already making House of Cards look like Sesame Street.
The party’s leading Brexiteers, Michael Gove and Boris Johnson, destroyed Cameron.
Gove then destroyed Boris who he said (correctly) wasn’t up to the job of leading the country; Gove would run for PM instead. As a result, Gove was accused of ruthless disloyalty and destroyed himself .
On Thursday his fellow MPs knocked him out of the leadership race.
Inside the EU there is rage against Britain.
Germany’s Chancellor Angela Merkel, however, is urging a more emollient response. She wants to offer the UK a deal so attractive it will reverse its vote to leave.
Brexiteers are suspicious that the current leadership favorite amongst Conservative MPs, Theresa May, who is viewed as a unity candidate because her support for Remain was so feeble, will seek to forge just such a deal that will undermine Brexit by stealth.
Other countries are looking on anxiously at this pandemonium. Both the US and Israel wanted the UK to remain in the EU.
Both countries view Britain as a useful bridge to Europe. Israel thinks in particular that Britain helps mitigate the EU’s hostility toward it.
David Cameron certainly warmed toward Israel during his premiership. However, the UK still falsely claims Israel’s occupation of the disputed territories is illegal, still pressures it to surrender to Arab aggression, still voted with France and Germany for the preposterous UN resolution singling out Israel as the world’s sole violator of health rights. The notion that Britain is invaluable to Israel inside the EU therefore seems implausible.
America and Israel are also missing a much more fundamental point. Brexit means the concept of the self-governing nation is back in business. That’s good not just for Britain but also for Israel and the defense of Western civilization.
This is why. After two world wars, a traumatized Europe concluded that the nation gave rise to nationalism and nationalism led to war. Progressive politics became internationalist. Legitimacy would be invested in supra-national institutions such as the EU, UN or European Court of Human Rights.
The EU was formed to safeguard European democracy. However, since its laws and regulations override those of national governments it is profoundly and innately anti-democratic.
That’s why, although it was founded to prevent the return of fascism, it is directly responsible for the current rise of racist and fascist parties across Europe.
These have been swelled by popular fury at a European political establishment which, through emasculating democracy and imposing mass migration, has ridden roughshod over people’s desire to live in their own self-governing and recognizable homeland.
Fascism is thus being fueled by progressive internationalists. Which is also why the brunt of bigoted attacks over the past few decades has been borne by Israel and the Jews.
The astounding increase in open anti-Jewish feeling in Britain has occurred while it has belonged to the EU. Internationalists despise the nation; no surprise, then, that they despise the Jewish nation.
For decades, these progressives have systematically trashed British national identity as racist, colonialist and hateful. Those who object to the growth of separatist Muslim enclaves, where non-Muslims feel at worst physically threatened and at best strangers in their own land, are vilified as Islamophobes, bigots and racists.
Jews are squeamish about any criticism of immigration. People are surely entitled, though, to object to the transformation of their neighborhood, society and country.
The Jewish people are formed and sustained by their own particular culture and identity as a nation. Why then should any Jew want to deny the same to the British people? The trashing of their culture has increased support for British neo-Nazi and racist groups. Since the referendum there has been a troubling rise in attacks on migrants and Jews.
Remainers repeatedly claimed that Leave was fueled by racial hatred and had even spawned murderous neo-Nazi violence.
Racists and fascists could therefore tell themselves that, since half the country was said to be legitimizing such attacks, they could now perpetrate these with impunity.
In turn, the lamentable failure by both Remain and Leave to state unequivocally that migrants already in Britain were welcome and there to stay allowed such festering feelings of frustration and rage to burst into the open.
Strong national identity doesn’t produce bigotry. The absence of it does. If Britain does now rediscover itself as a self-governing nation, it may start to reverse decades of cultural demoralization. This would mean more security for Jews and less hostility to Israel.
People die to defend their homeland.
No one would willingly die to defend the EU. If it were itself to collapse, the revival of democratic nations would give Europe a far better chance of defending the West against the Islamist threat.
Democrats everywhere should be supporting Brexit as the point at which the free world started to fight back.
Melanie Phillips is a columnist for The Times (UK).
