Brexit: Hard or Soft?

The problems that beset the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada is a sobering reminder of the minefield that the UK will have to tread through once Article 50 is triggered.

CETA, which passed its first stage of signing 30th October, was an agreement seven years in the making and aims to abolish barriers to trade. It ran into to trouble when the Belgium region of Walloon at first refused to ratify the deal over concerns over agricultural subsidies and the Investor-state dispute settlement (ISDS).

CETA
Protest against CETA

This was an agreement both sides wanted and served mutual (corporate of course!) interests and still requires ratification from the 28 member states. It shows the hazards of negotiating trade deals with the EU which surely bodes ill for the UK.

A complex of agreements

There are a complex set of agreements that make up the EU ‘Single Market‘ and the other trade agreements[1]. The Single Market for example is fairly rigid in imposing, free movement of goods, workers, services and capital. Attempting to gain exemption from one aspect, for example free movement of workers, undermines the principles driving the Single Market strategy. This is clearly a red line that would result in the UK losing out either in compensating the EU for any exemption or a point blank refusal to grant access to any part of the agreement.

It’s obvious that there is a political difficulty surrounding negotiations on the Single Market access. If the UK had to pay compensation for opting out of free movement it would be branded by UKIP and others as a betrayal of the aim to get back the £350 million a week (an incorrect claim) the UK sends to the EU.

In this light it’s difficult to see how a deal can be struck in the two years once Article 50 is triggered. Even with the lower bar of qualified majority voting it looks doubtful.

Sector by sector agreements

One possible clue to the approach the UK government may proceed from is given by the ‘Nissan Deal‘.

There is a suspicion that the government is preparing to underwrite potential tariffs for Nissan and there may be others. This seems unlikely as there may be the question of tariff compensation (which would in effect subsidise domestic products) being illegal under WTO rules.

It’s quite possible that this is instead a sign of a sector by sector approach in lieu of general agreements on areas such as the single market. With this there would be the upside for the government of plucking low hanging fruit. As Christophe Bondy, a former trade adviser, put it[2] in the context of the CETA agreement that he advised on:

“In trade agreements, usually one goes from the broader, easier issues to the last nub issues, that happens in any negotiation…”

The downside however is those ‘last nub issues’ which hold the potential to dog the main negotiations.

The compulsion of Co-operation

Taking a look at two different sectors, automotive and fishing, illustrates the difficulties and dangers.

The automotive industry is highly integrated across Europe. Britain’s car makers are mostly foreign-owned and around half of their exports go to the other 27 EU countries.

All companies and countries involved in the industry have a compelling case to continue tariff free trade. Even though the car companies are competitors, they have the same manufacturing model which would be damaged by tariffs. In his interview with Andrew Marr, 30 October 2016, Greg Clark the Business Secretary stated:

“It is important to manufacturing they get the minimum or no tariffs or and no impediments. The reason I was able to give that assurance is this is a, a good negotiations are about finding common ground between both sides to negotiation. For the European, for the continental European car manufacturer, they export us to and we export to them, and this is an exam of if you conduct the negotiations in a serious and civilised way, there is a lot in common that we can establish and that I was able to reassure Nissan and other manufacturers.”

I suspect that promises of no tariffs may be the nature of the agreement with Nissan and the car industry generally, rather than promises of compensation, and that EU members are also on the same page.

The compulsion of competition

However, when we take a look at the fishing industry, which is covered by the Common Fisheries Policy (CFP), the picture is a lot more complicated. The majority in the industry were in favour of leaving the EU. They wish to see restrictions on the access of other European fleets to British waters.

Fishing boats
Cornish fishing boats vote leave

Unlike the automotive industry, the fishing industry is fragmented largely serving domestic markets. Although there is some cross ownership, that’s used as a device to to ‘quota grab‘. It’s obvious countries such as Spain and Portugal will demand the same access to the lucrative UK waters they enjoy at present.

