Author: Jerome a Paris

Energy banker based, yes, in Paris, France. Writing about energy, economics, international geopolitics, European and French stuff, and whatever else catches my attention. Very strongly pro-European. Liberal in the US, libéral in France and proud of both.

Greenspan’s bubbles. No – his ‘monster’ (says Morgan Stanley)

The text below has been linked to by Atrios, but I’d like to bring it to your attention again.

The author, Stephen Roach, is the chief economist at Morgan Stanley, so he is one of the top economists in the world in terms of who is listened to, and he has extra credibility in that his bank presumably invests and lends after having taking his advice into consideration.

He is a known pessimist, but I cannot find good arguments against his. His message, like mine (See my previous diaries on this topic:Greenspan’s bubbles – more graphs and Greenspan’s bubbles – a graph) is simple:

We are in a runaway train, heading for the big crash, and it is mostly Greenspan’s fault

Jump in!

The Test (Morgan Stanley Global Economic Forum)

The US Federal Reserve is behind the curve and scrambling to catch up.   Inflation risks seem to be mounting at precisely the moment when America’s current-account deficit is out of control.  Higher real interest rates are the only answer for these twin macro problems.  For an unbalanced world that has become a levered play on low real interest rates, the long-awaited test could finally be at hand.

In an era of fiscal profligacy, real interest rates are the only effective control lever of macro management.   

It’s all there in a few sentences:

  • fiscal profligacy: unrestrained government spending at the same time as taxes are brought down
  • current-account deficit out of control: the US consumer is gorging on imports
  • unbalanced world: everybody is living off that US consumer spending
  • low real interest rates: cheap money allow everybody to borrow and spend like crazy
  • inflation is picking up again (from a combination of higher asset prices and higher commodity prices, and despite the China deflationary effect)

Roach then goes on to explain that interest rates will have to increase significantly – just to get back to a neutral policy stance, and as it is “real” interest rates (i.e. those after taking into consideration inflation) that need to increase, the interest rates need to increase significantly faster than they have.

And it’s become a real footrace: The Fed tightened by 25 basis points on March 22, only to find that a day later the annualized core Consumer Price Index accelerated by 10 bp.  In fact, the acceleration of the core CPI from its early 2004 low of 1.1% y-o-y to 2.4% in February 2005 has offset fully 74% of the 175 bp increase in the nominal federal funds rate that has occurred during the current nine-month tightening campaign.  At the same time, America’s current account deficit went from 5.1% of GDP in early 2004 to a record 6.3% by the end of the year — a deterioration that begs for both higher US real interest rates and a further weakening of the dollar.  The response on both counts has paled in comparison to what might be expected in a normal current-account adjustment.  Behind the curve?  You bet.

So what needs to be done? And can it be done?

So let’s venture an educated guess: Say, for purposes of argument, that the neutral real federal funds rate is 2%.   I didn’t pluck that number out of thin air: It’s approximately equal to the 1.9% long-term average of the inflation-adjusted policy rate since 1960.  It makes some sense — albeit far from perfect sense — to define this metric as the average short-term real interest rate that, by definition, would be consistent with average outcomes for growth and inflation.  But there’s now a problem: Neutrality no longer cuts it for a Fed that is behind the curve with respect to the twin concerns of inflation and current-account financing.  Having played it cute and waited too long, the Fed must now aim for a “restrictive” target in excess of 2%.  Again, for expositional purposes, put this level at 3%.  Then add in some upside to the core CPI of about 2.75% and, presto, the Fed needs to be shooting for a nominal funds target of around 5.75% — or more than double the current reading.  That amounts to another 300 bp of tightening.  If the Fed stays with its measured approach of doling out the tightening in 25 bp installments, then it would finally hit that target 18 months from now in September 2006.  Unfortunately, given the long and variable lags of the impacts of monetary policy, the twin genies of inflation and the current-account adjustment might be well out of the bottle by then.  If that were the case, the 3% target on the real funds rate would translate into something higher than 5.75% in nominal terms.  Little wonder that talk is now rampant of stepping up the pace of tightening. 

