The Euro turns 20


January 13, 2019

The Euro turns 20

The euro’s first 20 years played out very differently than many expected, highlighting the importance of recognizing that the future is likely to be different from the past. Given this, only a commitment to flexibility and a willingness to rise to new challenges will ensure the common currency’s continued success.

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https://www.project-syndicate.org/commentary/four-lessons-from-euro-s-first-20-years-by-daniel-gros-2019-01

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BRUSSELS – Twenty years ago this month, the euro was born. For ordinary citizens, little changed until cash euros were introduced in 2002. But in January 1999, the “third stage” of Economic and Monetary Union officially started, with the exchange rates among the original 11 eurozone member states “irrevocably” fixed, and authority over their monetary policy transferred to the new European Central Bank. What has unfolded since then holds important lessons for the future.

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In 1999, conventional wisdom held that Germany would incur the biggest losses from the euro’s introduction. Beyond the risk that the ECB would not be as tough on inflation as the Bundesbank had been, the Deutsche Mark was overvalued, with Germany running a current-account deficit. Fixing the exchange rate at that level, it was believed, would pose a severe challenge to the competitiveness of German industry.

Yet, 20 years on, inflation is even lower than it was when the Bundesbank was in charge, and Germany maintains persistently large current-account surpluses, which are viewed as evidence that German industry is too competitive. This brings us to the first lesson of the last 20 years: the performance of individual eurozone countries is not preordained.

The experiences of other countries, such as Spain and Ireland, reinforce that lesson, demonstrating that the ability to adapt to changing circumstances and a willingness to make painful choices matter more than the economy’s starting position. This applies to the future as well: Germany’s current predominance, for example, is in no way guaranteed to continue for the next 20 years.

Yet the establishment of the eurozone was backward-looking. The main concern during the 1970s and 1980s had been high and variable inflation, often driven by double-digit wage growth. Financial crises were almost always linked to bouts of inflation, but had previously been limited in scope, because financial markets were smaller and not deeply interconnected.

With the creation of the eurozone, everything changed. Wage pressures abated throughout the developed world. But financial-market activity, especially across borders within the euro area, grew exponentially, after having been repressed for decades. For example, eurozone member countries’ cross-border assets, mostly in the form of bank and other credit, grew from about 100% of GDP in the late 1990s to 400% by 2008.

Then the global financial crisis erupted a decade ago, catching Europe off guard. The first deflationary crisis since the 1930s was made especially virulent in Europe by the mountain of debt that had been accumulated in the previous ten years, when countries had their eyes on the rear-view mirror.

Of course, the eurozone was not alone in being taken by surprise by the financial crisis, which had started in the United States with supposedly safe securities based on subprime mortgages. But the US, with its unified financial (and political) system, was able to overcome the crisis relatively quickly, whereas in the eurozone, a slow-motion cascade of crises befell many member states.

Fortunately, the ECB proved robust. Its leadership recognized the need to shift focus from fighting inflation – the objective the ECB was designed to achieve – to curbing deflation. Ultimately, the euro survived, because, when push came to shove, leaders of the eurozone’s member states expended political capital to implement needed reforms – even after blaming the euro for their countries’ problems.

This pattern of demonizing the euro before recognizing the need to protect it continues to unfold today – and it should serve as a second lesson of the last 20 years. Italy’s populist coalition government used to speak bravely about flouting the euro’s rules, with some advocating an exit from the eurozone altogether. But when financial-market risk premia increased, and Italian savers did not buy their own government’s bonds, the coalition quickly changed its tune.

In fact, the eurozone’s economic performance has not been as bad as the seemingly endless stream of bleak headlines implies. Per capita GDP growth has slowed over the last 20 years, but not more so than in the US or other developed economies.

Moreover, continental European labor markets have undergone an under-reported structural improvement, with the labor-force participation rate increasing every year, even during the crisis. Today, a higher proportion of the adult population is economically active in the eurozone than in the US. Employment has reached record highs, and unemployment, though still high in some southern countries, is continuously declining.

These economic realities imply that, even if the euro is not particularly well loved, it is widely recognized as an integral element of European integration. According to the latest Eurobarometer poll, support for the euro is at an all-time high of 74%, while less than 20% of the eurozone’s population opposes it. Even Italy boasts a strong pro-euro majority (68% versus 18%). Herein lies a third key lesson from the euro’s first two decades: despite its many imperfections, the common currency has delivered jobs, and there is little support for abandoning it.