Less negotiations more disputes

This will almost certainly result in those member states putting these issues into the broader negotiations. The greatest disputes will most likely centre around agriculture, fisheries and to a lesser extent finance. The East European countries are also likely to play hard ball on the issue of free movement as many of their citizens work in the UK.

It points towards hard Brexit

At this early stage it’s not easy to discern the precise direction of travel for the Brexit negotiations. While there has been feverish speculation on the impact of the High Court ruling[3] on triggering Article 50, it’s not certain it will have a fundamental part to play beyond complicating the timetable.

The negotiations will not be taking place in a vacuum, they will be set against a slow down in world trade. This will exert protectionist pressures as the size of the trade cake shrinks.

With so many competing interests and issues, a limited time frame and a deteriorating economic picture, it looks set for a hard rather than a soft Brexit.

Gary Hollands – November 4th 2016

Notes and references

1. Europe and the European Union is linked by a number of interdependent agreements. Put simply, the greater the number of these agreements that are maintained the ‘softer’ the Brexit.
The following list is based on an excellent graphic by Bloomberg.

European Union official website
Membership: 28
Description: A politico-economic union that operates an internal single market.

European Union Customs Union (EUCU)
Membership: EU members + bi-lateral agreements with Turkey, San Marino and Andorra.
Description: Membership of the EUCU is a condition of EU membership. Internally it is tariff free but imposes a common external tariff on all goods entering the union. Agricultural goods are excluded from the agreement with Andorra and Turkey.

European Economic Area (EEA)
Membership: EU members + Iceland, Lichtenstein and Norway
Description: The EEA provides access to the Single Market and is compulsory for EU members. Non EU members have access in exchange for contributions to the EEA Grants scheme. Agriculture and fisheries are not covered by the EEA.

Schengen Agreement
Membership: 22 EU members + Iceland, Lichtenstein, Norway and Switzerland
Description: The Schengen Agreement covers an area where its members have abolished passport and any other type of border control.

European Free Trade Association (EFTA)
Membership: Iceland, Lichtenstein, Norway and Switzerland
Description: EFTA is a free trade area that has agreements with the EEA and EU.

2. Daily Politics 28th October 2016, interview with Jo Coburn.

3. R(Miller) v Secretary of State for Exiting the European Union: Summary and full judgement.

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Russia – From War to Revolution


The Road to February

World War One was to temporarily cut across the growing insurrectionary mood in Russia but it was in turn to sow the seeds of revolution…

The first world war would have been greeted with some relief by the ruling elite. The opposition parties were gaining strength on the back of a growing wave of discontent. Workers had recovered from the repression that followed the 1905 insurrection. The numbers participating in political strikes had risen from 8000 in 1911 to 500,000 in 1913 and had doubled in the first half of 1914.[1] This movement was halted with the declaration of war in August 1914. Almost in a flash the psychology of the nation changed. There were “…….processions in the streets carrying the Tsar’s portrait……….Those first days of war! How full we were of enthusiasm, of the conviction that we were fighting in a just and holy cause…….”.[2] This general feeling of confident euphoria was not to last long.

Initially the Russian army had mixed fortune. They did well against the Austria-Hungarian empire and took Galica, though a failed attempt to drive into East Prussia left 20,000 dead. By the end of the year there was only ill fortune. As soon as the Russian army faced serious opposition all the weaknesses of the empire were shown in sharp relief. Problems began right from the call up of 15 million men, no thought was given to the stress this large removal of a section of the labour force would place on the economy. Labour shortages and bureaucratic ineptitude took their toll, causing dislocation of the economy. Products intended for the war were as likely to be left in railway yards as make it to the front, as General Gurko pointed out, “There is plenty of meat in Siberia but we cannot get it here because we need 300 locomotives which we have not. Our railways are functioning badly, all the railwaymen were sent to the front at the beginning of the war and there is no-one to repair the locomotives”.[3]