So far, so good. After all, the US economy is picking up again, it has a good growth rate, and there is indeed some threat from imported inflation. A little tightening will help it go through this rough patch and maintain its amazing performance, right?

Well, except for one thing…

Lacking in support from labor income generation, America’s high-consumption economy has turned to asset markets as never before to sustain both spending and saving.  And yet asset markets and the wealth creation they foster have long been balanced on the head of the pin of extraordinarily low real interest rates.  The Fed is the architect of this New Economy, and most other central banks — especially those in Japan and China — have gone along for the ride.  Lacking in domestic demand, Asia’s externally led economies know full well what’s at stake if the asset-dependent American consumer ever caves.  And so they recycle their massive build-up of foreign exchange reserves into dollar-denominated assets, thereby subsidizing US rates, propping up asset markets, and keeping the magic alive for the overextended American consumer. 

<u>The current apparent health of the US economy is not coming from “labor income generation”, i.e. middle class working and getting paid for that work, but from cheap money, i.e. from debt.</u&gt The wealth is an illusion, created by Greenspan, and encouraged by Asian central banks who initially thought that they could ride that tiger to their own wealth.

Asset markets around the world are now quivering at just the hint of an unwinding of this house of cards.   And they quiver with the real federal funds rate barely above zero.  What happens to these markets and to an asset-dependent US economy should the Fed actually complete its nasty task of taking its policy rate into the restrictive zone?  It wouldn’t be at all pretty, in my view.  The main reason is that the Fed and its reckless monetary accommodation have fueled multiple carry trades for all too long.  And those trades are now starting to unwind, as spreads widen in investment-grade corporates, high-yield bonds, and emerging-market debt

Even before interest rates have gone up, the market feels that the debt burden of a number of borrowers is unsustainable, with real life consequences on industrial actors (see bonddad’s recent diaries on that topic: GM Near Junk Status after GE cancels 2 billion credit line and Ford, GM and Chrysler “Lumbering Toward Failure”)

What Roach is saying is that (i) interest rates need to go up by a lot more than most people still expect, and (ii) even small interest rates will have nasty consequences. Not pretty indeed. And his conclusion is quite direct: it IS Greenspan’s fault:

The equity bubble of the late 1990s and the property bubble of the early 2000s — both outgrowths of extraordinary monetary accommodation, in my view — changed everything.  Now it is a very different animal — the Asset Economy — that must come to grips with monetary tightening.

Largely for that reason, I still don’t think America’s central bank is up to the task at hand.   In the face of disruptive markets or growth disappointments, this Fed has repeatedly opted to err on the side of accommodation.  I suspect that deep in its heart, the Federal Reserve knows what’s at stake for the US — and for the world — if the asset-dependent American consumer were to throw in the towel.  Unfortunately, that takes us to the ultimate trap of global rebalancing — a realignment of the world that requires both higher US real interest rates and a weaker dollar.  Should the Fed fail to deliver on the interest rate front, I believe that the US current-account correction would then be forced increasingly through the dollar.  And that would redirect the onus of global rebalancing away from the American consumer onto the backs of Europe, Japan, and China.  Call it a “beggar-thy-neighbor” monetary policy defense — pushing the burden of adjustment onto someone else.

It didn’t have to be this way.   The big mistake, in my view, came when the Fed condoned the equity bubble in the late 1990s.  It has been playing post-bubble defense ever since, fostering an unusually low real interest rate climate that has led to one bubble after another.  And that has given rise to the real monster — the asset-dependent American consumer and a co-dependent global economy that can’t live without excess US consumption.  The real test was always the exit strategy. 

Read that again:

GREENSPAN’S MONSTER — the asset-dependent American consumer and a co-dependent global economy that can’t live without excess US consumption. 

