*Author’s Note: Very brief update this evening, I’ll follow up with a more detailed update tomorrow.*
Gas is flowing once more from the Baumgarten pipeline hub in Eastern Austria following a major explosion that killed one worker and injured eighteen. Gas Connect Austria said the site had been shut down while firefighters worked to bring the blaze under control. Gas deliveries to parts of southern Austria have been affected. The pipeline that runs through Baumgarten brings gas from Russia to Italy, Slovenia, Croatia, Hungary, and other European nations including Germany. Italy is so dependent upon the gas being piped through Baumgarten that it anticipated the worst and declared a state of emergency shortly after the explosion. At current, it seems that the move was premature. A major disruption in gas supply doesn’t seem likely right now.
Nevertheless, the Baumgarten explosion highlights how fragile the European natural gas pipeline network is, and how susceptible it is to a major disruption, man made or otherwise.
The European Commission has begun legal proceedings against three EU member-states who have not taken in refugees as per the 2015 plan to relocate migrants then located in Italy and Greece. The governments of Poland and Hungary have refused to take refugees in. The Czech Republic initially accepted 12 people, then informed the EU it would not accept any more. The EU plan was intended to relocate 120,000 refugees, but so far less than 20,000 have been moved. The plan was opposed bitterly by some EU members in 2015, yet ended up being pushed through. Not surprisingly, the strongest resistance came from central and eastern European member-states.
The actions announced by Brussels are infringement proceedings. Poland, Hungary, and the Czech Republic will face large fines if they are found in fault, or cuts in EU funding. Whether or not the three nations pay the fines is another matter entirely. Poland especially has been outspoken in defense of its migration policies. Polish government officials have confirmed more than once that it will fight the legal proceedings. It does not appear that Poland is prepared to back down from the EU action. Hungary and the Czechs have also remained staunch in the face of threats and action by Brussels.
This matter has the potential to expand into a major issue as the year goes on. With Angela Merkel and Emmanuel Macron coming together and expanding their influence in all things EU, Eastern Europe’s defiance could be a challenge for them to confront. Although the nations of Eastern Europe are all EU members, most are aligned more closely Washington than they are to Berlin, Paris, or Brussels. The ‘Old Europe-New Europe’ argument that was sparked by comments by then-US Secretary of Defense Donald Rumsfeld in 2003 has long simmered below the surface of US-EU relations. Merkel and Macron could decide to use Poland, Hungary, and the Czech Republic’s reluctance to accept refugees as justification to attempt and reassert the power and influence of Brussels and highlight Washington’s inability to influence matters that are strictly EU in nature.
This is certainly a situation to keep an eye in the future.
As he promised, Italian Prime Minister Matteo Renzi will step down following the defeat of his constitution reform plan. On Sunday, Italian voters rejected the constitutional referendum, opening the door to Italy’s future. The question is: now what? Analysts have been having a field day trying to figure out an answer for the last two weeks or so. As the referendum drew closer, the question was asked more frequently. With the vote now complete and the results tallied, Italy has to take a long hard look at itself and choose the path that will bring it political stability and economic growth, something that has eluded the nation for quite some time.
Short term, there will likely be a period of domestic political instability. With Renzi resigning, a new government needs to be formed. It will be up to Italian president Sergio Mattarella to piece together that government and determine the best way to do so. The leading political parties in Italy will be brought together to try and reach an agreement on a new government. It will be in the best interests of the major parties to do this without having to rely on elections. The 5 Star Movement (M5S) and Northern League will likely push for them because of the effects which will come from the Italicum law, a major change to Italy’s electoral laws engineered by Renzi when he came to power. The change stipulates that the winner of the next election will automatically take a majority of seats in parliament. With M5S and the Northern League riding high after the referendum vote, it’s apparent why both parties prefer to put the decision in the hands of voters. With that in mind, the populist M5S will likely not assume control of the government now or anytime soon.
Economically, the referendum results do not change the myriad of problems facing Italy’s banking system. Worries about the banks, as well as low economic growth could potentially fuel the Eurosceptic mood that is growing in the nation and across Europe. There has also been concern that the referendum results will potentially place Italy on a path to leave the euro. M5S has blamed many of the nation’s economic woes on the single currency system.
