Social Europe politics, economics and employment & labour Mon, 16 Nov 2015 14:00:54 +0000 hourly 1 Social Europe 32 32 "Is An Uber A Taxi?" by Christopher Markou Mon, 16 Nov 2015 14:00:54 +0000 Christopher Markou Christopher Markou

Christopher Markou

It has not been an easy ride for Uber in Europe. Despite being bolstered by copious amounts of venture capital, the company has faced stiff opposition from government regulators and taxi companies across the continent. Last month, Uber’s Amsterdam HQ was raided for the third time in 2015 by Dutch authorities pursuing a criminal investigation into the company’s offshoot, the UberPop ride-sharing service that relies upon non-professional drivers. In Belgium UberPop was suspended after the Commercial Court ordered its shutdown and threatened a €10 000 fine for each pickup attempted by the company.

In France disgruntled taxi drivers burned tyres, overturned cars, and gridlocked traffic across the country in protest of the company they claim undermines their livelihood and creates unfair competition. French authorities arrested two Uber executives, who are due to stand trial in February for operating illegally and withholding documents from investigators. In an attempt to defuse tensions, Uber agreed to suspend UberPop but French authorities have pressed ahead with their threat to ‘systematically seize’ UberPop vehicles. Uber’s ‘growing pains’ extend far beyond Europe. The company is locked in similar battles in Australia, India, Indonesia and South Korea, the latter of which became the first country to introduce a nationwide ban on private-hire taxis with others looking to follow their lead.

Uber is also beleaguered by controversy over its ‘surge pricing’ model, whereby the cost of rides can triple or quadruple in times of high demand. The policy received particular criticism in the aftermath of the Sydney hostage crisis last December when citizens attempting to flee the chaos were faced with minimum $100AUD charges (approx. £47). Uber defended the policy on the basis that its surge pricing was automated by analytics data that adjusted prices on the basis of demand, but that has not stopped some from denouncing the company for its hyper-capitalist business practice and shoddy privacy protection. Given the disruptive influence Uber is having on the transportation industry, it is perhaps a badge of honour amongst Silicon Valley startups that they have a Wikipedia page dedicated to the litigation they are embroiled in worldwide.

High Court Ruling

The situation for Uber in the UK is, however, comparatively rosy. In a major victory for the ride-sharing company the High Court has handed down a long-awaited ruling that Uber’s smartphone app does not function as a taximeter. Judges rejected the legal submission of Transport for London (TfL) – which brought the case seeking clarity on behalf of the city’s highly regulated taxi operators despite their own assertion that the Uber app did not function as a taximeter.

The case turned on a specific technical point of the Private Hire Vehicles (London) Act 1998: whether the Uber app functioned as a taximeter, a device outlawed in private-hire cars (PHVs). The act defines a taximeter as

a device for calculating the fare to be charged in respect of any journey by reference to the distance travelled or time elapsed since the start of the journey (or a combination of both).

A more detailed definition is contained in the Measuring Instruments (Taximeters) Regulations 2006. Therein a taximeter is defined as:

…a device that works together with a signal generator to make a measuring instrument; with the device measuring duration, calculating distance on the basis of a signal delivered by the distance signal generator; and calculating and displaying the fare to be paid for a trip on the basis of the calculated distance or the measured duration of the trip, or both.

Both definitions have a lot in common. Both describe a device that is used to calculate distance and duration for the purposes of calculating a fare. One difference, however, is that the latter definition stipulates that a fare be ‘displayed’ in addition to being calculated. What is particularly critical for the purposes of the High Court’s ruling is that the latter definition specifically qualifies its definition by stating that a taximeter functions together with an additional device fitted within the vehicle: a signal generator.

In correspondence sent to black cab operators TfL laid out its position:

TfL’s view is that smartphones that transmit location information (based on GPS data) between vehicles and operators, have no operational connection with the vehicles, and receive information about fares which are calculated remotely from the vehicle, are not taximeters within the meaning of the legislation (section 11 of the Private Hire Vehicles (London) Act 1998).

The key phrase here is ‘operational connection’. In their letter to drivers TfL took the expansive view that because there is no operational connection between an Uber driver’s smartphone and their vehicle the app does not constitute a taximeter. This view is questionable primarily because neither relevant statute makes any mention of an operational connection being necessary to define a taximeter. This is made more problematic by the fact that Uber supplies its drivers with a smartphone, a 12v adapter to power it, and a cradle to affix it to the dashboard of their vehicle. This provides at least two physical points of connection between the phone that runs the Uber app and the vehicle it corresponds to. Is the power an Uber driver’s smart phone relies on not an operational necessity, and therefore an operational connection? Moreover, it seems altogether arbitrary to conclude that because fare calculations take place external to the Uber app and vehicle that their inter-operation does not reproduce the functionality of a taximeter.

What seems to be the case then is that TfL has attempted to sidestep the thorny question of just what Uber is, and how it works, by emphasising form over function. From the perspective of a passenger there is little difference between what the Uber app does and what a traditional taximeter does. Thus TfL opted to take the most literal reading of the statute possible and conclude that the Uber app is essentially a signal receiver, and not a signal generator.

The UK high court more or less endorsed the view of TfL. In his ruling Mr Justice Ouseley determined:

The question for decision… is whether the Uber PHVs are equipped with a taximeter, that is, a device for calculating fares. In my judgement, these PHVs are not equipped with a taximeter as defined by section 11(3). The driver’s Smartphone with the Driver’s App is not a device for calculating fares by itself or in conjunction with Server 2, and even if it were, the vehicle is not equipped with it.

He summarised his judgment by declaring:

A taximeter, for the purposes of Section 11 of the Private Hire Vehicles (London) Act 1998, does not include a device that receives GPS signals in the course of a journey, and forwards GPS data to a server located outside of the vehicle, which server calculates a fare that is partially or wholly determined by reference to distance travelled and time taken, and sends the fare information back to the device.

For the London taxi industry much is at stake. One regulatory advantage of being certified as a London taxi driver is the ability to collect passengers on the street. This ability is seen as a ‘perk’ for black cab operators given the stringent regulatory requirements they must adhere to, not least of which is the formidable ‘The Knowledge of London’ test that prospective drivers must pass before being licensed to operate in the city. However, the Uber app’s use of GPS allows drivers to be matched with customers in real-time based on proximity and effectively pick up customers from anywhere.

Knock-on Effects

While the High Court’s ruling turned on a relatively technical matter, there is no question that Uber is hoping the ruling will give it leverage in similar regulatory dilemmas in other jurisdictions. The company wasted no time in declaring the ruling a ‘victory for common sense’ on its company blog. It also stated:

We understand that black cab drivers are feeling the pressure from services like Uber. But the answer is to reduce today’s burdensome regulations on cabbies—not introduce new regulations on an entire industry.

Uber also used its blog to call TfL’s wider proposals, such as a mandatory five minute wait for Uber pickups, ‘nonsensical’ and argued that the proposals will be:

…bad for riders—making the app clunkier to use; bad for drivers—limiting their choices; and bad for London—restricting the ability of everyone to share a ride across town.

However, the most telling aspect of Uber’s blog is its closing sentence:

Let’s hope today’s High Court decision in favour of new technology leads to TfL shelving its nonsensical new rules.

Uber’s position is indicative of other companies which generally argue that the ‘solution’ to technological disruption of regulations is a loosening of those very regulations. Whether it is Amazon with their proposals for drone-based delivery or Airbnb with its lobbying for the relaxation of occupancy and tax regulations, there is a common belief in technological determinism amongst companies at the forefront of the ‘sharing economy’.