History will not be kind to him.

Caspian Oil – A Sunday Special

Oil & gas in the Caspian has a long history – indeed it is one of the earliest oil production regions in the world, with Baku a major oil center in the second half of the 19th century and beyond. What makes the situation today interesting is the simultaneuous appearence of three things: (i) new reserves disovered offshore, (ii) the fact that, with the break up of the Soviet Union, the oil is located in (new) countries that  are keen to have foreign investment and (iii) these countries have no direct access to the world markets.

(picture from the US Energy Information Agency’s Caspian area brief)

(Warning: about 200kb of maps after the jump)
“Caspian energy” actually covers 3 different things:

  • the oil production in the region developped under Soviet times, and connected to Russia by oil pipelines. This concerns mostly Kazakhstan, Uzbekistan, and a very small volume of production from Azerbaijan. That oil is usually produced by the national oil company created in each of these countries to pick up the Soviet assets in the sector, and sold to (or through) Russia on the basis of bilateral governmental agreements. This sector is declining and is slowly being replaced by the third one below. Transportation issues that go with it are more and more resolved through the negotiations ongoing in the third sector;
  • the gas production in the region developped under Soviet times, and also connected to Russia by (gas) pipelines. This concerns mostly Turkmenistan and Uzbekistan. That gas is almost exclusively produced by the national company, and also sold to (or through) Russia on the basis of bilateral governmental agreements. In the absence of the thrid sector like for oil, Russia has absolute power over these countries and their gas production, because they have absolutely no other choice. They would like to have other pipelines to export their production (for instance going South to India or Pakistan via Afghanistan), and some people seem to tell them that this would be possible, but IT IS NOT.  I have written about this elsewhere, and will do so again in the comments if requested, but you need just remember one thing: the mooted pipelines through Afghanistan would be gas pipelines, not oil and they have no chance to being built for a very long time because nobody will pay for them.
  • the third and most interesting sector is the new investments being made by Western Oil Majors to develop recently discovered fields, mostly in the oil sector. This is where most of our attention will focus, because that’s what most of the diplomacy of the past 15 years has been concerned about, with two main topics (i) how to make the investments to develop production, and (ii) how to get the hydrocarbons to the market once produced.

It is this new sector that has created the hype around the Caspian and its new reserves, because it is one of the few areas in the world where big fields have been discovered in recent years. The excitement in big oil companies is real, because the province is probably the size on the North Sea AND it is accessible to them. Being the size of the North Sea only, it will not change the oil balance of the world either – it will account at most for 3-5% of world production at its peak, in 5 to 10 years.

I have some good news: Caspian oil is actually fairly simple to understand because there are only 5 hydrocarbon fields worth noting, and a couple of pipelines. So here they are:

(table from EIA, same link as above)

(1) ACG (formerly, AIOC)
That’s the big oil field just offshore of Baku in the Azerbaijan sector of the Caspain Sea. It is currently the only field in Azerbaijan with proven oil reserves, despite massive exploration campaigns in the past 10 years. It is currently being developed by a Western consortium led by BP (which includes Unocal, Devon, Amerada-Hess and ExxonMobil of the USA as well as a number of other companies ), under a contract signed in 1994 (and which is public, you can download it here, along with a ton of other documents on the project). It has an estimated 5 to 7 billion barrels of recoverable oil  (slightly less than what is hoped to be found in ANWR, to give you an idea). It has been producing small volumes, about 100 to 150,000 b/d,  since 1998, which are exported by a small pipeline going to Georgia, the Baku Supsa. (They also have the right to use the Baku-Novorossisk pipeline going through Russia).
Big investment is underway to bring production to between 800 and 1,000,000 b/d in the next couple of years. Whan I say big investment, I mean big: about 12 billion dollars will  have been spent by 2010. Most of that oil will use a new pipeline, the BTC (see below) which is currently being built.

