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in US PoliticsBiden trumpets democracy abroad in Post op-ed – as threats spread at home
Joe Biden will use his visit to Europe this week to “rally the world’s democracies” in a reset of US foreign policy after four turbulent years under Donald Trump – all while threats to American democracy, stoked by Trump, proliferate at home.The president’s plan for the trip was set out in a column for the Washington Post on Saturday night, as Trump spoke to Republicans in North Carolina.Previewing meetings with “many of our closest democratic partners” and Vladimir Putin, Biden promised to “demonstrate the capacity of democracies to both meet the challenges and deter the threats of this new age”.Critics may point out that the president would do well to face up to attacks on democracy at home. He has put Vice-President Kamala Harris in charge of the matter but there are many fronts to the battle.In the states, Republicans have passed laws to restrict ballot access and to make it possible to overturn election results.On the stump, Trump continues to peddle his lie that Biden’s victory in November was the result of fraud. In Greenville on Saturday, the former president called his defeat “the crime of the century”.In Washington last month, Republicans in the Senate blocked a bipartisan commission to investigate the attack on the US Capitol on 6 January, by supporters Trump told to “fight like hell” in his cause.In Biden’s own party, centrist senators stand in the way of voting rights protections.In his column for the Post, Biden tied another domestic priority – infrastructure spending, currently tied up in seemingly doomed negotiations with Republicans – to a chief foreign policy aim.“Just as it does at home,” he wrote, “honing the ability of democracies to compete and protecting our people against unforeseen threats requires us to invest in infrastructure. The world’s major democracies will be offering a high-standard alternative to China for upgrading physical, digital and health infrastructure that is more resilient and supports global development.”In North Carolina, Trump said China should pay the US and the world $10tn in reparations for its handling of the coronavirus outbreak, while nations should cancel debt to Beijing.Biden touted domestic successes – progress against the coronavirus and the passage of his relief and stimulus package (without a single Republican vote) – and said: “The United States must lead the world from a position of strength.”He saluted the announcement on Saturday by G7 finance ministers of a global minimum corporate tax rate. Further distancing himself from Trump, who withdrew from the Paris climate deal, he said: “We have an opportunity to deliver ambitious progress that curbs the climate crisis and creates jobs by driving a global clean-energy transition.”In office, Trump attacked Nato. Biden saluted the “shared democratic values” of “the most successful alliance in world history. In Brussels, at the Nato summit, I will affirm the United States’ unwavering commitment to … ensuring our alliance is strong in the face of every challenge, including threats like cyberattacks on our critical infrastructure.”Amid proliferating such attacks, he said, it was important that “when I meet with Vladimir Putin in Geneva, it will be after high-level discussions with friends, partners and allies who see the world through the same lens as the United States”.Trump famously caused consternation among the US press corps in Helsinki in 2018, meeting Putin without aides and seeming cowed in his presence.Biden said the US and its allies were “standing united to address Russia’s challenges to European security … and there will be no doubt about the resolve of the United States to defend our democratic values, which we cannot separate from our interests.”Some have asked what Biden hopes to gain from meeting Putin – former Trump national security adviser John Bolton told the Guardian this week, “You meet when you have a strategy in place of how to deal with Russia and I don’t think he has one.”In the Post, Biden heralded his extension of the New Start nuclear arms treaty and responses to cyberattacks.“I will again underscore the commitment of the United States, Europe and like-minded democracies to stand up for human rights and dignity,” he wrote.“This is a defining question of our time: can democracies come together to deliver real results for our people in a rapidly changing world? Will the democratic alliances and institutions that shaped so much of the last century prove their capacity against modern-day threats and adversaries?“I believe the answer is yes. And this week in Europe, we have the chance to prove it.” More
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in Elections¿Qué pasa en Bielorrusia? Una guía básica
Un avión que no llegó a su destino planeado, un periodista disidente detenido y todo lo que pasó antes del “secuestro de Estado” del que todos hablan.El aterrizaje forzoso de un vuelo comercial el domingo, considerado por varios países como un secuestro de Estado, ha puesto a Bielorrusia y a su presidente, Alexander Lukashenko, de nuevo en primer plano a nivel mundial.Se produjo a menos de un año de que los bielorrusos se enfrentaron a una violenta represión policial al protestar por los resultados de unas elecciones que muchos gobiernos occidentales tacharon de farsa.Según los gobiernos occidentales, el vuelo de Ryanair procedente de Atenas y con destino a Vilna, Lituania, fue desviado a Minsk con la excusa de una amenaza de bomba, con el objetivo de detener a Roman Protasevich, un periodista disidente de 26 años. En un video publicado por el gobierno, confesó haber participado en la organización de “disturbios masivos” el año pasado, pero sus amigos dicen que la confesión se hizo bajo amenaza.Para quienes intentan ponerse al día, he aquí el contexto que los ayudará a seguir a la par de la historia en curso. More
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in ElectionsWhat’s Happening in Belarus? Here Are the Basics.