Interview Conducted by Klaus Brinkbäumer, Horand Knaup and Michael Sauga
The presidents of the European Parliament and the European Commission, Martin Schulz, 60, and Jean-Claude Juncker, 61, talk about the consequences of the Brexit vote, the failures of EU leaders and their early morning phone calls.
SPIEGEL: Mr. Juncker, who was the first person you talked to after hearing the news of Brexit?
Juncker: With Martin Schulz. He’s in the habit of talking to me on the phone each morning between 7 and 8 a.m. It’s a habit I sometimes wish he could drop.
Schulz: I seem to remember it being between 6 and 7 a.m. I was shocked. In the days before the vote, I bet that the British would stay in the EU.
Juncker: I put my money on Brexit. The EU Financial Stability Commissioner, Jonathan Hill from Britain, still owes me a pound. (Eds. Note: Hill announced his resignation from the Commission in the wake of the Brexit vote.)
SPIEGEL: What did you say on the phone?
Schulz: I said: “Jean-Claude, I think this isn’t going well.” Then I advocated for a quick response from the EU. The last thing we need right now is uncertainty.
Juncker: I shared his opinion. It was important for the Brits to trigger Article 50 as quickly as possible in order to avoid any uncertainties. That was also the tenor of the press release the European Commission, Parliament and Council issued afterward.
SPIEGEL: Just like on that Friday, you often present yourselves as extremely tight political partners. Can you appreciate that some in Europe see your relationship as cronyism?
Juncker: Nonsense. Martin and I lead the two important community institutions, whose tasks include working together in confidence. After 30 years in Brussels, I can tell you: The relationship between the Commission and the Parliament has probably never been as good as it is now.
SPIEGEL: That’s precisely what many people find problematic. Parliaments are ultimately responsible for keeping governments in check — not acting as their reinforcements.
Schulz: There can be no talk of reinforcements. Jean-Claude and I are fully aware that we have different roles. There’s also friction between us, for instance with the agreement for visa liberalization for Turkey. The Commission sent us a proposal. While 66 of our 72 conditions had been met, many of the most important ones had not been, including the reform of anti-terror laws. So we put the agreement on ice. The Commission very often has a very unpleasant time in Parliament.
Juncker: I don’t let it get to me. I said in my inaugural address that I am not the Council’s secretary, nor am I the Parliament’s lackey. That can sometimes lead to conflicts, which are defused through dialogue. Martin invariably knows what the Commission thinks, and I’m well informed about the sensitivities of the Parliament.
SPIEGEL: The day after Brexit, Martin Schulz and Sigmar Gabriel, who is the head of Germany’s Social Democratic Party (SPD), to which Schulz belongs, presented plans for sweeping reform in the EU. These plans foresee turning the Commission into a proper European government, one that is regulated by the European Parliament and by a kind of federal council of member states. The plan would mean a significant loss of power for member state governments. What do you think of the plan?
Juncker: The proposal in and of itself is convincing, but it doesn’t suit the times. To implement it, the European treaties would have to be amended. Martin’s plan is a long-term project that cannot currently be implemented due to the mood on the continent. But where the community can achieve more on the basis of existing treaties, we should do so.
Schulz: I completely agree with Jean-Claude. I’m fully aware that my vision of a European bicameral parliament can’t be implemented tomorrow. I’m also not an integration fanatic. We agree: Brussels can’t regulate everything. I’m driven by something else: There are forces in Europe that want to generally give national policy priority over a common European approach. We have to prevent this.
SPIEGEL: Nevertheless, many in Europe see you as being symbolic of the backroom technocratic politics that is associated with the European Union and the euro. Some have even accused you of being responsible for Brexit. Do you plead guilty?
Juncker: No, why should I? In the end, the British didn’t vote to leave because of the euro. They’re not even members of the currency union. Even the refugee crisis hardly affected the country. I have another explanation: In its 43 years of EU membership, Britain has never been able to decide whether it wants to fully or only partially belong to the EU.
Schulz: Primary responsibility for Brexit lies with British conservatives, who took an entire continent hostage. First, David Cameron initiated the referendum in order to secure his post. Now, fellow conservatives want to delay the start of exit negotiations until they’ve held a party conference. And regarding detractors: I’m proud of the fact that Ms. Le Pen in France insults me and Mr. Wilders in the Netherlands calls me his opponent. The way I see it is, if these people weren’t attacking me, I would be doing something wrong.
