It was inevitable, I think, that Czech President Vaclav Klaus would take his last stand against the European Union’s Lisbon treaty on the Sudeten German issue.  This has been one of the most highly charged themes of Czech politics since the former Czechoslovakia threw off communism in 1989.  By raising it, Klaus aims to break out of the extreme political isolation into which his hostility to Lisbon has pushed him on both the Czech and the wider European stage.  But it is a step that smacks of desperation as much as of calculation.

The Sudeten German question touches a genuinely raw nerve among some Czechs.  It relates to the several million ethnic Germans expelled from Czechoslovakia at the end of the second world war at the behest of the Prague authorities, who were convinced - with good reason - that large numbers of the German minority had served as a Nazi fifth column.  Some Czech politicians have proved willing to play on the fears of ordinary Czechs that descendants of the Sudeten Germans may one day succeed, through legal action, in reclaiming the property of which their forebears were stripped. 

Klaus says he wants a clause attached to the Lisbon treaty guaranteeing that the European Court of Justice will never invalidate the so-called Benes decrees, the act under which the Sudeten Germans - as well as a smaller number of ethnic Hungarians - were expelled from their homes.  “The last Czech government did not pay enough attention to this question, so vitally important for the Czech Republic,” he said last Friday.

It is undeniable that property issues remain sensitive in the EU.  Denmark, with one eye on its German neighbours to the south, restricts foreign ownership of holiday homes.  Poland, like the Czech Republic, frets about potential property claims from ethnic Germans expelled from territories that Poland was awarded in 1945, in compensation for land lost to the Soviet Union.

But the sensitivities are most acute in the Czech Republic, perhaps because it is a smaller country than Poland.  The claims for restitution are loudest in parts of Germany and Austria close to the Czech borders.  In both countries, important political parties are sympathetic to the expellees’ campaigns - Bavaria’s Christian Social Union and the Austrian Freedom Party.  The Austrian party’s late leader, Jörg Haider, used to provoke the Czechs by likening the treatment of the Sudeten Germans to the Nazi extermination of Europe’s Jews.

Some Czechs may feel Klaus is justified in demanding his guarantee.  But others will see it as a last throw of the dice to disrupt ratification of Lisbon.  After all, every single government and parliament in the 27-nation EU has now approved the charter.  There must be at least a sneaking suspicion that, if upholding the legality of the Benes decrees at European level is a matter of such existential importance to his nation, Klaus left it remarkably late in the day to bring it up.

A couple of months ago, some European Union policymakers talked despairingly of how 2009 risked turning out to be “a wasted year”.  Now the EU is on a roll.  The impasse over José Manuel Barroso’s reappointment as European Commission president was removed last month when the European parliament stopped playing games and renewed his term of office.

And all of a sudden, it looks as if “a decade of deadening debate over the European Union’s institutional shape” - as British foreign secretary David Miliband puts it in today’s FT - will soon come to an end, after Ireland’s referendum on the Lisbon treaty produced a massive majority in favour.  It may not be long before the EU has its first full-time president, a new head of foreign policy and a new Commission with a five-year mandate serving under Barroso.

So is all rosy in the European garden?  Not quite.  The principal problem, as it has been for the past two years, is the financial crisis.  Time and time again, as I peek into the future, I find myself disturbed by the terrible condition of Europe’s public finances and the strains that this will put on the eurozone’s unity.

In a newly published report, economists at Barclays Capital look at the evolution of the eurozone’s public debt-to-gross domestic product ratio up to the middle of the next decade.  In one scenario, which assumes an annual fiscal adjustment of 2 per cent of GDP, 4 per cent inflation and 3 per cent economic growth, the eurozone’s average debt would be 65 per cent in 2016.  That is not bad (though it’s above the 60 per cent threshold set for new entrants into the eurozone).

But just look at the differences between the area’s member-states.  The German debt would be 40 per cent of GDP, the Dutch debt 37 per cent, the Finnish debt 12 per cent.  But the Greek debt would be 150 per cent, the Irish debt 126 per cent and the Portuguese debt 89 per cent.  In footballing terms, this would be like Barcelona and Chelsea playing in the same league as Atromitos Athens and the Tralee Dynamos.