For those trying to catch up on the “state hijacking” of an airplane, the arrest of a dissident and what preceded it.The forced landing of a commercial flight on Sunday, seen by several countries as a state hijacking, has put Belarus and its strongman president, Alexander G. Lukashenko, in a new global spotlight.It came less than a year after Belarusians were met with a violent police crackdown when they protested the results of an election that many Western governments derided as a sham.The Ryanair flight from Athens to Vilnius, Lithuania, was diverted to Minsk using the ruse of a bomb threat, according to Western governments, with the goal of detaining Roman Protasevich, a 26-year-old dissident journalist. In a video released by the government, he confessed to taking part in organizing “mass unrest” last year, but friends say the confession was made under duress.For those trying to catch up, here’s the background that will help you follow along with the ongoing story. More
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in World PoliticsWhat Led to Europe’s Vaccine Disaster?
In late December 2020, it was announced that Switzerland would start its COVID-19 vaccination campaign. Eligible persons were asked to make an appointment. Those of a particular age with certain health risks — such as diabetes, high blood pressure and allergies — were encouraged to register.
Given my age and the fact that I suffer from pollen allergies in the spring, I filled out an online form and was informed I was eligible for a jab. So, I went through to the registration page only to be told that there were no appointments available. Two months have since passed and there are still no openings. The way things are going, I probably won’t get vaccinated before the end of summer — or perhaps by fall or Christmas.
“Unacceptably Slow”
Switzerland is not alone. The pace of vaccination is proceeding at a snail’s pace throughout the European Union. Just weeks ago, Hans Kluge, the World Health Organization’s director for Europe, vented his frustration, charging that the vaccine rollout in Europe was “unacceptably slow.” Germany is a key example. By the first week of April, 13% of the population had received the first dose of a COVID-19 vaccine and 5.6% had received the second dose. In comparison, around the same time, more than a third of the US adult population had received at least one dose and 20% were fully vaccinated. In the UK, which is no longer a member of the European Union, the vaccination rate was even higher.
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In the face of heavy criticism for its alleged mishandling of the COVID-19 pandemic, Thierry Breton, the EU’s internal market commissioner, speaking on behalf of the union, went on the offensive. On French television, he defended the European Commission’s vaccine procurement strategy and affirmed that Europe had the capacity to deliver 300 to 350 million doses by the end of June. He also claimed that Europe would be able to attain “collective immunity” by July 14, France’s national day.
France’s premier conservative daily Le Figaro was not the least impressed. In a biting response, it characterized the EU’s vaccine procurement strategy as nothing short of a “fiasco” and frontally attacked Breton and, with him, the European Commission. Not only had Breton refused to admit “the slightest error,” continuing instead to defend his vaccine policy, but he also took French citizens for fools. Clearly, Breton’s statements had hit a raw nerve, at least in France.
Why Is Europe Behind?
There are a number of reasons why the European Union is trailing the US and the UK. One of the most important ones is the union itself. Its sheer size allowed the EU initially to negotiate lower prices for vaccines by buying in bulk for all 27 member states. Reducing costs, however, came at a heavy price in the form of the slow delivery of the vaccines. In addition, the European Commission had to get the green light from EU member states before it could arrive at a decision over which vaccines to purchase. As a result, the EU “ordered too few vaccines too late,” wrote Guntram Wolff, director of the Bruegel think tank in Brussels. Hesitation on the part of member states, given “the novelty of the technological approach,” led to delays in authorizing the leading vaccines, including the Pfizer/BioNTech vaccine that had been developed in Germany.
According to Le Canard Enchainé, a French weekly known for its investigative journalism, the UK ordered the Pfizer/BioNTech vaccine in late July 2020; the EU did so in November. The same held true for Moderna. The EU was so late that by mid-November, Stephane Bancel, the CEO of Moderna, warned that if the EU continued “dragging out negotiations to buy its promising Covid-19 vaccine,” deliveries would “slow down” since nations that had already signed agreements would get priority.