On the surface the Uber ruling would seem to be a classic example of the ‘legal lag’ problem: the idea that technological innovation outpaces the law’s ability to keep pace with it. For some the Uber ruling would seem to be a victory for common sense and consumer choice. While this may be partially true it also reveals an interesting point about the social ontology of technology and our dependence upon it.

The humble taximeter has not changed much since it was invented in 1891 by Friedrich Bruhn and incorporated into taxis in 1897 by Gottlieb Daimler. The first meters were, of course, mechanical but were replaced by electronic meters in the 1980s. Whether mechanical or electronic, the taximeter was designed for one job, for the exclusive use of one industry. From an industrial design perspective they are a triumph of function. However, one hidden consequence of the UK High Court’s ruling in the Uber case is that it tacitly disincentivises the use of single-function devices such as taximeters in favour of highly complex technological infrastructures such as those that support the backend data-crunching that Uber requires to provide its service.

One of the most influential industrial designers of the modern era, Dieter Rams, has laid out ten principles of what he calls ‘good industrial design’. In Rams’ view a product is well designed if:

  • It is innovative
  • Its design makes it useful
  • It has good aesthetic quality
  • Its design makes its functionality understandable
  • It is unobtrusive
  • It is honest
  • It is thorough
  • It is environmentally friendly
  • It utilises as little design as possible


Comparing Rams’ criteria to the form and function of the taximeter, it is easy to conclude that the taximeter would meet — or did meet at the time of its invention — most, if not all criteria. Now, this is not to say that Uber’s app does not also fulfil some of these criteria, however, it is the final of these criteria that provides the starkest contrast between the service the Uber app provides and what a taximeter does. In Ram’s own words good design is as little design as possible:

Less, but better — because it concentrates on the essential aspects, and the products are not burdened with non-essentials. Back to purity, back to simplicity.

Rams is not alone in his preference for simplicity over complexity in design. A taximeter may not be a glamorous piece of technology but it is a simple and reliable device for accomplishing the only purpose it serves: calculating a fare. Uber on the other hand takes the long way around; it relies on GPS data, servers dotted across the globe, as well as individual smart phones having data connectivity for an Uber booking to be possible. For consumers the Uber app is a paragon of simplicity and convenience, but in reality the mechanism through which Uber operates is remarkably complex. Like other location-based services, it depends upon a constellation of no less than 24 GPS satellites in geo-synchronous orbit to provide all devices in the world with positioning data. One hidden dimension of the High Court’s ruling last week is the tivoisation of simplicity in design and the endorsement of complexity in the guise of consumer choice and convenience.

There are many reasons to be sceptical of Uber and its unrepentant brand of libertarian capitalism. Whether it is the shameless exploitation of drivers, its continued indifference to the needs of disabled passengers, or its downright brazen circumvention of legal regulation. Despite all this there is good reason to conclude that Uber, and other companies at the forefront of the so-called ‘sharing economy’, will eventually be brought into regulatory compliance.

The type of technological and economic disruption these companies pose is not wholly unique, nor is it unprecedented. What is unprecedented is the trust and reliance consumers now place in increasingly complex technological paradigms, and the insidiousness of the trade-offs they require. Complex technologies are converging, and the pace of their convergence compounds the societal consequences of their failure. Instead of repeating the old mantra that the law is lagging behind technology, perhaps the law is sometimes too eager to reify technology and imbue it with unique properties that transcend its essential functionality.

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"Five Steps To Make Europe More Social" by Angelica Schwall-Düren Mon, 16 Nov 2015 13:52:20 +0000 Angelica Schwall-Düren Angelica Schwall-Düren

Angelica Schwall-Düren

Europe has delivered considerable benefits to its citizens. Even so, rather than resting on our laurels, and at a time of insecurity and disillusion, we need to reboot the European idea: how better to do this than by strengthening the EU’s social dimension? One of the major tasks faced by the EU will be to systematically develop and adjust social targets (like full employment, fair working conditions, appropriate access to healthcare and a minimum of unemployment benefits) and fundamental rights. After all, the set of social values EU member states have committed to for decades are a unique selling point that Europe needs to defend – and, above all, expand.

The core idea cannot be to replace national systems with a European welfare state. The EU’s motto, ‘United in Diversity,’ applies also to welfare systems. At the same time, we must reconcile EU minimum standards with respect for Member States’ capacities in social policy (e.g. structure, administration and extent of social benefits).

Step By Step Towards A More Social Europe

Here are five bullet points illustrating how we could gradually make Europe more social by creating and/or improving uniform rules.

1. Harmonising taxation across the EU could help put a stop to the ruinous downward spiral towards the lowest taxes. Taxes should, what’s more, be levied where profits are earned. The introduction of a financial transaction tax would immediately deliver several positive effects. First of all, we would make high-frequency trading – a business model that is spreading like wildfire and serves the real economy in no discernible way, instead encouraging speculation and jeopardising the stability of financial markets – unattractive. Revenue generated by such a tax would add resources to local, regional and national governments to be spent on education and infrastructure, for the benefit of individuals and the community.

2.The economic crisis has led to a slump in investment across all of Europe. I welcome the fact that Member States have reached agreement with the European Parliament to launch an EU investment plan in order to back the urgently needed strategy for growth and jobs in crisis-hit countries in particular but also for the benefit of Europe as a whole. With the support of the European Fund for Strategic Investments (EFSI) set up to mobilise private investment, market failures can be overcome, new jobs created and cohesion strengthened throughout the Union.

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3. In a pressing future, the EU will have to address youth unemployment truly effectively: it remains staggeringly high in the south of the Eurozone and constitutes a social and political time bomb. The Commission assists Member States in their efforts to combat youth unemployment. The €6bn Youth Guarantee ensures that all young people under the age of 25 receive a high-quality, concrete offer (a job, apprenticeship/traineeship, work experience or continued education) within 4 months of leaving formal education or becoming unemployed. Still, some problems require more than money to be solved. The private sector, too, is called upon to provide apprenticeships and traineeships, so that this generation – the best-educated ever – can take its rightful place in career and community.

4. The most pressing problem in Europe is how to deal with the current refugee crisis. It is time for more solidarity and shared responsibility. We need to resolve this issue in a sustainable manner, so that those who risk their lives to find safe shelter can indeed be given the protection they are so desperately seeking.

Whilst the Commission’s Agenda on Migration is a useful step forward, the Dublin Regulation is still in force and continues to stipulate that the Member State where a refugee first sets foot on EU territory must accept responsibility for this person and process their application for asylum. Relief to those countries that currently receive the bulk of refugees has so far been provided on a more or less voluntary basis. It is now time to act systematically and consequentially rather than just pay lip service. This requires the introduction of a permanent quota system, and politicians must stop hiding behind the failed Dublin principle. We need a genuine European asylum and migration policy. One of the ways to address this would be a European agency in charge of all asylum procedures, maintaining a number of EU reception centres and supervising Member States’ compliance with minimum standards: ensuring thereby that the burden is fairly distributed throughout the EU. This may sound like a radical proposal but it would be a suitable instrument for getting rid of the uneven qualities among Member State standards as well as the bottlenecks caused by the massing of thousands of refugees in only a few member states.

