Nick Williams

An amazing example of the differences between British and American conservatives is shown by Prime Minister David Cameron’s proposal for binding shareholder votes on executive pay.  On this side of the pond, that would get you bounced out of the Republican party.  When Democrats proposed, non-binding votes on executive pay, they were attacked as “socialists” by Republicans.

My colleague, Nick Williams, has an explanation for Cameron’s move:

Fleishman-Hillard head of public affairs Nick Williams accused Cameron of using executive pay to divert attention away from ‘dire economic predictions’ in 2012.

He said: ‘With 2012 starting off with dire economic predictions the Prime Minister is simply using populist measures to divert attention. With a near-total dearth of good news, Number 10 will have to work creatively on developing these schemes.’

Even as a diversionary tactic, such a think would be unthinkable for American conservatives.

From Brussels:

Last night’s summit of EU Leaders ended up early in the morning with a dramatic outcome (see conclusions here) with 26 out of 27 Member States agreeing to a proposed Treaty change, leaving the UK entirely isolated and the 26 proposing to move forward on an intergovernmental basis. While further details concerning the nature of the proposed Treaty change have yet to be finalized and not expected to be signed off until March 2012, the core elements being proposed include aspects of fiscal coordination and surveillance, as well as further harmonization of rules in other areas, such as financial regulation, labour market reforms, taxation, etc.

The grounds upon which the UK walked away from the negotiations were a refusal by Sarkozy and Merkel to include a protocol in the Treaty which would have enshrined the following core principles:

• No new powers to the ESAs.
• EBA remaining in London.
• Non discriminatory access to central bank liquidity, irrespective of location in the EU.
• Permitting Vickers report style top up capital charges for banks.
• User charges by ESAs to be on the basis of unanimity not QMV (to avoid backdoor FTT introduced to fund the ESAs).
• Commitment to maintain open access by passporting third country firms into Europe.

These developments clearly have profound implications for the future structure of European integration and the future political relations between UK and its European partners, and between those countries members of the Eurozone and those outside as well as potentially the future enlargement of the EU and future composition of the Eurozone.

Below are a number of key initial points to note – we will provide further analysis following this afternoon’s summit at 26 (minus the UK).

FIRST HEADLINE ANALYSIS:

• The most immediate and obvious question is calling in the UK’s future relations with the EU, symbolically demonstrated by the UK empty chair in the remainder of today’s negotiations.
  • This will translate into high political isolation in all legislative negotiations. It is noteworthy that UK could not persuade any country to align with it in its opposition.
  • European governments will draw their own conclusions from the fact that the UK appeared to prioritize more highly a narrower national financial services agenda over what is perceived as being vital to the future of the Euro and the EU.
  • Given the choice by Merkel and Sarkozy to opt for a more ambitious integration agenda, they raised a much higher risk of non-ratification by the remaining 26 countries, most notably Ireland and the Netherlands which will have to hold referenda.
    • Failure to ratify by one country need not prevent the other countries proceeding with the Treaty; failure to ratify will be perceived as a vote to leave the Euro, which creates a higher risk particularly in the case of Ireland.
    • The length of time involved and the uncertainties associated with ratification of such an ambitious new Treaty will in the short to medium term lead to significant new instability in the markets. The core strategy in the short term will therefore be heavily relying on the willingness for high ECB intervention.
    • The new two-tier structure which will result between those ratifying and those non-ratifying the intergovernmental Treaty will raise significant questions over the future institutional structureof the EU.
      • Given new Treaty will not be an EU Treaty, raises questions over how any EU law [ie law applicable to both those who are member of the group and those outside] will be subject to initiatives in codecision within the existing institutions and subject to the limitations on enhance cooperation which exists within the EU institutions. This raises the question whether a parallel set of decision making procedures will have to be integrated within the new intergovernmental Treaty.
      • Given the two-tier nature between the decision making structures and the political commitments, there is a high risk that those outside the core will experience the same EEA effect over time of having to apply laws without as much influence over them, given political majorities will be formed around the inner core.
      • Strengthens the role of intergovernmentalism and raises profound questions about the future role of the EU Parliament, given the intergovernmental Treaty will be based on international commitments and not formally involve the European Parliament.
      • Political outcomes resulting in discrimination between infrastructures and companies inside and outside the core/Eurozone.
      • The political will for the UK to pay the cost of not being part of the core will be a lot higher.
        • The outcome of the pending ECJ ruling around the access to liquidity of central bank will be crucial in determining how far this discrimination will be limited by the free movement of capital and people within the Single Market, which will continue to apply within the EU.
        • Based on that, the Euromarkets could be mandated to relocate within the Eurozone.
        • The decision severely compromises leadership roles for the UKin any areas of core economic importance in the EU,
          • In the short term it will undermine those in prominent positions such as Chairmanship of ECON Committee, Director General of Internal Market DG, Chair of ESMA, Vice-Presidency of the European Commission.
          • In the medium term it will prejudice their capacity to hold such posts.
          • Implications for future enlargement prospects: countries willing to join will need to agree on the core political vision.