(2) Shah-Deniz. It’s a big mostly gas field offshore Azerbaijan. It is actually the only significant discovery of hydrocarbons in the Azeri sector, but it is gas, which was not the best of news for the oil companies, as the markets are very, very far away. The consortium is also led by BP (with Total, Statoil of Norway, TPAO of Turkey and OIEC of Iran) and it has managed to go ahead with the development of the project by signing a contract for the gas with Turkey (although there are doubts about Turkey’s need for that gas). BP has agreed to build a gas pipeline in parallel to the BTC oil pipeline to bring the gas to Turkey, and they are now hoping to build new pipelines form Turkey to centrla Europe to be able to give more value to that gas (that project is still in its early phase, you can find more details by clicking on this link which refers to its codename: Nabucco (pdf, 280 kb), which includes this map:).

(3) Tengiz
A big onshore oil field in Kazakhstan – one of the biggest in the world, developped by a consortium led by ChevronTexaco (and including ExxonMobil, Lukoil and ENI of Italy), with about 9 billion barrels of recoverable reserves (another ANWR). Although Chevron came in in 1993, they have had a really hard time with that field, as they had no way to export the oil anywhare. They have used amazing ingenuity to sell their oil (including owning most of the railcars of the former Soviet Union – about 9,000, to sell their crude by rail, or sending barges all the way to Finland by the canals of Russia) but this has seriously limited the production of the field. Now that the CPC pipeline has finally been built (see below), they are finally ramping up production, which is expected to reach  700,000 b/d in a fews years.

(4)Kashagan
The biggest oil field to be discovered in the past 30 years, it is in the North of the Caspian Sea, in the Kazakh sector (see a detailed map here), and it is being developped by a consortium including all the big majors (ExxonMobil, Shell, Total, ConocoPhillips, ENI, BG and Inpex, with ENI, the Italian group, as the operator (Exxon did not want Shell, Shell did not want Exxon, and ENI was smarter than Total to be voted in…). With 9-15 billion barrels of reserves (exploration is not totally complete), it is yet another ANWR fully in control of BigOil, but it is very challenging technically (very high pressures, located in an areas which is at times seawater, ice, mud or any combination in between, and far away from any transport infrastructure in an area with a very tough climate) and it will need to find export routes for its production (a combination of CPC and BTC is likely to start with)

(See here for a larger version with full explanations)

(5)Karachaganak
A big, mostly gas field in North Kazakhstan near the border with Russia, it is being developped by ENI, BG, ChevronTexaco and Lukoil. As a gas field, it is heavily dependent on Russian gas monopoly Gazprom (the gas is currently being processed at the nearby Orenburg Gazprom plant), but the consortium is strong enough to negotiate decent terms and to buld its own infrasturcture. As the field contains both gas and liquids (i.e. good quality oil) which have to be produced together, the consortium has focused on selling the oil on the world markets and selling the gas at a low price to Gazprom. The oil will go into the CPC pipeline.

So this bring us to the pipelines. There are a number of existing ones, most of which go through Russia and are thus considered  by the oil majors – with reason – as unreliable. They have thus made a lot of efforts to find new routes.
A simple solution would have been to ship oil to Northern Iran (where Iran’s refineries are) and swap it for Iranian oil produced in the south of the country. This made good sense for Iran, which would not have needed to ship its own oil for the production in the South to its refineries in the North, but it is not possible under the current US sanctions regime (ILSA). This solution would be partial anyway as the capacity of the Iranian refineries is no more than 800,000 b/d and they would have needed significant investment to ba able to use the Caspian crude qualities.
So with Russia and Iran out, this left only the Western (and at a later point Easter to China) routes. An additional problem is that of the Bosphorus, which already sees a significant volume of oil tanker traffic, which the Turkish authorities were keen to not see increase. Bringing in an additional million barrel per day or two into the Black Sea (on the coast of Georgia for instance) would have created a real danger for Istanbul and this was thus stronly opposed.

