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Brexit, Hungary and EU Funding

By Claudia S Roland, on 8 June 2016

by Dr Thomas Lorman, Teaching Fellow in Central European History, SSEES 

Any journey through Hungary is marked by the sight of posters promoting various government infrastructure projects which are being carried out according to the government’s ‘New Széchenyi Plan’ (Új Széchenyi Terv) named in honour of Count István Széchenyi, one of Hungary’s great nineteenth century statesmen and a tremendous anglophile. Each poster is appropriately adorned with both a Hungarian and an EU flag, a visible demonstration of how Hungary is benefitting from EU funding. This funding is substantial. In the funding cycle 2007-2013, Hungary paid 8 billion euros into the EU budget and received 33 billion euros. In the current funding cycle up to 2020 Hungary is expected to be the net beneficiary of a further 32 billion euros. Per head of population, Hungary is receiving more EU funds than any other member state apart from Lithuania. As a result, over 90 percent of the funding for state infrastructure projects is provided by the EU. The result of such largesse is evident in, among other things, the new metro (tube) and tram lines, better roads and railways, cleaner air and beautified city centres. The posters promoting the EU’s support for various government projects serve, therefore, as tangible proof that the EU is helping to close the gap between Central and Western Europe, healing divisions that were exacerbated by the maladministration that characterized over four decades of Communist rule, and ensuring that the call for a ‘return to Europe’ in 1989 was not just empty rhetoric. Britain has had a long-standing view that the creation of a free and prosperous Central Europe is in this country’s best interest. EU funding appears to be an effective way of achieving that objective.

hungary

The direct benefits to Britain of the EU’s financial support for Hungary should not be overlooked. Tourists benefit from the Hungary’s gradual reconstruction and modernization; EU funds have helped raise the quality and price of Hungarian agriculture and curbed the amount of cheap, low-quality produce that would otherwise have been ‘dumped’ on the British market. The dramatic improvements in the quality and accessibility of Hungarian wine are a case in point. EU funding has also helped grow the Hungarian economy. About 5-6% of the country’s GDP is directly dependent on EU funding, and that in turn has made Hungary a growing market for British exporters. Moreover, for those concerned about the negative impact of migration into Britain, EU funding has provided more jobs for the Hungarian labour force and thereby limited the number of Hungarians who have tried their luck in the British labour market.

On closer inspection, however, the posters that record the EU’s contribution to Hungary’s development promote, first and foremost, the Hungarian government’s own efforts to transform the country. Although the full sum of money devoted to each project is listed on every poster, no effort is made to spell out precisely how much of the total budget has been contributed by the EU, while the obligatory inclusion of the EU flag is dwarfed by the slogan that ‘Hungary is being renewed’ which is emblazoned on an orange background associated with the governing FIDESZ party.  As the vast majority of EU funding is spent by the government, either at the state or local level, the overall impression is that the transformation of the country is primarily the result of the government’s efforts and finances. Put simply, the EU pays and the Hungarian government reaps the benefits.

Hungarian private businesses and NGO’s do have some access to EU funds. Even businesses linked to opposition figures have obtained some crumbs from the table. Nevertheless, the dispersal of EU funding is mired in constant allegations of corruption, a woefully inefficient bureaucracy, and an overwhelming stench of nepotism. On occasion the EU has withdrawn funding from Hungary over concerns about the misuse of funds and has had some success in demanding greater transparency and imposing realistic targets and timetables. Such efforts have gone some way to curbing the most egregious cases when EU money was misused. Nevertheless, Transparency International asserts that almost every project funded by the EU in Hungary continues to be afflicted by some level of corruption.  Indeed, such is the scale of the inflow of EU money into Hungary that the government is struggling to spend all of the money allocated. It is, therefore, not overly concerned with spending the money in the most efficient manner possible with one estimate suggesting that it is spending EU money, on average, at about 25 percent over the market rate.

Moreover, the EU has proved entirely impotent as regards the rampant politicization of the Hungarian bureaucracy which oversees the actual dispersal of most EU funding. The politicization of the Hungarian bureaucracy is, it should be noted, a long-standing, phenomenon. Each change of government has been accompanied by the wholesale sacking of senior civil servants and senior figures in various state organizations such as the post office, the railways, the television and radio. Critics contend that this malign state of affairs has been exacerbated by the current FIDESZ government, in power since 2010, it has certainly not diminished. Thus the government’s own favoured persons, organizations and businesses continue to receive the lion’s share of government funding, including most of the funds provided by the EU.

Individual members of the government have adopted an old tactic of warning the electorate in specific constituencies that their future prosperity is dependent on voting for the right party. The implicit threat is that a vote for the opposition will mean that they will receive less funding from the government, including less EU funds.  As a result of such shenanigans, Hungarian analysts from across the political spectrum have voiced concerns about how civil society and the democratic process is being squeezed and distorted by the government’s control and manipulation of the flow of EU funds. Britain, as one of the EU’s wealthier member states, is helping to fund this manipulation.

In addition, EU largesse has ensured that it has been far easier for successive Hungarian governments to rely on EU funding rather than carry out a comprehensive economic reform program that would put the country on a track towards rapid economic progress. The initial wave of reforms that were enacted in the 1990s to empower the free market have given way to tinkering, lethargy, and even creeping re-nationalization. As a result, Hungary’s economic growth in the past decade, precisely when the lion’s share of the EU funds has arrived, has been anaemic.  In the past decade its GDP growth rate has consistently fallen below 4% per annum, ensuring that Hungary cannot meaningfully close the gap in living standards between Central and Western Europe. Thus, eastern Hungary comprises three of the ten poorest regions in the entire EU and a significant proportion of the Hungarian workforce is motivated to look for employment prospects elsewhere including Britain. Indeed, there is a case to be made that the governing clique in Hungary has a vested interest in preserving the relative impoverishment of Hungary as it allows them to cream off the EU’s largesse while bolstering their own grip on the country.

