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EG SQUAWK
Healthcare What happened: UK officials say new variant may be more deadly
Scott Rosenstein

“With the old variant, out of 1,000 people in their 60s, roughly 10 are expected to die. With the new variant, in the same group, 13 or 14 are expected to die. Other ages seeing similar increases." - https://twitter.com/BNODesk/status/1352671170198450177

 

Officials maintain that this is still highly uncertain speculation, but if true this would represent an increase in the likelihood of death for this cohort from 1% to 1.3%/1.4% (a 30-40% increase).

 

A virus that kills its host isn’t doing its job well. Thus, viruses tend to become less lethal over time. But not always. And random mutations that take hold in dominant strains (like the new variant) could make a virus more lethal. That said, this observed increase in mortality could also be the result of overworked hospitals or some other epidemiological anomaly.

 

Increased scrutiny will shed more light. But until more evidence becomes available, concern will spike, as will calls for more stringent restrictions and surveillance. Additional travel restrictions could also occur. On the plus side, the UK outbreak picture appears to be improving since the most recent lockdown was put in place, albeit slower than previous lockdowns.

“With the old variant, out of 1,000 people in their 60s, roughly 10 are expected to die. With the new variant, in the same group, 13 or 14 are expected to die. Other ages seeing similar increases." - https://twitter.com/BNODesk/status/1352671170198450177

 

Officials maintain that this is still highly uncertain speculation, but if true this would represent an increase in the likelihood of death for this cohort from 1% to 1.3%/1.4% (a 30-40% increase).

 

A virus that kills its host isn’t doing its job well. Thus, viruses tend to become less lethal over time. But not always. And random mutations that take hold in dominant strains (like the new variant) could make a virus more lethal. That said, this observed increase in mortality could also be the result of overworked hospitals or some other epidemiological anomaly.

 

Increased scrutiny will shed more light. But until more evidence becomes available, concern will spike, as will calls for more stringent restrictions and surveillance. Additional travel restrictions could also occur. On the plus side, the UK outbreak picture appears to be improving since the most recent lockdown was put in place, albeit slower than previous lockdowns.

1/22/21 14:20
USA Manchin will push to moderate Dem policy, but isn't afraid to spend
Clayton Allen
In an interview with a local news station Senator Joe Manchin, a moderate Democrat from West Virginia, kept the door open to potential USD 2,000 stimulus checks and advocated for up to USD 4 trillion in infrastructure investments (link to comments). Manchin's statement points to several important dynamics emerging as the new Congress begins work. First, the idea that Manchin would oppose Democratic spending priorities because he is a deficit hawk is unfounded--Manchin clearly supports major spending, and any opposition to Democratic polices is likely to stem from unique positions such as his support for fossil fuels. Second, Manchin announced this shift in position via local media, suggesting that increased stimulus is something he believes he can sell to his base, though he maintains flexibility in his final position by advocating for "targeted" payments. Finally, the position of moderates will be instrumental in shaping the final Democratic stimulus proposal--our expectation is that moderates will push for a slightly lower topline figure (USD 1.5T to USD 1.9T) in this round of stimulus but that doesnt rule out major spending later in the year. With reports today supporting our view that stimulus is likely to move via reconciliation, which requires only a simple majority in the Senate rather than the 60 vote threshold for other bills, every Democratic vote will matter, giving Manchin and other moderates leverage over a final package.
In an interview with a local news station Senator Joe Manchin, a moderate Democrat from West Virginia, kept the door open to potential USD 2,000 stimulus checks and advocated for up to USD 4 trillion in infrastructure investments (link to comments). Manchin's statement points to several important dynamics emerging as the new Congress begins work. First, the idea that Manchin would oppose Democratic spending priorities because he is a deficit hawk is unfounded--Manchin clearly supports major spending, and any opposition to Democratic polices is likely to stem from unique positions such as his support for fossil fuels. Second, Manchin announced this shift in position via local media, suggesting that increased stimulus is something he believes he can sell to his base, though he maintains flexibility in his final position by advocating for "targeted" payments. Finally, the position of moderates will be instrumental in shaping the final Democratic stimulus proposal--our expectation is that moderates will push for a slightly lower topline figure (USD 1.5T to USD 1.9T) in this round of stimulus but that doesnt rule out major spending later in the year. With reports today supporting our view that stimulus is likely to move via reconciliation, which requires only a simple majority in the Senate rather than the 60 vote threshold for other bills, every Democratic vote will matter, giving Manchin and other moderates leverage over a final package.
1/19/21 14:34
Russia, Germany, France Navalny arrest triggers European outcry and calls for human-rights sanctions
Emre Peker