More on the Refugee Crisis


5. To close, let me briefly refer to the introduction of a European unemployment insurance scheme. Owing to many unresolved issues, this is unlikely to be realised in the very near future, but it is still well worth discussing. As recent years have taught us, we need a mechanism of automatic stabilisers for the European economy as a whole. A European unemployment insurance system could help in buffering asymmetric shocks, it would alleviate the burden on the budgets of crisis nations and help them to speedily re-establish growth. Simultaneously, such a system would guarantee a minimum of social security for Europeans in general to rely on in times of crisis. We could demonstrate that the EU is indeed about shared values, focussing on solidarity rather than just on saving banks, and improving people’s lives through active and discernible measures.


These few examples highlight the fact that we can, step by step, get closer to a socially just Europe if we work together. Our aim must be to get rid of the ruinous downward spiral mentioned earlier and put the focus on improving life for Europeans. I see no contradiction between social justice and economic success. They are two sides of the same coin. Europe can and must strive to reach both.

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"Europe At A Murderous Crossroads" by David Gow Mon, 16 Nov 2015 08:25:04 +0000 David Gow David Gow

David Gow

Our Facebook portraits are draped in the tricolore, special twibbons adorn our Twitter profiles, public buildings are splashed blue, white and red, we “pray for Paris,” we sing the Marseillaise, Nous sommes tous des parisiens: the aftermath of Friday evening’s pitiless slaughter of scores of mainly young friends enjoying themselves has seen an outpouring of expressions of solidarity with France, especially in Europe.

But this European solidarity seems pretty thin in real terms. This is not just because such expressions – ‘des badges, des tweets, des marches silencieuses, des vidéoclips ou des «chartes de la laïcité» (secular charters)’ – are inadequate to repel the nihilistic murder machine of so-called Islamic State (Da’ech) in the words of a savage leader by Figaro editor-in-chief Alexis Brézet urging war against this “army of crime.”

Europe is the opposite of united: it is falling apart. Even before the Friday the 13th horror, the EU’s economy showed clear evidence of renewed stagnation and even a return to recession as world trade falters. The Eurozone limps along as home to a common currency, still likely to crumble. Britain, already halfway out, may lead a rush to the exit door.

The sheer scale of the refugee crisis has rent asunder core elements of integration: Schengen and the Dublin Agreement. The crisis is so acute one leading Brussels insider has given the EU just five months to save itself. Of the 160,000-strong redistribution quota agreed in the summer just 147 refugees have gone to other countries inside the Union.

And now Friday’s shootings and bombings will buttress the determination of member state governments to regain control of their national borders and keep refugees out. Already, Konrad Szymanski, the minister for European affairs in Poland’s new right-wing PiS government, has said Warsaw “must retain full control over its borders, asylum and immigration.” Such remarks simply deepen the east-west divide on refugees on top of the north-south chasm on the economy.

Even worse, the discovery of a (fake) Syrian passport used by one of the assailants as he passed in a huge crowd of refugees through Greece has brought the easily-stirred wrath of the Right down upon the heads of refugees – as if they were the real perpetrators of Friday’s atrocities. Ignoring the obvious point that, as Nick Cohen puts it, they flee to Europe, not from Europe, to seek succour and protection from brutal oppression – not to kill their new hosts indiscriminately. Unless civil society exerts enough contrary pressure to retain open borders, governments will impose Fortress Europe behind national drawbridges.

Worse still, the notion that Europe is in a “clash of civiliations” with Islam and at war, as a shaken President Hollande told the French public on TV late on Friday, simply plays into the hands of both Da’ech and the (Far) Right in Europe. Philippe de Villiers, head of the ultra-nationalist Movement for France, said the attacks owed their origins to “laxity and the ‘mosquéisation’ or landscaping with mosques of France” while the Front National’s Marine Le Pen (already riding high in opinion polls ahead of regional elections next month) called for “rearmament” of a “weak” France to “annihilate Islamic fundamentalism”. Even the liberal-left Nouvel Obs gives space to a retired senior general to lament France’s unpreparedness for this ‘new type of war’ and to claim it is fighting alone.

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More pertinent seems the comment by Gilles Kepel, political scientist and Arabist, that the goal of Da’ech is to “sow civil war in France”. It’s unclear yet how many of the seven or eight assassins were “returnees” or radicalized young French Muslims who went to Raqqa via (probably) Turkey to join ISIS and were sent back to their homeland to ratchet up a ‘war of religion/culture’. It appears two of the assailants lived in Belgium or were Franco-Belgians. (Both countries “send” far more (twice as many) young Muslims to Syria than, say, the UK). It’s certainly the case that France is the Number 1 European target for these murderous militants, partly because of its military role in Africa against Islamist extremism and partly because of its historic attachment to liberal secularist values (the ISIS statement claiming responsibility talks of ‘targeting the capital of prostitution and obscenity’).

But there are particular reasons why France has (twice this year) been vulnerable to such attacks. One is an obvious and catastrophic failure of intelligence on the part of the under-funded, under-resourced DGSI (French version of MI5/BfV) and what people in the know call silo mentalities and turf wars among various agencies tasked with national security. This is exacerbated by lack of co-operation/intelligence-sharing at European level. Another, post-Charlie Hebdo, is the failure to live up to the promises of enhanced measures to integrate disaffected young Muslims educationally and economically: the jobless rate can be 50%-plus in a depressed economy). Proportionally, France has the largest number of Muslims – around 5m or 7.5% of the population – in Europe.

But it is Europe that is (outside the Middle East itself) bearing the biggest brunt of the US-led decision to invade Iraq in 2003 – the source of much of today’s continuing destructive instability on both sides of the Med. In the intervening period it is still dithering and divided about how it should respond to conflicts within and outside its borders. Friday the 13th is a clear historic watershed: either Europe bows to the angry, intolerant clamour of the Right and makes itself an authoritarian, xenophobic fortress or it re-asserts republican values of openness, tolerance, equality – while protecting all its citizens. Angela Merkel, German chancellor and protagonist of the latter option, rightly so, may be weakened by the bloody events in Paris but her sense that only a united Europe (“we need more Europe, not less”) can solve these immense problems remains correct. It’s what most if not all of those predominantly young victims of the assaults on our shared values believed in.

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"The Youth Guarantee One Year On: Lessons Learned" by Massimiliano Mascherini Thu, 12 Nov 2015 11:30:58 +0000 Massimiliano Mascherini Massimiliano Mascherino

Massimiliano Mascherini

In 2013, youth unemployment rates in Europe reached the highest level ever recorded in the history of the EU and in the majority of the Member States (MS). More than 5.5 million young people aged 15-24 were unemployed (now more than 4.5m), with a huge sense of crisis and the fear that the youth unemployment “bomb” would explode soon. Deeply concerned about the risk of a “lost generation”, the European Council proposed the Youth Guarantee: a pledge to provide the offer of education, training or employment, to all young people aged 15-24 within four months after becoming unemployed – and invited all the MS for its rapid implementation.

With a swift answer to this call, all MS started putting into practise this new policy framework and put in place immediate measures for bringing young people back into education or employment. However, two years after its launch and with the youth unemployment rate still above 20%, in some MS the Guarantee still appears to be like a Copernican revolution in youth policies that will take time and costly major reforms to be fully completed.

Youth Guarantee implementation – Steps taken so far

The Youth Guarantee underwent a very rapid implementation. Following the 2013 Council Recommendation, Member States presented their national Youth Guarantee Implementation Plans (YGIPs) adapting this overall policy framework to their national, regional and local requirements and labour market structures. Already in 2014 they adopted the first concrete actions to fulfil the aim of the Youth Guarantee.