SPIEGEL: Criticism isn’t only coming from right-wing populists. Mr. Juncker, the Polish and Czech foreign ministers have called for your resignation. They feel the Commission is too domineering.
Juncker: After these reports came across the wire, I spent hours sitting at the same table as the Polish prime minister at the European Council. She made no mention of any resignation. And the Czech prime minister assured me during a recent visit that he thought I should definitely stay in office.
SPIEGEL: Do you deny that a number of Eastern European countries feel that the Commission has been too domineering — with the specification that quotas be established for accepting refugees, for example?
Juncker: I have a different understanding of the word “specification.” Sure, the Commission suggested the quota, but it was the council of interior ministers that ratified it with a qualified majority. Furthermore, the Commission helped negotiate the agreement with Turkey and thus delivered the decisive contribution to solving the refugee crisis.
SPIEGEL: Eastern Europeans see it differently. In their eyes, it was the border closures along the Balkan route that led to the numbers dropping.
Juncker: Without the Turkey agreement, tens of thousands of refugees would still be stuck in Greece. The Commission presented proposals for securing Europe’s external borders early on, but they languished in the Council for months. As you can see, the Commission isn’t asleep. Oftentimes it has to wake up the others.
SPIEGEL: Do you also need to be woken up, Mr. Schulz?
Schulz: Not at all. It’s long been routine that member states blame the Commission for everything they can’t agree upon. The scapegoat is always Jean-Claude Juncker. Should I give you a few examples?
Schulz: The plan for a financial transaction tax has been ready for years, but the member states can’t come to an agreement. To combat terrorism, the European Parliament hurriedly passed a law for gathering passenger data — but it then took the interior ministers months to sign off on it while at the same time, the automatic exchange of data was rejected. Those are two examples among many. If cooperation among governments were the superior concept for progress in Europe, I’d be onboard immediately. But the problem is that cooperation isn’t working.
SPIEGEL: For the citizens of Europe, it’s not that important who is to blame. What bothers them is the constant jockeying for power and jurisdiction and the fact that European processes are so lengthy and opaque.
Schulz: It’s true. For many people, politics in Brussels and Strasbourg might as well be happening on another planet. Just come to Brussels after a Council meeting. Do you know what happens? Every head of government holds his or her own press conference. They all say the same thing, in 24 languages: I was able to push through my agenda. And if the result is anything other than what they desired, the message is: Brussels is to blame. It has been this way for over 20 years. These messages stick with people, and that’s deadly for Europe.
Juncker: On top of that, there is a distorted perception of what goes on in Brussels. No one reports on the Commission taking a hundred initiatives from its predecessor off the table in order to shift competencies back to member state governments. Stories are invented: Juncker wants to introduce the euro everywhere or immediately deepen the EU — although I publicly stated the opposite that same day. This doesn’t just happen — it happens in order to weaken the European institutions.
SPIEGEL: What are you doing to stop it?
Schulz: Not being opportunistic. It’s not attractive at the moment to vouch for the European idea. I still do it, because I believe nothing would be better for our continent. Complementing the nation-state as it reaches its limits amid globalization: That is what Europe must offer.
SPIEGEL: Mr. Juncker, you have always presented yourself as an admirer of the great European politician Helmut Kohl. But Kohl has been rather critical recently. Today, less Europe is more Europe, he said. And he criticized some people in Brussels who he said were confusing a united Europe with a uniform Europe. Do you feel as though he’s talking about you?
Juncker: Not at all. I completely agree with Helmut Kohl. I am not an advocate of the “United States of Europe,” nor am I an integration fanatic. You can’t deepen the European Union against the wishes of the European countries.
SPIEGEL: Kohl also said Europe must return to being a community committed to stability and the rule of law. The former German chancellor was referring to the exceptions that you have granted to France, Spain and Portugal on euro-zone deficit criteria.