Russian authorities’ arrest of opposition politician and anti-corruption activist Alexie Navalny triggered an EU-wide condemnation and calls for his release, providing impetus for Russia hawks within the bloc to push for human-rights sanctions against Russia--as highlighted by Eurasia Group’s call last week (please see Russia: Navalny’s return will spark new tensions between Russia and the West, 15 January 2020). Baltic states jointly said they would raise the issue at the bloc’s foreign ministers’ gathering next Monday, when Lithuania, Latvia and Estonia--as well as the Czech Republic--will press the remaining members to build on limited sanctions imposed after Navalny’s poisoning in August. The decision to imprison Navalny for 30 days following a make-shift court hearing Monday on his alleged violation of probation terms will likely fuel more EU condemnations. But the limited sentence also stands to curb European appetite for a harsh reaction. Another court hearing scheduled for 29 January, however, could provoke EU members in the unlikely scenario that it leads to a long Navalny incarceration. Despite strong criticism of Navalny’s detention from Brussels, Berlin and Paris, the EU will also consider its complex relationship with Russia, including Ukraine and Belarus dynamics. Still, for some EU diplomats Moscow’s latest crackdown on dissent is a slam-dunk to showcase the bloc’s human-rights sanctions regime, adopted in December. Mimicking the US Magnitsky Act, the EU’s new tool would allow member states to draw up and then unanimously approve sanctions to punish human-rights violations. While officials anticipate initial measures to roll out sometime in late-February or early March, the Navalny incident may push Russia to the top of the agenda and trigger quicker action. That said, sanction debates within the EU are always painful--and players including Hungary might block punishment of Moscow. The debate will have broader ramifications for the EU’s “strategic autonomy” ambition. If the EU can muster unilateral action over Navalny, it will showcase Europe’s increasing readiness to put its words into action--even if the sanctions don’t hit the Russian economy. Otherwise, the EU will likely look to coordinate its reaction to the Navalny affair with the incoming Biden administration, underscoring European dependence on the US when it comes to foreign policy and security matters.

Russian authorities’ arrest of opposition politician and anti-corruption activist Alexie Navalny triggered an EU-wide condemnation and calls for his release, providing impetus for Russia hawks within the bloc to push for human-rights sanctions against Russia--as highlighted by Eurasia Group’s call last week (please see Russia: Navalny’s return will spark new tensions between Russia and the West, 15 January 2020). Baltic states jointly said they would raise the issue at the bloc’s foreign ministers’ gathering next Monday, when Lithuania, Latvia and Estonia--as well as the Czech Republic--will press the remaining members to build on limited sanctions imposed after Navalny’s poisoning in August. The decision to imprison Navalny for 30 days following a make-shift court hearing Monday on his alleged violation of probation terms will likely fuel more EU condemnations. But the limited sentence also stands to curb European appetite for a harsh reaction. Another court hearing scheduled for 29 January, however, could provoke EU members in the unlikely scenario that it leads to a long Navalny incarceration. Despite strong criticism of Navalny’s detention from Brussels, Berlin and Paris, the EU will also consider its complex relationship with Russia, including Ukraine and Belarus dynamics. Still, for some EU diplomats Moscow’s latest crackdown on dissent is a slam-dunk to showcase the bloc’s human-rights sanctions regime, adopted in December. Mimicking the US Magnitsky Act, the EU’s new tool would allow member states to draw up and then unanimously approve sanctions to punish human-rights violations. While officials anticipate initial measures to roll out sometime in late-February or early March, the Navalny incident may push Russia to the top of the agenda and trigger quicker action. That said, sanction debates within the EU are always painful--and players including Hungary might block punishment of Moscow. The debate will have broader ramifications for the EU’s “strategic autonomy” ambition. If the EU can muster unilateral action over Navalny, it will showcase Europe’s increasing readiness to put its words into action--even if the sanctions don’t hit the Russian economy. Otherwise, the EU will likely look to coordinate its reaction to the Navalny affair with the incoming Biden administration, underscoring European dependence on the US when it comes to foreign policy and security matters.

1/18/21 10:04
USA Biden's stimulus plan unlikely to attract enough bipartisan support to avoid reconciliation
Jon Lieber
Reports of the details of Biden's stimulus plans that leaked tonight include significant spending for state and local governments, vaccines, household relief checks, low income tax cuts, and extended unemployment insurance, consistent with our base case. The bill is slightly larger than we expected - at close to USD 2t - and includes several mandates on private businesses for paid family leave and a USD 15/hour minimum wage.