Thus came to birth the BTC, which goes West from Azerbaijan, through Georgia, and then South through Turkey to the Mediterranean. It is being built by a consortium led, again,  by BP (which, interestingly, is different from either the ACG consortium and the Shah-Deniz consortium)

You can find a massive quantity of information on the project starting from here, but the main thing to know is that it will have a capacity of 1,000,000 b/d, a good chunk of which will be used by ACG oil to start with, and all the liquids Shah-Deniz can produce. It is currently being built and is expected to come into service by the end of this year. It has cost 3-3.5 billion dollars to build, more than half of which was financed by international banks with the participation of the World Bank and the EBRD.

You’ve probably heard nasty things about the project because it has been used as a target by a number of NGOs that absolutely want the World Bank to stop financing the energy sector, and they tried to show that such projects were tremendously damaging to the environment and to the local populations. They’ve put pressure on the World Bank, on the commercial banks and on the oil companies, thankfully to no avail (this is not the topic here, but I do intend to write more about this and explain that “thankfully”. In the meantime, you can go see the envirionmental reports on the BTC site linked to above, and otherwise google “Extractive Industries Review” or “Equator Principles”)

The other big pipeline in the region is the CPC (Caspian Pipeline Consortium) which, as you can see on the maps above, does go through Russia and does bring oil into the Black Sea. It nevertheless has the particularity of being the only privately owned pipeline on the territory of Russia (something that they really don’t like and are trying to undermine at every turn, especially these days as an extension is being discussed). It was built (and paid for) by a consortium led by ChevronTexaco, and currently has a capacity of 450,000 b/d, due to be increased to 1,300,000 b/d. It is used for oil from Tengiz and soon from Karachaganak.

So, what can be learnt from that?

  • Big Oil fully controls the operations of the 5 major oil fields, so the region clearly falls in the sphere of influence of the “West”. The two producing countries have made an explicit decision to welcome foreign investment and will be richly rewarded for it. The revenues is split using a standard instrument, the PSA (production sharing agreement), which allocates the oil produced first to repay the initial investments (“cost oil”) and then as profit (“profit oil”). Host countries get a growing share of the oil as the fields produce and as prices go up. The marginal split usually gives more than 90% to the host country.
  • Oil transit is also pretty much solved, with the CPC in service and the BTC about to be. These two pipelines will bring significant new volumes of oil into the Mediterranean oil markets and are enough to transport the expected oil volumes from the existing fields. Oil majors have been smart enough to lead in parallel the investments in the upstream (production) and midstream (transport) and have thus been able to ramp up the production of their fields as fast as was possible under the circumstances (it still took time – more than 10 years for both ACG and Tengiz, with the same expected for Kashagan).

  • Gas is still an almost completely blank field for the Western oil majors. They have not been really happy to find gas when they did, as it is a lot harder to manage (infrastructure is a lot more important and more expensive) and they have to face a much stronger adversary in Gazprom, the Russian monopoly, which controls both the existing infrastructure and the downstream markets in Europe. (The outcome of the Nabucco project will be interesting thing to see, as it would  create a new (smallish) competitor for Russian gas in Europe)
  • the Caspian oil will go entirely West for the next 10 years, but it is likely that the next roure will go East to China. China is making a lot of efforts, especially in Kazakhstan, to procure some oil, but with uneven results. They have tried to buy out BG’s stake in Kashagan, but the other shareholders exercised their preemption rights despite strong Chinese pressure (they threatened to kick Shell our of the Chinese refining business). Nevertheless, there is a strong strategic rationale for it to happen eventually.