This scenario, by the way, is not Barclays Capital’s “base case”, which is more pessimistic, estimating average eurozone debt at 90 per cent of GDP in 2016.  But the same enormous divergence between, say, Germany and Greece is evident: German debt would be 64 per cent, Greek debt 171 per cent.

With such bleak forecasts, it is entirely understandable that German policymakers dislike proposals for issuing common eurozone bonds.  But the financial crisis is testing to the limit the eurozone’s ability to conduct a properly co-ordinated fiscal policy.  When interest rates start going up again, as they will, this will present a far bigger challenge for the EU than getting Barroso reappointed or passing the Lisbon treaty.

According to Brian Cowen, Ireland’s premier, a No result in Friday’s referendum on the European Union’s Lisbon treaty would raise the prospect of a “two-speed Europe”, with some countries forging ahead with closer political and economic integration and others staying outside.  But isn’t a two-speed Europe the dog that is hauled out of its kennel every time there’s a EU institutional crisis but which, in the end, never barks?

After Irish voters rejected the Lisbon treaty in June 2008, a number of politicians were quick to assert that a two-speed Europe was the only way to keep the European “project” on the road.  Jean-Claude Juncker, Luxembourg’s prime minister, who has lived through more EU crises than most of us have had quetsch plum tarts, mused in public that perhaps it was time for a “Club of the Few” to go ahead on their own. Continue reading "Two-speed Europe is the dog that doesn’t bark"

Since February 1999, when the Organisation for Economic Co-operation and Development’s anti-bribery convention came into force - with the aim of reducing bribery of foreign officials in international business deals - the US has brought 103 cases, Germany more than 40, France 19 and the UK just one.  So says “Global Corruption Report 2009: Corruption and the Private Sector”, a study published on Wednesday by Transparency International, the anti-corruption watchdog.

From a British point of view, the report makes uncomfortable reading.  “UK companies still have a long way to go to increase their awareness and adopt robust anti-bribery compliance programmes,” it says.

It adds that, in the light of the 2006 al-Yamamah affair,  when the authorities cited national security reasons to shut down a corruption investigation into a multibillion-pound British arms deal with Saudi Arabia, ”it is essential for the government to improve its enforcement of the [OECD] convention and bring more cases to court.  The government and companies need to raise their game.  Otherwise the United Kingdom will be perceived as a country that is not serious about fighting international corruption.”

Of course, other nations come in for a hammering in the report, too.  Take the so-called BRIC countries, supposedly jumping from strength to strength as the western world drowns in recession and debt.  Everyone from President Dmitry Medvedev to the man in the Moscow metro knows about Russia’s corruption disease, but it is particularly interesting to read what Transparency International says about the club’s other three members: “Firms from India, China and Brazil are regarded by their peers as among the most corrupt when doing business abroad.”

Has international business corruption increased since the global financial crisis exploded?  The report doesn’t really answer this important question.  But it does point to “the hazardous implications of corporate strategies that seek to exploit weak regulation, taxation and disclosure standards in some pockets of the global banking system”.  It also highlights “financial offshore structures whose lack of transparency, regulatory oversight and co-operation facilitate capital flight and tax evasion, while hindering the recovery of public assets stolen by corrupt rulers”.

Better regulation and more effective enforcement of existing rules are obviously the answer.  But let’s not forget what Tacitus, the great Roman senator and historian, said: “It’s the most corrupt state that has the most laws.”

The colourful posters on Hamburg’s streets tell the story of Germany’s 2009 election.  “We’re electing the chancellor” says the slogan of the Christian Democrats, next to a reassuringly maternal image of Angela Merkel. 

It is at once an idiotically simple but cleverly conceived slogan.  Because Merkel is the incumbent, it communicates the subliminal message to voters that her rivals, and the rivals to the CDU, are smaller in stature.  In particular, it diminishes the Social Democrats, the CDU’s coalition partner.  All the polls show that voters think Merkel makes a better chancellor than Frank-Walter Steinmeier, her SPD foreign minister and challenger, ever would.  Merkel is the CDU’s trump card.