Add to that what Spain’s premier daily El Pais has called the “AstraZeneca fiasco.” The Oxford-AstraZeneca vaccine was supposed “to power the bulk of the continent’s inoculation campaign,” according to El Pais. Instead, holdups and delays in the distribution of the vaccine, together with pauses in the vaccination campaign following reports about suspected side-effects from the Oxford-AstraZeneca jab — rare cases of blood clots — seriously jeopardized the EU’s strategy. In Germany, at the end of March, it was decided that AstraZeneca would no longer be administered to people under the age of 60. Denmark has ceased administering the vaccine completely.
By now, the fallout of a strategy that was more concerned with saving money than potentially saving lives is obvious to all — as is the damage done to the image of the European Union. As Mark Leonard, the director of the European Council on Foreign Relations, recently put it, the EU’s vaccine crisis “has been catastrophic for the reputation of the European Union.” Ironically enough, this is the very same Leonard who, in late December, celebrated “the return of faith in government.” The pandemic, he stated, had “reminded everyone just how valuable competent public administration can be.” Three months later, his optimism — “five cheers for 2021,” to use his words — had turned into gloom and doom. And for good reason, given the unfolding of the full extent of the vaccination disaster.
The results of a recent survey are stark. In early March, around 40% of respondents in France, Germany and Italy thought the pandemic had weakened the “case for the EU.” When asked whether the EU had helped their country to confront the pandemic, a third of respondents in France and Italy and more than half in Germany answered “no.” At the same time, however, member states have not fared much better. In response to the question of whether their country was taking the right measures to combat COVID-19, almost 60% of French respondents, nearly half of Germans and more than 40% of Italians answered in the negative.
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This is the crux of the matter. As time has passed and vaccines have started to be delivered, it has become increasingly difficult for individual countries to blame the European Union for their own failures and shortcomings in securing and delivering the vaccine to their populations — or for the reluctance of citizens to get vaccinated.
In late March, the European Centre for Disease Prevention and Control published a report on the vaccine rollout in the EU. By far, the most important challenge facing most member states was the limited supply of vaccines and frequent changes in the timing of deliveries from suppliers, “which can be unpredictable and can significantly affect the planning and efficiency of the rollout.” Other challenges included problems with logistics, limited personnel to administer the vaccines, shortage of equipment such as syringes and special needles, and issues related to communication such as information about the vaccine and scheduling appointments.
Is the EU Goal Realistic?
Under the circumstances, the EU’s stated goal of having at least 70% of the population vaccinated by the summer appears to be an increasingly distant prospect. Or perhaps not: It depends on whether individual countries — particularly France, Germany, Italy and Spain — will get their act together and move to “warp speed.”
Some countries appear to be prepared to do so. In Spain, health authorities expect a significant acceleration in the vaccination campaign over the coming weeks. There is growing confidence that the country will meet the 70% mark by the start of summer. Even in Germany, whose blundering performance during the past several weeks made international headlines, experts are optimistic that the country will reach the target.
More often than not, the problem is not necessarily the supply of vaccines, but difficulties in getting target groups vaccinated. This is, at least in part, a result of communication infrastructure, which in some cases are far behind the technological frontier. Take the case of Switzerland, which is not a member of the EU. In late March, Geneva’s Le Temps alerted its readers that when it comes to the digitalization of its health system, Switzerland was in the “Middle Ages.” Instead of using the internet, Swiss health authorities sent faxes to communicate the number of new infections. When it comes to digitalization, the author noted, Switzerland, which prided itself as the world champion in innovation, was “full of fear” if not outright “recalcitrant” to adopt new technologies. The consequences were fatal not only with regard to dealing with the pandemic, but also with respect to the country’s international competitiveness.
The situation has not been any different in Germany. Earlier this year, when the vaccination campaign got going, public authorities sought to inform the most vulnerable groups — those older than 80 — that they could get vaccinated. Yet they had no way of finding out who was in that age group. So, they guessed based on first names. Katharina, yes; Angelique, no. This is German efficiency in 2021. Or, as a leading German business magazine put it, if “your name is Fritz or Adolf, you will (perhaps) be vaccinated.” And this in Western Europe’s biggest economy.