These last two present a legislative challenge, because they are extremely unlikely to attract enough Republican support to get to 60 votes in the Senate and they also can't be done through Congress's reconciliation process. So they are unlikely to become law, but the rest of this package is. We expect a final bill will come in somewhere between our USD 1.5 trillion base case and the USD 2 trillion Biden ask, as horse trading and negotiations with moderate Democrats may lower the price tag slightly.

Consistent with our base case, we continue to expect something to get done around mid-March through the reconciliation process. It may attract a Republican vote or two in the Senate, enough that Biden can claim he is working with Republicans, but this bill will have to change before it almost certainly passes.
Reports of the details of Biden's stimulus plans that leaked tonight include significant spending for state and local governments, vaccines, household relief checks, low income tax cuts, and extended unemployment insurance, consistent with our base case. The bill is slightly larger than we expected - at close to USD 2t - and includes several mandates on private businesses for paid family leave and a USD 15/hour minimum wage.

These last two present a legislative challenge, because they are extremely unlikely to attract enough Republican support to get to 60 votes in the Senate and they also can't be done through Congress's reconciliation process. So they are unlikely to become law, but the rest of this package is. We expect a final bill will come in somewhere between our USD 1.5 trillion base case and the USD 2 trillion Biden ask, as horse trading and negotiations with moderate Democrats may lower the price tag slightly.

Consistent with our base case, we continue to expect something to get done around mid-March through the reconciliation process. It may attract a Republican vote or two in the Senate, enough that Biden can claim he is working with Republicans, but this bill will have to change before it almost certainly passes.
1/14/21 17:22
Italy Update on Italy's governing crisis
Federico Santi

Last night, the cabinet approved the revised Recovery Plan, presented by Finance Minister Roberto Gualtieri to meet governing parties’ objections.

After threatening to vote against the government earlier, junior coalition partner Italia Viva abstained. Italia Viva leader Matteo Renzi will hold a press conference at 5:30 local time today to announce next steps.

Though until yesterday we expected Renzi to announce the resignation of Italia Viva cabinet ministers, events in the last 24 hours suggest a last-minute efforts at mediation may be gaining steam.

Reports today suggest that Prime Minister Giuseppe Conte may have succeeded in recruiting enough non-aligned and opposition lawmakers to offset a possible defection by the Italia Viva caucus in parliament. Several Italia viva lawmakers may also not follow its leader Matteo Renzi in exiting the coalition. It is still unclear, however, whether other governing parties and the president would welcome this outcome, which would leave the coalition beholden to a mixed group of runaway lawmakers.

This is supported by Conte’s threat to exclude Italia Viva from any future government coalition. If so, it would mean that Renzi’s gamble to openly challenge Conte in the hopes of replacing the Prime Minister or gaining more clout within the coalition could have backfired.

For now, we still expect Conte to remain in charge, even if presiding over a reshuffled cabinet and (possibly) a slightly different coalition in parliament (40% probability). Alternatively, if Renzi has his way we could still see a change in the Prime Minister with the existing coalition (20%). Failing this, the most likely outcome would be a broader coalition government including parts of the right-wing opposition (25% probability).

More problematic and far-fetched outcomes, such as snap elections (10%) and a right-wing coalition (5%) remain very unlikely for now.

Last night, the cabinet approved the revised Recovery Plan, presented by Finance Minister Roberto Gualtieri to meet governing parties’ objections.

After threatening to vote against the government earlier, junior coalition partner Italia Viva abstained. Italia Viva leader Matteo Renzi will hold a press conference at 5:30 local time today to announce next steps.

Though until yesterday we expected Renzi to announce the resignation of Italia Viva cabinet ministers, events in the last 24 hours suggest a last-minute efforts at mediation may be gaining steam.

Reports today suggest that Prime Minister Giuseppe Conte may have succeeded in recruiting enough non-aligned and opposition lawmakers to offset a possible defection by the Italia Viva caucus in parliament. Several Italia viva lawmakers may also not follow its leader Matteo Renzi in exiting the coalition. It is still unclear, however, whether other governing parties and the president would welcome this outcome, which would leave the coalition beholden to a mixed group of runaway lawmakers.

This is supported by Conte’s threat to exclude Italia Viva from any future government coalition. If so, it would mean that Renzi’s gamble to openly challenge Conte in the hopes of replacing the Prime Minister or gaining more clout within the coalition could have backfired.