DETAILS OF THE COMMUNIQUE

FISCAL PACT

• Scope: Eurozone members + Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania. Sweden, Hungary and Czech Rep will consult their parliaments first, the UK will stay out.
• Implementation: New intergovernmental Treaty, outside of the EU framework – to be approved in March.
• Details:Based on the Merkel-Sarkozy proposals:
  • The Treaty will render the Stability and Growth Pact more robust (based on secondary legislation until now).
  • Automatic sanctions in case of non respect of the 3% deficit target – reverse qualified majority voting to reject these.
  • Harmonised “Golden rule” / budget balance rule to be enshrined in national constitutions (0,5% of nominal GDP).
  • Rule complemented by automatic correction mechanism if deviation (spending cuts and/or taxes increase) to be specified by each Member State.
  • European Court of Justice will control that the national implementation of the fiscal rules gives national constitutional courts the power to reject a budget on the ground of its unconstitutionality (related to this national golden rules).
  • Calendar for convergence to be established by the Commission.
  • “Economic partnership programme” to be submitted by Member States in EDP – implementation monitored by EC and Council.
  • Ex ante reporting of national debt issuance plans.
  • Debt adjustment path of 1/20 to be enshrined in new provisions.
  • Secondary law: Complemented by further reinforcement of the excessive deficit procedure – secondary legislation (cf Commission proposals of November: strengthened surveillance for programme/EDP countries) and Commission powers.
  • Further details: To be discussed today without the UK and Hungary presence.
  • Ratification: Agreement expected by March, ratification to start after the French elections.
  • Open questions:
    • How will this be articulated with the EU institutions? (given UK veto over using them)
    • How will it impact the Single Market?
    • What other areas will this Treaty cover?
    • Future of the EU / Eurozone +.
    • Eurobonds never mentioned, even at longer term horizon.

STRONGER POLICY COORDINATION

• Scope: Eurozone members, others?
• Implementation: Unclear – secondary legislation?
• Details:
  • Will make stronger use of enhanced cooperation on matters essential for the smooth functioning of the euro area, “without undermining the internal market”.
  • Procedure to make all major economic policy reforms planned by a Member State discussed and coordinated at Euro area level.
  • Euro Summits at least twice a year + other measures agreed in October (Eurozone President, stronger Eurogroup, etc).
  • Ratification: Unclear.
  • Open questions:
    • Extent to which enhanced cooperation will be used?
    • Articulation with Single Market?

STABILISATION TOOLS

• Scope: Eurozone members.
• Implementation: Reforms of existing intergovernmental treaties (ongoing).
• Details:
  • EFSF leveraging to be rapidly deployed.
  • ESM brought forward to July 2012 (as soon as 90% members have ratified).
    • PSI in ESM to be aligned to IMF practices.
    • Voting rules changed to include emergency procedure – mutual agreement replaced by qualified majority of 85% in case EC and ECB conclude urgent decision needed as euro area sustainability in danger (need be confirmed by Finnish parliament).
• Overall EFSF/ESM ceiling of 500 Bn € (to be reassessed in March 2012).
• EU to provide 200 Bn € to IMF (hopes other will increase provisions as well).
• Ratification: Ongoing (intergovernmental).
• Open questions:
  • Role of the ECB – no change so far.
  • Ceiling too low, especially if EFSF and ESM won’t run in parrallel?
  • Capacity to bring ESM forward (national ratifications).
  • Finnish parliament to confirm ESM change of majority rule.
  • ESM access to ECB money – ruled out by Germany.