Again:

  • don’t be impressed by big numbers. We’re talking close to 50 billion dollars of investments in a few years. Upfront. (That’s what you spend, almost, before getting any revenue)
  • please, please be wary of what you read on this topic. Too many people have other many interests that you may not be familiar with and their public announcements should be taken with a grain of salt; Don’t believe that everything which is announced will happen; don’t even believe that everything signed will happen. It’s not because Halliburton is involved that it is necessarilty a big plan to scam us off (KBR, the Halliburton, is one of the biggest contractors for big oil projects, and one of a few to be in the competition. Please remember that they are paid by Exxon or ChevronTexaco and thus will not scam them like they seem to be able to do with the US government)
  • finally: don’t forget that people are going to these God-forsaken places to get the oil that YOU will be burning today, tomorrow and again. Before blaming them for providing a valuable service, remember that they are providing that service ultimately to YOU.

There is a lot more to write on the topic; I am not avoiding any topic and would be pleased to provide more info in the comments at your request.

Blair knew early about Wolfowitz choice for WB and KEPT QUIET

More confirmation, if ever it was needed, on the “poodlehood” of Tony Blair, courtesy of this morning’s Financial Times:

Blair kept quiet on Wolfowitz candidacy

Tony Blair was sounded out on the candidacy of Paul Wolfowitz to lead the World Bank before the White House announced his nomination but did not share the controversial proposal with cabinet colleagues or fellow European leaders.

The British prime minister was informed about Mr Wolfowitz’s possible candidacy and relayed to Washington that he would not oppose him.

The issue was raised with Mr Blair when Condoleezza Rice, the US secretary of state, visited London last month, according to two senior US officials close to the proceedings. Mr Blair’s discreet support gave President George W. Bush the confidence to know that Mr Wolfowitz, the deputy defence secretary and an advocate of the war in Iraq, would not face united opposition from the World Bank’s European shareholders.

Blair does not care about Europe. Don’t ever believe that myth. All he cares about is his personal access to the White House, and that dream that he can be the sole go-between between Europe and the USA.

But by honouring Mr Bush’s wishes, Mr Blair chose to keep the candidacy from Gordon Brown, the UK chancellor, who is chairman of the International Monetary Fund’s governing body and the European finance minister most closely identified with the development agenda.

Yep, he does not even care that this access be to the UK Prime Minister. No, it’s just Tony Blair.

A Downing Street official said: “We had a number of discussions with a number of different countries over possible candidates over a period of time. Like others, we were first notified of the decision to nominate Paul Wolfowitz on the day of the president’s announcement.” Treasury officials declined to comment.

While the details of Ms Rice’s private conversations with Mr Blair remain tightly held, officials and diplomats on both sides of the Atlantic have said they were aware of Mr Bush’s effort to secure the support of his chief European ally. The UK Treasury, the British foreign office and officials in other European capitals remained in the dark, according to UK officials.

Following a report in the Financial Times on March 1 that Mr Wolfowitz was a leading candidate for the US nomination, a senior UK Treasury official telephoned his US counterpart.

The US Treasury dismissed the story, according to British officials. A British diplomat, who contacted the administration, was told Mr Wolfowitz was not in the running.

So this was intentional. This is an even bigger “fuck you” from Bush, and the story makes it explicit that Blair knew about the “fuck you” and endorsed it.

The World Bank presidential nomination is seen by Washington as a White House decision and it chose to garner support for Mr Bush’s choice by contacting European leaders directly rather than lobbying finance ministries and development agencies.

Unlike Mr Blair, some European leaders were not given advance warning. Jacques Chirac, the French president, and Gerhard Schröder, the German chancellor, only spoke to Mr Bush after the announcement. But European leaders have made clear they will not stand in the way of the Wolfowitz candidacy.

Blair is a traitor. To Europe, which may not be so important, but to his country and his party. What a pathetic fool.

One of the biggest reasons why I hope that France votes Yes in the coming referendum on Europe is that a “No” would save Blair from actually having to make a stand on Europe, which he has never done. He has pretended to be pro-European, but has never behaved that way and has never argued the case to the British electorate.

