Future of Europe (Part 2)
Divergenze Parallele
Remarks made at Intelligence Forums on 9th September 2021
October Update:
The EU national leaders have now had another round of their own increasingly fractious debate on the Future of Europe. As is usual in the EU, because of the need for unanimity or consensus, very little was resolved: some quarrels intensified and some were avoided. Poland’s dispute (egged on by Hungary) with European Court of Justice (vocally supported by the Benelux countries), which is serious enough in itself, was overshadowed. There are various disagreements over energy pricing and greening policies as Czechia, with inevitable support from Poland, led the opposition to the Commission and France pushed for nuclear to be classified as ‘green’ despite German abhorrence. Meanwhile, Germany wants to go ahead with approval of the Nord Stream 2 pipeline, despite objections from the ‘Visegrad 4’ and other Eastern neighbours (the US is unhappy about it too). The current global gas shortage has surely meant Christmas has arrived early for President Putin. Belarus’s crude retaliation to EU sanctions over illegal diversion of aircraft has rekindled the Immigration crisis with Lithuania and Poland calling for help and unlikely to get much. The potential dispute between Germany and the ECB over the latter’s asset purchase programme has not yet flared up and could still be ameliorated by the formation of a new Coalition Government and the retirement of the hawkish Jens Weidmann as Bundesbank President….however…. the FDP are also fiscal hawks and the arbiter within Germany itself is the Bundesverfassungsgericht and not the Government. This was Mrs Merkel’s 107th Summit and probably her last: one can be cynical about her willingness and ability to fudge difficult situations but her departure is likely to be a catalyst for the divergent developments described below.
AW
October 22nd 2021
I have sub-titled my remarks today ‘Part 2’. In Part 1 in March, I had four principal themes, which I shall summarise briefly as they are fundamental to what I propose to talk about today:
· First, there is much more to Europe than the mantra of ‘more Europe’ that is still the official line in Berlin, Paris and, of course, Brussels.
· Second, Europe has always been about trade. It started 10,000 years ago when the ice finally retreated.
· Third, some things have changed, however. Mostly for the better and increasingly resulting in countries hanging together rather than separately in tackling common challenges.
· Fourth, Brexit really is a break in both the history of millennia and the logic of geography. Global Britain seems to have relocated from North West Europe to a waiting room in Washington. This is not sustainable.
I almost feel I should finish right here and let you contemplate anew these verities, which still appear to escape so many politicians, journalists and investors. Nevertheless, they highlight the concerns of business people or, indeed, the less loopy economists on both sides of La Manche and de Noordzee. We all need to keep on talking about Europe not despite the UK’s having left the EU but just because it has done so.
As I am speaking today from Rome, it seems only appropriate to borrow from a subtle Italian approach to resolving disagreements democratically. Divergenze parallele literally translates as ‘parallel divergences’ and I would ask you to suspend your grasp of geometric axioms in order to understand the developments that I expect in the future of Europe.
The term divergenze parallele itself is my own inversion of convergenze parallele (or parallel convergences) that described the intricate process in the 1960s and 1970s during which the two dominant Italian parties, Christian Democrats (DC) and Communists (PCI), adapted their ideological principles so that they could work together in enabling the economy and government to function. This original term encompassed pragmatism born out of necessity, consensus out of self-interest and a slow process punctuated by sudden and previously unimaginable results.
I hasten to add that divergenze parallele is not a platform for my own increasingly eclectic political views. I do believe, however, that it is already underway in Europe and that Brexit has contributed to its acceleration. Brexit, however, is only one of the divergences at work and, indeed, is becoming decreasingly significant to Europe as a whole, even as it inflicts increasing damage on the UK economy.
Franco-Italian-ECB axis
This is the most important current development and it began with the imposition of the urbane Christine Lagarde as ECB President and was then cemented by the ‘coronation’ of Mario Draghi as Italy’s Prime Minister. With the UK out the way, France has at last been able to resume its dominant role in Europe but this will be no hegemony, as Italy is almost as important economically and more than capable of standing up for itself politically. Meanwhile, Spain, fearful of Catalonian separatism, has always been eager to join whoever seemed to be leading Europe but Belgium’s support is less reliable because of divisions between de Vlaamingen and Les Wallons. Portugal and the other Mediterranean countries are natural supporters while Luxembourg will, of course, follow the money. Indeed, money is what the new axis is all about and what is wrong with that? Ambitious plans for investment to revitalise their economies and meet new technological, ecological and social challenges. We have only seen the first phase of these plans but the ECB is dutifully supporting them through easing monetary policy indefinitely and also as investor of first resort. President Macron himself has wider ambitions for this ‘Eurocore’, including a common (aka French) foreign policy and even a European army and will surely pursue them if, as still seems likely, he is re-elected next year.