EU funding is, of course, only one example of the impact that EU accession has had on Hungary but it is a revealing one that illuminates larger problems with the entire EU project. Clearly, EU funds are bringing tangible benefits to Hungary, and to Britain, but they have also encouraged successive Hungarian governments to dodge reforms, exacerbate nepotism, weaken civil society, and obscure their own malfeasance. Proponents of Brexit should acknowledge the negative impact that this will have on Hungary if the inflow of EU money is reduced by ending Britain’s contribution, but opponents of Brexit should also acknowledge the negative impacts that this inflow of funds is having right now.

 

Please note: Views expressed are those of the Author(s) and do not necessarily reflect the organisational views of UCL, SSEES or UCL SSEES Research Blog

 

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Lies, Damn Lies and Leave.EU Leaflets

By Claudia S Roland, on 7 June 2016

by Randoph Bruno, Filipa Fiqueira, Jan Kubik 

As the Brexit campaign heats up, many of us are receiving leaflets urging us to vote either “in” or “out”. Whilst it is to be expected that each camp will attempt to frame the argument in a way that favors its cause, the Leave.EU leaflet makes claims that are clearly misleading. Read on to set the record straight.

Leave.EU Leaflet: “In 1975 we voted for a Free Trade Area known then as the Common Market”

The first sentence and already we have been misled. The European Economic Community (also known as the Common Market) which the UK had joined back in 1973, was not a simple Free Trade Area and this was made clear to voters at the time of the 1975 referendum. The official UK government pamphlet, which was sent to all British homes prior to to the referendum, stated prominently the following:

“The aims of the Common Market are: to bring together the peoples of Europe; to raise living standards and improve working conditions; to promote growth and boost world trade; to help the poorest regions of Europe and the rest of the world; to help maintain peace and freedom.”

An ample majority of Brits (67% of the voters) voted in favor of staying in the EEC on the 5th of June of 1975. In other words, the mothers and fathers of Brits voting today had the EEC presented to them as a whole (and not only its free trade rules). Most of them decided it was as a good deal for the UK.

Leave.EU Leaflet: “We pay…€20 billion every year” [to the EU]

 This is either a lie or a mistake, as the UK does not pay this amount to the EU. It ends up paying approximately £8.5 billion per year – less than half of what Leave.EU claims.

The contribution that each country pays to the EU budget is proportional to its GDP, but for the UK, following the 1984 rebate negotiated by Margaret Thatcher, it is relatively lower than for any other EU country. So, the UK is paying £14 billion per year gross to the EU budget, of which it is getting £5.5 billion back in subsidies for farmers, research and help for its poorest regions, bringing the net contribution to £8.5 billion per year.

Leave.EU Leaflet: “That [not paying into the EU budget] would go a long way to reducing our national deficit”. 

The UK debt in 2015 was about £1,500 billion and the yearly deficit the same year stood at about £50 billion (3.3 percent GDP). So, saving £8.5 billion a year would indeed make a dent in the yearly deficit, though would not take much difference in bringing down the overall debt. However, by engaging in a “purely” economic calculation we do not consider all real, though intangible, benefits of EU membership, most important of which is the stability of the continent sustained by the well-oiled commercial, political, and cultural networks. To put the figure of £8.5 further into perspective, the NHS budget is £135 billion per year and the UK’s annual spending on pensions is £150 billion. The yearly contribution to the EU budget is not the main concern with the UK budget, not even close. It is an open secret that the media attention devoted to the EU budget is disproportionate to its economic importance. And it is well known by EU insiders, that politicians (of all EU countries) use the EU budget as a “bargaining chip” to negotiate other issues which do significantly affect their economy, such as economic and financial legislation.

Moreover, this statement is assuming that the economy could grow in exactly the same way within and outside Europe. That is something which we cannot technically verify, but there is a strong consensus among economists that the UK economy grew faster due to its EU membership (the Leave campaign does not deny this). So reversing the argument, had the UK been outside, it could have faced a larger budget deficit to start with.

Leave.EU Leaflet: “We pay twice”

This is a deliberately deceptive way of referring to the fact that projects are co-funded. With or without the EU, the UK would be spending money on public services such as infrastructure or the NHS. If the UK were no longer benefiting from EU funding, it would have to pay the full cost of its public services, rather than half.

Leave.EU Leaflet: “We buy from the EU than they buy from us. It would be financial suicide for the EU to impose trade barriers.”

The fallacious nature of this claim becomes obvious once we realize that the EU is much bigger than the UK. Britain counts for less than a tenth of the EU’s exports, but depends on the EU for almost half of its exports, so it is clear who stands to lose out most.

In this David versus Goliath situation, the cards would be in the EU’s hands. The EU would need to be harsh with any leavers (to discourage others from doing the same), so it would impose difficult trade conditions on the UK – such as high tariffs on British imports, and deliberately protracted negotiations. This has been already clearly signaled by the German Chancellor, Angela Merkel.

 Leave.EU Leaflet: “Laws and regulations passed by Eurocrats who have never visited the UK”

All EU laws and regulations have to be approved by the Council of the EU, which is made of politicians and official representatives of all EU countries, including the UK. The so-called Eurocrats never, under any circumstances, have the power to pass an EU law unless it has been approved by the national politicians and representatives.

Leave.EU Leaflet: “make a considered decision and vote on 23rd June”

…is one of our few points of agreement with Leave.EU. However, we hope to have shown that this leaflet does not offer the basis for such a considered decision.

 

Please note: Views expressed are those of the Author(s) and do not necessarily reflect the organisational views of UCL, SSEES or UCL SSEES Research Blog. 

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Russia 2030: A Story of Great Power Dreams and Small Victorious Wars

By Blog Admin, on 3 June 2016

by Professor Andrew Wilson and Fredrik Wesslau

This post originally appeared on the ECFR Website, and is reproduced with kind permission of the Author. The research paper that this post refers to can be viewed in full by following the above link.