But probably the most important lesson lies elsewhere. The euro’s first 20 years played out very differently than many expected, highlighting the importance of recognizing that the future is likely to be different from the past. Given this, only a commitment to flexibility and a willingness to rise to new challenges will ensure the common currency’s continued success.

 

Daniel Gros

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Daniel Gros is Director of the Brussels-based Center for European Policy Studies. He has worked for the International Monetary Fund, and served as an economic adviser to the European Commission, the European Parliament, and the French prime minister and finance minister. He is the editor of Economie Internationale and International Finance.

 

May’s BreXit Christmas


December 25, 2018

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May’s BreXit Christmas

by

https://www.project-syndicate.org/commentary/exit-from-brexit-referendum-by-jacek-rostowski-2018-12

After invoking Article 50 of the Treaty of Lisbon prematurely, British Prime Minister Theresa May has spent the past 21 months dancing around the impossibility of a quick withdrawal from the European Union. But with the House of Commons set to reject the exit deal she negotiated with EU leaders, the music is about to stop.

 

LONDON – British Prime Minister Theresa May’s plan to withdraw her country from the European Union in an orderly fashion is collapsing. Though she has survived a no-confidence vote, in January the House of Commons will almost certainly reject the exit deal she negotiated with EU leaders. In order to avoid a chaotic “no-deal” Brexit, her government will have to ask the EU for an extension on the departure date, or withdraw its “intention to leave” notification, at least temporarily.

Either way, the next step would be to hold a second referendum with the option of a so-called exit from Brexit, which would reverse the 2016 decision to leave. Voters could still decide to back May’s deal, opt for a “Norway-style” arrangement, or crash out of the EU with no deal. But recent polling suggests that the choice of remaining in the EU would win the day.

How did a country with 400 years of constitutional governance and a culture of political compromise end up here?

Most commentators point to the seemingly insoluble problem of the . Under the 1998 Good Friday Agreement, which put an end to decades of violent hostility between Protestants and Catholics in Northern Ireland, Britain agreed to permit the free movement of persons, goods, and some services across the border with the Republic of Ireland. A binding international treaty with no provision for exit, the Good Friday Agreement was signed under the assumption that both Britain and Ireland would remain in the EU indefinitely.

May’s deal with the EU includes a “backstop” that would prevent the reintroduction of a hard border between Northern Ireland and the Irish Republic in the absence of a formal post-Brexit trade deal. The problem is that well over 100 members of May’s own party have rejected the backstop outright and will vote against her deal for that reason alone, making it dead on arrival.

But the Irish backstop is, in fact, a side issue. Even if there were no Irish problem, an orderly Brexit would have been impossible within the two years allotted to the UK under Article 50 of the Treaty of Lisbon. As I pointed out in October, British manufacturing supply chains are so deeply integrated with those of continental Europe that they could not survive the sudden establishment of customs and other checks on the British border. Britain’s automotive, aerospace, and precision-instruments industries would be decimated.

To be sure, many non-European countries export large volumes of industrial goods to the EU. But, unlike British goods, these generally cross the EU border only once. The same would hold true for Britain’s goods only aftert he country disentangles itself from the web of European supply chains. That task alone would be comparable to the restructuring of post-communist countries following the collapse of the Council for Mutual Economic Assistance (Comecon, the Soviet-era trade bloc). Completing it could well take five or more years.

After the 2016 referendum, May’s government should have had an adult discussion about the shape Brexit would take, rather than simply declaring, “Brexit means Brexit.” Scenarios in which the UK could remain in the single market, the customs union, or both were on offer from the EU. The government also should have done far more to apprise the business community of its plans.

Moreover, if the intention was always to leave both the single market and the customs union, retaining only a free-trade agreement with Europe, the government should have made clear that it would need an “implementation period” of at least five years to do this in an orderly manner. During this time it would be bound by European laws – including its obligation to pay around £13 billion ($16.4 billion) per year to the EU budget. May should not have invoked Article 50 until all of these decisions had been made, communicated to the relevant parties, and agreed upon at least in principle.

One reason May’s government ended up taking the exact opposite approach is that neither senior politicians nor bureaucrats understood the degree to which the British economy is intertwined with Europe. The fact that a quick Brexit into a free-trade agreement is logistically impossible seems to have been totally lost on them.