In doing so, Member States have adopted different implementation strategies. Some, such as France, have chosen a more holistic approach using the Youth Guarantee as a means of improving links between labour market, education and Vocational Educational Training (VET) provisions as well as youth and social policies more generally. Other countries, such as Spain or Greece, opted for a narrower approach – predominantly focussing on employment and on the labour market dimension.

As the Council recommended, all countries have sought to improve stakeholder cooperation in effectively overcoming the fragmentation of youth policies as well as putting in place IT tools in order to strengthen their capacity for reaching out to young people.

Given the composition of the youth population and the local dynamics of school-to-work transitions, some Member States, such as Italy, have extended the population of NEETs covered by this initiative to 15-29 year-olds. While the extension of the age group positively increased the number of potential participants, from 1.2m to 2.2m in the case of Italy, it also heaped an extra heavy workload onto (already over-stretched) Public Employment Services (PES).

Concrete implementation measures put in place can be grouped along the following six main categories:

Screen Shot 2015-11-11 at 15.20.48

Youth guarantee, the Copernican revolution and the challenges ahead

Member States may have applied different strategies but adopted similar policy tools. However, a range of challenges goes hand in hand with the implementation of a major policy framework such as the Youth Guarantee: so much so that in some countries it resembles a Copernican revolution in youth policies.

The Guarantee’s effectiveness is assured by three main factors: better coordinated policies for youth; early activation of the young job seeker status, limiting the risk of long term disengagement from the labour market; individualised approach to the job seeker, ensuring an optimal matching between the needs of the jobless and the opportunity received, maximising in this way its effectiveness and the chances of his/her re-integration into the labour market. These three main factors are based on a full and working partnership among all stakeholders and labour market actors as well as on well-developed PES, able to deliver the wide range of tasks required. Unfortunately, these ingredients seem to be missing in some Member States where the PES are not ready for full and timely provision of the services required within the Guarantee while lack of trust among various actors makes the achievement of a well-functioning partnership hard to achieve.

However, besides putting in place immediate measures for bringing young people back into education or employment, the Guarantee entails long-term reforms to improve the capacity and capabilities of PES targeted at young people. Reforming such structures and adapting them more readily to the labour market needs of young people is a long-term project which can be costly. However, and despite recent labour market improvements, such reforms need to move ahead, with all stakeholders and labour market actors working together to ensure that this Copernican revolution is completed and the Guarantee delivers its ambitious promises.

During the first year, given the scale of youth unemployment and the above limitations, a number of MS opted for a more pragmatic approach to implementation by focusing their offer on those young people who are more ‘job-ready’ and likely to be more easily re-integrated into the labour market. However, given that long term unemployment for young people can indeed lead to a lifelong disengagement from the jobs market, further efforts and initiatives aimed at reaching out to hard-to-reach youth should be designed and implemented. In 2014 in Europe, only 57% of young NEETs were registered at the relevant PES. Improving those services and encouraging young people to be registered by overcoming their scepticism is crucial as registration is the entry point to access the scheme.

Finally, providing young people with good quality, sustainable opportunities under the Guarantee framework is central to the success of this new policy approach and several stakeholders have repeatedly expressed their concerns about the quality dimension of offers. For now, in the majority of MS, the Guarantee resembles a ‘guarantee of opportunity’ (ensuring that all young people will receive an offer within the four months) rather than a ‘guarantee of outcome’ (the (re-)entry of youth into the labour market). Moving the target from opportunity to outcome would be be a valuable extension of the current Guarantee in the long run. Strengthening this quality dimension and providing sustainable training and/or employment opportunities for young people is a much more effective means of re-integrating youth within the labour market.

Eurofound’s assessment of the first year of Youth Guarantee implementation across 10 EU Member States features in its recently published report on the Social inclusion of young people. National reports for Belgium, Bulgaria, Estonia, France, Greece, Ireland, Italy, Poland, Spain, and the UK are available upon request.
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"Why David Cameron’s Real Test Is In Westminster Not Brussels" by Anand Menon Thu, 12 Nov 2015 09:30:22 +0000 Anand Menon Anand Menon

Anand Menon

In the Bloomberg speech of 2013 in which he promised a referendum on British EU membership by the end of 2017, David Cameron promised to carry out ‘renegotiations for fundamental change’ of Britain’s terms and conditions of their EU membership. In a speech at Chatham House today, he spelt out in more detail precisely what this will entail. In so doing he confirmed what many already suspected. No such fundamental change is in prospect. Yet the renegotiation, whilst substantively somewhat pointless is politically profoundly necessary.

In substantive terms, the Prime Minister has already achieved much of what he wants. The European Commission has cut back on red tape and is putting forward legislation intended to make the EU more competitive (initiatives on a digital single market and capital markets union foremost among them). Indeed, if the government were not expending all its energy on a renegotiation, it might have well have got far more of what it wants by focussing it within the normal EU legislative system.

On the vexed question of ever closer union the Prime Minister has already secured – in June 2014 – a declaration by EU leaders that not all member states want to travel in the same direction at the same speed. The proposed ‘red card’ that national parliaments could wield against EU legislation is not that different form the current ‘yellow card’ and would encounter the same problems when it comes to the willingness and ability of national parliaments to make use of it.

As for British fears regarding the possibility of the EU coming to be dominated by Eurozone members, there are certainly grounds for concern. And, guarantees about the integrity of the single market and mechanisms to prevent discrimination against non euro members will become crucial issues if the Eurozone integrates further. Yet surely such a debate should wait until such integration is in prospect? After all, this would require treaty change, and Britain could secure its desiderata at that point or threaten veto the whole show.

Finally, the most problematic area spelled out in the PM’s speech was his demand that limits be placed on the access EU migrants in the EU enjoy to benefits. David Cameron again underlined that people coming to Britain from the EU ‘must live here and contribute for four years before they qualify for in work benefits.’ Most EU lawyers, however, agree that this cannot be done without breaching the EU’s constitutionally enshrined principle of free movement of labour. The only alternative would be treaty change which is simply not doable before the end of 2017.

Interestingly however, in the letter to European Council President Donald Tusk that was sent immediately after his speech, the Prime Minister provides himself with slightly more wiggle room.

He argues that there is a need to find ways of reducing the numbers of people coming to the UK, indicating that limiting in work benefits might be one mechanism by which to achieve this. It becomes, therefore, an option to achieve a certain end, rather than an end in its own right.

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So British demands have already been met, or are not of real significance yet, or are being fudged to appear as if they have been met. The difference between the public agenda and the formal demands on immigration provides a clue as to what is going on here. The substance is really not the point. The major purpose of the renegotiation has never been a ‘new settlement.’ Rather, it is to keep the Conservative Party in parliament onside.

David Cameron needs to convince his backbenchers that he has reformed the Union. Research by the think tank Open Europe has suggested that 203 of the 330 Conservative MPs can be characterised as ‘swing voters.’ That is to say, they are either not particularly interested in the EU or who are waiting until the results of the renegotiation before making up their minds on the referendum.

It is this constituency at whom the renegotiation is primarily targeted, and for three reasons. First, no Prime Minister, particularly not one with a slim majority, wants a bunch of rebellious back benchers on his hands.

Second, and more significantly, David Cameron has stated that he will not stand for re-election in 2020, leaving the way open for a succession battle. Should sufficient numbers of Conservative MPs prove dissatisfied with what he gets from Brussels, this could lay the way open for a putative leader to emerge as leader of the Conservative ‘leave’ camp. Sufficient parliamentary support would ensure this candidate got through to the second round of a leadership contest in which the largely Eurosceptic party membership would decide the outcome. Both Boris Johnson and Theresa May have been widely reported to be considering this course of action.