Better Preparation for Crises
The COVID-19 pandemic has not only brutally exposed Europe’s unpreparedness to confront a major crisis, but it has also shown the parochial state of mind of significant parts of the European population. Much has been written over the past year about American science skepticism and conspiracy theories, held partly responsible for the toll that COVID-19 has taken on the US population. Yet Europeans are hardly any better. Not only have parts of the European population eagerly adopted even the craziest conspiracy theories, such as QAnon, but they have also shown high levels of skepticism with respect to COVID-19 vaccines, despite scientific assurances of their efficacy and safety.
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.custom-post-from .error{ display: block; color: #ff6461; order: 3 !important;}Again, take the case of Switzerland. In December 2020, only around 56% of the population indicated they would get vaccinated. The rest expressed great reservation, despite the fact that the survey stated that the vaccine was deemed safe and effective. In the meantime, as the pandemic has continued with no end in sight, there are indications that the mood has changed. In Germany, only two-thirds of respondents indicated they would get vaccinated when asked in June 2020. By the end of March this year, that number had increased to over 70%. These developments are encouraging.
Not only have most European countries finally managed to live up to the challenge, but their populations appear to have realized that COVID-19 is worse than the flu, that the pandemic poses a fundamental threat to life as we know it, and that the only way to get back to “normality is to get vaccinated — not only for oneself, but also for everybody else. In the old days, this was called “civic culture.” With the rise of populism in advanced liberal democracies, civic culture more often than not has gone out the window, replaced by a culture centered upon “me, me, me.”
Yet the fact is that this pandemic is only the beginning. The next big challenge is confronting climate change. It is to be hoped that Europeans will be better prepared than they have while confronting the coronavirus.
The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More
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in World PoliticsThe Risk of a No-Deal Brexit Remains
The risk that we will wake up on May 1 to find we have a no-deal Brexit after all has not disappeared. The deadline for the ratification by the European Parliament of the trade deal between the European Union and the United Kingdom was due to be February 28. But Parliament postponed the deadline to April 30. It did this because it felt it could not trust the UK to implement the Trade and Cooperation Agreement (TCA) — as the deal is formally known as — properly and as agreed and ratified.
This distrust arose because the implementation of the Ireland and Northern Ireland Protocol of the withdrawal agreement — the treaty that took the UK out of the EU — had been unilaterally changed by the British government. If a party to an international agreement takes it upon itself to unilaterally alter a deal, the whole basis of international agreements with that party disappears.
Brexit Trade Deal Brings Temporary, If Not Lasting, Relief
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The matters in dispute between the UK and the EU — the protocol and COVID-19 vaccines — remain unresolved. The European Union is taking the United Kingdom to court over the protocol, but the court is unlikely to decide anything before the new deadline of April 30.
In the normal course of events, the TCA between the UK and the EU would be discussed in the relevant committee of the European Parliament, before coming to the plenary session of Parliament for ratification. The next meeting of the Committee on International Trade is due to take place on April 14-15, and the agenda for the meeting has been published. It includes a discussion on the enforcement of trade agreements, the general system of preferences and, significantly, trade-related aspects of the COVID-19 pandemic. It makes no mention of the TCA with the UK.
Trade-related aspects of the pandemic will inevitably include a discussion on vaccine protectionism, which is a highly contentious issue between the EU and the UK that has poisoned relations and led to bitter commentary in the media. The fact that the committee has not included a discussion of the TCA with the UK on its agenda for what may well be the only meeting it will have before the April deadline is potentially very significant.
Ratifying the Trade Deal
The TCA is a 1,246-page document, and its contents, if ratified, will take precedence over EU law. To ratify such an agreement without proper scrutiny in the relevant committees could be seen as a dereliction of the European Parliament’s responsibility of scrutiny. We should not forget the scrutiny that was applied to the much more modest EU trade agreement with Canada. The same goes for the deal with Mercosur states (Argentina, Brazil, Paraguay and Uruguay).
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.custom-post-from .error{ display: block; color: #ff6461; order: 3 !important;}Furthermore, the TCA would, if ratified, set up a network of committees to oversee its implementation. These will meet in private and their work will diminish the ongoing oversight by the European Parliament of a host of issues affecting all 27 EU member states. The TCA also contains a system of dispute-resolution mechanisms that will quickly be overwhelmed by work. The TCA has many items of unfinished business, on which the European Parliament will want to express a view. It is hard to see how any of this can be done before the end of April.