But the bigger problem was that a balanced consideration of possible options would have laid bare the lie upon which the “Leave” campaign was based. The idea that Britain could secure a “bespoke deal” and maintain “frictionless” access to the single market while pursuing its own trade accords elsewhere was always a fantasy.

Fearing the political consequences of acknowledging this basic truth, May adopted a completely unrealistic negotiating strategy, hoping that “some kind of Brexit” would happen before the British public realized it had been duped. Today, just three months before the departure date, this deeply deceitful démarche has disintegrated before May’s eyes – as well it should.

Jacek Rostowski was Poland’s Minister of Finance and Deputy Prime Minister from 2007 to 2013.

 

 

 

 

 

Is the West’s future really so gloomy?


December 23, 2018

Is the West’s future really so gloomy?

by Dr. Fareed Zakaria

https://fareedzakaria.com/columns/2018/12/20/is-the-wests-future-really-so-gloomy

Emmanuel Macron has been the great hope for those who worry that global politics is being dominated by populism, nationalism and racism. In his presidential campaign last year, Macron was able to rally France around a message of reform and multi-lateralism, staying firmly wedded to the European Union and other international alliances and institutions. Last month, he brought together 65 world leaders for a major gathering dedicated to global governance.

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Now Macron has been humbled by the “yellow vest” street protests. He was forced to backtrack on some of his reforms and adopt new budget-busting subsidies in an attempt to mollify the mob. And there is the mess in Britain as it keeps trying (and failing) to Brexit; Italy’s budgetary woes; and the embrace of illiberal democracy in Hungary and Poland. It all adds up to a depressing picture of Europe and the West.

But are things really so gloomy? As Politico’s Matthew Karnitschnig points out, support for the E.U. is at its highest level in decades. And on closer examination, while the forces of populism continue to surge in some places, the story of the past few months has mostly been one of pushback. Consider Poland and Hungary, in many ways the poster children for the populist-nationalist movement. In Poland, efforts to reshape the country’s Supreme Court ignited massive national protests, and Europe’s high court ordered that the move be reversed. On Monday, Warsaw complied.

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Prime Minister Viktor Orban of Hungary

 

In Hungary, Prime Minister Viktor Orban’s latest authoritarian steps — changing labor law and judicial authority — have also triggered widespread protests, uniting the nation’s opposition forces as never before. The street rebellion has the feel of a generalized opposition to the ruling party, which has predictably used tear gas on the mostly peaceful protesters, decried them as anti-Christian and accused George Soros of organizing the whole affair.

In France, news of Macron’s demise is premature. Yes, his poll numbers are way down, but voters still prefer him to the far-right Marine Le Pen by a wide margin. He has a five-year term, his party controls the legislature, and most analysts agree that his reforms are inevitable if France is to compete for investment and generate growth. He may end up a one-term president, but he will still have spearheaded the most important changes in France in a generation.

In Italy, the new coalition government had introduced a populist budget that promised a universal basic income and early retirement, only to meet the steely opposition of the E.U. And it was the populists who blinked. This week, Rome retreated from those measures and announced a budget conforming to the guidelines set by Brussels. It feels like a flashback to 2015, when Greek populists were compelled to enact the very program they campaigned against.

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Britain’s May Prime Minister is caught in a political maelstrom

“Proponents of Brexit sold the country a fantasy that it could get the benefits of access to the European Union’s market without the costs of having to obey its rules. As time passes, more and more Britons are coming to realize that they cannot have their cake and eat it, too.”–Fareed Zakaria.

Britain remains more complicated, but the basic story is that every time the country comes close to actual Brexit, it pulls back, appalled by the costs. Prime Minister Theresa May has tried to do a soft Brexit, and while the compromise has earned her the scorn of the hard-line Brexiteers, they cannot topple her. Perhaps they don’t want to because then they would be saddled with May’s impossible task. Proponents of Brexit sold the country a fantasy that it could get the benefits of access to the European Union’s market without the costs of having to obey its rules. As time passes, more and more Britons are coming to realize that they cannot have their cake and eat it, too.

And finally, look at the United States, where a president who proudly embraces populism and nationalism reigns. In November, the Democratic Party had its strongest gains in the House of Representatives since the Watergate wave of 1974. President Trump has faced additional resignations from important members of his administration — some under ethical clouds, others tired of the chaos. Most significant, there are now 17 separate investigations into Trump and his associates, some of which have already produced indictments. And that does not include the series of congressional inquiries certain to begin once the Democrats take control of key committees in the House. For two years, Republicans have ruled Washington, giving them control over all information from government sources and all powers of subpoena and oversight. That ends Jan. 3.