 

The future of Europe’s relations with Russia looks bleak. The Kremlin is pursuing an increasingly aggressive foreign policy to assert itself as a great power and distract from economic woes at home. Europe can’t fix Russia, but it can influence it and lower the risk of major conflict.

Behind this growing assertiveness is Moscow’s desire to establish itself as a great power – and, increasingly, to win legitimacy at home now that it can no longer deliver rising living standards.

Source: Wiki Commons

“Russia 2030: A story of great power dreams and small victorious wars” considers how Russia and Europe’s eastern neighbours may look 14 years from now. The paper sets out five key trends that will play out in Russia and Eastern Europe, the events that could throw them off course, and what the EU should do.

It argues that Russia will become more inclined to resort to force as it modernises its military and draws lessons from recent successes on the battlefield. Russia does not want a full confrontation with the West, but a miscalculation could lead to a major clash. Russia has tripped up before, getting bogged down in Donbas after overestimating the level of popular support there.

Fluctuations in the oil price, a quagmire in Syria, reform in Ukraine, or a Russian defeat abroad could all change the rules of the game, either causing a chastened Russia to retreat – or spurring it to more aggressive action. Europe can reduce the risks by making the relationship more predictable, improving communications, and increasing the costs for Russia of its adventures overseas.

In the coming years, Russia’s main targets will be in Eastern Europe, particularly Ukraine and Georgia. Europe should back these countries against Russian pressure and support reform, including by expanding the Association Agreement. However, it should recognise that its aims in the region fundamentally clash with those of Moscow, and that the best that can be hoped for in the medium term is peaceful coexistence and a more predictable relationship.

 

Views expressed are those of the author(s) and not necessarily those of UCL, SSEES or UCL SSEES Research Blog

 

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Guest Post: Brexit or Bremain?

By Blog Admin, on 2 June 2016

We are proud to include a series of Guest Blogs by some of our top students at SSEES as part of our Brexit series. This post is by a group of outstanding First and Second-year Undergraduates, who were put forward by Filipa Figueira and Imogen Wade

The authors of this piece are: Zainab Al-Ansari, Pearl Ahrens, Grace Garry, Anne-Caroline Gauter, Jessica Longley, David Zivkovic

“Europe is my continent, not my country”. These words pronounced by John Redwood, a Conservative Party politician summarises well the ambiguous relationship  between Britain and the European Union. This particular link has reached a new point: UK is currently debating over a hypothetical exit. David Cameron promised a referendum on June 23rd 2016, one of his campaign promises, orchestrated to compete with the sudden rise of the UKIP.

 

Source: Wikicommons

The European institutions clearly do not want to see the UK leaving EU and made concessions to keep its “awkward” but powerful “partner” in the union, helping to shape a “Europe à la carte.”

We will focus on three main dimensions of Brexit. The first part will be devoted to the political area. The second part, economical, studying the consequences on commercial exchanges for United Kingdom. The last part approaches a social perspective on the issue, including immigration, and the UK’s identity with regards to the EU.

David – “Leaving the EU would undoubtedly facilitate policy-making in the UK – UK institutions can make policies autonomously, without any foreign institutions being able to annul them. Brexit could also be beneficial for democracy within the UK. If we consider the plummeting voting turnouts,  both in the UK and the whole of Europe, we could say that getting rid of some elections and institutions that people do not really care about (such as EU institutions and regulations that hardly anyone seems to understand in their entirety) could inhibit the increase in political apathy, if not even increase popular engagement with national matters.

“David Cameron “fought out” special concessions for the EU. But would such concessions not simply create an even wider gap between the UK and continental Europe? More autonomy means less representation on EU level. If the UK wants to decide on its own on a certain matter, it cannot decide what the other EU members will do, which weakens the relationship between the UK and the EU. So rather than avoiding Brexit, Cameron would appear to be postponing it. Also, other member states could think: “If the UK can do it, why shouldn’t we demand something similar?” Given this, together with a pessimistic attitude towards the EU being a trend – Italian Prime Minister Renzi even referred to the EU as “the orchestra playing on the Titanic” – it might be more beneficial for Britain to take advantage of an emergency boat on this “ship” and opt for Brexit.”

 

European Parliament. Source: Wikicommons

Grace “However, Brexit could trigger the disintegration of the EU, creating a domino effect resulting in other states leaving.

“The success of Brexit also still relies on the continued existence of the EU for the UK to make deals and agreements with. Thus the disintegration of the EU would mean the end of any sense of unity among the European nations in international affairs, security and trade. With the increasing unification of EU foreign and security policy in order to add power to its voice in the international community, it is clear how Brexit would put the UK at a disadvantage internationally, with significantly less influence pursuing its policies alone.

“This follows the federalist idea of economies of scale which suggests that something is more efficient if done by everyone together rather than separately. Currently the UK has a voice and influence within the EU, which would not be possible with Brexit. The federalist idea of externalities implies that the actions from one group have indirect effects on others. If Brexit occurred the UK’s close proximity to Europe mean it would not be free from the indirect effect of EU policy actions. Thus it may be better to remain within the EU and help form and influence laws than to leave but still be affected by its decisions.”

 

Jessica – “If the UK does decide to leave the EU, it would not only affect the country’s political power, but also its economy. None of the top 100 leading thinkers in the world consider that the UK would benefit from leaving. One of the main reasons behind this is the belief that Brexit will bring economic uncertainty and adverse shock to the UK. Indeed, the new trade rules are yet to be defined and depends on how exactly the UK will leave the EU.

Source: BBC

Source: BBC

“Moreover, the EU would have a strong incentive to impose a harsh settlement to discourage other countries from leaving. The UK would find itself still constrained by rules it would have no role in formulating, leaving the UK on the sidelines, as a powerless sovereignty. Some argue this would have a massive impact on UK’s growth as it depends on the EU for more than half of its exports. Leaving the EU would mean that the UK would be losing their access to the biggest economy in the world and their most important trade partner.