At the same time, the posters neatly sum up the almost surreal absence of debate in this campaign about the real state of Germany’s economy and financial system.  Having been partners in government for the past four years, the CDU and SPD can hardly blame each other for what has gone wrong, because they would implicitly be pointing the finger at themselves.

As a result, it is easier to tell voters that the entire crisis originated in the US and had nothing to do with virtuous Germany, which is a victim of reckless, greedy Wall Street bankers and their British pups.  As an analysis of why the crisis struck Germany and the rest of Europe with such force, this would get a “fail” grade even at high school.

German banks were far more highly leveraged than US banks when the crisis blew up more than 12 months ago, and as the German finance ministry well knows, there remain huge weaknesses in the German financial sector that will need addressing as soon as the election is over.  However, the average German voter seems completely ignorant of the degree to which some of his country’s banks were outdoing their US counterparts in dicing with risk.

Many seem equally unaware of how the next government will have to dismantle emergency measures, such as the short-term work weeks that were introduced partly to prevent a pre-election leap in unemployment, and that the jobless rate is certain to shoot up.

It is not just the CDU and SDP that are avoiding the issues.  The Free Democrats, with whom Merkel would like to form a government, are tempting voters with an offer of tax cuts that they know in their hearts is utterly unrealistic, given Germany’s large budget deficit and the need to sort out the financial sector.

The Greens stick to their anti-nuclear power platform, even though it looks less and less suited to the demands of a modern energy policy.  As for the Left party, its talk of leading Germans into the promised socialist land is complete gibberish.

Perhaps one shouldn’t be too disappointed.  Elections in all western democracies seem these days to be more and more disconnected from reality.  But in Germany, once the new government is in place, voters will be brought to earth with a bump.

I’m in Hamburg today wondering what would happen if next Sunday’s German election were to produce not some messy, inconclusive result, but a clear-cut victory for one party or the other in the ruling Christian Democrat-Social Democrat grand coalition.  What might this mean for the allocation of top jobs in the European Union?

Of course, unless the opinion polls are wildly wrong, it is inconceivable that the Social Democrats will emerge as the largest party in the Bundestag.  The post-reunification fissures of the German left seem to have doomed the SPD to second place in perpetuity behind the Christian Democrats.  But if the inconceivable were to happen, then Angela Merkel would no longer be chancellor and would presumably be looking for a new challenge and a new job.

If she were interested in becoming the EU’s first permanent president - a post that is due to be created early next year, assuming that the Lisbon treaty gets the go-ahead - then it would surely be hers for the taking.  Most of her fellow EU leaders respect her practical, common-sense style of leadership.  She knows her own mind but is not overbearing.  She is consensual but not dull.  And as a woman politician from the former communist half of Europe, she would be an inspired choice.

But here’s the thing.  She would never dream of accepting the job - at least, so my friends in German politics tell me.

What about Frank-Walter Steinmeier, the SPD foreign minister and candidate for chancellor?  If his party were to crash in flames next Sunday, wouldn’t he be a good choice to be the EU’s next head of foreign policy - a job that the Lisbon treaty invests with more authority than it possesses now?

Perhaps - though some countries might worry that he wouldn’t strike the right balance between friendship and firmness in relations with Russia.  But here’s the second thing.  Few people I know in German politics think he yearns for the EU foreign policy job.

The message I’m getting in Germany is that, when it comes to power and prestige, both Merkel and Steinmeier prefer the national stage to the EU stage.  The same would surely be true for the current crop of British and French leaders now in office.

If taking a top EU job is really such a step down in life, our leaders can’t complain if the general public regards the EU with something less than transfixed awe.

It’s less than a week since General Motors agreed to sell Opel, its European arm, to a group led by Magna International of Canada, but already a wave of anger at the implications of the deal is building up.  Nowhere is this more true than in Belgium and the UK, where workers at GM plants seem far more at risk than their colleagues in Germany of losing their jobs.