Juncker: Those weren’t exceptions. Rather, the Commission applied the Stability Pact as it is currently formulated. We no longer have the pact from 1997; it was radically amended in 2005 and the Commission is applying this Stability Pact with wisdom and rationality. France finds itself in a difficult economic situation and the government has taken several measures to bring order to the public budget. In doing so, France is conforming to the law. And the Commission is making decisions on the basis of applicable laws, which I recommend reading.
SPIEGEL: You didn’t justify the exceptions economically, but with the fact that presidential elections are soon to take place in the country.
Juncker: I cannot recall the Commission ever referencing elections in any of its resolutions. It could be that some commissioners said something to that effect. It also wouldn’t be prudent to slap a country down prior to elections. But that wasn’t the reason for our decision. The reason was that the Stability Pact provides justification for this decision.
SPIEGEL: The pact codifies limits of sovereign debt. France intends to exceed them. That’s a clear violation, isn’t it?
Juncker: The pact allows for the consideration of positive forecasts when sanctioning earlier violations. That is why we will soon be speaking with the Portuguese and Spanish governments to ascertain whether the two countries have the willingness and the ability to get their economies structurally back on the right track.
SPIEGEL: The free trade agreement with Canada, known as CETA, is also controversial. First, you said the final decision should be made by the EU. But then, after Sigmar Gabriel, the head of Germany’s Social Democrats (SPD), called your approach “unbelievably misguided,” member state parliaments are now going to be allowed a say in the decision. What was the reason for the about-face?
Juncker: Your description isn’t accurate. The fact is, according to a legal opinion from the Commission, this treaty is an EU-only treaty. But I’m not deaf and the Commission isn’t operating in a parallel world of legal texts. That’s why we decided to treat this agreement as a hybrid treaty. All EU heads of state and government have agreed with me that this agreement is the best that we could have negotiated. Now, they have the opportunity to show strong leadership and make the agreement their own.
Schulz: Jean-Claude is right. The Canadian government made significant concessions on the controversial question of the dispute settlement courts and it recognized the norms of the International Labor Organization. Both were European demands that have now been pushed through. As such, CETA also set the standard for the upcoming trade talks with the US.
SPIEGEL: You don’t just agree on questions of European and trade policy. You have also emphasized that you are bound by a close personal bond. What is special about your friendship?
Schulz: I agree with the aphorism: “Friends are those who stay when everyone else leaves.” I have never been in a situation when companions have abandoned me. But I am certain that, were it to come to that, Jean-Claude would be there.
Juncker: In politics, there are different categories of friendship. My friendship with Greek Prime Minister Alexis Tsipras, for example …
SPIEGEL: … which was especially apparent at the height of the Greek crisis ……
Juncker: …… I would describe that as a utilitarian friendship. At the time, his country was facing the prospect of leaving the euro zone and many Greeks felt abandoned by Europe. In such a situation, it seemed appropriate to me to present myself as a friend to Greece. It had to do with the country’s dignity. My friendship with Martin, by contrast, is completely different in that it goes far beyond politics.
SPIEGEL: How did it begin?
Schulz: We got to know each other at an award ceremony in Aachen (Eds. Note: the prestigious Charlemagne Prize, awarded annually by the German city of Aachen). At the time, Jean-Claude was already an important man in Brussels. I was a young representative in the European Parliament. We talked for a long time and from that point on, our connection became increasingly deep. But our working-class origins are at least as important to our bond.
Juncker: My father was a steel worker and Martin’s grandfather was a miner in Saarland. In these occupations, there is a particular awareness of solidarity. That creates links that aren’t present in other relationships.
Schulz: There is an additional biographical parallel. Your father, Jean-Claude, was forcibly drafted into the Wehrmacht (Eds. Note: Germany’s Nazi-era military). He was badly wounded and ended up as a prisoner of war in Russia. My mother’s brother was killed while clearing mines in 1945. Those are things that mark your childhood and they help explain why we are so devoted to European unity.
Juncker: I have always considered it to be a minor miracle that after the war, people in Europe’s border regions were able to forget everything and, in accordance with the slogan “Never Again War,” develop a program that still works today. It is always said that Europe is a project of the elite. That’s incorrect. In fact, it was a concern of the soldiers who fought at the front, the concentration camp prisoners and the Trümmerfrauen (Eds. Note: The women in Germany who helped clear away the rubble following World War II). It was they who said, we’re going to do everything differently now. De Gaulle and Adenauer merely acted upon this desire.