On the other hand, others believe that the impacts of Brexit on trade would be relatively small. They expect that a favourable trade agreement would be reached after Brexit as there are advantages for both sides in continuing a close commercial arrangement. Furthermore, they argue that leaving would permit the UK to trade more successfully, stating that the benefits the EU provide are smaller than a few decades ago. Having gained more influence, the UK could get a seat back on big international bodies that the EU took away and create new free trade agreements. Lastly, the UK would not have to pay £10 billion into Brussels for other countries on the continent. This would cut the balance deficit by 1/5 in the first year after leaving, meaning Britain could spend it on its priorities, leading to an economic boost.

 

Zainab – “Could Brexit harm our jobs? British companies that are dependent on trade with the EU could see their production costs rise after an exit forcing them to let go of workers in order to cut costs and hold on to their profit margins.

“Rolls-Royce Motor Cars is an example of a British company directly affected. RR believes that exit from the European Union could “drive up costs and have an impact on its workforce” as most of the company’s trade is done with the EU. Earlier this month, the luxury motor car company wrote to its employees, warning of the adverse effects of Brexit.

Source: Getty Images, from the BBC

“However, others see that EU laws undermine the flexibility of our nation’s labor market and increase the costs associated with hiring staff. This increases production costs and makes firms less likely to hire too many workers. Indeed, a Brexit under a Conservative government could potentially see the repeal of the maximum 48-hour working week and the removal of working time record keeping requirements, allowing firms to save money in the production process and possibly take on more workers.

“The current free movement of labor affects British workers’ job prospects. British firms are more likely to employ an EU worker than a British one because of their higher rates of productivity. EU workers are able to work greater hours and are more accepting of minimum wage. “Vote Leave” advocate, MP Iain Duncan Smith, says ‘for every 100 migrants employed, 23 UK-born workers would have been displaced’ across industries including education, secretarial and janitorial work. The removal of Britain from the EU would force British firms to employ British workers and therefore improve domestic employment levels.

“However, there is no statistical proof of the impact of EU migrants specifically to substantiate what Iain Duncan Smith claims.”

Pearl – “Immigration and identity are both key considerations in the Brexit topic. Douglas Carswell, UKIP’s only MP, and Leave.EU, agree that although there are a repertoire of reasons to leave the EU, immigration is the strongest. Carswell says, using the persuasive tactic of risk, that “the safest thing we can do is vote to take back control.” The UK currently has 2.48 EU immigrants per 1000 British citizens, therefore a large portion of the Brexit campaign claim it’s necessary that dangerous and rampant immigration is reduced and from a solitary stance Britain can control its own borders. However, there are 3 arguments which the campaign to remain is using to bat back.

 

Source: Wikicommons

Migrants crossing the border in Hungary

“Firstly, leaving the EU doesn’t guarantee fewer immigrants. Switzerland and Norway aren’t in the EU yet they have 11.33 and 7.38 EU immigrants per 1000 citizens respectively. If Brexit occurred it is unclear what relationship the UK would share with its EU neighbours, but it’s possible it would follow the examples set by Switzerland and Norway. There, trade agreements are locked to freedom of movement agreements; the UK wouldn’t be able to have one without the other.

“Secondly, there is still hope of renegotiation of Britain’s position within the EU. Cameron’s negotiations so far have not been promising but there is flexibility in domestic law, for instance EU immigrants currently cannot claim housing benefit (NI Direct, 2014). Cameron’s current proposals include stopping EU immigrants being able to receive benefits for the first four years they are working in the UK. He bills this as a kind of punishment for the immigrants already “putting an excessive pressure on the proper functioning of its public services.” This confounds the argument that it’s only possible to deter immigrants from entering the UK if we leave the EU.

“Thirdly, some campaigners on the left argue that it’s inhumane to keep EU immigrants out of Britain while it remains one of the richest countries in the world. They emphasise the scale of the refugee crisis and the impact this has relating to externalities. They also highlight the UK’s recent history of “hypocritically pressuring Turkey to open its borders whilst fortifying our own.”

“Arguments for the UK to remain come from all over the political spectrum, and a consensus has not been reached on how best to discuss immigration in the context of Brexit.”

 

Anne – Caroline – “Another social aspect highlighted by the Brexit would be the “European identity”. This identity is a complex question, as it is made of several ones, each from its own country.

“The EU was initially an economic partnership created after WWII to maintain peace and help reconstruction. The main goal was to promote exchanges between the countries and to strengthen the ties between them. Then, politicians tried to extend this partnership with a political and cultural dimension. However, even if the countries share some common historical background- we can refer for instance to the Roman Empire, Hellenistic civilisation, Christianism or the Enlightenment during the 18th century- there is not a strong feeling of belonging to a same community.

European Parliament presidents. source: wikicommons

“Britain was shaped by a “Eurosceptic culture”. It is rather a global country, as Anthony Eden said in 1952, “her interests lie far beyond the continent of Europe”. The British were also known for their pragmatic policies and did not believe in a European union in the first place; it was seen as contradictory with their sovereignty and against their liberty. Margaret Thatcher strengthened this tradition.

 

These elements can explain the origin of the current Euroscepticism in UK. In other words, there is a lack of legitimacy concerning the EU. The weak political legitimacy occurring in the EU is due to the incapacity of political structures to solve new issues brought by globalization and European integration.

“A recent survey by Natcen emphasises the fact that British people have never felt to “belong to a European Identity”. In 2014, 15% thought themselves as European, that is 5% more than in 1996. The highest figure was achieved in 1999, with 17%. Therefore, those low cultural links do not really bond British people with the other members of the union: withdrawing from the EU will not make a big difference for them.