Slimy fucker.

France Votes on EU Constitution (I)

[promoted to the Front Page by BooMan]

In parallel to the UK elections currently diaried by Welshman and Febble over at dKos, there is another important vote due to take place in Europe in a few weeks time (on 29 May): France’s referendum on the EU Constitutional Treaty (or EU Constitution).

I’ll use this diary to make a brief description of the Constitution, how we got there, what will happen next, and what are the stakes in France. If this generates enough interest, I’ll make a more regular series, and this can be used to discuss various European issues.

:::more below:::
First of all, there are many sites where you can find the full text of the EU Constitution and many detailed explanations, so if you want to have lots of information, you can go there:

Official site of the European Union on the Constitution, including the full text of the Treaty (pdf, 860 kb), links to the various institutions of the European Union, and some interesting Powerpoint presentations (pps, ca. 400kb);

The site of the UK Foreign Office on the topic, including their commentary of the treaty (scroll to bottom of that page);

The European Convention, the group that negotiated over two years the Treaty which was finally adopted by the Heads of Governments one year later, with small amendments;

The BBC Special on the topic, including a summary of its main terms and explanations on the various institutions and decision making mechanisms.

Two of these sites are European, and two British. There is an untractable problem when discussing Europe in English – the perception bias. As you hopefully know, the UK is the most Eurosceptic country in Europe, and this means that, as a general rule, commentary in English about Europe is more critical, distrustful and dismissive of Europe than the general European public is. Being French and strongly pro-European, I will of course strive to fight that perception bias with a bias of my own!

So here we go.

I will not go into a detailed history of the construction of Europe (you can find a British-slanted timeline here courtesy of the BBC), but the idea of the Constitution came about after the disastrous Treaty of Nice, in France in 1999, which then set the parameters for decision making once the enlargement to Central Europe would take place, and which is unanimously considered to be a terrible treaty, with complicated and impossible to explain rules, and very unwieldy voting procedures. The brain child of Chirac and Schroeder when they did not get along, it has come into force last year and will remain in force if the EU Constitution is not ratified.

Faced with that perspective, the European countries decided that it would make sense to try to simplify the rules of the EU, make them clearer to everybody, and hopefully improve the decision-making processes in an union of 25. Thus the European Convention, was born, regrouping representatives of the European Commission (the European executive body), the European Parliament, each national government and each national Parliament, 115 members in all, led by Valery Giscard d’Estaing, the former French President in the 1970s. They worked for 2 years to find a consensus, and it was almost mission impossible as there were so many conflicting requirements and wishes (more federalism, more subsidiarity, more powers to the Commission, more power to the member States, more social norms, etc…) and it is a significant achievement that they managed to produce something in the end.
This is important to note: this document is the result of negotiations between representatives of all countries (including the Central European countries which were not members at the time), where both euro-federalists and euro-skeptics were represented, nationalists and federalists, left and right; it was done in an open and transparent debate which was discussed in each country, and the result was a real pan-European consensus (and Giscard d’Estaing deserves a lot of credit for driving this massive debate to a successful conclusion)

The document was tweaked by the heads of States a little bit, but was kept essentially as prepared by the Convention; it was agreed  on 18 June 2004 by the Heads of State and signed on 29 November 2004. (A first attempt to agree on the document failed in December 2003 because of a disagreement between Spain and Poland on one side, and most others, lead by Germany and France, on the other, about country weighting rules for majority votes. The change of leadership in Spain in March 2004 helped unblock this situation)

Its content can be summarised as follows:

  • it consolidates all past European Treaties into one single, better written document
  • it gives a legal personality to Europe
  • it creates a President of the European Council and a Union Minister for Foreign Affairs
  • it extends majority decision making (as opposed to unanimous) in the Council of Ministers to a number of new fields, including justice and home affairs, and provides for more co-decision powers to the European Parliament
  • it puts in place new voting procedures (a system of double majority voting from November 2009: decisions will need support of 55% of countries, representing 65% of EU population)
  • for the first time, it makes it explicit that Member States can leave the EU if they wish
  • it incorporates the Charter of Fundamental Rights