 David Cameron MP UK Prime Minister

 “David Cameron’s isolation is a sign of weakness not of strength … It is not in Britain’s national interest for decisions to be taken without us even at the table and it’s a direct result of David Cameron spending more time negotiating with his own backbenchers than with our European partners.”

Douglas Alexander MP
UK Shadow Foreign Secretary

“Mr Cameron was right to reject a deal designed by the French, for the French.”

The Daily Telegraph

The UK has most of the EU’s financial business, but we have a minority of the votes. The City does business globally but pays its taxes here, so retaining a strong, vibrant, international finance hub here is good for jobs and our economy.”

Angela Knight
British Bankers Association

“Britain did not walk out of the EU last night. But let there be no doubt about it: we have started falling out.”

The Economist

EU Council – Britain’s Veto
Friday 9th December 2011

A major part of David Cameron’s modernisation plan for the Conservative Party was to heal their internal rift over Europe. This rift stemmed from the Conservative rebellion against UK Prime Minister John Major over the 1992 Maastricht Treaty – a formative political experience for both Cameron and Chancellor George Osborne. In this they largely succeeded by producing a Eurosceptic party in which opposition to anything that hinted at federalism assumed the level of a litmus test amongst activists; the 2010 intake of Conservative MPs are amongst the most Eurosceptic to date. This was a purely domestic project, in which the implications for the UK’s influence in the EU were largely ignored.

However, with the formation of the coalition, the European faultline running through government is if anything more significant than at the time of Maastricht. The Liberal Democrats are avowedly pro-Europe, and see the EU as entirely consistent with their internationalist and regionalist approach – a position that evokes a range of emotions from bewilderment to rage amongst their Conservative counterparts.
Against this backdrop, could last night’s debacle in Brussels destroy the coalition? It is unlikely, as neither party wants to face the electorate with the economy stalling and the austerity cuts beginning to bite. In particular, current polling suggests that the Lib Dems would face electoral oblivion at the polls – they need all the time they can get for economic recovery to vindicate their decision to enter a coalition with the Tories and implement the painful austerity programme.

Could this embolden the Tories to call time on the Coalition? Not unless the Conservative Right can convince the leadership that they can win an outright majority in a snap election – something more likely after the October 2013 boundary changes have taken effect. On balance, we therefore expect the Coalition’s increasingly unhappy marriage to continue in the short term – most likely through to 2015. However, the Conservative’s right wing is likely to continue causing trouble on Europe as the Parliament wears on – aided and abetted by Labour for tactical reasons – resulting in increased coalition friction.
UK – EU Relations

In broad terms, the EU has now split between the UK and everyone else. This is a moment that bears more than a passing resemblance to the 1990s – when John Major was isolated in Europe through repeated use of the veto abroad and Tory rebels at home – except that now the stakes are much higher.

Realistically, a disorderly break-up of the eurozone will only be averted if the package agreed between the Eurozone 17 plus the (now) 9 other non-Euro members (i.e., every Member State but the UK) is judged to be sufficiently credible and likely to stick through the three years it is likely to take to negotiate, ratify and implement. The markets will ultimately be the judge of that.
Beyond this, it is clear that we now have a two-speed Europe, regardless of whether the agreement between the rest of the Member States is formally within the EU institutions or not. In vetoing treaty change, Cameron has denied the rest the use of the Commission and EU officials. This may well have been in the UK’s short term interests; however, the reality is that we have also entrenched a large voting bloc whose interests will inevitably start to converge as they embark on closer union.

Given the dramatic way in which the negotiations broke up, and the rancour directed towards the UK (on top of the existing tensions), it is difficult to see how this will not further limit the UK’s ability to influence the EU negotiations in our favour. It is likely that it will take a decade or more for Britain’s influence in the EU to recover – and any future enlargement of the EU is unlikely to change this – the expectation is that any future Member States will also have to sign up to the new treaty.