“Another social aspect that goes in the sense of leaving the EU would be the feeling of being “in security”. This would be illustrated by closing the borders. According to a survey realized on the 15th and 16th January, 53% of people were in favour of the Brexit. The main reason of this decision was the recent set of attacks that struck the French capital.  In addition, we can cite the mass sexual assaults that took place in Cologne on New Years Eve 2015.”

 

In conclusion, there are many issues to consider relating to Brexit, with convincing arguments on all sides.  Some emphasise the loss of trade links if Brexit occurred, while others highlight the policy areas which could be brought back under British control. Polls conducted on the British public still vary wildly from day to day and many remain undecided.

 Many people worry about the risks of staying in the EU related to refugees and the Eurozone crisis, whereas the situation for the UK without the EU is equally uncertain.

 

Note: The opinions expressed in this post are those of the authors, and do not necessarily reflect the views of UCL, SSEES, or SSEES Research Blog


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Guest Post: Norway and the EU as a model for Brexit – an ideal, or the worst case scenario?

By Blog Admin, on 2 June 2016

by Eline Groholt, IMESS Politics and International Economy Student 

Sometimes described as an ideal model for EU-British relations, at other times used as scare tactics of how bad it could get, Norway’s relation to the EU provides an interesting comparison for Great Britain’s options in the event of Brexit.

EMG Tønsberg coast

 

With 80 per cent of Norwegian exports and 60 per cent of imports coming from the EU, Norway is obliged to accept EU rules and regulations in order to access the common market, but is exempted with regards to important sectors such as agriculture and fishery. Norway adopts about three quarters of all EU legislation, without the right to vote on, or influence the law making process, except from being consulted in the initial stage of the process. Would Great Britain be ready to give up the right to influence legislation it is bound to follow?

 

Interestingly enough, the Norwegian government is backing the British remain campaign, although not itself a member. Following the two EU referenda in 1972 and 1994, Norway voted by a narrow margin to stay outside the EU, but remained within the European Economic Area (EEA) together with Iceland and Liechtenstein (EFTA members). As a former Norwegian minister of Foreign Affairs declared to The Guardian: “the EEA has become Norway’s compromise on Europe.” If Great Britain followed the Norwegian model, it would severely alter the power balance of the EEA itself.

 

However, as the British referendum on the EU is approaching, British politicians supporting the “Vote Leave” campaign have become increasingly reluctant to picture the Norwegian model as an ideal option. In fact, it is becoming more and more evident what this option would actually involve, which threats British sovereignty would face and how the country would see undermined its role in the whole Europe.

EMG Royal Palace on constitutions day

Having voted ‘no’ twice, the Norwegian EU debate has been declared dead, leading to a lack of discussion, debate, healthy political conversation, and consequently, poor knowledge of EU political decision-making mechanisms and policies in general. Paradoxically, this happens at the same time as Norway becomes more closely integrated with the EU. A British referendum on the EU has at least sparked a vibrant debate in Britain on how the EU actually works. This should be welcomed.

 

Norway as a model for UK? So close, yet so far!

Although an interesting idea to ponder, the vast differences between the two countries make for a strange comparison. Norway is a small, resource exporting country with five million people belonging to Europe’s periphery, whereas Great Britain is a huge service economy with global ambitions and a world leading financial centre. It is hard to imagine a country like UK giving up influencing powers over EU legislation. And as EU scepticism continues to grow across Europe, perhaps a reluctant member like UK is exactly what the EU needs in order to modernise.

 

Note: Views expressed are those of the author, and not necessarily those of SSEES, UCL, or SSEES Research Blog

 

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Brexit could push British universities down global rankings

By Blog Admin, on 28 May 2016

by Sultan Orazbayev – Current PhD Candidate

Research shows that visa restrictions between countries reduce scientific collaboration of researchers in those countries. If Brexit results in an increase in the administrative barriers to mobility, then this could harm the global standing of British-based researchers and British universities.

 

Donaldson Reading room, UCL. source: Wikicommons

Researchers believe that Brexit will affect the ranking of UK universities.

Recent comparative study of European and US researcher mobility documents that researchers in Europe (including non-EU countries) move less frequently within Europe compared to inter-state mobility of US researchers (Kamalski and Plume, 2013). The same study shows that countries with higher rates of mobility are associated with high-impact research. Additional supporting evidence on the importance of researcher mobility can be found in the recent Parliamentary report on EU membership and UK science.

There is no clear understanding of how Brexit will affect the administrative barriers to mobility, both for UK researchers’ access to EU countries and access to UK by EU researchers. A close case study is provided by Switzerland, see a detailed examination in a blog post by Galsworthy and Davidson (2015). In the extreme case of imposition of ‘paper walls’, for example travel visa requirements between UK and EU, there is likely to be a significant drop in UK-EU scientific collaborations and knowledge flows. This would exacerbate the impact of the reduction in overall funding of UK science which is likely to follow Brexit.
Research shows that higher ‘paper walls’ between countries (immigration policy, travel visa requirements) reduce bilateral knowledge flows and collaborations (Orazbayev, 2016). EU researchers are collaborators for about 40% of the UK collaborative research, thus even a small increase in collaboration costs is likely to lead to a sizeable drop in joint projects.

As a consequence of the negative impact of Brexit on UK (and EU) science, British universities would slide down in the global university rankings. International university league tables place a significant weight on research performance of a university, which is proxied by the citations to work generated at the university. For example, QS World University Rankings places 20% weight on citations per faculty as a measure of research impact. The decrease in citations to UK research (reflecting reduced knowledge flows), especially to the recent research, will push British universities down the league tables.

 

Please note: Views expressed are those of the author(s) and do not reflect those of UCL, SSEES or SSEES Research Blog

 

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Will Brexit affect growth prospects in the EU Members of Central and Eastern Europe?