This episode is, however, about much more than potential job losses.  It’s about Europe’s reluctance to come to terms with huge overcapacity in its car industry.  It’s about how best to preserve a broad manufacturing base in an era when the other main recent driver of European economic growth - lightly regulated financial capitalism - is discredited.  Finally, it is a test of the European Commission’s ability to uphold its strict rules on competition and state aid during the worst recession in the European Union’s history.

Lord Mandelson, the British government minister responsible for business and innovation, told the BBC this morning that he hoped the Commission (of which he was a member until last year) “should not accept anything that looks like a political fix” in the Opel deal.  This remark came very close to accusing the German government of offering shedloads of financial aid to Opel - €4.5bn, to be precise - in return for a promise not to sack carworkers in Germany as the nation heads towards a general election on September 27.

This is, of course, exactly how matters are viewed in Belgium, where politicians fear that Opel’s plant in Antwerp has been earmarked for closure.  As Kris Peeters, who heads the government of the Flanders region, bluntly put it in July: “Those who put more money on the table win.”  The Flanders government had tried its best, offering up to €500m to Opel, but the Germans crushed them with a sum nine times bigger.

The Commission made clear last Friday that it intended to study very closely the terms of the Opel sale.  According to Der Spiegel, the German news magazine, some Commission experts think the Antwerp plant may be more efficient than the Opel factory in Bochum, one of four company plants in Germany.  But don’t hold your breath on this one.  In EU institutions as much as in German politics, the power of the German car industry lobby is something to behold.

The truth of the matter is that almost no one in the EU, whether in government or in the car industry, wants to face up to the chronic problem of overcapacity.  Fiat’s Sergio Marchionne is an honourable exception, but he lost out early in the scramble for GM’s European assets.

As surely as night follows day, there will be a loser in all this.  And at the moment, it looks like being the German taxpayer.

When does No mean Yes - or maybe?  I’m not venturing here into the treacherous territory of date rape law, but rather thinking of what politicians say when they’re asked if they want to be the European Union’s first permanent president.

Take Felipe González, Spain’s socialist prime minister from 1982 to 1996.  Rumours have swirled around Brussels for months that González is interested in the job and that President Nicolas Sarkozy of France would be pleased to see him get it.  González’s fellow Spaniard, Javier Solana, who is the EU’s foreign policy high representative, is on record as saying last June that he believes the ex-premier “has the energy and the capacity for the job”.

So I feel it’s my duty to report that John Thornhill, a Financial Times colleague, took González to one side at a conference in Italy last weekend and put the $64,000 question to him.  Here is what the great man replied: “Some people are talking about myself, and I have said that I will not be a candidate.  This means that I have to be extremely careful about talking about other candidates, whether it is to support them or not.  Some people could criticise me for making my views public when I’m not going to be a candidate.”

González’s reply looks superficially like a No.  In fact, to say that you’re not a candidate isn’t the same thing at all as saying that you will never accept the job under any circumstances.

As it happens, I think there is one very good reason why González would be right to think twice before taking on this particular job.  The permanent EU presidency is set to come into operation in January, if Irish voters approve the EU’s Lisbon reform treaty in a referendum next month and if Václav Klaus and Lech Kaczynski, the recalcitrant Czech and Polish presidents, can be persuaded to sign the document.

But the establishment of the permanent presidency will not mean the abolition of the existing EU system, under which every country holds the union’s rotating presidency for six months at a time.  All EU member-states love their six months in the spotlight, and many have no intention of stepping to one side in order to let the EU’s first permanent president grab all the attention.

And guess what?  The country that will hold the rotating presidency from January 1 to June 30, 2010 - just when the permanent presidency is to be launched - is none other than Spain.  The Spanish government has absolutely no intention of meekly vanishing into the shadows to let the EU’s first permanent president steal the show.

Perhaps national pride would induce a more accommodating attitude from Spain, if González were picked for the job.  But I wouldn’t bet on it - and from the sound of things, nor would Felipe.