Nick Andrews

My Fleishman Hillard colleague in Brussels, Nick Andrews, has a nice rumination on the desire for many companies to be left alone.  He notes that companies in the throws of some public affairs crisis pine for the indifference of government for what they do.  He brilliantly describes the mindset:

Broadly, this depends on a line of argument which goes something like this. “We’re really important to the (normally global) economy. You don’t really understand what we do because you’re not technical like us. We’re quite capable of self-regulating. We’re really very responsible (no, really). Best to leave us alone.” Whilst I totally understand the attraction of this approach, I have one small issue with it. I’ve never seen it work. Ever.

I am very familiar with this attitude and I agree with Nick that it is utterly self-defeating.  But I do think he underestimates the path from this attitude to ultimate success in the way a company conducts its public affairs program.

The challenge is always to look beyond the immediate crisis, to the positioning opportunity. A positive, solution-oriented, industry-leading point of view, stated passionately, widely and consistently, can only stand organisations in good stead. It puts their opponents on the back foot and shapes the debate. It raises morale internally and galvanizes the sector. After all, they might as well. The one thing we can say with certainty is that they won’t be left alone.

As usual, Nick’s guidance is spot on and companies would be wise to take it.  But I’m reminded of the scene from beginning of Peter Pan when Peter is trying to help the children to fly.  As long as they were simply following Peter’s instructions, they were unsuccessful.  It was only when the “truly believed” that they were lifted off the ground.

So it is with a successful corporate public affairs program.  If it is done because it is something “you have to do” to keep the government at bay or even if it is done because Nick Andrews said so, it will fail in the end.  It is only when a company appreciates the fact that, in the current policy and political environment, companies have responsibilities greater than to provide jobs for their employees, ROI for investors or even good value for customers.  In fact, the broader public now holds companies accountable for larger social goals, like sustainability or humane treatment of their stakeholders, very broadly defined.  It is only when companies embrace these values will they achieve their proper role in society.   Like it or not, corporate leaders are put in the same pot as government leaders.  The general public believes all such elites have failed them in their obsessive search for power or money.  The burden falls on all societal leaders to demonstrate their commitment to the greater good.

And, if they do it right, they might even, in the end, be left alone by government.  Thank so?

Nah!

Financial Times, 1:27pm Thursday November 24th, 2011
Germany is the real winner in a transfer union
–
By Sebastian Mallaby
–
Ireland and Spain suffered property and banking busts at least partly because monetary policy was too German, writes Sebastian Mallaby.

Britain’s position in Europe is once again a burning political issue after up to 81 Tory MPs voted against David Cameron in the biggest rebellion of Government MPs in years.

It had been predicted that around 60 MPs would rebel, but according to the BBC, around 80 have done so in what would appear to be an unprecedented disaster for Chief Whip Patrick McLoughlin.

Not sure what all this means, but it’s not good for Cameron….or for Europe.  Watch this space for further developments.

See the lively account below from my colleague in London (be sure to follows him on Twitter):

Simon Benson, Fleishman Hillard London

Back to the Future for Cameron’s Party?
By Simon Benson, FH London
A Tory Cabinet Minister resigning with the whiff of innuendo in the air and now the Parliamentary Conservative Party dividing in their dozens on the issue of Britain’s membership of the European Union. People younger than myself tell me there has been a 1990’s revival in the UK recently – I now see they are not wrong.

Of course, things are different today. At that time, John Major’s Government appeared to be on its last legs, held together by a rag tag alliance of the mad, bad and dangerous to know – and I have not even begun talking about their critical alliances with the Ulster Unionists.

Luckily, Cameron is not anywhere near that stage, and we should not draw too many parallels. First, Cameron’s coalition gives him a good majority and as Labour is not playing the politics game – for the moment –Cameron will easily survive. Second, the issue of Europe was the defining key issue for Major – for Cameron, it is the economy. If he plays it right, he can emphasise the critical role the EU plays in terms of trade with the UK.

What will be most interesting for me – as a former special adviser in the Chief Whip’s office – will be the scale of the rebellion – especially among the new intake. When I worked in the Whips’ Office, any rebellion predicted to be around the 60 mark sent panic waves through Government. The best operation we were involved in got a top line prospect of 75 rebellions down to about 28 on the day – using all sorts of tactics that I won’t publish here.