By Blog Admin, on 26 May 2016

Chiara Amini – Teaching Fellow in Economics and Business and Raphael Espinoza – Lecturer in Economics
UCL SSEES Centre for Comparative Studies of Emerging Economies

It is a common view that a UK exit from the European Union would cause significant damage to the UK and to the EU.  The Treasury claims that Brexit would make Britain significantly poorer and could result in GDP contracting by as much as 6%. Such a significant impact would not be so surprising, given that trade and investment between the UK and Europe has grown significantly in the last 40 years. In 2014 a study by Ottaviano et al showed that Brexit trade losses would amount to 3.6% of UK GDP, as a result of an increase in taxes, quotas and regulatory legislation. What’s really striking is the fact that these losses have the potential of reaching 10% of GDP, if we consider the dynamic effect of trade on innovation and competition. Earlier this year, JPMorgan estimated that Brexit could reduce GDP growth by as much as 1% between 2016-17. At the same time the bank also warned that Brexit could decrease Eurozone GDP by 0.2-0.3%.

Policymakers in the EU countries of Central and Eastern Europe have been vocal in expressing their concerns about Brexit. The countries this specifically refers to are: The Czech Republic, Estonia, Hungary, Lithuania, Latvia, Poland, Slovakia and Slovenia.  Recently Poland’s President, Andrzej Duda, warned that Brexit could have dramatic consequences for the Polish economy. However, formal analyses estimating the impact of Brexit on the region number on the fingers of one hand. Erste Bank argues that direct economic consequences on the region would be relatively minor as UK trade amounts to only 3-6% of total trade. However, countries such as Poland, Czech Republic, Hungary, Latvia, Lithuania and Slovakia, that run trade surpluses with the UK, are predicted to be most affected. After looking at the macro data, we can argue that Central and Eastern Europe would not only be affected by Brexit directly via a fall in flows from the UK, in terms of migration and remittances, trade and financial flow, but also indirectly through its effect on the Eurozone. As economic shocks spread easily from one country to another, a phenomenon known as ‘financial contagion,’ the impact of Brexit on the Eurozone would further reduce inflows to Central and Eastern Europe.

 

Financial flows from the UK to Central and Eastern Europe appear moderate (see Figure 1).  The median of UK financial flows to GDP is less than 1%.  Trade flows (import and export) are much more important, and they represent around 2.5% of GDP in Central and Eastern Europe.

Figure 1– Median Flows UK- Central and Eastern Europe

 

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However, taken together, UK trade and financial flows make up a sizeable share of the total flows to the region.  The proportion of UK remittances to total remittances in Central and Eastern Europe is as high as 8%. As far as trade is concerned, this ratio is 4%. Inevitably, some countries in the region have even stronger links with the UK; for instance, in the Czech Republic, foreign direct investment from the UK constitutes 14% of its total foreign direct investment.  Also in the Czech Republic, bank loans from the UK represent 2.5% of GDP. UK remittances also constitute an important part of total remittances sent to Latvia and Lithuania, over 20% of the total.

Moreover there has been a high degree of correlation in the economic growth between Central and Eastern Europe and the UK. This could be the result of financial contagion via other, third party countries. Alternatively, it could stem from both regions’ high integration with the two largest world economies, the US and the Eurozone.  However, the correlation between growth in Central and Eastern Europe and the UK (at 0.56) is higher than that between the US and Central and Eastern Europe. (0.43, see Figure 2) Disentangling such correlations so as to understand how economic shocks are transmitted between countries has been done in a variety of models.

 

Figure 2 – Real GDP growth (Year-on-Year; source: OECD and IMF)

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Our analysis shows that the UK is a significant source of financial contagion for Central and Eastern Europe. If, as a pessimistic example, estimated by PwC earlier this year, UK GDP fell by 5% as a consequence of Brexit, this would reduce GDP growth in Central and Eastern Europe by no less than 2.5%, as a consequence of third party financial contagion. Since the model is linear, if the fall in UK GDP was only 1%, the impact on Central and Eastern Europe would be only 0.5%.

 

Historically, shocks to UK GDP have contributed around 20 % of the variance in growth in Central and Eastern Europe. In our research for this piece, we employed a well-known statistical methodology, Vector Auto Regression, to examine how growth in Central and Eastern Europe relates to the economic performance of the UK, US and Europe. The historical decomposition of growth in Central and Eastern Europe (Figure 3) attributes the good performance of Central and Eastern Europe in the first decade of this century to strong growth in the UK. This occurred at a time when growth in the Eurozone was disappointing.   

Figure 3. Historical decomposition on GDP growth in Central and Eastern Europe (YoY)

 

 

 

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We have come to the conclusion that, although it is uncertain what the short-term impact of Brexit on the UK will be, there are good reasons to think that it will have negative repercussions on Central and Eastern Europe.

 

Please note: Views expressed are those of the author(s) and not those of SSEES, UCL or SSEES Research Blog.

 

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Stalin in Manhattan

By Blog Admin, on 20 May 2016

By Dr Elisabeth Schimpfossl – Leverhulme Early Career Fellow at UCL SSEES

Elisabeth is giving a talk on 23rd May on ‘Russia’s New Rich and Their Attitudes to The West’ at UCL as part of the UCL Festival of Culture

(Seminar room 20, Wilkins South Wing, 18.00)

During my last trip to New York I was invited to attend the annual PR event of a chic Russian-owned Manhattan antiques shop. Everything was fancy; the location in one of the trendiest streets in Upper East Side that attracts a cosmopolitan jet-set crowd, the subtly tanned maître de, a young man with a gym-honed physique complemented by the most perfect manicure possible, and the champagne-sipping ladies elegantly balancing on pencil thin heels. I chatted with the wife of the new owner, a very pleasant thirty-something, who appears genuinely natural, despite being perfectly turned out, thanks to Botox, good dentistry and professional fashion styling.