And – third –  the way the parliamentary party breaks over Europe will have a bearing on the outcome of the referendum itself. One reason why the ‘in’ camp managed to triumph so comfortably in the 1975 referendum was that the whole political mainstream was arrayed under its banner. On the out side were to be found figures widely seen as extremists, such as Tony Benn and Enoch Powell.

A similar constellation of forces would favour the ‘remainers’ when the next popular vote on EU membership is held. In contrast, the presence of a big Tory beast at the head of the ‘leave’ camp could shift the balance. Initial research has suggested that leadership will have an impact on the outcome of the referendum: Cameron supporting ‘Remain’ may move the result by 2%. Corbyn’s endorsement of ‘Remain’ increases support for that side by 2.8%. Indirectly, therefore, the renegotiation is crucial for the referendum itself.

David Cameron’s negotiations with Brussels, then, will be as crucial politically as they are minimal substantively. The ultimate test of their success will be found in Westminster not Brussels.

This column was first published by The UK in a Changing Europe

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"European Views On The UK’s Renegotiation: Germany, Greece, Slovakia And The EU’s Institutions" by SE Thu, 12 Nov 2015 08:30:25 +0000 SE The success or failure of David Cameron’s planned renegotiation of the UK’s EU membership will depend to a large extent on how the other 27 EU member states respond to his proposals. But how do countries across the EU view the UK’s renegotiation? Building on a report published in 2014 by the German Council on Foreign Relations, EUROPP is running a series of overviews of the renegotiation from each of the EU’s member states. Compiled by the LSE’s Tim Oliver and written by authors based at universities and research institutions, the overviews will set out what discussion – if any – there has been about the renegotiation and the wider views within each country on the renegotiation and a potential Brexit. This post is the final part of the series and gives views from Germany, Greece, Slovakia and the EU’s institutions. All of the responses in the series are compiled here.

  • Germany: Doubts that Britain really knows what it wants
  • Greece: Fears of Grexit slowly shifting to fears of Brexit
  • Slovakia: Preserving equal treatment while keeping the UK inside
  • EU institutions: The dog that hasn’t yet barked

Germany: Doubts that Britain really knows what it wants

Almut Moeller

Berlin’s position towards Britain’s renegotiation agenda and the preparations for the referendum in general have been consistent over the past few months. Germany has a strong interest in keeping Britain “in”. However, policy-makers believe there is little they can do to influence the outcome of a future referendum in the UK. The British EU debate is seen as unpredictable and far away from current discussions about EU policy in Germany. Berlin’s willingness to make concessions to London is therefore rather limited. A concern that is sometimes raised is what would happen if Germany did make substantive offers but the British people still voted in favour of leaving the Union.

Overall, Germany has been hesitant to take ownership of what is seen as a British responsibility. This is why Berlin has made it clear on a number of occasions that it was not responding to London’s calls to put forward its red lines, or to map out areas of potential joint agreement on EU reform. Instead, Berlin has expected London to make the initial moves. At the same time, Germany demonstrated it was willing to listen and to explore areas of cooperation if the UK put its cards on the table. Angela Merkel’s visits to the UK over the past year have been a visible demonstration of this commitment, as has been the continued conversation between the Federal Minister of Finance, Wolfgang Schäuble, and George Osborne.

Even after David Cameron sent his letter to the President of the European Council setting out the UK’s demands, there remains a great deal of uncertainty about what the British government actually wanted from negotiations. It is not so much the prospect of yet another arrangement beyond the structures of the Lisbon treaty that worries Berlin. Rather, there is both disagreement on substance as well as doubts as to whether London can work toward outcomes that are not settled already. The former is particularly the case with regard to the demand for a red card for national parliaments. Germany is hesitant to give space to even more veto players in EU policy making.

On the latter, the question of “ever closer union” is seen as having been settled with the declaration of the European Council in June 2014. This is also true for the British demand for a new “mindset” in Brussels to foster competitiveness. While Germany does agree that this will indeed be a joint aim, it is not clear how the UK intends to help bring about such a new culture of competitiveness beyond what is being done already at EU and member state level. As regards the guarantees that London is asking for to protect the status of the Eurozone “outs”, Berlin does not seem to fully understand what London wants because London itself has been unclear about the details of such an overall broad claim.

Furthermore, London’s timing is considered rather ambitious in Berlin, and the situation is compared to the negotiations that led to the Fiscal Compact in 2012. Back then, London had come up with its proposals at a very late stage in the process, by when it was clear that there was no way to reconcile these views with those of most other EU countries. As a result, the Fiscal Compact was concluded outside of the existing treaties. Now, there is a strong sense in Berlin that London will struggle to put the issue on the agenda of the European Council in December.

Having said all that, Berlin still has a strong interest in David Cameron settling Britain’s domestic debate on Europe by means of the referendum. If there was a negotiated package in the coming months, Germany would be unlikely to publicly cast doubts about the scope and substance of any such deal. There will perhaps be hopes that the British government can succeed in making a credible case to the British people about their country’s importance in the Union. Behind closed doors, however, policymakers will perhaps ask the question of whether any such package will be enough for Cameron to win an in/out referendum. For Berlin, then, the big reform issues simply lie elsewhere: in the future of EMU governance, and the major challenge posed by migration.

Almut Möller – European Council on Foreign Relations (ECFR)
Almut Möller is a senior policy fellow and the head of the Berlin office of the European Council on Foreign Relations (ECFR).


Greece: Fears of Grexit slowly shifting to fears of Brexit

George TsogopoulosWhen David Cameron made his speech on the future of Europe in January 2013, Greece was in a period of difficult fiscal consolidation. After coming to an agreement with the Troika for the release of a tranche of approximately 50 billion euros, the main purpose of the government was not only to apply the bailout terms, but also to transform the Grexit ‘fear’ into a ‘Grecovery’ hope.

In other words, Athens was putting substantial investment into a new political communication strategy aimed at turning ‘Grexit’ into a passé issue. Within this context, every reference to a potential exit of another country – such as Britain – from the EU would have been a setback. That is because the Greek case could be easily recalled and brought back onto the political agenda.

The causes that might lead Greece and Britain to abandon either the Eurozone or the EU are substantially different. The former might be pushed by some EU members to leave, while the latter is able to decide its fate alone. Moreover, Athens has been obliged to meet the required fiscal targets and implement the necessary reforms in order to remain part of the common currency family, whereas London has been attempting to negotiate a new, UK-only deal with the EU. Nevertheless, the fear of Greece’s expulsion from the Eurozone was the driving force behind the country’s desire for Britain to stay in the EU during the term of the coalition government of New Democracy and Pasok.

While the debate across the rest of Europe on Britain’s future in the EU started to flourish in the first months of 2015, Greece was at the time busy dealing with its own economic and political problems. The victory of Syriza in the snap election of 25 January 2015 completely altered the agenda of the previous Greek government. Grexit returned to the forefront, with negotiations between Athens and its creditors becoming the only theme of interest at the political, public and media level.

The British general election of 7 May 2015, for instance, was not widely discussed. At that time, the priority of the Greek government was to guarantee the financing of the national economy. Further to this, Greek citizens were highly concerned about a potential return to the drachma and the repercussions of such a development.