SPIEGEL: Oskar Lafontaine, the former SPD leader who resigned as party leader in 1999 and moved to the Left Party in 2005, once said that there are no real friendships in politics, merely temporary alliances of convenience.
Juncker: Lafontaine has certainly proved that he adheres to his own maxim.
Schulz: I can understand Oskar. In political life, it is extremely difficult to remain loyal to a friendship when constellations of power or interests are in the way. I have friends in politics who really put the friendship to the test through their behavior.
SPIEGEL: Which friends are you referring to?
Schulz: It is an element of friendship that one not talk about everything publicly.
SPIEGEL: Your friend Juncker has also disappointed you in the past. Following the most recent elections for the European Parliament, you agreed that he would nominate you as his Commission vice president. Were you angry with him?
Schulz: Initially, yes. But then we talked about it. I told him, you promised me. He answered, that’s true, but I can’t keep my promise because I won’t be able to push it through internally. I understood that. The most important thing is candor. In cases of lying and cheating, by contrast, the friendship usually comes to an end.
SPIEGEL: It is part of politics that one sometimes must compete for a post against one’s best friend. Is power ultimately more important than friendship?
Schulz: Would I sacrifice a friendship to take a step forward in my political career? Thus far in my political career, I have been spared from having to make such a decision, thank God. And I can’t imagine what it must be like.
SPIEGEL: Have you ever done so, Mr. Juncker?
Juncker: No, my friends have thus far protected me from such decisions. One can’t allow blind loyalty to a friendship to lead one away from acting in the public interest. If Martin were to propose something that was totally absurd, our friendship would not prevent me from doing the opposite.
SPIEGEL: Have you ever had to reject a proposal from Schulz?
Juncker: That we aren’t always of the same opinion is something that comes up constantly. Then, we talk about it. Europe is a democracy and differences of opinion are part of it. The problem is: When two governments or institutions in Europe hold differing opinions, it is immediately a crisis. If in Germany the government, the Bundesrat (Eds. Note: Germany’s second parliamentary body representing the interests of the states) and the state parliaments aren’t in agreement, nobody questions the survival of the republic. I’m always quite amazed that people in Europe become unnerved when two institutions or two people have different views.
SPIEGEL: In your friendship, do you also talk about private things?
SPIEGEL: Recently, there have been reports about the state of Juncker’s health and his alcohol consumption. Have you talked about that?
Schulz: Of course. We exchanged our aggravation over the platitudes that have been disseminated. Jean-Claude has one of the most stressful and difficult jobs. The fact that one sometimes seems tired is unavoidable. Many reports are obviously part of a political campaign, no doubt.
SPIEGEL: What is your response, Mr. Juncker?
Juncker: I said in Parliament that I am neither sick nor tired. Period.
SPIEGEL: Mr. Schulz is approaching the halfway point of the legislative term as president of European Parliament and, according to the deal, the post must then be handed to a conservative. Are you also in favor of a change, Mr. Juncker?
Juncker: I am in favor of the European institutions being led for the next two-and-a-half years as they have been thus far. We need stability.
SPIEGEL: The conservative fraction, your fraction, may see things differently.
Juncker: Europe is facing difficult times and at such a moment it is good for Brussels institutions to work well together. That works great at the moment with the two floor leaders, my friend Manfred Weber and my comrade Gianni Pittella, and the same holds true for Council President Donald Tusk. I don’t see why we shouldn’t continue with a proven team.
SPIEGEL: Are you saying that as a politician or as a friend?
Juncker: I am saying that as a politician and as a friend.
SPIEGEL: Mr. Juncker, Mr. Schulz, we thank you for this interview.