Masha was born into an engineers’ family in Novosibirsk. Her family left for Spain in the early 1990s. After graduating from an international school, Masha did an economics degree at a UK business school. She worked for her father’s company for a few years before meeting Vadim, the son of a Forbes-listed oil and gas businessman. Vadim had some of his business in Latin America, so the young couple settled in New York City. He had a longstanding passion for antiques, and the year before he finally decided to realise his dream of owning a small antiques boutique. Masha was all up for it. She loves meeting new people, the quirky antique art dealers and the international ladies of fashion whom she primarily considers her husband’s clients, and also the people from the neighbourhood, some of them proper New Yorkers, who pop by every so often for a glass or two.

 

 

 

 

 

 

 

 

 

 

 

Masha and I got to talk about the Moscow metro; how it is superior to the New York subway, not least because of the resources which were put into it by some of the best engineers of the early 1930s; and how little surprising it is that this greatly helped boost Stalin’s popularity. Stalin was not only good though, Masha adds. I nod quickly, affirming to her that that was indeed very much the case. Then I learned I had not nodded to the same idea. Stalin did not go far enough, she says, with the kind of un-Russian, professional smile on her face, learned at her international school.

Yes, it was crucial to eliminate all those Trotskyists and Leninists who would have only sabotaged the Soviet Union’s leap into an industrialised future. Stalin had never been a Leninist, hence Lenin’s suspicion towards him shortly before his death in early 1924. Both Lenin and his wife, Nadezhda Krupskaya, became very wary of Stalin. Lenin had only endured young Stalin before the First World War for successfully staging bank robberies to fill up the party’s fighting fund. At the time Lenin’s party was working underground and any source of income was highly appreciated. So obviously Stalin had to settle his accounts with Lenin, his heritage and all his living memory.

Masha went on to explain why Stalin had to liquidate other revolutionaries and their sympathisers, for example the old Bolshevik Bukharin, a fellow traveller of Lenin. Bukharin had great charisma and was very popular, but he sided with the rich peasants. No industrialisation would have gone ahead with them clinging to their old ways of production; hence Stalin had to get rid of him. He also went on to liquidate the Red Army’s high command in 1937. Masha was now quite animated and in full flow. No matter how Bolshevik Marshall Tukhachevsky and the other senior commanders perceived themselves, they had a Tsarist mind-set. They would have become a massive problem, hindering more courageous military strategies during the Second World War.

If anything, Stalin was not tough enough. This is evident in the fact that there were still massively damaging saboteurs left, such as the Red Army general Vlasov who collaborated with the Nazis after his capture in 1942. At this point Masha’s husband waved his wife over to introduce her to a new customer who was interested in a fine pair of lacquered armchairs. The antique shop staff started collecting the empty Ruinart bottles and champagne glasses. The two pieces I liked most and would have loved to buy if I was rich, a 1940s cabinet for $35K and an art nouveau coffee table for $40K, had red stickers on them to indicate that they had been sold, and I left into the fresh air of a relatively clear New York September night.

 

As cosmopolitan and sophisticated as Masha is in most aspects of her lifestyle, her expensive European schooling and university education had failed to convert her to Western-type humanistic thoughts. Patriotic thinking, including seeing Stalin as the great moderniser and overseer of the Soviet Union’s rise to global superpower, was clearly more persuasive to her. As we saw in the case of Kremlin TV presenter Dmitry Kiselyov, even repressions in one’s own ancestry suffered during Stalin’s terror do not necessarily outweigh the deeply conservative views that began flourishing in the Putin era, supported by nostalgic feelings towards the Soviet period, primarily associated with solid traditional family values. Stalin is associated as much with the glory of the Soviet victory in the Second World War and with the country’s economic development as he is with atrocities and terror.

 

The tendency to hold such strong convictions arises within the context of clashing historical narratives. Western education, lifestyle and permanent residence do not necessarily have great influence on this view; on the contrary, they can rather cement it: the Western schooling Russians are presented with as gospel truth could not deviate more from what they have heard from relatives, seen on Russian television and read in Russian textbooks. In the Soviet Union, the only channels for alternative versions of history were close friends and family. Patriotism – and with it nostalgia for Russia’s lost status as a superpower – is such a strong component of national identity that Western takes on history are not perceived as pluralistic views, but as a sharp knife stabbed into Russia’s heart. Western textbook writers are partly to blame. It has happened to me, not just once, that when I asked a full lecture hall of history students in England who won the Second World War, the Soviet Union was conspicuous by its absence from their list of victorious countries. Those full of pride in their culture and history (to some extent almost every Russian), if not socialised into a belief in superiority, will necessarily defiantly reject an unsubtle Western understanding of their country and society.

Note: This article gives the views of the author(s), and not the position of the SSEES Research blog, nor of the School of Slavonic and East European Studies, nor of UCL.

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Could Brexit lead to Frexit – or Czexit?

By Blog Admin, on 10 May 2016

By Dr Sean Hanley – Senior Lecturer in Comparative Central and East European Politics

This post reproduced with author’s permission

 

A powerful coalition of forces – ranging from the driest of conservatives to Greens and the radical left and taking in big business,  trade unions, churches and universities – has come together to underline the negative economic, social and political consequences of Brexit.

The UK leaving the EU, it is argued, will not only do lasting damage the country’s economic prospects and political influence, but could have wider repercussions and might even  cause the Union to start unravelling.

This is not simply a matter of absorbing a mighty economic shock, the complexities of negotiating the terms of Brexit, or the umpredictable effects of a sharply changed balance of forces within a downsized Union – the greater weight of Eurozone vis-a-via the non-Eurozone, for example – but the new political dynamics that might take hold.

Some have argued that, emboldened by the example of Brexit, eurosceptics across the EU, will start to push for the exit option, triggering a kind of ‘domino effect’.  Writing for France Inter. Bernard Guetta gloomily takes for granted that post-Brexit

… so many politicians and political parties would follow headlong down this route to get a slice of the action. The pressure for similar referendums would arise all over Europe. The defenders of the European ideal would find themselves on the defensive. In such a crisis it would be very difficult to rebuild the EU.