In this environment of political and social instability, the debate about the future of Britain’s future in the EU found no place. By contrast, Britain was keener to monitor the situation in Greece and former Finance Minister Yanis Varoufakis’ influence on Premier Alexis Tsipras. A potential ‘Grexit’ might serve as a precedent for a ‘Brexit’ in the case of an ‘out’ vote in the British referendum, and so is therefore something the UK could draw important lessons from.

Following the agreement of 12 July 2015, the Greek government had to face reality in an anomalous way. It will have to apply the terms of the third bailout and regain the trust of the rest of the EU that it lost in the first seven months of the year. Although its main focus remains the national economic crisis and possibly a settlement on Greek debt, Greece – as an ordinary member-state –is now interested in Britain’s future in the EU. Without taking a specific position on David Cameron’s reform proposals, Athens hopes that London will stay in the EU.

A British withdrawal would have tangible negative consequences for the EU and Greece, such as the need to replace Britain’s EU budget contributions. A country struggling to find its way out of an unprecedented economic, political, and social crisis naturally seeks to avoid additional trouble at the European level. Finally, a powerful and united EU that includes Britain could assist Greece in a more efficient way to deal with the refugee crisis.

George Tzogopoulos – ELIAMEP / CIFE
Dr George Tzogopoulos is based at the Hellenic Foundation for European and Foreign Policy (ELIAMEP) and the Centre International de Formation Européenne (CIFE).


Slovakia: Preserving equal treatment while keeping the UK inside

vladimir-bilcikThe United Kingdom has been an important reference point for Slovakia’s dealings with the European Union. In the early half of the last decade, Bratislava viewed the UK as a champion of EU enlargement. London strongly supported the EU accession of post-communist states and ranked consistently among the top three foreign investors in Slovakia. Its decision to open the country’s labour market to new member states in May 2004 reinforced the UK’s friendly image. Britain also played an important role in the EU’s launch of its European Neighbourhood Policy, which helped structure new political relations between Slovakia and its biggest neighbour Ukraine.

More recently the positions of the two countries have diverged institutionally as a result of Slovakia joining Schengen in 2007 and adopting the euro in 2009. Policy preferences have also shifted. The UK has become tougher on labour migration. And London has been playing a less visible role in the EU’s neighbourhood policy. Despite this, some common aims remain. This is especially so on issues such as an improved single market and trade and investment policies where Slovakia, as a small open economy, has for years shared London’s broad push for a liberal economic order.

Despite recent intra-EU clashes over the ongoing refugee crisis, Slovakia’s consistent goal has been to solidify its place in the Union’s political core and to help preserve the EU’s broader political cohesion against the backdrop of its growing problems. Hence, a Brexit could challenge Slovakia’s preference for the EU’s future as much as it could undermine the strength of the EU’s liberal economic voice.

Moreover, with Slovakia’s upcoming EU Council Presidency in the latter half of 2016, the country has to think about the wider implications of the UK’s EU referendum as it may well be managing its consequences from the position of having to be an honest broker in Brussels. While Bratislava’s preference for keeping the UK inside the club is clear, it does not come at any price. Slovakia has already articulated important red lines in the run-up to more detailed negotiations over the UK’s future EU membership.

First and foremost, Bratislava is keen to underscore and preserve the principle of equal treatment in the EU. Most importantly, Slovakia does not want to undermine free movement of labour across the Union. With a six digit number of Slovak workers in the UK, any future deal on labour migration must ensure that a family from Slovakia working in the UK is entitled to the same benefits and rights as a similar Dutch or Scottish family living and working in London.

Slovakia is also sensitive to any undermining of equal treatment of member states. As a Eurozone member, Bratislava wants to prevent permanent dividing lines between users and aspiring users of the common European currency. While not currently on the agenda, future enlargement of the Eurozone to Visegrad neighbours especially are in Slovakia’s strategic and economic interest.

Slovak officials have also consistently argued against opening up the EU treaties. The EU’s cohesion could be further weakened if the treaties were reopened. At the same time, Bratislava will probably welcome a further strengthening of the role of national parliaments in EU policymaking. While the legal prerogatives of the Slovak parliament are strong in EU matters, practically they are hardly used due to a lack of resources and human capital in the country’s legislative body. Hence, a debate on yellow, red or green parliamentary cards could mobilise further domestic changes towards greater transparency and legitimacy of EU-related decisions.

Finally, as an export based, small economy, Slovakia is keen to foster greater competitiveness across the EU. The country’s strategic goal is to catch up with the average level of wealth in the EU through sustainable sources of economic growth. The Slovak EU Council Presidency in 2016 will strongly promote further work on the single digital market, EU capital markets, and external EU trade relations. In short, while Slovakia has some clear priorities when it comes to renegotiating the terms of UK membership, its strategic interest is to help keep the UK in the EU in order to ensure a stronger and workable Union.

Vladimír Bilčík – Slovak Foreign Policy Association / Comenius University
Vladimír Bilčík is Head of the EU Program at the Slovak Foreign Policy Association and Lecturer at Comenius University.


EU institutions: The dog that hasn’t yet barked

Fabian ZuleegGiven the potential impact on the EU, the UK‘s in/out referendum and the associated reform agenda should be high up the Brussels agenda. But, curiously, so far there has been little obvious activity in Brussels, with few signs that it has the attention of the EU leadership. During the October Summit there was only a very short discussion of the UK referendum, with David Cameron pledging to set out the UK’s specific issues to be addressed (the EU reform agenda) in writing to President Tusk by early November, which he duly did on 10 November.

Although there are no obvious signs of high level political negotiations, more is going on behind the scenes, including some technical discussions between officials. But at some point, the negotiating sides will have to open up: the UK will need allies in Brussels (and in key national capitals) to get meaningful reforms, so any concrete proposals must also be discussed with stakeholders here.

But what is Prime Minister Cameron’s strategy to manage the negotiation process, within the broader context of the referendum campaign? Below are three potential scenarios which explain London’s reticence to become more concrete at this stage.

‘I have a cunning plan’

Keeping a low profile might have been the plan all along. No. 10 has certainly been playing its cards close to its chest. There is only a small circle of people involved within the UK Government. London’s instinct seems to be for a close-circle inter-governmental negotiation with selected capitals, with Berlin being first among equals. While this might be a useful first step to gather some broad political support, London will eventually need to bring in a much wider range of allies among the Member States and the EU’s institutions, as well as opinion formers, and for concrete reform negotiations the experienced and efficient machinery of the Foreign and Commonwealth Office will have to take the lead.

‘I won’t decide and communicate what my plan is until the time is right’

There still is pervasive uncertainty, not only concerning the date of the referendum but also on the concrete details of the reform agenda. While the broad outline of UK demands is now known – sovereignty (linked to the ever-closer union and power of national parliaments), fairness (ensuring that the non-Eurozone countries are not outvoted on issues such as regulation of the financial sector), competitiveness (improving the business environment in line with the Juncker Commission priorities) and welfare (restricting certain benefits for EU citizens coming to the UK) – there is little concrete beyond this, even in the letter of 10 November.

No. 10 seems to be waiting until they judge the chance of success being highest, with a prior protracted discussion of reforms seen as being unhelpful. But this makes it less and less likely that the EU will be able to put any meaningful reforms into place in time for the referendum and the risk that the referendum interferes with other key political milestones, especially the French and German elections, is increasing if the referendum isn’t held in 2016. If the UK referendum becomes part of domestic election campaigns, it would, most likely, limit the willingness to make concessions to London.