Europe’s dormant financial crisis may be on the verge of exploding again, thanks to banks in Italy and Germany. On June 30, a report by the International Monetary Fund (imf) singled out Deutsche Bank as “the most important net contributor to systemic risks in the global banking system.” The United States Federal Reserve also singled out Deutsche Bank, along with Santander as the only two banks to fail an annual stress test. Deutsche Bank’s shares have now hit their lowest level in 30 years. Jacob L. Shapiro and Lili Bayer reported on the potential consequences of such a crash in their article for Geopolitical Futures titled “Signs of Trouble for Deutsche Bank”: With all the news surrounding volatility in the markets due to Brexit, there is a temptation to dismiss this as more of the same. But in reality, these two developments, particularly the imf report, are of far greater importance.
If Deutsche Bank really is on the verge of a crisis—and we believe it is—the implications will be felt worldwide and the global financial system will shudder. …
Deutsche Bank is not merely Germany’s biggest bank. The political role it plays in Germany is unique when compared with other countries. … Deutsche Bank is technically a private bank, but it is tied to the government informally and to most major German corporations formally. Its fate will be shared by all of Germany.
Deutsche Bank is technically a year older than Germany itself, having been founded in 1870 …. It is one of the Big Three German banks—the others being Commerzbank (also founded in 1870) and Dresdner Bank (founded in 1872 and bought by Commerzbank in 2009)—that played the role of both capital provider and master puppeteer in the development of the German industrial machine over the last century and a half.
After its founding, Germany was extremely poor. Deutsche Bank provided short-term loans and in return received equity shares in the companies it bankrolled. By the mid-1980s, according to a German government study, the Big Three were estimated to control the voting authority of over three-quarters of the shares of most major German companies. A 1995 report by the U.S. Congress’s Federal Research Division estimated that the Big Three by themselves … held 30 percent of the seats on the advisory boards of all German companies. Disaggregating Deutsche Bank from the German government’s political goals or the structure of German corporations is impossible. They are all inextricably linked.
Like many banks, Deutsche Bank took a major hit in the 2008 financial crisis. Geopolitical Futures continued: Besides the problems with its bottom line, it still faces a battery of investigations, legal troubles, scandals and potential fines to be paid in the coming years. …
Deutsche Bank is showing signs of that weakness more than any other German institution right now. Last year, Deutsche Bank posted a net loss of roughly €6.7 billion, or us$7.4 billion. Deutsche Bank’s chief financial officer told cnbc that he did not expect Deutsche Bank to find its way back into the black until 2018 at the earliest. Deutsche Bank’s first quarter report for 2016 said revenue was down 22 percent year-over-year ….
In just the last year, Deutsche Bank has laid off tens of thousands of workers and has seen rating downgrades from both Fitch and Moody’s on its long-term debt and its deposit ratings. Deutsche Bank is also sitting on $41.9 trillion (not a typo) worth of derivatives ….
An explosion at Deutsche bank would undermine the entire German economy—and hence the economy of Europe and the world.
In the wake of Brexit, many European Union nations are growing tired of the EU’s bureaucrats in Brussels. Germany has assembled a coalition of leaders that would like to shift power elsewhere—probably to Berlin. The Sunday Times reported on the story in an article titled “Berlin Tells Gloating Juncker: Go”: Jean-Claude Juncker, the president of the European Commission, is under pressure to resign …. Angela Merkel, the German chancellor, is understood to believe that Juncker has become “part of the problem.”
“Juncker has time and again acted against the common interest and his reaction to the British referendum has been very damaging,” a German minister told the Sunday Times. “This is not a time for institutional bickering, but the pressure for him to resign will only become greater and Chancellor Merkel will eventually have to deal with this next year.” … The minister’s comments followed editorials in two leading German newspapers last week urging Juncker to resign ….
There is unhappiness with the Luxembourger’s performance elsewhere in the EU, too. The Polish foreign minister, Witold Waszczykowski, joined calls for Juncker to step down, while his Czech counterpart, Lubomir Zaoralek, said he was “not the right man for the job.” Toomas Ilves, the Estonian president, called his behavior “abominable.” Spiegel reported on the same trend in an article titled “Brexit Aftershocks: An Inside Look at the EU’s Raging Power Struggle.”
It is a power struggle between two opposing camps, both of which see Brexit as an opportunity to finally change Europe to conform to the vision they have long had for the bloc. The protagonists of an institutionalized Europe are Commission President Jean-Claude Juncker and Parliament President Martin Schulz. On the other side stands the majority of Europe’s heads of state and government, led by Angela Merkel, who has created an alliance on this issue with those governments in Eastern Europe.