I don’t mean to minimize the populist wave that is still coursing through the West and other parts of the world. But concern should not give way to despair. There are many people in every country who oppose the politics of anger and identity. They are also strong. They need to run fast but not run scared.

(c) 2018, Washington Post Writers Group

 

Good Riddance to 2018


December 23, 2018

Good Riddance to 2018

Those who oppose democracy, the rule of law, and multilateralism have had a good year. But there have also been signs suggesting that those who uphold these principles have not lost the will to fight back.

MADRID – Sadly, 2018 will not be remembered as a year of political and diplomatic success. Though the international order had already begun to erode in 2017, the global political environment became downright chaotic, combustible, and hostile this year. That is no coincidence, as these are perhaps the three adjectives that best describe the United States under President Donald Trump.

Since January 2018, when the Trump administration announced tariffs on imported solar panels and washing machines, the year has been marked by an escalating “trade war,” waged primarily – but not exclusively – by the US against China. The ongoing tariff disputes have seriously undermined the World Trade Organization and deepened mutual distrust in Sino-American relations.

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For its part, China this year eliminated presidential term limits, raising fears that President Xi Jinping’s so-called new era will end the period of collective leadership ushered in by Deng Xiaoping’s reforms, which were themselves a corrective to Mao’s cult of personality. This move could also herald a further deviation from Deng’s trademark foreign-policy restraint.

Similarly, Russian President Vladimir Putin was reelected in March, to no one’s surprise. Under Putin, Russia has been re-emerging as a geopolitical force. And yet, its economy is essentially stagnant, owing in part to its excessive dependence on hydrocarbons. In the absence of growth, Putin has relied on foreign policy to shore up his domestic popularity.

For example, Putin’s campaign press secretary welcomed the British government’s response to the nerve-agent attack on Sergei and Yulia Skripal, because it may have mobilized Putin’s supporters in the run-up to the presidential election. And the Kremlin’s recent decision to blockade Ukrainian ports in the Sea of Azov may also have been designed to boost Putin’s domestic approval rating, among other goals. The danger now is that both the US and Russia will cease to implement the 1987 Intermediate-Range Nuclear Forces Treaty, posing a new and acute threat to Europe in particular.

 

Meanwhile, the Middle East has continued to serve as a battlefield for some of the world’s most violent conflicts. Though the Islamic State (ISIS) has continued to lose ground, it is far from defeated – contrary to what Trump has claimed – and the death toll in Syria’s civil war continues to climb. Likewise, the humanitarian calamity in Yemen has deepened, though negotiations that ran aground in 2016 have at least resumed and made some progress. In Afghanistan, what is widely regarded as the longest-running war in US history continues, and it is estimated that the Taliban now controls more territory than at any time since their government was overthrown in 2001.

Despite some recent developments in the aforementioned conflicts, the underpinnings of the Trump administration’s general strategy in the Middle East remained intact in 2018. The US has reaffirmed its support for the axis of Israel, Saudi Arabia, and the United Arab Emirates, which it regards as a bulwark against Iran. In May, the Trump administration moved the US embassy in Israel to Jerusalem. That same month, it abandoned the 2015 Iran nuclear deal and announced an abusive re-imposition of extraterritorial sanctions, which reflects the increasing .

Moreover, by siding with the Saudi government over his own intelligence agencies in the of journalist Jamal Khashoggi in October, Trump has made clear that opposing Iran and purchasing US arms is one of the quickest ways to his heart. The result of his broad approach to the Middle East has been to empower military hardliners throughout the region. In fact, Israel and Iran this year engaged in their first-ever direct military encounter.

 

Trump has also contributed, in one way or another, to the advance of populism around the world in 2018. In Latin America, Mexican President Andrés Manuel López Obrador (AMLO) and Brazilian President-elect Jair Bolsonaro have shown that “populism” can encompass diverse ideologies. While both claim to speak for “the people” against “the elites,” the leftist AMLO was elected partly as a rebuke to Trump, whereas Bolsonaro embraces a Trump-like brand of right-wing nationalism, and enjoys the support of many Brazilian elites.