Germany’s retreat
The emergence of the Eurocore axis presents Germany with an intimidating combination of political and constitutional challenges at the very time when the First Lady of Europe is retiring and will be replaced by one of two rather second-rate gentlemen. Although almost certain to be ‘king-makers’, the Greens appear to have blown their early polling lead by enough to prevent any two-party combination winning a majority in the Bundestag. An alliance with the SDP (Red) seems most likely but the increasingly right-wing FDP (yellow) may not accept or be acceptable as a partner in a so-called ‘Traffic Light Coalition’. The next German government, irrespective of its composition is unlikely to challenge the Eurocore directly but will have to respond to the inevitable appeals to the Constitutional Court or Bundesverfassungsgericht, which has already expressed concern over the ECB’s quasi-sovereignty. A way has to be found for Germany to avoid blocking the Eurocore’s investment plans while opting out of the ECB’s asset purchase programmes. However, Germany needs at all costs to keep the euro as its currency and stay in the Single Market, especially if exports to China, the US and UK fall away with deglobalisation.
Frosty Northerners
Netherlands and Austria are two other countries which have a strong need to stay in the Single Market but are dismayed by the potential profligacy of a ‘Southern Eurocore’, especially if Germany retreats on the Stability and Growth Pact. In fact, the Netherlands is already involved in two informal inter-governmental groups of Northern EU members: first, the Frugal Four (with Austria and non-Euro Area members Sweden and Denmark and second, the Hanseatic League (again with Sweden and Denmark, also with non EA members Latvia and Lithuania and fellow EA members Ireland, Finland and Estonia). Solidarity is somewhat limited by the awkward division between EA members who really need to stay in and those who would prefer to keep out, while none of them is keen on a banking union, even with each other. Poland has expressed interest in the Hanseatic League but definitely not in the Frugal Four while non-EU members Norway and Iceland would like to get closer. Collectively, these Northerners punch major economic weight even if individually they lack political clout and are increasingly collaborating at ECB and EU gatherings.
Populists
The Visegrad 4 (Hungary, Poland, Czechia and Slovakia) take their name from a town in Hungary, whose Prime Minister Victor Orban is the ring-leader and self-proclaimed strong man of Europe. A recent sympathetic if somewhat eccentric recruit is the new government in Slovenia, which, somewhat awkwardly, currently holds the rotating EU Council Presidency. Their common purpose is to extract more investment and subsidies from rich EU countries but, somewhat counter-productively they also share a common hostility to each of the EU Commission, Mr Macron and Mrs Merkel (which suggests a possible affinity with the Frosty Northerners) but they also dislike the European Court of Justice, liberals, social democrats and immigrants (thereby limiting any support from other EU members). The Visegrad 4/5, especially Hungary and Poland, are important as they combine both the destructive forces within the EU itself and the traditional trade and cultural ties of Europe as a whole. Even so ,they are divided amongst themselves with Poland as paranoid about Russia as ever while the others seem to admire those quintessential strong men, Czar Vladimir Putin and the new Son of Heaven, Xi Jinping. In fact, Poland shares with all the Baltic and Nordic countries a preference for NATO led by the US rather than a French-led European army or Mrs Merkel’s disarmament by stealth. Avoiding war, however, is one area where Europe has advanced, despite long-standing territorial disputes, continuing incendiary meddling in internal affairs and ethnic tensions. Nobody, including Russia and far less benighted Belarus, can afford a full-scale fight, much as some might like to. Another intriguing geopolitical but slow-moving development, involving the Visegrad 4/5 is the Three Seas Initiative from the Baltic to the Adriatic and Black Seas. At least 7 other countries in Central and Eastern Europe have attended the first six summits but there are doubts over funding the proposed new road and rail infrastructure and also suspicions that it is a Polish-led anti-Brussels/ pro-US platform (Mr Trump attended the second Summit in Warsaw in 2017).
Immigration
Migration is a story as old as humankind itself dating back to before Europe was inhabitable and has been going on since it became inhabitable. Immigration into Europe is about to return as the touchpaper for an explosion within the EU. Because of covid-related travel bans it has remained doused for the last year or so but plenty of economic refugees from Asia and Africa have already long been seeking settled status and now political refugees from Afghanistan will be joining their fellows from Syria and Iraq. Moreover, the Spain-Morocco, Greece-Turkey and now Lithuania-Belarus flare-ups have shown that migrants will keep on coming via neighbouring countries that are increasingly unable and unwilling to stop the flows, even if offered large financial inducements. EU Commission initiatives to tighten border security, establish common entry standards and even inducements to both transit and source countries have failed to win backing from member countries. Germany and the Frosty Northerners feel they have already done their bit while most of the Central and Eastern Europeans are refusing to participate in any EU schemes. In particular, Poland and Hungary seem to be playing a game of chicken with the Commission over migration on top of challenging the fundamental principles of an independent judiciary, press freedom and civil liberties. They could well lose their right of veto and face expulsion unless the very real threat of cutting off EU money makes them blink. Meanwhile, France as the leader of the emerging Eurocore will have to show practical solidarity with Italy, Spain and possibly Greece as the first entry points for most migrants. Much will depend on whether Mr Macron can hold off Ms. Le Pen in the Presidential Election.