Speaking of the euro, there is the reaction of the EU establishment to consider. So far, there has been a mixture of brave faces, unenthusiastic declarations, and heads buried in the sand. Wolfgang Schaeuble, Germany’s finance minister called for calm, stating emphatically that there is ‘no reason to talk of a euro crisis.’ He fails to mention or acknowledge the truth that there is already euro crisis in full swing. This weekend’s referendum results are a clear indicator of it. The EU is either unable or unwilling to face the fact that Brexit, anti-immigration sentiment and the populist-fueled political movements are indicators that a growing number of European voters are dissatisfied with the European Union and politicians closely aligned with EU doctrine and policies.
On Sunday, Italians will go to the polls on a constitutional referendum. An event which, some observers speculate, could set the stage for Act Three of the populist revolt against the political establishment/ The very same revote that made Brexit a reality in the UK and brought Donald Trump to power here in the United States. The Trump victory has galvanized right-leaning populist movements across Europe. Since early November, political analysts have been looking around and wondering what nation will be next. The smart money is been on France, and with a presidential election coming in 2017 it is a good a good bet.
With that in mind, it would be irresponsible to dismiss what is happening in Italy at the moment. Sunday’s vote will determine whether or not the Italian constitution is amended to reform the Italian parliament, and the way which governments are formed. The referendum is not cut-and-dried the way Brexit was. The opposite holds true, in fact. It is a complex package of reforms that will change how democracy functions in Italy if successful. The core of the referendum is a proposed reformation of the legislative process which is famously chaotic and debilitated. It takes power away from the regions and Senate, thus making it far easier to pass government reforms. Supporters point to this as their most powerful argument. Detractors, on the other hand, point to the referendum as a slippery slope towards authoritarianism and the death knell for representative democracy.
The results of Sunday’s vote will be especially consequential, in that Prime Minister Matteo Renzi’s political future will be determined by it. His position will be strengthened if the Senate is stripped of most of its power. Renzi has gone all in, even making it known that he will resign if the “no” vote wins. Beyond Italy’s borders, world financial markets are watching events closely. A negative vote makes it more problematic for Italian banks to recapitalize, and the state of those financial institutions is fragile enough already. Then there is the European Union. The EU has taken a keen interest in the referendum, naturally. To be precise, the EU’s main focus is Renzi. The prime minister is viewed as the EU’s best weapon to counter the rising wave of populism. A “yes” vote will put Renzi in a position where he can emerge as a new, powerful leader for Europe in the future. A leader with political beliefs more in line with EU values and in direct contradiction to the type of politicians being backed by populist groups both in Italy and across Europe.
A ‘no’ victory on Sunday will not cause a collapse of the euro and the EU. However, with the Brexit wounds still fresh and anti-establishment sentiment still surging, it will make life more difficult for the embattled supranational union.
On Monday, the European Union extended its sanctions against Russia for the next six months. The 28 member nations reached a consensus in spite of some question about how long the sanctions need to continue. Russia is a major trading partner of the EU, but since its annexation of Crimea and involvement in Ukraine’s separatist war, the EU has had punitive sanctions in place. These sanctions, along with similar measures put in place by the United States, have caused an economic slowdown in Russia. The extension will keep sanctions in place until July when they will be reviewed. A removal of the sanctions will be linked to the implementation of the Minsk agreements. With the agreements not likely to be put into effect anytime soon, the EU has used this as the justification for extending sanctions now.
A number of EU nations are becoming weary of the sanctions. Italy, which has long standing trade ties with Russia has been particularly outspoken on the issue. Italian Prime Minister Matteo Renzi has complained that German Chancellor Angela Merkel is forcing other EU nations to go along with the sanctions while Germany is engaging Russia in projects that are contrary to the terms of the sanctions. Renzi is specifically referring to a German-Russian plan to construct a natural gas pipeline between the two nations through the Baltic Sea. The project comes after a similar pipeline project that would have included Italy’s Eni energy company was cancelled last year.
As the EU hobbles toward 2016 it looks back on what has been a tumultuous and divisive year. The Paris terrorist attacks, Greece’s near exit from the EU, and the continuing refugee crisis have placed tremendous amounts of pressure on the member nations. From all indications, the coming year is not going to offer a reprieve for Europe. If anything, it is going to be worse.