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.

Interesting that the increase in the deficit is the major platform on which every Republican is running.

However, the report also points to increased political controversy around China that runs counter to fairly aggressive charm offensive by high level U.S. officials, including Vice President Joe Biden, U.S. Ambassador to China Gary Locke and Under Secretary of State Robert Hormats, all of whom expressed strong support for Chinese investment in the U.S. These comments, however, were undermined to some degree by high profile resistance by the U.S. government to some investment by Chinese technology firms on national security grounds.

Similarly, on the China side, there have been some mixed messages, with public support by China generally to foreign investment, but some resistance in specific.

China added a new layer of bureaucracy for foreign investment into China. In August, the Ministry of Commerce (MOFCOM) issued the final regulations of China’s new national security screening framework, replacing the temporary regulations enacted earlier this year. While the institutional setup of this framework is very similar to the Committee on Foreign Investment in the United States (CFIUS), there are two major differences that stand out. First, the scope of national security screening is intentionally kept very broad, including “national economic security” or “social stability” as reasons to block foreign investment.

Clearly, investment flows going to and coming from China involve a complex amalgam of politics, economics and diplomacy. The stakes are very high for the globe and it will take the best minds and the best motives on both sides of the Pacific to navigate through the months and years ahead.

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.

As a public affairs professional, it is absolutely fascintating to get “on the ground” reports about significant events occuring all over the world.  I talked to a colleague who was on the phone with the prime minister of a European country this very morning providing guidance on a speech he is about to deliver.   I talked to another colleague who took umbrage when I quoted a Financial Times article critical of his government.  And then discussed a project that a colleague is working on with the President of an Asian country.

The dinner took place in a high rise on the 80th floor with a spectacular view of South Chicago along Lake Michigan.  It was very convivial.  Our CEO gave a brief toast, but clearly did not want to interrupt the comraderie.

A very good kickoff to the meeting.

Dan Baxter

My colleague Dan Baxter, who toils away in Brussels for Fleishman Hillard, agreed to a quick interview on the issues confronting the delegates at the Climate Conference in Durban.  Typically pithy and insightful.

Q: How will Durban be different from previous UN Climate Change Summits?

Baxter: After Copenhagen, the world’s political elite really backed away from the COP summits – it seems they felt they had over-promised, or at least failed to manage expectations – and since that time, there has been little appetite for bold political statements in this area. COP conferences have now been handed back to the ‘environmental elite’ – and as such, this conference is likely to be as technical as it is political.

It is also special timing vis-à-vis the end of the Kyoto Protocol, which in effect ends in 2012. There will be quite a lot of talk in Durban about what, if anything, replaces it; while it is generally viewed as an outdated tool for managing global climate change, there seems to be little consensus about how to update and replace it. So this will undoubtedly be a focus, and that will, I suspect, only add to the political nature of the talks.

Q: What are the two greatest obstacles to progress in addressing climate change?

Baxter: I would say that the first obstacle, broadly, is ideological agreement. Put crudely, there are many different versions of climate change – whether it exists, what its impacts are/will be, and the extent to which it is controllable – and history has shown that it is very difficult to get international agreement in the absence of a common definition of the problem. Added to that, the ‘who pays for what’ card, which pits developed against developing countries and climate change ‘winners’ against those who will bear the harshest effects, is something that may need to be resolved before we can move on.

Secondly, I have always said that the key to global climate negotiations is a deal between the US and China. The two biggest polluters in the world need to agree politically that this is a problem and that they need to take steps to address it. Without these two countries, no initiative will have credibility, regardless of its intentions. But it is far from clear to me that either country has the ambition or political will to come to such an agreement. At least we’ll know quite soon…

Which brings us to the final concern: America appears to be sleep-walking into an impoverished debate. Next year is gearing up to be a tussle over who will bear more of the fiscal burden in the era of austerity. Should the rich pay higher taxes? Or should the middle class accept deeper spending cuts? The stage is set for two bald men to fight over a comb. Consider this: 2012 could be the first presidential contest in a century that does not produce the most powerful figure in the world. Whether it would qualify as good or hard, America needs a much richer debate than the one that appears to be in store.

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!