The UK government led by Prime Minister Boris Johnson has adopted a deliberately confrontational style in its negotiations with the European Union. The more rows there are, the happier the support base that Johnson is seeking to rally for his Conservative Party. Johnson’s European strategy has always been about electoral politics, not economic performance. This has led to almost complete confusion between the British government and the EU.
If the European Parliament ratifies the TCA without there having been seen to be a satisfactory outcome to the EU-UK negotiations about the Ireland and Northern Ireland Protocol and over the export of vaccines, it will be a political setback for Parliament and a source of immense satisfaction for Johnson.
Yet one should never underestimate the role emotion can play in politics. The entire Brexit saga is a story of repeated triumphs of emotion over reason — and the European Parliament is not immune to this ailment. Boris Johnson could be pushing his luck a bit far this time.
*[A version of this article was posted on John Bruton’s blog.]
The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More
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in World PoliticsWhat Lies Behind Turkey’s Withdrawal From the Istanbul Convention?
Turkish President Recep Tayyip Erdogan issued a decree in the early hours of March 20 withdrawing Turkey from the Council of Europe treaty — dubbed the Istanbul Convention — on preventing and combating violence against women and domestic violence. The convention sets comprehensive standards for protecting women against all forms of violence.
The withdrawal prompted widespread protests from women’s groups and an uproar on social media, criticizing that it signals a huge setback for women’s rights in a country with high rates of gender-based violence and femicides. Just in 2020, at least 300 women were murdered in Turkey.
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Following the public outrage over the withdrawal, government representatives unconvincingly responded that women’s rights are guaranteed in national laws and that there is no need for international laws. The Directorate of Communications defended the decision with the claim that the convention was “hijacked by a group of people attempting to normalize homosexuality,” and that this is incompatible with the country’s social and family values.
Turkey was the first state to ratify the Istanbul Convention and became the first to pull out. What lies behind the withdrawal?
Erdogan’s Rationale: To Remain in Power at All Costs
In August 2020, officials in the Justice and Development Party (AKP) signaled that Turkey was considering withdrawing from the Istanbul Convention after religious conservatives began an intense lobbying effort against the convention, lambasting it for damaging “traditional Turkish family values.” Although they claimed that the treaty destroys families and promotes homosexuality, conservative women’s groups supporting the AKP defended it. The row even reached Erdogan’s own family, with two of his children becoming involved in groups on either side of the debate. Due to these internal tensions within the AKP and the symbolic achievement with the reconversion of the Hagia Sophia into a mosque in 2020, the debate was postponed.
Although opinion polls had shown that 84% of Turks opposed withdrawing from the Istanbul Convention and a majority of conservative women were in favor of it, Erdogan decided to pull out of the treaty, thereby disregarding not only the international law anchored in the constitution, but also the legislative power of parliament. This move comes amid significantly eroding support for the president and his informal alliance with the ultra-nationalist Nationalist Action Party (MHP). The withdrawal from the convention gives Erdogan three political advantages that will help him retain power.
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First, Erdogan and his AKP aim to reenergize their conservative voter base, which has been dissatisfied with the economic downturn — a reality that has only been exacerbated by the coronavirus pandemic. The ruling AKP government cannot curb the high level of inflation, and unemployment and poverty rates remain high. Leaving the convention is a symbolic gesture to his base, but it will bring short-term relief, as did the reconversion of the Hagia Sophia.
Second, with a potential electoral defeat in mind, Erdogan is looking for new allies. He thus made an overture in January to the Islamist Felicity Party (SP), which is in an oppositional alliance with secularist, nationalist and conservative parties. With its 2.5% of the vote in the 2018 parliamentary elections, the SP shares the same Islamist roots as the AKP and is popular among ultraconservative voters, who enthusiastically back the withdrawal from the Istanbul Convention.
In his meeting with the SP, Erdogan used the withdrawal as a bargaining chip for a possible electoral alliance in the future. He is not only aiming to strengthen his own voting bloc, but also to break the oppositional alliance, which has increasingly gained confidence since its success in the 2019 local elections and been effective in challenging Erdogan’s increasingly authoritarian rule.
Third, to bolster his image as a willful leader, the Turkish president has intensified the level of repression by suppressing democratic civil society organizations that dare to challenge his rule. This time, he has targeted women’s rights advocates, who frequently criticize the government for not strictly implementing the protective measures of the Istanbul Convention.