It is a tidying exercise, with, as usual, a few more powers given to the European institutions here and there. The main changes are symbolic, through the creation of more visible representatives (the Union chief diplomat, and a more permanent President), through the name of “constitution” itself, and through the Charter of Fundamental Rights. It adds prerogatives to the European Institutions in what are eminently sensitive political issues, and while the substance is not all that different, it is widely seen as a new step towards the creation of a political Union, complete with executive (the Commission); legislative (the Council of Ministers and the European Parliament) and judicial (the European Court of Justice) powers.

As an aside here, Europe has always been a political project, and has always been seen as such in France and other “core” countries. It has been sold to the British public (and thus to the English-speaking world) as an economic endeavor, and that misunderstanding has been the source of many problems, as the British public smells the politics, is more reluctant to go there due to its specific history in Europe, but has Europe rammed down its throat for “economics” reasons which, of course, do not tell the full tale. In France, it is more the other way round: the population likes the political project part, but not so much  the economics (“a vast laissez-faire anglo-saxon conspiracy”)…

Now that the Constitutional Treaty has been agreed and signed, it must still be ratified by ALL Member States to come into force. Ratification can be done by a vote of Parliament (as Lithuania, Slovenia and Hungary have already done) or by a referendum (as done recently in Spain, and as will be done in France, UK, Netherlands, Denmark, Luxemburg, Ireland, Portugal, Poland and the Czech Republic – see the map in previous link).

So this gets us to the French referendum, which is due to take place on 29 May 2005.
Polls showed initially a strong margin in favor of the “Yes”, but this margin has shrunk, and two recent polls have shown for the first time a small majority for the “No”. The mainstream parties of both left and right are campaigning for the “Yes”, but there are opponents on both sides, nationalists on the right (or “sovereignists”), and the hard left (Communist party and other assorted extreme left groups, as well as a significant minority within the socialist Party). A lot on issues unrelated to Europe are influencing this vote, and I will go into these in coming installments. The main topics of discussion are the following:

  • the adhesion of Turkey, while formally totally unrelated, is very present in the debate;
  • the Bolkenstein directive, liberalising services within the Union, has become a bogeyman in recent weeks (mainly because of the concept that service providers could do business in one country while respecting the laws of another Union country);
  • the general unhappiness over unemployment, lack of revenue growth, and a general sense of social malaise;
  • a desire to punish Chirac who appears out of touch, and a desire on the left not to give him a boost with a referendum victory (after having being forced to vote for him in 2002 against Le Pen);
  • a perception on the left that the Constitution is too business-oriented and not “social” enough;
  • jockeying on the right in the perspective of the 2007 presidential elections (and possibly before that of a change in the Prime Minister, the current one, Raffarin possibly to be fired after the referendum)
  • a general feeling that France has lost its dominant place in Europe and that Europe is no longer exactly a tool of French influence and grandeur.

I’ll stop here for today. don’t hesitate to ask questions, I’ll try to respond in comments or in future diaries. I hope that other European posters can contribute with their experience of the debate in their country

European Kos equivalent – a call for help

[promoted to the front page. And a big welcome to Jerome a Paris]

As many of you have probably seen, we have started some discussions on whether to have a European Kossacks convention, and whether to create a Euroopean Kos website.

My questions to you guys:

  • it looks like this site could a model of sorts for the site. Could anyone explain to me what it requires to be built (in terms of competences, effort, time, manpower, etc…) and what kind of modularity it has if we want a European site with various flavors yet to be discussed?
  • maybe this could be a place to conduct some slightly more discreet conversations on the topic without boring dKossacks with all the details – nor being swamped by the diary flow. Would you mind?

Feedback and input welcome!