For now, we still expect Conte to remain in charge, even if presiding over a reshuffled cabinet and (possibly) a slightly different coalition in parliament (40% probability). Alternatively, if Renzi has his way we could still see a change in the Prime Minister with the existing coalition (20%). Failing this, the most likely outcome would be a broader coalition government including parts of the right-wing opposition (25% probability).

More problematic and far-fetched outcomes, such as snap elections (10%) and a right-wing coalition (5%) remain very unlikely for now.

1/13/21 08:14
Brazil Government-backed candidate a strong favorite to win speakership
Christopher Garman

Government-backed candidate Arthur Lira looks to be picking up more steam in the race for the speakership election to be held on 1 February. The press has been focused on the number of parties which have formally endorsed the independent candidate Baleia Rossi, who has been courting the support from leftist parties in order to have a shot to win. But according to Eurasia Group’s consultations, many federal deputies from parties who have formally endorsed Rossi are supporting Lira. On the left, 14 of the 30 deputies of the PSB are with Lira, and 10 of the 26 within the PDT. We are hearing that close to half of the federal deputies in the PSDB and DEM are also with him—both parties who formally endorsed Rossi. Eurasia Group is conducting a broader assessment party by party to handicap the election. But our expectation that Lira is likely to come out on top is being reinforced by our recent consultations. In fact, the odds of Lira having a very strong victory on 1 February looks to be on the rise. That isn’t the impression you get reading the newspapers.

Government-backed candidate Arthur Lira looks to be picking up more steam in the race for the speakership election to be held on 1 February. The press has been focused on the number of parties which have formally endorsed the independent candidate Baleia Rossi, who has been courting the support from leftist parties in order to have a shot to win. But according to Eurasia Group’s consultations, many federal deputies from parties who have formally endorsed Rossi are supporting Lira. On the left, 14 of the 30 deputies of the PSB are with Lira, and 10 of the 26 within the PDT. We are hearing that close to half of the federal deputies in the PSDB and DEM are also with him—both parties who formally endorsed Rossi. Eurasia Group is conducting a broader assessment party by party to handicap the election. But our expectation that Lira is likely to come out on top is being reinforced by our recent consultations. In fact, the odds of Lira having a very strong victory on 1 February looks to be on the rise. That isn’t the impression you get reading the newspapers.

1/12/21 14:29
United Kingdom, China UK’s move on China differentiates it from Europe and is a signal to Biden
Mujtaba Rahman

The UK Government is to toughen its stance on China by tightening the law on importing goods linked to forced labour camps in Xinjiang province, the  home of 12 million Uighur Muslims. In a Commons statement later today, Dominic Raab, the Foreign Secretary, is expected to announce heavier fines for UK firms and stricter rules for public bodies buying Chinese goods. Ministers are also considering tighter export rules on items which could be used for repression. However, they will likely stop short of targeting named individuals accused of human rights abuses with sanctions, which will disappoint anti-China campaigners. The moves come amid mounting Conservative Party pressure for tougher action against Beijing. They will differentiate London from the EU, which signed an investment treaty with China last month. Boris Johnson will hope the announcement appeals to the incoming US President Joe Biden. Both men are interested in forging an anti-China alliance of democratic nations.

The UK Government is to toughen its stance on China by tightening the law on importing goods linked to forced labour camps in Xinjiang province, the  home of 12 million Uighur Muslims. In a Commons statement later today, Dominic Raab, the Foreign Secretary, is expected to announce heavier fines for UK firms and stricter rules for public bodies buying Chinese goods. Ministers are also considering tighter export rules on items which could be used for repression. However, they will likely stop short of targeting named individuals accused of human rights abuses with sanctions, which will disappoint anti-China campaigners. The moves come amid mounting Conservative Party pressure for tougher action against Beijing. They will differentiate London from the EU, which signed an investment treaty with China last month. Boris Johnson will hope the announcement appeals to the incoming US President Joe Biden. Both men are interested in forging an anti-China alliance of democratic nations.

1/12/21 06:05
USA Concerns about impeachment derailing Biden's agenda are overblown
Jon Lieber
House Majority Leader Hoyer today indicated a preference for sending articles of impeachment to the Senate immediately after the House passes them this week, a change from previous indications that they would wait until an opportune moment that didn't affect the beginning of the Biden administration.

We'll see what they end up doing, but an impeachment trial that spilled even several weeks into the Biden administration would not materially affect Biden's ability to get his cabinet nominees confirmed or start work on a new Covid relief package.