Political Conditionality as a Necessary European Reaction
While increasing the level of repression in domestic politics, Turkey intensified its diplomatic charm offensive to reset Turkish relations with the European Union. Against this background, Brussels should not only condemn the decision, but also revise its EU-Turkey agenda by imposing political conditions regarding human rights and the rule of law, which have once again been breached with Ankara’s withdrawal from the convention.
This approach is necessary for two reasons. First, the EU can send a motivating message to democratic segments of civil society and the opposition by underlining that the Istanbul Convention is an issue of human rights and that its sole purpose is protecting women from violence rather than undermining Turkey’s national values and traditions. Second, calling Ankara out is also in Europe’s own interest. The withdrawal can have spillover effects on other member states of the Council of Europe.
Considering the latest attempts by the Polish government to replace the Istanbul Convention with an alternative “family-based” treaty that also finds support in other Central European governments, the backlash against women’s rights in Europe is not a myth, but rather a reality.
*[This article was originally published by the German Institute for International and Security Affairs (SWP), which advises the German government and Bundestag on all questions related to foreign and security policy.]
The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More
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in World PoliticsA New European Financial Landscape Is Emerging
The United Kingdom’s exit from the European single market on January 1 has sent trade in goods plummeting amid much confusion. By contrast, Brexit was carried out in an orderly manner in the financial sector, despite significant movement of trading in shares and derivatives away from the City of London.
The Brexit Deal Presents Opportunities for a New Partnership
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After five years of radical uncertainty, it has become clear that the European Union and the United Kingdom will be taking separate paths on financial regulations — a financial “decoupling” that means a significant loss of business for the City. Whether the EU financial sector can gain much of what London loses will depend on the EU’s willingness to embrace further financial market integration.
Smart Sequencing Ensured an Orderly Brexit
As with the Y2K problem, the Brexit transition could have gone worse. It took more than luck to avoid financial instability along the way.
First, financial firms on both sides of the English Channel (and of the Irish Sea) worked hard and were able to preempt most of the operational challenges.
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Second, despite all the recurring high-stakes drama between the UK government and the European Commission, the technical cooperation between the authorities actually in charge of financial stability, primarily the Bank of England and the European Central Bank (ECB), appears to have run smoothly.
Third, the negotiators phased the process in a smart way. The Brexit Withdrawal Agreement of January 2020 helped reduce uncertainty by ensuring that the UK government would meet its financial obligations to the EU, avoiding what would have been akin to selective default. That agreement kept the United Kingdom in the single market during the transition period beyond the country’s formal exit from the European Union on January 31, 2020. It also set a late-June deadline for the British government to extend the transition period beyond December 31, 2020. As London decided not to do so, that left six months of effective preparation.
To be sure, whether an EU-UK Trade and Cooperation Agreement (TCA) would be concluded remained unknown until late December. But that mattered comparatively little for financial services, since trade agreements typically do not cover them much. By one count, the 1,259-page TCA (which is still unratified by the European Union) contains only six pages relevant for the financial sector.
The resulting legal environment for financial services between the European Union and the United Kingdom is unlikely to change much any time soon. Contrary to occasional portrayals in the United Kingdom, no bilateral negotiations on financial services are going on, except for a memorandum of understanding expected this month that is not expected to bind the parties on substance.
From the EU perspective, the United Kingdom is now a “third country,” in other words an offshore financial center, following decades of onshore status. UK-registered financial firms have lost the right, or “passport,” to offer their services seamlessly anywhere in the EU single market. From a regulatory standpoint, they have no better access to that market than their peers in other third nations such as Japan, Singapore or the United States.
Equivalence Status for UK Financial Market Segments
Some segments of the financial sector in these other third countries actually have better single market access than British ones, because they are covered by a category in EU law allowing direct service provision by firms under a regulatory framework deemed “equivalent” to that in the European Union. The equivalence decision is at the European Commission’s discretion, even though it is based on a technical assessment. As a privilege and not a right, equivalence can be revoked on short notice.
So far, the European Commission has not granted the UK any such segment-specific equivalence, except in a time-limited manner for securities depositories until mid-2021 and clearing services until mid-2022. For the moment, the commission appears to be leaning against making the latter permanent. In most other market segments, the commission will not likely grant equivalence to the United Kingdom in the foreseeable future. This may appear inconsistent with the fact that almost all current UK regulations stem from the existing EU body of law. But the UK authorities (including the Bank of England) have declined to commit to keeping that alignment intact.