Available evidence does suggest potential for such a process.  Polling by Ipsos Mori shows high public demand for referendums on EU membership in with significant minorities France (41%), Sweden (39%) and Italy (48%). favouring withdrawal. Other polling even suggested that post-Brexit a majority of Swedes would support exiting the EU.

French, Dutch and Danish electorates do have experience of rejecting EU treaties in referendums – with voters in the Netherlands getting further practice in last month’s referendum on EU-Ukraine trade deal, whichsome see a dry run for a Nexit vote.

And demands for exit from the EU – or referendums about it – have been raised by expanding parties of the populist right pushing their way towards power: Geert Wilders’s Freedom Party in Holland advocates Nexit, while French Front National plans to organise a referendum on Frexit within six months of coming to power.

FN leader Marine Le Pen, who relishes the idea of becoming Madame Frexit, also recommends that every EU member should have one (although her offer to visit the UK and help out the Brexit campaign has been abruptly turned down).

The Danish People’s Party, once regarded as on the radical right, but now considered respectable and modernised enough to sit with the British Tories in the European Parliament, is pondering the idea of pushing for a referendum Dexit (Daxit?).

The logic of such exit options among richer states seems to similar the case now being made by UK Brexiteers: that wealthy West European states might be economically strong enough to make it – and perhaps even thrive – in (semi-) detached relationship with (what remains of) the EU, trading economic some losses for sovereignty and the freedom to follow immigration and welfare policies tailored to national requirements.

Domino effect

There even been reports that some Central and East European countries might be in the line to exit the Union they joined little over a decade ago. In February Czech Republic’s deputy minister for European Affairs, Tomáš Prouza, told reporters that Brexit could push Czexit onto the political agenda for his country’s eurosceptic conservatives and hardline  Communists.

And to some extent he has a point.  Czechia’s mercurial President Miloš Zeman, although himself a eurofederalist firmly in favour of EU membership, thinks Czech voters should have their say in a Czexit referendum. The Czech parliament recently voted to discuss a resolution on a Czexit referendum proposed by the populist Dawn grouping (but ran out of parliamentary time to do so).

Despite this Mr Prouza and his boss Czech prime minister Bohuslav Sobotka were probably laying on the Brexopocalypse rhetoric rather too thick. Having flirted with rejection of EU membership in the to accession in 2004, both the conservative Civic Democrats (ODS) and Communists had reconciled themselves to membership of Union, while hoping to steer it in a political direction more in tune with their visions of European integration and Czech statehood some time in the future.

And, while there is plenty of scepticism about the EU across the CEE region – polls, for example, show a majority of Czechs deeply sceptical about the future of the European project and opposed to the adopting the Euro – as in Western Europe ‘hard euroscepticism’ has been the province parties of the radical right and left. It is hard to find any out-and-out outers in the region.

For poorer, economically less robust newer member states EU membership was not only the best option for economic development, but a civilisational choice confirming their ‘Return to Europe’ and status as fully fledged democracies.

And while the Brexit referendum is a contest between two (semi-)plausible futures both of which draw high levels of public support – centring a debate over the trade-offs between economic growth and recovered sovereignty – CEE states have no credible economic options outside the Union.

For this reason, ‘hard’ Eurosceptics in the region have often been big on critique and vision but quiet on concrete proposals for getting their countries out of the Union. Instead their implicit hope seems to be that eurosceptic and anti-federalist coalitions prepared to roll back integration – either between governments or parties – will emerge, or that the European Union would suffer a sudden collapse, leaving CEE societies, as in 1918, to make a break for national independence amid the rubble.

 

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Something rotten in the state of Czechia?

By Blog Admin, on 3 May 2016

klima coverThe Czech Republic has been in the news recently because of its politicians’ somewhat quixotic campaign to rebrand the country to the world as ‘Czechia’. But among political scientists and businesspeople the country’s name has long suffered worst damage than this.

Widely seen in the first decade after 1989 a leading democratiser with high standards of governance overseen by a well-established set of West European-style political parties, the country has since acquired a reputation for engrained political graft and high level corruption, which blemished its record of reform and modernisation.

In successive elections in 2010 and 2013, the established Czech party system collapsed like a house of cards as – as elsewhere in Central and Eastern Europe – voters turned to a diverse array of protest parties promising to address the country’s ills by killing off political dinosaurs, fighting corruption and promoting the direct democracy. Political scientists quickly clocked thiselectoral turbulence and the unusual new parties it gave rise to, but few stopped to wonder why and how earlier judgements of the Czech party system as an ersatz, but basically functional, equivalent of West European party politics had been off the mark.

Michal Klíma’s  new book Od totality k defektní demokracii: Privatizace a kolonizace politických stran netransparentním byznysem [From totalitarianism to defective democracy: the privatisation and colonisation of parties by non-transparent business] tackles this issue head-on, suggesting that rather than being a normal party system distorted by elements of corruption, the Czech Republic’s post-1989 party-political settlement was a deeply corrupt system overlaid with a facade of left – right competition. His book sets out to chronicle and explore how and why this evolved, drawing on the rich seam of Czech investigative journalism and focusing on the two principal pillars of post-1989 party system: the centre-right Civic Democratic Party (ODS) and the Czech Social Democrats (ČSSD ).

Regional ‘godfathers

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Photo:  author

By far the book’s most impressive achievement is its careful reconstruction of the subversion and takeover of parties and party organisations at the regional level by ‘godfathers’ (kmotři). Far from providing an impetus for political and economic development, EU-mandated regionalisation and the coming on stream of structural funds, managed by regional agencies and spent by regional authorities, triggered the takeover of party organisations by corrupt vested interests. Their usual modus operandi was the recruitment of fake or paid for party members (in Czech political parlance so-called ‘dead souls’) which allowed the capture of first local local and then regional party organisations and often opened up the way to national influence.

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