If the Government succeeds in reducing the numbers by a healthy third or more, then Cameron and his team will have seen a job well done. Less than that and Cameron will know that Europe – and its fatal ability to be a conduit for other frustrations – has come back to haunt his Party.

The Key Points

• The Motion has been tabled by Tory MP David Nuttall, suggesting a public referendum on either leaving the EU entirely or renegotiating the UK’s position within it.
• It is not binding on the Government – even if it succeeded, it would not pass as statute.
• David Cameron’s Government will easily survive this vote as the Opposition will not collude with the Eurosceptics.
• The Tory rebellion is likely to be up to 65. Any more than 41 rebels would mean the largest Conservative revolt on Europe in Government. The Whips will be spending today finalising a campaign which would have started days ago, turning on the pressure.
• The ‘three line’ Whip on this – the strictest in parliament – surprised many in the Tory Party, who thought that as the motion was not binding, the Government would allow a free vote.
• All eyes will be on the scale of the rebellion and what this will signify for Mr Cameron and his authority on both his policy on Europe and his grip on the parliamentary party.

Key Points from the Debate so far, at 1700

• Labour leader, Ed Miliband MP: ‘He (the PM) went in shouting at Germans, but came out being
• lambasted by the French…the Tory party on Europe suffering another nervous breakdown.’
• David Nuttall MP, proponent: ‘the vast majority of the British people want a referendum’.
• Prime Minister David Cameron MP: ‘National interest is within the EU, benefiting from single market.. 50% UK trade is with Europe – would not want to imperil that.’

What Happens Next

• The vote is at 10pm tonight. Insight Special will email the results and tweet them at www.twitter.com/fleishmanLonpa

The past two weeks have seen the increasing threat of financial turmoil in both the EU and the US. On 21 July, Eurozone leaders agreed a new package of measures, aimed at shoring up the Euro. At the same time, the US appeared no closer to internal agreement on raising the debt ceiling. The deadline is 2 August.

The emergency summit of Eurozone leaders on 21 July produced a number of outcomes:
1. Greece is to receive a second bail-out from the EU and IMF, of €109 billion;
2. An additional €37 billion is expected to come from the private sector;
3. The repayment schedule on Greek loans is extended from 7.5 years to between 15-30;
4. The interest rate on all Greek loans is to come down from 5% to 3.5%;
5. The new repayment schedule and rate is to be applied to Ireland and Portugal too;
6. The European Financial Stability Fund (EFSF) is given powers to act pre-emptively in states as well as financial institutions (banks) and, as needed, markets.
Reaction
Global markets have reacted with cautious optimism to what is really a story of two halves: Greece and the broader mechanisms of the Eurozone. In what was clearly a well-rehearsed line, every leader emphasised Greece was a unique case, and that the second bail-out was therefore a unique response, but well deserved. Greece had made a lot of effort to meet its obligations and change its ways, and therefore was worthy of a second round of help. In order to ensure it remained unique, the lower interest rates and extended schedule would be applied to Ireland and Portugal. The second common line was that the new powers given to the EFSF are anything from game-changing to historic, since they potentially herald a European IMF, as President Sarkozy put it.
Analysis
Though the real driver of the summit was a dread of contagion, it was the forbidden word. Instead, much was said about solidarity and determination. The first was palpable: whether driven by empathy, fear or calculation, the decision to stick with Greece was an act of solidarity, not least because there is no clear way to remove it.
Determination, however, remains qualified. There was clearly a determination to do something together, but not too much – or at least not in a way that national electorates would deem too much. At least not publically. For the harsh reality is that it is becoming increasingly difficult to understand the evolving nature of the EFSF, or how it is meant to work with the ECB, and how they will interact with states and the Commission. In other words, in grand EU tradition, ever more institutions are being created behind which politicians can hide, promising their voters everything is being done at a national level while allowing ever more to be done at the collective one.
THE EUROZONE SUMMIT
EVERY LEADER EMPHASISED GREECE WAS A UNIQUE CASE, AND THAT THE SECOND BAIL-OUT WAS THEREFORE A UNIQUE RESPONSE…