The uncertainty regarding the concrete elements of the reform agenda also make it impossible to canvas what other Member States and the institutions see as being possible, politically and legally. There is thus a risk that the reform agenda either proves to be politically tricky to implement or, more likely, that it will be strong on symbolism and thin in substance.

‘Does anybody care about my plan?’

While the rhetoric in Brussels is still strong that almost everything should be done to keep the UK in, this is not an absolute commitment: there are important ‘red lines’ such as no Treaty revision now and no softening of the fundamental right to mobility. Moreover, there are worrying signs that not all perceive keeping the UK in as the key priority at this current moment.

The refugee crisis is capturing attention and political capital, with the role of the UK seen as being entirely unhelpful from the perspective of the institutions and, crucially, of Germany, given the paltry number the UK is willing to take, which is perceived as a lack of solidarity.

In addition, the UK’s opt-out from common solutions to the refugee crisis has highlighted the danger of cherry-picking in the integration process. After all, if the UK (and Ireland and Denmark) can happily ignore the impact of large refugee flows on other EU countries, the incentive for others, like the reluctant Central and Eastern Europeans, to seek similar opt-outs increases.

Domestic trumps EU

The way this process is running shows that domestic UK considerations yet again trump engagement at EU level. What conservative Eurosceptics think is seen as more important than creating alliances at EU level; what domestic public opinion demands in terms of reforms weighs more than what is feasible to achieve in the current EU environment. This carries obvious risks, especially if a real discrepancy emerges between what is demanded by London and what can be delivered in Brussels. Raising false expectations could backfire.

In the end, No. 10’s political judgement seems to be that it can replicate the last EU Multi-Annual Financial Framework negotiations, where Cameron could present relatively meagre results (an overall cut but little real reform of spending), achieved mainly by the political weight of Germany, as a political triumph to the UK media and the general public. Symbolism and political theatre, as seen in the British walk-out of the Fiscal Compact negotiations, is seen as counting more than actual substance.

Will the UK’s approach work?

These tactics might work but they can also spectacularly backfire. An EU reform agenda that looks convincing will be one of the decisive factors in the referendum. But this reform agenda is likely to be thin in many parts and it cannot address some of the fundamental questions, such as who, ultimately, decides when it comes to the free movement of EU citizens.

Some elements of the agenda might require a hard sell to the British public, including, for example, promises of future Treaty changes, which are likely to be seen with suspicion. A lot will depend on how strongly Prime Minister Cameron can deal with internal Conservative critics and whether the lacklustre ‘in’ campaign picks up more momentum.

In a worst case scenario, the Conservative ‘outs’ manage to insert impossible demands, such as a quota for EU citizens. This would scupper a reform deal, tipping what looks like an increasingly tight race. Behind the scenes, it is essential to define now what maximum reform agenda is possible and desirable for both sides.

One final reason why the dog has not yet barked is that, deep down, most believe that it is still unthinkable that the UK will say ‘No’. But this underplays not only the rise of Euroscepticism in the British, especially non-London English, population; it also underestimates how impossible it is to predict the momentum of a referendum, including its negative interaction with the refugee crisis. Turn-out rates might well prove crucial in the end. For these reasons, the EU should not only work on a realistic reform agenda but should also make contingency plans on how to deal with a possible No, despite the undesirability of this outcome for Brussels and London.

Fabian Zuleeg – European Policy Centre
Fabian Zuleeg is Chief Executive at the European Policy Centre.

This post was first published by EUROPP@LSE

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"On Social Justice And Welfare" by Amartya Sen Wed, 11 Nov 2015 09:30:16 +0000 Amartya Sen At this event at the London School of Economics and Political Science (LSE) Amartya Sen was in conversation about his latest publication, The Country of First Boys, which is a new collection of cultural essays in which he examines social justice and welfare, by addressing some of the fundamental issues of our time like deprivation, disparity, hunger, illiteracy, alienation, globalisation, media, freedom of speech, injustice, inequality, exclusion, and exploitation.

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"When Financial Markets Misread Politics" by Dani Rodrik Wed, 11 Nov 2015 08:30:07 +0000 Dani Rodrik Dani Rodrik

Dani Rodrik

When Turkey’s Justice and Development Party (AKP) defied pundits and pollsters by regaining a parliamentary majority in the country’s general election on November 1, financial markets cheered. The next day, the Istanbul stock exchange rose by more than 5%, and the Turkish lira rallied.

Never mind that one would be hard pressed to find anyone in business or financial circles these days with a nice thing to say about Recep Tayyip Erdoğan or the AKP that he led before ascending to the presidency in 2014. And make no mistake: Though Turkey’s president is supposed to be above party politics, Erdoğan remains very much at the helm.

Indeed, it was Erdoğan’s divide-and-rule strategy – fueling religious populism and nationalist sentiment, and inflaming ethnic tension with the Kurds – that carried the AKP to victory. Arguably, it was the only strategy that could work. After all, his regime has alienated liberals with its attacks on the media; business leaders with its expropriation of companies affiliated with his erstwhile allies in the so-called Gülen movement; and the West with its confrontational language and inconsistent stance on the Islamic State.

And yet financial markets, evidently placing a premium on stability, hailed the outcome. A majority AKP government, investors apparently believed, would be much better than the likely alternative: a period of political uncertainty, followed by a weak and indecisive coalition or minority administration. But, in this case, there was not much wisdom in crowds.

It is true that the AKP had a few good years after first coming to power in late 2002. But the party’s room for mischief was constrained by the European Union and the International Monetary Fund abroad and secularists at home. Once those limits were removed, Erdoğan’s governments embraced economic populism and authoritarian politics. Investors’ apparent optimism following the AKP’s victory recalls Einstein’s definition of insanity: doing the same thing over and over and expecting a different outcome.

Turkey certainly isn’t the only case where financial markets have misread a country’s politics. Consider Brazil, whose currency, the real, has been hammered since mid-2014 – much worse than most other emerging-market currencies – largely because of a major corruption scandal unfolding there. Prosecutors have revealed a wide-ranging kickback scheme centered on the state-owned oil company Petrobras and involving executives, parliamentarians, and government officials. So it may seem natural that financial markets have been spooked.

Yet the most important outcome of the scandal has been to highlight the remarkable strength, not weakness, of Brazil’s legal and democratic institutions. The prosecutor and judge on the case have been allowed to do their job, despite the natural impulse of President Dilma Rousseff’s government to quash the investigation. And, from all appearances, the probe has been following proper judicial procedures and has not been used to advance the opposition’s political agenda.

Beyond the judiciary, a slew of institutions, including the federal police and the finance ministry, have taken part and worked in synch. Leading businessmen and politicians have been jailed, among them the former treasurer of the ruling Workers’ Party.

Financial markets are supposed to be forward-looking, and many economists believe that they allocate resources in a way that reflects all available information. But an accurate comparison of Brazil’s experience with that of other emerging-market economies, where corruption is no less a problem, would, if anything, lead to an upgrade of Brazil’s standing among investors.

Going back to Turkey, leaked recordings of telephone conversations have directly implicated Erdoğan and his family, along with several government ministers, in a hugely lucrative corruption ring involving trade with Iran and construction deals. It is an open secret that government procurement is being used to enrich politicians and their business cronies. From all indications, corruption reaches higher and is more widespread than in Brazil.

But today it is the police officers who led the corruption probe against Erdoğan who are in jail. Some of the media outlets that supported the probe have been closed down and taken over by the government.