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Trump has also contributed, in one way or another, to the advance of populism around the world in 2018. In Latin America, Mexican President Andrés Manuel López Obrador (AMLO) and Brazilian President-elect Jair Bolsonaro have shown that “populism” can encompass diverse ideologies. While both claim to speak for “the people” against “the elites,” the leftist AMLO was elected partly as a rebuke to Trump, whereas Bolsonaro embraces a Trump-like brand of right-wing nationalism, and enjoys the support of many Brazilian elites.

The Russian philosopher Aleksandr Dugin, often regarded as one of the Kremlin’s main ideologues, argues that “populism should unite right-wing values with socialism, social justice, and anti-capitalism.” This “integral populism,” he believes, is perfectly illustrated by Italy’s current governing coalition, which comprises the anti-establishment Five Star Movement and the nationalist League party.

In October, Italy’s government instigated a conflict with the European Union (which has fortunately subsided) by proposing a budget that defied EU fiscal rules. Italy’s leaders justified their policies in the name of an outdated interpretation of “sovereignty,” one similar to that of the United Kingdom’s Brexiteers, whose haphazardness has left the UK’s future shrouded in uncertainty.

There were a few positive developments in 2018. Certainly, the easing of tensions between the US and North Korea, and the even deeper rapprochement between North and South Korea, should be welcomed. Much credit belongs to South Korean President Moon Jae-in, who used the occasion of the Winter Olympics in Pyeongchang to reach out to North Korean leader Kim Jong-un. Trump’s subsequent turn toward diplomacy – which led to his historic summit with Kim – should also be applauded, though his administration has yet to achieve anything more than symbolic progress toward denuclearization of the Korean Peninsula.

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The result of the US midterm elections was also good news. Democratic control of the House of Representatives means that, from January 2019, there will be more checks on Trump’s policies. And there have been welcome developments in the Republican-controlled Senate, where a recent resolution condemning Saudi Crown Prince Mohammed bin Salman for the murder of Khashoggi, and another to end US support for the Saudi campaign in Yemen, passed with bipartisan support.

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In Europe, the prospects for 2019 will depend primarily on three factors: Brexit, German Chancellor Angela Merkel and French President Emmanuel Macron’s push for EU reform, and the European Parliament election in May. In each case, one hopes that the supporters of democracy, the rule of law, European integration, and multilateralism will prevail.

Those who oppose these principles have had a rather good year. But they would be mistaken to think that those who uphold them have lost the will – and the ability – to cultivate a spirit of cooperation and harmony.

*Javier Solana was EU High Representative for Foreign and Security Policy, Secretary-General of NATO, and Foreign Minister of Spain. He is currently President of the ESADE Center for Global Economy and Geopolitics, Distinguished Fellow at the Brookings Institution, and a member of the World Economic Forum’s Global Agenda Council on Europe.

 

 

The Continuing Agony of Brexit


December 18, 2018

The Continuing Agony of Brexit

https://www.project-syndicate.org/commentary/theresa-may-plan-only-way-out-of-brexit-agony-by-robert-skidelsky-2018-12

Those who are calling for a second referendum on the United Kingdom’s withdrawal from the European Union overlook an inconvenient truth: Leavers detest the EU more intensely than Remainers love it. So we must hope that Prime Minister Theresa May gets her amicable divorce when Parliament finally votes on it in January, 2019.

 

LONDON – So British Prime Minister Theresa May lives to fight another day. The Conservative Party in the House of Commons reaffirmed its confidence in her leadership by a far-from-resounding 200-117 vote. It is hard to think of another British prime minister whose leadership has been in such continuous crisis. Not so much an iron lady as a stubborn and dogged one, May has begun another round of effort to extract a few further concessions from European leaders to make her divorce agreement more palatable to her party, if not a majority of the public.

The British people decided in June 2016 to leave the European Union, by a slim 51.9%-48.1% margin in a national referendum. After invoking Article 50 of the Treaty of Lisbon, the United Kingdom is due to leave on March 29, 2019. But the Irish question, the Conservative Party’s internal politics, and parliamentary arithmetic have made the Brexit process anything but straightforward.

The UK and the Republic of Ireland share a land border separating the latter, which will remain in the EU, from Northern Ireland, which is part of the UK. Brexit, therefore, would leave Northern Ireland outside the EU’s customs union, and the Irish Republic inside it. Hence May’s agonized efforts to secure a deal that prevents a “hard” border with customs checks.