While the Senate is required to go to a trial as soon as they receive the articles of impeachment from the House and the rules require them to sit as a jury every day at noon, they can still meet in the morning for legislative or executive business, and if a trial session wraps up early they can confirm nominees when they are done. The Senate can even change the times at which the trial would sit by unanimous consent or by a majority vote. The worst case scenario would be that it would give opponents of Biden's cabinet new ways to drag out the time before a confirmation vote, but we see this as a minor risk given the usual amounts of Senatorial agreement there is in confirming the highest profile cabinet members. 

It is very unlikely that there would be any legislation ready to go to the Senate floor in the opening weeks of a Biden administration. It is possible that if a trial drags on indefinitely there could be a conflict with quickly moving a budget resolution that was needed to set up a Covid relief measure, but we would not expect that to be ready for floor action until mid- to late-February. A trial would likely wrap up quickly and Washington would move on to other things.
House Majority Leader Hoyer today indicated a preference for sending articles of impeachment to the Senate immediately after the House passes them this week, a change from previous indications that they would wait until an opportune moment that didn't affect the beginning of the Biden administration.

We'll see what they end up doing, but an impeachment trial that spilled even several weeks into the Biden administration would not materially affect Biden's ability to get his cabinet nominees confirmed or start work on a new Covid relief package.

While the Senate is required to go to a trial as soon as they receive the articles of impeachment from the House and the rules require them to sit as a jury every day at noon, they can still meet in the morning for legislative or executive business, and if a trial session wraps up early they can confirm nominees when they are done. The Senate can even change the times at which the trial would sit by unanimous consent or by a majority vote. The worst case scenario would be that it would give opponents of Biden's cabinet new ways to drag out the time before a confirmation vote, but we see this as a minor risk given the usual amounts of Senatorial agreement there is in confirming the highest profile cabinet members. 

It is very unlikely that there would be any legislation ready to go to the Senate floor in the opening weeks of a Biden administration. It is possible that if a trial drags on indefinitely there could be a conflict with quickly moving a budget resolution that was needed to set up a Covid relief measure, but we would not expect that to be ready for floor action until mid- to late-February. A trial would likely wrap up quickly and Washington would move on to other things.
1/11/21 13:29
United Kingdom A new relationship beds in
Mujtaba Rahman
Now that the deal has been done, both the UK and EU are in the process of organising how to manage their new relationship. The existing teams in Brussels that managed the negotiations are being disbanded, and new ones, centred in the Secretary General, the coordinating arm of the European Commission, are being stood up. With the UK now a third country, responsibility for the relationship is likely to fall to Joseph Borrell, the EU’s foreign policy supremo. Maroš Šefčovič, who has overseen the implementation of the Northern Ireland Protocol, is another contender (he oversees inter-institutional relations in the EU). As both sides move to a “new normal” these personnel changes in Brussels could make a difference in how smooth, or not, the new relationship begins. Now that the deal has been done, both the UK and EU are in the process of organising how to manage their new relationship. The existing teams in Brussels that managed the negotiations are being disbanded, and new ones, centred in the Secretary General, the coordinating arm of the European Commission, are being stood up. With the UK now a third country, responsibility for the relationship is likely to fall to Joseph Borrell, the EU’s foreign policy supremo. Maroš Šefčovič, who has overseen the implementation of the Northern Ireland Protocol, is another contender (he oversees inter-institutional relations in the EU). As both sides move to a “new normal” these personnel changes in Brussels could make a difference in how smooth, or not, the new relationship begins.
1/11/21 13:15
United Kingdom Could Scottish elections be delayed?
Mujtaba Rahman

Speculation is growing across the UK Government and in political circles that Scottish elections planned for May could be delayed because of Covid-19. Without the ability to campaign properly, canvass and knock on doors, ministers and officials are coming around to the idea that they may need to be delayed. However, for this to happen, there would need to be a cross-party consensus with Labour; the SNP would also have to agree in order for Boris Johnson not to be accused of being “anti democratic”. If a delay did happen, it would probably be for a month or two.

Speculation is growing across the UK Government and in political circles that Scottish elections planned for May could be delayed because of Covid-19. Without the ability to campaign properly, canvass and knock on doors, ministers and officials are coming around to the idea that they may need to be delayed. However, for this to happen, there would need to be a cross-party consensus with Labour; the SNP would also have to agree in order for Boris Johnson not to be accused of being “anti democratic”. If a delay did happen, it would probably be for a month or two.

