Dec 9, 2011: the first day of Europe's new life

Merkel and Sarkozy point the way... or poking fun at Cameron?

Today, 20 years after the Maastricht Treaty, the temptation may be to start a long rant on Britain's often successful attempts to block European integration, in general acting on behalf of its former colonies across the Atlantic. Thirty eight years of British Euro-skepticism and hostility have now been repaid with simple indifference. Britain was always the spanner in the European works, or as Der Spiegel puts it "the fly in the European soup"!

Anyway, let bygones be bygones and let us celebrate the first day of a new era: a two-speed Europe.

We are done with the hypocrisy, no more lowest common denominator agreements. The continent will march on forwards, and the island north of La Manche can continue swimming towards America... except that maybe Scotland may decide to join us later on.

History proved the Charles de Gaulle was right all the time: Britain should never have entered, having instead some kind of association agreement at the same level of Turkey. The unprepared US-led enlargement towards the East was also an error: although these nations are an absolutely essential part of Europe, the calendar was all wrong, i.e. deepening of the Union should have came before a formal enlargement. This has led us to a moment when only creative destruction will solve the problem, and Merkel and Sarkozy have earned their place in history. The debt crisis is Europe's blessing in disguise.

So we have a draft intergovernmental treaty, but that is only a first step. Europe now needs the instruments of representative democracy. Of course integrated economic policies, foriegn policy and defense are essential, but none are totally legitimate without the creation of European-wide political parties. Without truly European parties setting the agenda, we will always face the risk of crippling balkanization.

Having solved the problem of a Union eternaly blocked by the British, of course the intergovernmental agreement (the "compact") itself still has to run the gauntlet of approval in each signatory country. Furthermore, a 'fiscal union' may come in many forms, and the devil is in the detail. 'Fiscal union' at most will be an euphemism for common rules for budgetary discipline across the Eurozone, there will be no merger of tax structures and authorities.

Naturally the less naïve among us are also raising fundamental doubts on the sufficiency of the intergovernmental agreement as a tool to return public debt markets to normality, strong tools such as Eurobonds or the ability of the ECB to make large scale bond purchases or increase money supply remain off the agenda. Even simple budgetary discipline rules imposed from outside will only be effective if non-compliance will lead to powerful sanctions. Writing budget prudence into the constitution of each member country per se is not enough, if politicians have a talent is is fudging the rules. In case it was forgotten: rules for budgetary discipline across the EU are already in place. The Euro convergence criteria (aka Maastricht criteria) require that member states keep deficits below 3 per cent of GDP and ratio of gross government debt to GDP must not exceed 60% at the end of the preceding fiscal year.

Charles de Gaulle vindicated at last - Gallic revenge on the Brits

EU to cap airline greenhouse gas emissions

Contrails of a McDonnell Douglas aircraft (Contrails are just vapour, CO2 is invisible)

As of next year airlines that fly in and out of the European Union must come under the European Union’s Emissions Trading Scheme (ETS). Those based outside the EU can opt out if they prove to abide to similar regulation in their home countries. The entire industry in both Europe and abroad is trying to have the new regulations annulled or at least postponed.

All large polluting sectors in the EU are already subject to the ETS, but the airline industry works in a global way, so subjecting foreign airlines to it will cause all kinds of conflicts and may invite retaliation in several forms. On the other hand, subjecting only EU based airlines to the ETS would make them noncompetitive in routes shared with non-EU competitors.

Charging for carbon emissions is a practical method to reduced them. The debate on price versus quantity instruments in tackling climate change has been on for decades. Abatement costs might change in the future due to: fuel prices, domestic energy demand, energy saving technologies, etc. A carbon tax fixes the marginal cost of abatement, but allows the quantity of abatement to vary with economic conditions. A cap fixes the amount of abatement instead. Trading emissions in a market allows for cuts where they are most efficient, i.e. cheaper. Once a decision is taken by policy makers to tackle emissions both a cap and trade scheme or a carbon taxes are options. Economics theory shows these are equivalent only under certainty. However, certainty is a scarce commodity and cap and trade can lead to high volatility in the markets.