Russian Prisoners at Tannenberg
World War 1 Russian Prisoners at Tannenberg

Vietnam taught the United States in the 1960’s and early 70’s that there is nothing more demoralising than the sight of the dead and wounded coming home. Russia suffered this on a far greater scale, the misery was compounded by the treatment, or the lack of it, of the wounded. M.V Rodzianko, president of the state Duma, visited the Warsaw-Vienna Rail Station where he found “….there were about 18,000 men wounded…….There I saw a frightful scene. On the floor, without even a bedding of straw, in mud and slush, lay innumerable wounded, whose pitiful groans and cries filled the air. ‘For God’s sake, get them to attend to us. No one has looked after our wounds for 5 days…’ “.[4]

Very quickly, a poor economic infrastructure, shortages and indifferent leadership was expressed as humiliating military defeats with horrendous casualties. In just over a year the Tsar made himself Commander-in-Chief, he was no more successful than his Generals and only succeeded in linking himself directly to failure. Within Russia the picture was also grim.

Many of the soldiers in the Russian army were of peasant background, added to the hopeless position at the front was also the news of hardship faced by their families. Food shortages had become the norm, the richer peasants were hoarding surpluses rather than sell them for rapidly devaluing Roubles. This, combined with the collapse of the transport system resulted in constant food shortage in the cities. Small farms, low in efficiency and labour intensive, were left under worked due to the call up of the men, leaving families struggling in poverty to pay rents and mortgages. The workers in the cities were hardly faring much better:

“As early as December 1914 prices of manufactured goods had risen by 25% compared with 1913, while prices of consumer goods were up by 11%. In 1915 ………food prices rose by 122%. Wage increases lagged far behind the catastrophic rise in the cost of living. Between 1914 and 1916 the working man’s earnings rose on the average by 100%, while prices of foodstuffs and consumer goods increased by from 300% to 500%”.[5]

The human story behind these figures was succinctly put by a police department report,
“The impossibility of obtaining, even for cash, many foodstuffs and articles of prime necessity, the waste of time involved in spending hours waiting in lines in front of stores, the increasing morbidity due to inadequate diet and insanitary lodgings …………….., all these conditions have created such a situation that the mass of industrial workers are quite ready to let themselves go to the wildest excesses of a hunger riot”.[6]

More worrying for the state was “……..the weariness of war to be observed everywhere, and the longing for a swift peace, regardless of the conditions upon which it is concluded”[7]

In contrast to the deprivations suffered by workers and peasants, the bourgeois and the aristocracy revelled in a fantastic shower of wealth. The Land and City and Military-Industrial committees acted as a funnel for billions of Roubles from the state to industry and land owners. Speculation in stocks and shares reached similar proportions to that in the west in the mid 1980’s. Fabergé, the court jeweller, boasted that business had never been so good. In a scathing account, L. Trotsky raged that:

“The Grand Dukes were not among the last to enjoy this feast in times of plague. Nobody had any fear of spending too much. A continual shower of gold fell from above………aristocratic ladies spread their skirts high, everybody splashed about in the bloody mud – bankers, heads of commissariat……… All came running to grab and gobble, in fear lest the blessed rain should stop. And all rejected with indignation the shameful idea of a premature peace”.[8]

Two years into the war according to Protopopov, a member of the Progressive Bloc, “all reasonable people in Russia, among them probably all the leaders of the ‘People’s Freedom’ (Kadets), were convinced that Russia was unable to continue the war”.[9] Protopopov, with the almost certain knowledge of the Tsar, had in late 1916 held discussions in Stockholm with the German diplomat, Warburg, concerning the making of a separate peace.

With the increase of strikes that quickly became political in nature, coupled with reports of a growing revolutionary mood, the bourgeois and members of the aristocracy felt the ground shifting beneath them. Discussions in ruling circles centred around the idea of a palace coup. Though talk of forcing Nicholas II to abdicate came to nothing, Rasputin was murdered at the end of 1916. Incidentally 106 people were suspected of being involved in the plot! Unfortunately all this was too little too late. Workers had moved on from anti German pogroms in 1915 to open discussions of how to rid themselves of their rulers.