1/8/21 09:11
France Macron will benefit and capitalise on events in Capitol Hill
Mujtaba Rahman

Senior officials who advise Emmanuel Macron believe that the events last night on Capitol Hill will be helpful to the French president in his quest for “strategic autonomy” as well as his struggles against far-right populism and fake news domestically. Their thoughts were echoed implicitly by the French far-right leader Marine Le Pen who put out a statement today recognising, for the first time, Joe Biden’s victory in the November presidential election. Le Pen—who has never previously criticised any actions or words of Donald Trump—said the outgoing President “failed to measure the impact of his words on a part of his base.” She said that Trump had been right to contest the election in the courts but “now that the results have been certified, I have no difficulty whatsoever in recognising that Mr Biden will be the new US president.” Earlier Macron tweeted a video statement at 3am French time in which he was seen standing in front of the French, EU and US flags. “What happened in Washington is un-American,” he said.  He went on to suggest that the events formed part of a threat to western democracy which went far beyond the borders of the US. “We have chosen for several centuries to place human dignity, peace, mutual respect and recognition of freedom above all things…This choice is now threatened in all our democracies.” Macron aides said that they believed the scenes at the Capitol will stay in the minds of French voters in April and May next year when, according to polls, they will face second round choice between President Macron and the Trump-backing Le Pen.

Senior officials who advise Emmanuel Macron believe that the events last night on Capitol Hill will be helpful to the French president in his quest for “strategic autonomy” as well as his struggles against far-right populism and fake news domestically. Their thoughts were echoed implicitly by the French far-right leader Marine Le Pen who put out a statement today recognising, for the first time, Joe Biden’s victory in the November presidential election. Le Pen—who has never previously criticised any actions or words of Donald Trump—said the outgoing President “failed to measure the impact of his words on a part of his base.” She said that Trump had been right to contest the election in the courts but “now that the results have been certified, I have no difficulty whatsoever in recognising that Mr Biden will be the new US president.” Earlier Macron tweeted a video statement at 3am French time in which he was seen standing in front of the French, EU and US flags. “What happened in Washington is un-American,” he said.  He went on to suggest that the events formed part of a threat to western democracy which went far beyond the borders of the US. “We have chosen for several centuries to place human dignity, peace, mutual respect and recognition of freedom above all things…This choice is now threatened in all our democracies.” Macron aides said that they believed the scenes at the Capitol will stay in the minds of French voters in April and May next year when, according to polls, they will face second round choice between President Macron and the Trump-backing Le Pen.

1/7/21 05:57
United Kingdom Tory and Labour party politics point to more, not less, distance between UK and Europe over time
Mujtaba Rahman

There are media reports this evening that the Government intends to solicit input from the private sector regarding how much it should diverge from the EU, and which laws the Government should scrap now a deal has been done with Europe. This is correct, and will be one part of Downing Street’s strategy, but as always – and as we wrote about at the end of December when the deal was struck – politics in the UK, within the Tory Party but more importantly within Labour will be a bigger driver of whether the UK opts to remain in the EU’s orbit, and build on this deal, or move away. As we argued then, our view is that the political space for closer UK-EU ties is more likely to shrink, not grow, over time (see: EG UK/EU/TRADE: The longer-term outlook will remain tricky for UK-EU relations). For now, Boris Johnson has not yet made up his mind, and Tory Eurosceptics are divided over how far the UK should diverge (Eurosceptic hardliners are pushing for an early shift; pragmatists like David Davis think the Prime Minister should be more careful). In the short-term, some symbolic divergence is likely, to demonstrate the “prize” of having left the EU. Johnson, keen to demonstrate he is able to have his cake and eat it too, has been hinting he will use the deal to show the UK will enjoy market access to its neighbours while striking new trade agreements around the world. Still, over the longer term, the dynamic between the two sides is likely to result in more distance—as Johnson aims to maintain Europe as a “wedge” issue, and Labour, keen to win back “red wall” voters, is unable to propose closer, more formal, institutional links (such as a Customs Union) with the EU. Far from ending the debate on Europe, it looks likely to plague UK politics for a very long time.