Climate change
This is a topic of the utmost urgency in its own right and regularly discussed in this forum. The latest IPCC Report confirms that the long-term need for action on Climate Change has skipped the short-term stage to become immediate. Today, I just want to say that this is one of brighter spots in European affairs, often led by the EU Commission in Brussels. Joint measures are being advanced with encouraging prospects, including investment and subsidies for phasing out coal, increasing solar and wind generation, electric vehicles, new construction and refurbishment techniques, afforestation, river pollution and waste recycling. The UK will do well to match this record at the forthcoming COP26. Of course, there are national politicians throughout Europe who are still stuck in a ‘doom loop’ of prioritising economic growth in order to get votes but at the expense of the planet. Look East again!
Pandemic
I have to say, looking far beyond the European context, that this is my greatest human as well as economic concern. The virus has not yet been contained and until it is, there is every chance that new and more resistant variants will spread around the globe. Indeed, this is a global problem wherever one stands on third doses in the developed world vs. any doses for the unvaccinated in poorer countries. For our own sake we have to find the money to vaccinate more people more quickly. I am, of course, aware that many people are opposed to universal vaccination but they do not include the EU Commission and most European national leaders. In fact, after a rather careless and bad-tempered start, vaccination programmes have been ramped up, restrictions enforced and procedures to allow freedom of movement of people and goods rapidly digitalised. (I got my digital European Green Pass with the minimum of fuss but only with conclusive proof of vaccinations and a recent negative test.) In early 2020, Italy was left to struggle on its own but there is a strong sense of community and social solidarity here: people really do wear masks on public transport, in shops and when entering and leaving restaurants and bars and they really do observe social distancing in the street and even in queues! Coming back to Italy after 2 years of covid exile, I am pleased to report that the economy is at last on the turn after too many years of decline.
Brexit
I am still using this as a heading but UK departure from the EU is now history and effectively no longer an issue, not least because we are no longer wanted at the top table. What surely matters now for British business is membership of the Single Market. For the time being our exclusion is a growing disaster but there is hope yet when, not if, we have a UK Government that is willing to knuckle down and study the economic and social history of Europe over the last 10,000 years. Right now, business in Northern Europe is hurting too: in each of France, Belgium, Netherlands, Denmark, Sweden, Poland , Germany and, of course, Ireland. Most if not yet all their governments are ready to talk, whatever the EU commission may say. Divergenze parallele will offer the chance of a new trade and investment deal. An independent Scotland would surely sign up, without any nonsense about joining the Euro Area. Wales and Northern Ireland too.
Conclusion
The progress of an official Conference on the Future of Europe has been badly disrupted by covid and also inevitably by all sorts of protocol issues. Sooner rather later the issues I have been talking about today will come up with all their complexities. In contrast, next week Commission President Ursula von der Leyen is said to be planning an upbeat message. Somehow, I doubt she will refer to divergenze parallele. At least not next week!
In conclusion, over the next few years European countries will want to form new and different relationships with each other. This is unlikely to be the neat ‘circles’ that President Mitterrand first aired in the 1980s and which Lord David Owen has long advocated in preference to full EU membership. It will require considerable imagination as well as statecraft. Naturally, the euro and ECB, will survive as will the European Court of Justice. Some sort of central secretariat will still be needed, with Brussels the obvious location. However, with so much divergence, a directly elected parliamentary assembly will be problematic if not impossible beyond the Eurocore. As divergenze parallelepicks up speed different combinations of countries will collaborate on similar challenges while pursuing their separate priorities. This would include regulatory standards, taxation, competition, telecoms, space exploration, cross-border crime. Immigration is likely to prove much more divisive.
Above all, trade will continue to flow across borders: Der Handel geht ewig weiter!
Disclaimer: This report is compiled from sources the author believes to have been reliable but it may not be complete or accurate on any particular subject. All opinions, estimates, and analyses are or were those of the author at the date of issue and are subject to change without notice. Accordingly, the author makes no representation or warranty on any subject discussed in the report; nor does he accept responsibility or liability for any claim, loss, damage, expense or cost arising from reliance upon its contents.