The AKP argues that the police officers are adherents of the Gülen movement and that the investigation was politically motivated, aiming to unseat Erdoğan. Both claims are most likely true. But neither justifies the blatant lawlessness with which the AKP government has clamped down on the corruption allegations. The upshot is that Turkey’s institutions, unlike Brazil’s, are being captured and corrupted to an extent that will hamper economic growth and development for years to come.

Nor is Turkey the only country where large-scale corruption is left unchecked. In Malaysia, Prime Minister Najib Razak has been at the center of a major political scandal since nearly $700 million in unaccounted funds was found in his bank accounts. Billions of dollars are said to be missing from the government investment fund 1MDB, which Najib controlled. Najib has promised a full reckoning, but he has sacked Malaysia’s attorney general, who was investigating 1MDB.

In Latin America, Argentina and Mexico both rank among the bottom half of countries in controlling corruption and maintaining transparency – much lower than Brazil. The dramatic abduction and gruesome killing in 2014 of 43 students north of Mexico City is only the latest example of collusion among the country’s criminal gangs, police, and politicians.

We know from painful experience that financial markets’ short-term focus and herd behavior often lead them to neglect significant economic fundamentals. We should not be surprised that the same characteristics can distort markets’ judgment of countries’ governance and political prospects.

© Project Syndicate

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"Deepening EU Economic Governance: The Next Steps" by Iain Begg Tue, 10 Nov 2015 11:00:09 +0000 Iain Begg Iain Begg

Iain Begg

Earlier this year, the so called ‘Five Presidents’ report’, authored by Jean-Claude Juncker, Donald Tusk, Jeroen Dijsselbloem, Mario Draghi, and Martin Schulz, was published, outlining plans for strengthening economic and monetary union. Iain Begg writes on proposals adopted by the European Commission on 21 October to implement the recommendations in the report. He notes that the new plans show Eurozone reforms with a decidedly integrating impact are going ahead, and that there could be some potential consequences for the UK’s attempts to renegotiate its EU membership.

The UK has repeatedly encouraged the Eurozone to integrate more closely to make the single currency function better, while simultaneously fretting about the risks of a Eurozone caucus deciding on policy reforms contrary to British interests. This concern is now emerging as one of those crucial to attempts to renegotiate the UK position in the EU.

Although many critics of the EU pour scorn on its apparent inability to resolve the euro crisis and bemoan the procrastination in decision-making, the reform of economic governance in recent years has been far more extensive than these critics realise.

A roadmap for further reform was set out in what has become known as the Five Presidents’ report, published at the end of June 2015 to decidedly mixed reviews. Some, including former Italian Finance Minister, Fabrizio Saccomanni, complained that it was a missed opportunity because too many of the trickier issues, such as how fiscal policy can contribute to macroeconomic stabilisation, should have been addressed more forcefully.

However, implementation of the report is now in progress following proposals adopted by the Commission on 21 October 2015. The background is explained in a Commission communication setting out five areas for action, already anticipated in Commission President Juncker’s State of the Union address delivered in September.

The first initiative will be to refine what is known as the European semester, the annual economic cycle though which economic policies are coordinated. It does so by assessing national economic plans and issuing what are known as country-specific recommendations (CSRs) aimed at influencing national policy-making.

The main changes that the Commission proposes to the semester are to improve the connections between the national level and the Eurozone level, recognising that how the Eurozone economy as a whole evolves matters, and to pay more attention to the effects on jobs and social conditions. In addition, the document advocates enhanced diffusion of best practice and possibly more funding for ‘technical assistance’ to support reform.

The second, an interesting development, is the formal decision to create a European Fiscal Board. An element of earlier governance reforms was the insistence that Eurozone countries create an independent fiscal council, part of the rationale being to act as a watchdog on how governments conduct their public finances. In the UK, the Office for Budget Responsibility fulfils this function.

The proposed new Board, which will have five members, will have the task of assessing fiscal developments in the euro area as a whole and – in what could be a significant development (see article 2a of the decision) – advising on the fiscal stance of the euro area as a whole. It will also collaborate with national fiscal councils and provide ad hoc advice to the Commission.

Three further measures are proposals rather than done-deals, some of which are likely to encounter resistance from a number of EU countries:

  • First, the Commission wants to see the establishment of competitiveness boards in each member state, although its current proposal is that these should be voluntary for those not in the euro area. These boards are intended to oversee reforms aimed at making economies more competitive and to be operational by the middle of 2016. They are to be independent of government and to have an advisory rather than executive function, although the document hints at a more formal role in the future.
  • Collective representation of the euro area in international bodies, such as the IMF, is a second proposal. There is good sense to this proposal insofar as it is curious to have the euro represented by individual countries in some settings, but by the ECB in others. However, countries like Belgium which, for historic reasons, have a special status in the IMF, may be uneasy about losing their role.
  • A third ambition is to consolidate banking union, building on the launch last year of the single supervisory mechanism, led by the European Central Bank, and the agreement on a common approach to resolving failing banks. This will entail pressure to complete the enactment of the provisions for bank resolution already passed in secondary legislation. The Commission also wants a bridging facility to underpin a fund created to support bank resolution, because the existing fund, paid for by levies on banks, will take until 2025 to reach its intended size. A much more contentious proposal is to introduce a pan-European form of deposit insurance, but details will only be published later in the year.

These five measures are a beginning because the plans for new governance initiatives will, starting in 2017, extend ‘to more far-reaching measures… to complete the EMU’s economic and institutional architecture. This will involve sharing more sovereignty and solidarity and will have to be accompanied by strengthened democratic oversight’. In particular, new proposals on common budgetary policies and on improving accountability are expected.

For the UK these developments are likely to lead to new tensions about the pace and direction of economic integration. Just the expression ‘sharing more sovereignty’ will raise many hackles, but the more subtle worry is that the UK will again be on the margins of significant developments which are accepted not just by the Eurozone countries, but also by many, if not most, of those not in the euro.

In 2011, the UK was in a minority of just two countries opposed to the fiscal compact and has irritated some of its potential allies by refusing to take part in the quota system for re-settling the migrants crossing the Mediterranean. Even Denmark, which is the only other country with a formal opt-out from the euro, seems disposed to go along with much of banking union and it remains to be seen whether others will want to participate in the new integrating measures described above.

In principle, the semester applies to the UK, although the only time it really becomes visible is when ‘Brussels’ issues CSRs, typically to a chorus of complaints about sticking its nose into matters that should not concern it. Earlier this year, for example, the perfectly reasonable judgement that the UK housing market could do with reform was condemned by several politicians.

The new plans show that Eurozone reforms with a decidedly integrating impact are going ahead and that economic policy decisions will be increasingly about the Eurozone as a whole. The dilemma for the UK is whether it is comfortable being in a shrinking minority of non-participants in significant domains of economic governance. There are also bound to be questions about the possible consequences for the renegotiation of the terms of UK membership of the EU. It can be lonely on the outside.

This column was first published by The UK in a Changing Europe

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"Why 21st Century Leadership Will Demand Character And A Long-term View" by SE Tue, 10 Nov 2015 09:30:17 +0000 SE Dominic Barton, Global Managing Director of McKinsey & Company, and a member of the Saïd Business School Board, gave the new class of Oxford MBA students some food for thought about leadership on the last day of the three-week launch event.

Leadership is about who the leader is, not what the leader does … The most successful leaders are strong characters, and have a strong purpose – they do not just focus on shareholder value which is too narrow, and too short term.

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