Spiegel sees this as a clash between a Brussels that wants more Europe and EU nations that want less. However, it noted: Jaroslaw Kaczynski, head of Poland’s national-conservative Law and Justice party, which currently holds power in the country, doesn’t want “less Europe” in all areas. When it comes to foreign and security policy, he would even like to see the EU play a more robust role. Kaczynski is in favor of the establishment of a European army and would like to see a strong European president with far-reaching authority. It is a demand that many governments in Eastern and Central Europe agree with.
It’s hard to imagine anything “more Europe” than a strong president and a European army. These nations are not opposed to “more Europe”—but rather “more Brussels.” After the 2008 financial crisis, Trumpet editor in chief Gerald Flurry wrote: However it happens, Germany is prophesied to come out on top in this financial crisis. Social unrest and riots will eventually force Europeans to succumb to a strong united government of Europe, led ultimately not from Brussels, but from Berlin. Much of that shift has already happened, as the euro crisis roles on. However, Brexit could see this intensify.
Ex-Soviet Georgia could start a gradual drift back into the orbit of its former overlord Russia if it does not see tangible signs soon that it will be invited to join NATO.
Georgian officials will be at a NATO summit in the Polish capital on Friday where they will be seeking assurances that the alliance will make good on the promise it delivered in 2008 that Georgia would eventually become a member.
But the alliance has hesitated to give Tbilisi a timetable for accession because some members are wary of angering Russia. In the meantime, NATO invited the tiny Balkan state of Montenegro to join, leaving some Georgians feeling jilted.
Georgia’s leaders are still committed to joining NATO. Opinion polls show the public backs membership, in part because they see the alliance as protection from Russia, which sent troops into Georgia six years ago and backs two separatist regions which reject Tbilisi’s rule.
However, as frustration builds over the slow progress towards accession, there are more and more voices who say Georgia should cut its losses and seek rapprochement with Moscow instead.
“How did the West help us? Did NATO help us during the war? No. Russia is our neighbor, strong and influential. I’m afraid there may be another war if we irritate Russia further with our talk that we want to become a NATO member,” said Avtandil Maisuradze, a 69-year-old pensioner in Tbilisi.
Georgia is a test case for how Western governments will treat Ukraine, which, like Georgia, wants to join NATO and the European Union but is also jealously regarded by the Kremlin as part of its sphere of influence.
U.S. Secretary of State John Kerry, on a visit to Tbilisi this week before he travels to the NATO summit, urged Georgians to be patient.
“I wouldn’t view this as a moment of despair, moment of setback, I would view this as a continuing process,” Kerry said.
NATO continues to say Georgia is on a path to membership. The alliance has opened a training center in Georgia as a part of a package of measures to boost Georgia’s defense capabilities, and Georgia takes part in joint exercises with troops from NATO member states.
But for some Georgians, anything short of a timetable for accession is not enough.
“The frustration is widespread, as the false expectations on fast track NATO integration created by the political elites did not materialize,” said Kornely Kakachia, a director of the Georgian Institute of Politics.
Opinion polls conducted by the National Democratic Institute show steady growth in support for Georgia joining the Russia-led Eurasian Economic Union — up to 20 percent in March 2016 from 11 percent in August 2013.
Political forces that are openly pro-Russian have a good chance of winning seats the Georgian parliament in an election to take place in October this year – something that was unimaginable few years ago.
In local elections in 2014, several pro-Russian parties, including the Alliance of Patriots and the Democratic Movement, between them received around 20 percent of the nationwide proportional vote.
Nino Burjanadze, the leader of Democratic Movement, which is campaigning on giving Georgia neutral “non-bloc status”, said disillusionment with NATO membership was helping boost her support.
Burjanadze used to be a senior ally of former president Mikheil Saakashvili, who set Georgia on its pro-Western path. But she since changed tack. She visited Moscow for talks with Russian officials three times over the past year.
“The Georgian authorities and a significant part of the country’s political elite act pursuant to the interests of NATO and the United States, instead of in Georgia’s interests,” said Burjanadze.
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