The Economist explains this well (Duffing the Cap, 15/06/2007): "taxes deal more efficiently than do permits with the uncertainty surrounding carbon control. In the neat world of economic theory, carbon reduction makes sense until the marginal cost of cutting carbon emissions is equal to the marginal benefit of cutting carbon emissions. If policymakers knew the exact shape of these cost and benefit curves, it would matter little whether they reached this optimal level by targeting the quantity of emissions (through a cap) or setting the price (through a tax). But in the real world, politicians are fumbling in the dark. And that fumbling favours a tax. If policymakers set a carbon tax too low, too much carbon will be emitted. But since the environmental effect of greenhouse gases builds up over time, a temporary excess will make little difference to the overall path of global warming. Before much damage is done to the environment, the carbon tax can be raised. Misjudging the number of permits, in contrast, could send permit prices either skywards or through the floor, with immediate, and costly, economic consequences. Worse, a fixed allotment of permits makes no adjustment for the business cycle (firms produce and pollute less during a recession). Cap-and-trade schemes cause unnecessary economic damage because the price of permits can be volatile. Both big cap-and-trade schemes in existence today—Europe's Emissions-Trading Scheme for carbon and America's market for trading sulphur-dioxide permits (to reduce acid rain)— suggest this volatility can be acute. America has had tradable permits for SO2 since the mid-1990s. Their price has varied, on average, by more than 40% a year. Given carbon's importance in the economy, similar fluctuations could significantly affect everything from inflation to consumer spending. Extreme price volatility might also deter people from investing in green technology. Even without the volatility, some economists reckon that a cap-and-trade system produces fewer incentives than a carbon tax for climate-friendly innovation. A tax provides a clear price floor for carbon and hence a minimum return for any innovation. Under a cap-and-trade system, in contrast, an invention that reduced the cost of cutting carbon emissions could itself push down the price of permits, reducing investors' returns."

Though some Economics disagree, Pindyck in his 2006 paper 'Uncertainty in Environmental Economics', states: "Weitzman (1974) [...] showed that in the presence of cost uncertainty, whether a price-based instrument or a quantity-based instrument is best depends on the relative slopes of the marginal benefit function and marginal cost function. If the marginal benefit function is steeply sloped but the marginal cost function is relatively flat, a quantity-based instrument (e.g., an emissions quota) is preferable: an error in the amount of emissions can be quite costly, but not so for an error in the cost of the emissions reduction. The opposite would be the case if the marginal cost function is steeply sloped and the marginal benefit function is flat. Of course in a world of certainty, either instrument will be equally effective. [emphasis added] If there is substantial uncertainty and the slopes of the marginal benefit and cost functions differ considerably, the choice of instrument can be crucial."

Anyway, in the big picture airlines only account for about 2% of greenhouse gases emissions, so maybe we could focus on more serious culprits, remember the Pareto principle?

Belgium: will someone put the sick man of Europe out of his misery?

The end of Belgium - language map

Belgians like to be a bit special and peculiar, maybe that's the only thing that unites them.
...errr that is as the saying goes, if there are any Belgians besides the king!

Today the "country" marks one full year since elections gave modest victories to the anti-Belgium NVA nationalist in Dutch-speaking Flanders and to the pro-Belgium PS Socialists in Wallonia. The two parties have been a 100% failure in forming a government during a year of either bitter talks or absolute silence.

The care-taker government deals well with non strategic issues, but only those. Similarly investors procrastinate any major decisions.

Gentlemen, lets face the facts: Belgium was never a nation, why keep the charade? For the sake of French jokes?

Will someone please put the sick man of Europe out of his misery?

Lets have a civilized Czechoslovakian divorce, having Wallonia and Flanders as nations within the European Union.

The German areas can be returned to Germany: they were stolen from it in 1929 anyway. Some southern areas should be part of Luxembourg.

Brussels can become "Brussels, FD", i.e. the Federal District for the European Capital.

As time goes by, nobody will be shocked if Wallonia and/or Flanders would like to join France or the Netherlands.

Lets get moving!

"Keep Turkey Outside the European Union"

Turkey: Saying no is Saving Europe

Facebook cause

"Keep Turkey Outside the European Union" has now reached 5.000 members."

Join it for a European future for Europe. Ottomans were once at the walls of Vienna, now they are at the walls of Brussels. Help defend the ramparts!

Catalonia votes for independence

In a first in the 'balkanic' state that is Spain, one of the nations tries its hand at an independence referendum.
The ballot stems from a coalition of Catalan nationalists, comprisinge left-wing parties and former members of the biggest political group in Catalonia, the conservative Convergencia i Unio

Sure, it is an unofficial, non-binding act, but still an harbinger of things to come. Many in Catalonia hope it is the first step towards a formal consultation for a separate state. Many in Euskadi and Galicia are looking at the experience. At present the Spanish constitution does not allow a real referendum on secession.

Results showed almost 95 percent of those who voted wanted Catalonia to leave Spain, to become an "independent state within the European Union". However the turnout was rather low an only about 30%.

Catalonian nationalists should thread carefully, a binding referendum needs a long period of preparation. Failed referenda like in Quebec, may postpone a nation indefinitely!

Flag of Catalonia

Treaty of Lisbon becomes Law in 2 weeks

Lisbon Treaty signature - Jeronimos monastery cloister

The Czech Republic deposited in Rome on November 2009 its instrument of ratification. The Czech Republic becomes the final member-state of the European Union to ratify the Treaty of Lisbon. It will now become law on December 1st.

Good luck Europe!

After the less than dignified ratification process, we wish that fudged national accounts, subservience to Washington and lack of centralized power will be surmountable obstacles.