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The commission’s inclination to reduce EU dependence on the City of London is understandable. No comparable dependence on an offshore financial center has existed anywhere in recent financial history. Such dependence entails financial stability risk. In a crisis, UK authorities would not necessarily respond in a way that preserves vital EU interests. Think of the Icelandic crisis of 2008, when Reykjavik protected the failing banks’ domestic depositors but not foreign ones. It is hardly absurd for the European Union to try to reduce such a risk, even if — as appears to happen with derivatives — some of the activity migrates from the United Kingdom to the United States or other third countries as a consequence, and not to the European Union.
At the same time, the argument that keeping EU liquidity pooled in London is more efficient than any alternative is unpersuasive given the European Union’s own vast size. In addition, the European Commission also follows mercantilist impulses to lure activity away from London, even though these generally do not make economic sense. Added up, these factors provide little incentive for the commission to grant equivalence status to more UK financial market segments, unless some other high-level political motives come into play. None are apparent right now.
The UK Is Unlikely to Regain Lost Advantage
How the European Union and the United Kingdom will decouple will not be uniform across all parts of the financial system. Regulatory competition between them may become a “race to the bottom” or “to the top,” depending on market segments and the circumstances of the moment, without a uniform pattern. In any case, such labels are more a matter of judgment in financial regulation than in, say, tax competition.
In some areas, the European Union will be laxer, while in others, it will be the United Kingdom, as is presently the case between the EU and the US. For example, the European Union is more demanding than the United States on curbing bankers’ compensation but easier when it comes to enforcing securities laws or setting capital requirements for banks. At least some forthcoming UK financial regulatory decisions may be aimed at keeping or attracting financial institutions in London, but they are still not likely to offset the loss of passport to the EU single market.
All these permutations suggest that the medium-term outlook for the City of London is unpromising, although the COVID-19 situation makes all quantitative observations more difficult to interpret. Once an onshore financial center for the entire EU single market, and a competitive offshore center for the rest of the world, the City has been reduced to an onshore center for the United Kingdom only and has become offshore for the European Union. That implies a different, in all likelihood less powerful, set of synergies across the City of London’s financial activities.
The few relevant quantitative data points available reinforce this bleak view. Job offerings in British finance, as tracked by consultancy Morgan McKinley, have declined alarmingly since the 2016 Brexit referendum. The ECB (as bank supervisor) and national securities regulators coordinated by the European Securities and Markets Authority are tightening requirements for key personnel to reside mainly on EU territory rather than in the United Kingdom.
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.custom-post-from .error{ display: block; color: #ff6461; order: 3 !important;}As noted by Financial Times columnist Simon Kuper, many financial firms’ Brexit policy until this year had been to “sit tight and do nothing until post-Brexit arrangements for finance forced [their] hand.” That phase has ended. Firms that drag their feet face regulatory disruption, as happened to broker TP ICAP in late January. Tussles between regulators and regulated entities, rather than between the European Commission and the UK government, are where most of the financial-sector Brexit action is likely to be in 2021. These disputes typically happen behind closed doors, and the regulators typically hold most of the cards.
For all the optimistic talk in London of “Big Bang 2.0 or whatever,” the United Kingdom’s comparative advantage as the best location for financial business in the European time zone is unlikely to recover to its pre-Brexit level. The macroeconomic losses could be moderated or offset by cheaper currency and less expensive real estate in London, making the city a more attractive place to do nonfinancial business. Even so, a gap will likely remain for the UK government, which has for years depended heavily on financial sector–related tax revenue.
The European Union stands to gain financial activity as a consequence of Brexit. How much and where is not clear yet. As some analysts had predicted, Amsterdam, Dublin, Frankfurt, Luxembourg and Paris are the leaders for the relocation of international (non-EU) firms. Dublin and Luxembourg specialize in asset management, Frankfurt in investment banking and Amsterdam in trading. But EU success in terms of financial services competitiveness and stability will depend on further market integration, the pace of which remains hard to predict.
The European banking union is still only half-built because it lacks a consistent framework for bank crisis management and deposit insurance. The grand EU rhetoric on “capital markets union” has yielded little actual reform since its start in 2014. Events like the still-unfolding Wirecard saga may force additional steps toward market integration, even though a proactive approach would be preferable.
The one near certainty is that London’s position in the European financial sector will be less than it used to be.
*[This article was originally published by Bruegel and the Peterson Institute.]
The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More