This is not just a matter of economic convenience. It is literally a matter of life and death. When Ireland won its independence from Britain in 1922, six mainly Protestant counties remained in the UK under a system of devolved government. Two legacies of the truncated United Kingdom survived: free trade and free movement of labor between Britain and the new Irish state.

The incomplete victory over Britain rankled in the predominantly Catholic Republic of Ireland; until 1999, the Irish constitution included a commitment to the “reintegration” of the whole island. At the same time, Northern Ireland’s dwindling Protestant majority clung ever more fervently to the British connection. Following three decades of violent conflict between the province’s Irish nationalist and Protestant groups, resulting in over 3,600 deaths, the Good Friday Agreement in 1998 established a Unionist-Nationalist power-sharing executive in Northern Ireland, along with a British-Irish Council as a nod to harmonious relations with the Irish Republic.

Any hardening of the frontier would jeopardize the fragile peace secured by the Good Friday Agreement. If the power-sharing agreement breaks down, men of violence on both sides would be waiting in the wings. To avoid this outcome, May’s plan provides for Britain to leave the EU but remain “temporarily” in the customs union, pending the negotiation of a free-trade agreement with the EU, with the “backstop” of a guaranteed open border between Northern Ireland and the Irish Republic, come what may.

As if this weren’t bad enough, Parliament is split between those who want to leave and those who want to remain. This cleavage cuts across the ruling Conservative and opposition Labour parties.

The Remainers fall into three groups: those on the left who see the EU’s “social market” approach as a source of protection for British workers; business and financial interests who count the economic costs of Brexit; and idealists who want Britain to play a constructive role in the political unification of Europe. The Leavers also comprise three groups: Thatcherites who view Brussels as a “super-state” bent on stifling free enterprise; a partly overlapping group that envisages Britain as an independent part of a global free-trade system; and the “left-behinds” who want to preserve Britain’s cultural identity and keep out foreigners.

The parliamentary arithmetic matters, despite the referendum result, because May was forced to concede that Parliament would have the last word on any deal she reached. This has given Remainers hope of reversing the 2016 outcome in a second “.”

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The composition of parliamentary forces reflects May’s disastrous decision to call a snap general election in 2017, which resulted in her losing a Conservative majority. And the 317 Conservative MPs who remain are split about 200-100 between those who back May’s proposed Brexit plan and those who want Britain to “crash out” without a deal.

Support for May’s deal from the opposition – 257 Labour MPs, 35 Scottish Nationalists, and a few others – is uncertain, at best. Likewise, the ten MPs of Northern Ireland’s Democratic Union Party, on whose support the government now depends, are torn between wanting free trade with the South and fear of being sucked into the Irish Republic if and when the rest of Britain leaves the customs union. The DUP has denounced all talk of a special arrangement or “backstop” to enable Northern Ireland to remain in the customs union in lieu of a UK-EU free-trade deal.

Given the divisions in her own party, May will be forced to depend on Labour MPs to get her agreement through Parliament. No one knows how Labour MPs will vote, and the incentives facing the party are mixed. On the one hand, voting with the Leavers to scupper May’s deal would probably lead to a general election, which Labour could win. On the other hand, Jeremy Corbyn, the party’s leader, can have no great appetite to accept the poisoned chalice that May would pass on to him.

There’s an understandable temptation to say, “If Parliament can’t decide, let’s throw it back to the people.” But there’s no clarity about what exactly “the people” would be asked. It is playing with fire to seek a second vote on the ground that you did not like the result of the first one. And there’s one further issue to bear in mind: Leavers detest the EU more intensely than Remainers love it. If the Remainers win a second vote, a passionate resentment will sour British politics for years.  So we must hope that May gets her amicable divorce when Parliament finally votes on it in January.

Robert Skidelsky, Professor Emeritus of Political Economy at Warwick University and a fellow of the British Academy in history and economics, is a member of the British House of Lords. The author of a three-volume biography of John Maynard Keynes, he began his political career in the Labour party, became the Conservative Party’s spokesman for Treasury affairs in the House of Lords, and was eventually forced out of the Conservative Party for his opposition to NATO’s intervention in Kosovo in 1999.

Europe in Disarray


December 15, 2018

Europe in Disarray

In what by historical standards constitutes an instant, the future of democracy, prosperity, and peace in Europe has become uncertain. And with the US under President Donald Trump treating its allies like enemies, the continent must confront the growing threats it faces largely on its own.