Will it work ?
The Eurozone summit has bought time: it most definitely has delayed the crunch time in Greece and possibly staved off contagion, at least over the summer. But since a second bail-out was necessary, this is an expensive summer holiday for the European tax-payer, and unjustifiably so: from the start of this crisis it was clear fiscal mechanisms of some sort were necessary to make a monetary union work. The adamant political refusal to accept this has meant that much of the hundreds of billions spent over the past eighteen months on Greece, Ireland and Portugal – plus the costs of shoring up the currency – could have been reduced, the money put to better use elsewhere, and the EU kept more intact.
The core questions were as clear then as they are now, namely: will the Eurozone establish itself as a true currency, establishing fiscal arrangements – or will it dissolve into history, taking the EU with it? To date, the answers delivered by European leaders, in and out of summits, have been “sort of yes” to the former, and “no” to the latter. At the summit of 21 July the answers were “ok, yes, but don’t tell anyone” and “absolutely not”. If the markets accept that line, the Euro will slowly rally, which is what most leaders want: a fast rally would make it too expensive.
THE US FINANCIAL CRISIS
The summer rush has wrung a deal out of EU leaders, and the heat wave in the US will probably do the same there. The Eurozone has been saved, at least for now – and possibly for the duration. Ironically, the ungainly and expensive manner of doing this, spread over eighteen months and involving four bailouts (two to Greece), has effectively transformed the Eurozone precisely into what its weak leaders keep promising it will not become: a transfer union, in all but name.
Meanwhile across the sea, the official transfer union of the US seems to be in gridlock, stuck on narrow ideology while near drowning in a sea of debt. Worse still, due to the election year the most that can be hoped for is immediate relief since all wider agreements will be shot down in campaigning. A hard year is ahead.
CONCLUSION
The US crisis is, in many ways, more serious: the immediate problem is an inability to agree between Democrats and Republicans on raising the debt ceiling. If no agreement is reached by 2 August, the US will default, the ratings agencies will all downgrade it, and a crisis of some sort is therefore deemed inevitable. The impact of such a crisis would immediately reverberate far and wide, not least because China is the chief holder of US debt.
In reality the debate is potentially irrelevant, since it is about allowing the US to borrow even more in addition to its massive outstanding debt, which is now in excess of US$14 trillion2. The core of the disagreement is not on the specific act, but on debt reduction measures necessary to calm the ratings agencies and markets. Debates on these appear stuck: Republicans demand budget cuts while Democrats demand higher taxes. Since the US is heading into an election year, and neither side would wish to take the blame for the US defaulting, there are finally signs the two sides will agree on the raise before the deadline, and possibly also on a package of measures.
However, precisely because it is an election year, any such agreement should be taken with a large pinch of salt: rather than enshrined, all its faults will be held up by both sides. Most probably it will therefore not be enacted, and the sides will be back at the table to try and raise the ceiling again before too long, with the debt growing all the while.

Dr Ilana Bet-El,
Senior Policy Advisor

His performance in Parliament today showed him at his prime-ministerial best: in command, in control, and, for the first time since the phone-hacking scandal at News of the World erupted, on top of the situation. “The buck stops with the prime minister,” he said.

Jon Stewart swooned over the histrionics yesterday over the phone hacking scandal.  “This is their CSPAN!” he exulted.

Liam McCloy

My colleague, Liam McCloy in the Fleishman Hillard London office gave his pre-debate analysis to me as follows:

The Prime Minister will be listening closely to the evidence given before the Committees tomorrow as on Wednesday he will have to demonstrate a clear sense of purpose in driving the investigation forward.

This is what the Opposition are quite rightly calling for him to display. If he fails to exhibit this then we will be left under no illusion that this is due to his proximity to those at the heart of the investigation.

I suspect that Cameron more than most MPs will be glad when the Speaker calls time on Wednesday and Parliament breaks for the Summer Recess.

However, with August traditionally a quiet month for news, the Prime Minister might find the crisis continues to lap at his feet as he paddles off the British shoreline on his summer break.

As we head into August, Cameron seems to be making the best of a bad situation.