There are media reports this evening that the Government intends to solicit input from the private sector regarding how much it should diverge from the EU, and which laws the Government should scrap now a deal has been done with Europe. This is correct, and will be one part of Downing Street’s strategy, but as always – and as we wrote about at the end of December when the deal was struck – politics in the UK, within the Tory Party but more importantly within Labour will be a bigger driver of whether the UK opts to remain in the EU’s orbit, and build on this deal, or move away. As we argued then, our view is that the political space for closer UK-EU ties is more likely to shrink, not grow, over time (see: EG UK/EU/TRADE: The longer-term outlook will remain tricky for UK-EU relations). For now, Boris Johnson has not yet made up his mind, and Tory Eurosceptics are divided over how far the UK should diverge (Eurosceptic hardliners are pushing for an early shift; pragmatists like David Davis think the Prime Minister should be more careful). In the short-term, some symbolic divergence is likely, to demonstrate the “prize” of having left the EU. Johnson, keen to demonstrate he is able to have his cake and eat it too, has been hinting he will use the deal to show the UK will enjoy market access to its neighbours while striking new trade agreements around the world. Still, over the longer term, the dynamic between the two sides is likely to result in more distance—as Johnson aims to maintain Europe as a “wedge” issue, and Labour, keen to win back “red wall” voters, is unable to propose closer, more formal, institutional links (such as a Customs Union) with the EU. Far from ending the debate on Europe, it looks likely to plague UK politics for a very long time.

1/6/21 17:45
France, Germany, USA More attrition in Boeing-Airbus subsidies fight, as settlement awaits Biden
Emre Peker

In the final days of 2020, the US Trade Representative quietly said it would rejigger tariffs on USD 7.5 billion of European goods annually in connection with subsidies to Airbus that WTO designated illegal. The move followed an EU decision in September to impose counter-tariffs on USD 4 billion of American goods annually after Brussels won its WTO award over illegal subsidies to Boeing. The USTR move, poised to take effect 12 January, marks a marginal shift that will slightly expand the scope of goods hit by tariffs. It also opportunistically closes a loophole for European wine exporters, who had ben directing vintages with more than 14% alcohol content to avoid 25% tariffs. Coming in the final days of the Trump administration, Washington’s decision is unlikely to elicit a response from the EU. Even if Brussels felt compelled to act, it would be symbolic and not escalatory as Europeans look to settle the 16-year-old trade dispute shortly after President-elect Joe Biden takes office. Despite USTR Robert Lighthizer’s combative stance, the EU view is that Washington’s trade tsar somehow wants to resolve the issue. But Lighthizer has not dropped demands for Airbus reimbursing some of its subsidies, a red line for the EU. He also has not shown any interest in forging a transatlantic framework for aircraft subsidies, which the US and the EU would then use to take on subsidies by Russia and China--chief rivals of the two globally dominant Western jet-makers. Plus, Lighthizer is unlikely to make Biden’s job any easier by removing a significant trade irritant. Therefore, a settlement in the final days of the Trump administration remains unlikely, but both the EU and the Biden team will look for a swift resolution to bolster trade ties going forward.

In the final days of 2020, the US Trade Representative quietly said it would rejigger tariffs on USD 7.5 billion of European goods annually in connection with subsidies to Airbus that WTO designated illegal. The move followed an EU decision in September to impose counter-tariffs on USD 4 billion of American goods annually after Brussels won its WTO award over illegal subsidies to Boeing. The USTR move, poised to take effect 12 January, marks a marginal shift that will slightly expand the scope of goods hit by tariffs. It also opportunistically closes a loophole for European wine exporters, who had ben directing vintages with more than 14% alcohol content to avoid 25% tariffs. Coming in the final days of the Trump administration, Washington’s decision is unlikely to elicit a response from the EU. Even if Brussels felt compelled to act, it would be symbolic and not escalatory as Europeans look to settle the 16-year-old trade dispute shortly after President-elect Joe Biden takes office. Despite USTR Robert Lighthizer’s combative stance, the EU view is that Washington’s trade tsar somehow wants to resolve the issue. But Lighthizer has not dropped demands for Airbus reimbursing some of its subsidies, a red line for the EU. He also has not shown any interest in forging a transatlantic framework for aircraft subsidies, which the US and the EU would then use to take on subsidies by Russia and China--chief rivals of the two globally dominant Western jet-makers. Plus, Lighthizer is unlikely to make Biden’s job any easier by removing a significant trade irritant. Therefore, a settlement in the final days of the Trump administration remains unlikely, but both the EU and the Biden team will look for a swift resolution to bolster trade ties going forward.