 

NEW YORK – It was not all that long ago – just a few years, as hard as that it is to believe – that Europe appeared to be the part of the world most closely resembling the end-of-history idyll depicted by Francis Fukuyama at the end of the Cold War. Democracy, prosperity, and peace all seemed firmly entrenched.

 Not anymore. Parts of Paris are literally burning. The United Kingdom is consumed and divided by Brexit. Italy is led by an unwieldy left-right coalition that is resisting EU budget rules. Germany is contending with a political realignment and in the early phases of a transition to a new leader. Hungary and Poland have embraced the illiberalism seen across much of the world. Spain is confronting Catalan nationalism. And Russia is committing new acts of aggression against Ukraine.

In what by historical standards constitutes an instant, the future of democracy, prosperity, and peace in Europe has become uncertain. Much of what had been widely assumed to be settled is not. NATO’s rapid demobilization after the Cold War looks premature and precipitous.

There is no single explanation for these developments. What we are seeing in France is populism of the left, the result of people having difficulty making ends meet and rejecting new taxes, whatever the justification for them. This is different from what has fueled the rise of the far right across Europe: cultural defensiveness amid local and global challenges, above all immigration.

The European Union, for its part, has gradually lost its hold on the public imagination. It has been too remote, too bureaucratic, and too elite-driven for too long. Meanwhile, renewed Russian aggression may simply reflect President Vladimir Putin’s judgment that, having realized large political returns on his previous military “investments” in Ukraine and Syria, he had little to fear or lose from further actions.

Europe’s political class deserves its share of responsibility for today’s growing disarray. The EU introduced a common currency without a fiscal or banking union, making it all but impossible to conduct a coherent economic policy. The decision to put the UK’s continued EU membership to a popular vote, while allowing a simple majority to decide the issue and failing to spell out the terms of departure, was misguided.

Likewise, opening Germany’s borders to a flood of refugees, however pure Chancellor Angela Merkel’s motives, was sure to trigger a backlash. Most recently, French President Emmanuel Macron did himself no favors by backing down to the “Yellow Vest” protesters and offering compromises more likely to fuel additional demonstrations and exacerbate his country’s budget predicament.

We should not assume things will get better. It is only a matter of time before France’s far-right National Rally (formerly the National Front) and political parties across Europe figure out how to combine economic and cultural populism and threaten the post-World War II political order. Italy’s hybrid populist government is a version of just that.

The UK will remain torn over its relationship (or lack thereof) with the EU no matter what comes of Brexit; and it is entirely possible that a post-Brexit UK might come under serious strain itself, given renewed calls for Irish unity and Scottish independence. There is no formula for dividing power between Brussels and capitals that would be acceptable to both the EU and national governments. Meanwhile, it is far from certain that Putin is content or done with his aggression against Ukraine or conceivably others.

Moreover, in a world of increasing inequality, violence within and between countries, and climate change, the pressures posed by immigration are more likely to worsen than fade away. And economic dislocation is bound to intensify in a world of global competition and new technologies that will eliminate millions of existing jobs.

Why this matters should be obvious. Europe still represents a quarter of the world’s economy. It is the largest constellation of democratic countries. The last century demonstrated more than once the cost of a breakdown of order on the continent.

Alas, just as there is no single cause that explains Europe’s increasing disarray, there is no single solution either. To be precise, there is no solution of any sort. There is, however, a set of policies that, if adopted, would help leaders manage the challenges.

A comprehensive immigration strategy that balances security, human rights, and economic competitiveness is one such policy. A defense effort that focuses more on how money is spent than on how much is needed would go a considerable way in buttressing Europe’s security. Moreover, deterrence should be strengthened by bolstering NATO and further arming Ukraine. Weaning Europe from Russian natural gas makes sense as well, which implies halting the Nord Stream II pipeline that is meant to bring gas directly from Russia to Germany, bypassing Ukraine. And additional retraining programs are needed for workers whose jobs will disappear as a result of globalization and automation.

Much of this agenda would benefit from American involvement and support. It would help if the United States stopped viewing the EU as an enemy and NATO allies as free-riders. Europe includes the countries most prepared to work with the US to deter Russian aggression; integrate China into global trade and investment frameworks on terms consistent with Western interests; mitigate and, where necessary, adapt to climate change; and set rules of the road for cyberspace.

Alas, such an approach is unlikely to be forthcoming from Donald Trump any time soon. That leaves Europe with no choice but to confront its disarray mostly on its own.