In just over 2 years, from gaily marching to war with shouts of ‘hurrah’ for the Tsar, the stage had been prepared for revolution…

Gary Hollands – October 1994

References

1. Russian Factory Inspectorate. Figures exclude agriculture, rail and mining.

2. Daughter of the British Ambassador 1914. ‘A’ level hand out 1994/5.

3. Memoirs of Duma President M.V Rodzianko quoting General Gurko.

4. Memoirs of M.V Rodzianko.

5. Alexander Grunt; Russia 1914-16, Russia at war. Page 676. ‘A’ level hand out 1994/5.

6. Extracts from a Police Department report October 1916 quoted by M.Florinsky (1961). ‘End of the Russian Empire’ pp 165-6.

7. Police Department report October 30 1916. Quoted by L.Trotsky ‘History of the Russian Revolution’ pp 23. 1980, Monad Press.

8. L.Trotsky ‘History of the Russian Revolution’. pp 25.

9. Protopopov Quoted by L.Trotsky ‘History of the Revolution’. pp 29.

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Greece – Will there be a coup?

Such is the depth of the financial crisis in Greece that the replacement of Greek generals by Greek Prime Minister George Papandreou was enough to set off speculation of a coup d’état plot.

Though the speculation is understandable given the recent history of Greece, what is the likelihood of a coup? Would a coup succeed?

While it’s possible that there has been chatter amongst the ‘Colonel Blimps‘ of the Greek military, this is Greece 2011 not the Greece of 1967.

Any coup attempt would be met with fury by the Greek masses who are well organised and determined. Soldiers, themselves and their families facing deteriorating living standards, would have little incentive to support the generals. After all, what can these Generals offer that is any better than austerity with hobnailed boots? These reasons alone are enough make a coup attempt look very unlikely.

There is no doubt that Greece is entering new and deeper stage of crisis and instability. In the face of this crisis the Greek elite are suffering from vacillation and indecision. They lurch from one idea to the next, should there be a referendum or not? Should there be early elections or not? Should there be a government of ‘National Responsibility’ or not? All of these dilemmas are reflected in the splintering and infighting of the main political parties.

It looks to be only a matter of days before the Papandreou government falls. Unfortunately, there appears little in the way of a viable alternative from organisations on the left. There is every chance a right wing government could be voted in as a punishment for the austerity programme imposed by PASOK on the Greek working and middle classes.

The opposition to austerity will not stop with a new government, whether it’s elected or a cobbled together coalition…

Pundits Prescribe 10 Years of Pain for Greece

The Greek people have found themselves assailed from all sides to pay for a crisis of someone else’s making. They have protested in their hundreds of thousands against the austerity programme of cuts, mass redundancies and the fire sale of state assets, the proceeds of which would end up in the pockets of banks and bond holders.

A line-up of pundits and economists blithely playing the role of perverse doctors, declare that the Greeks will have to take ten years of pain to pay for the crisis. They point to the corrupt hiring practices for government posts, state ownership, tax avoidance as reasons for the Greek predicament.

What they don’t explain is, why in that case did the Celtic Tiger of Ireland collapse into near bankruptcy? Neither do they explain why the austerity demands would work for Greece whereas in Ireland, those policies have lead to a destruction of the growth that would have paid for its debts. They are strangely silent on the example of Ireland, which has done everything the ECB and the IMF demanded of it. In a sign that the Irish crisis is set to deepen, the Allied Irish Banks, one of the bailed out banks, has defaulted.

The Greek crisis is poised as a Mexican standoff between the Greek masses, the bond holders and banks, the CDS market, the IMF/ECB and their proxy, Greek PM George Papandreou.

George Papandreou has won his vote of confidence today and it is likely that he will be able to get a new austerity package through parliament. This will only be the first step, but as the Greek masses have made absolutely clear, the final say rests with them.