1/6/21 11:22
France, USA Europe hopes for a last-minute Washington U-turn on tariffs against Paris’s digital-services taxes
Emre Peker

After almost two years of wrangling over France’s 2019 decision to start collecting digital services taxes (DST), US tariffs of 25% on USD 1.3 billion worth of French goods are teed-up to kick in today. European officials are holding out hope that US Trade Representative Robert Lighthizer could still delay implementation, passing the issue to the Biden administration. But Paris has already collected its 3% tax for 2019 and 2020 on total annual revenues generated by companies--mostly from the US--with total annual revenues of at least EUR 750 million globally and EUR 25 million in France. The agreement between Washington and Paris was that the US would withhold tariffs as long as France didn’t collect its DST. The deal also had an end-2020 deadline to allow for negotiations at the OECD to deliver a global DST, which would prompt Paris to drop its national scheme. But after the latest round mid-October, negotiators failed to clinch a deal--amid resistance from the Trump administration--despite significant technical progress. European officials say a deal is within reach, and could materialize by June/July if the President-elect Joe Biden’s team meaningfully engages. But for now, the US has no reason to hold back on tariffs, which enjoy bipartisan support against what many policymakers in Washington regard as discriminatory against American tech giants. Barring an uncharacteristic surprise from Lighthizer, the tariffs will likely kick in today. The French response will go through the EU, which has promised swift countermeasures. But we would anticipate the response to be rather mild, involving a request for consultations at the WTO, where the EU would ultimately challenge the US Section 301 tariffs as illegal. That would set the stage for a prolonged, if not open-ended, process. More creative retaliation through immediate EU duties on US goods--as was the case in Trump’s steel and aluminum tariffs--are unlikely. The EU will hope for Biden’s engagement at the OECD and reversal of the Trump DST tariffs, which will mean short-term pain for French luxury goods including handbags, beauty products and soaps.

After almost two years of wrangling over France’s 2019 decision to start collecting digital services taxes (DST), US tariffs of 25% on USD 1.3 billion worth of French goods are teed-up to kick in today. European officials are holding out hope that US Trade Representative Robert Lighthizer could still delay implementation, passing the issue to the Biden administration. But Paris has already collected its 3% tax for 2019 and 2020 on total annual revenues generated by companies--mostly from the US--with total annual revenues of at least EUR 750 million globally and EUR 25 million in France. The agreement between Washington and Paris was that the US would withhold tariffs as long as France didn’t collect its DST. The deal also had an end-2020 deadline to allow for negotiations at the OECD to deliver a global DST, which would prompt Paris to drop its national scheme. But after the latest round mid-October, negotiators failed to clinch a deal--amid resistance from the Trump administration--despite significant technical progress. European officials say a deal is within reach, and could materialize by June/July if the President-elect Joe Biden’s team meaningfully engages. But for now, the US has no reason to hold back on tariffs, which enjoy bipartisan support against what many policymakers in Washington regard as discriminatory against American tech giants. Barring an uncharacteristic surprise from Lighthizer, the tariffs will likely kick in today. The French response will go through the EU, which has promised swift countermeasures. But we would anticipate the response to be rather mild, involving a request for consultations at the WTO, where the EU would ultimately challenge the US Section 301 tariffs as illegal. That would set the stage for a prolonged, if not open-ended, process. More creative retaliation through immediate EU duties on US goods--as was the case in Trump’s steel and aluminum tariffs--are unlikely. The EU will hope for Biden’s engagement at the OECD and reversal of the Trump DST tariffs, which will mean short-term pain for French luxury goods including handbags, beauty products and soaps.

1/6/21 09:59
USA Recounts in the Ossoff/Perdue race would leave Republicans in charge of the Senate until they are resolved
Jon Lieber
Extremely close margins in the race between David Perdue and Jon Ossoff could come down to recounts or litigation. The Georgia recount trigger is 0.5%, and a close race could be contested for weeks or months. If this happens, Republicans would hold a 50-49 seat majority until the races are resolved.

Senate races can take a long time to work out: in 2008, a disputed election between Democrat Al Franken and Republican Norm Coleman, who were originally separated by only 215 votes, wasn't settled until Franken was sworn in on 7 July. An unclear result from Georgia could delay or derail early stimulus plans and executive branch nominations from the incoming Biden administration.
Extremely close margins in the race between David Perdue and Jon Ossoff could come down to recounts or litigation. The Georgia recount trigger is 0.5%, and a close race could be contested for weeks or months. If this happens, Republicans would hold a 50-49 seat majority until the races are resolved.

Senate races can take a long time to work out: in 2008, a disputed election between Democrat Al Franken and Republican Norm Coleman, who were originally separated by only 215 votes, wasn't settled until Franken was sworn in on 7 July. An unclear result from Georgia could delay or derail early stimulus plans and executive branch nominations from the incoming Biden administration.
1/6/21 00:01