Isabel Schnabel would make a good ECB president in our view, but we don’t think it is going to happen, unless she were to resign her current post in the ECB’s executive board right now. That, however, does not appear to be the intention. Nor could she be guaranteed to secure the succession of Christine Lagarde in late 2027.

We are not lawyers, but we know what those who drafted the laws meant when they imposed a one-term limit on ECB board members. They did not want any candidate to kowtow to political leaders in a way that would affect their current thinking on monetary policy. Look at what is just happening in the US, where the candidates for the Fed presidency are falling over themselves with promises of how much they will cut rates to please Donald Trump. There is absolutely no doubt that the race to succeed Jerome Powell as Fed chairman was the cause of last week's rate cut. 

The European law as it is written did not explicitly rule out a second term. But since the goal was to prevent a current member from running for the job, there would have to be a sufficiently strong time gap between a first and second term. That was also the view the ECB legal team took in 2019, when Benoit Cœuré, who would also have made a good ECB president, was ultimately denied the possibility to run for the succession of Mario Draghi. A compromise was mooted at the time that Cœuré would resign a month earlier, but that was not deemed to be sufficient.

Christine Lagarde said yesterday that the ECB would look at the rules again. While the ECB has a formidable legal department, it should not be up to the ECB to set its own rules. To the outside world, this smacks of rule-bending, and will undermine the credibility of the institution. It feels to us like the discussions about a third term for Trump, based on some too-clever-by-half legal manoeuvres that nobody outside legal circles will understand, and that give the impression that those in power are bending the rules to suit themselves.

Europe’s chattering classes have elevated the sequestration loan and the Mercosur trade deal to be the existential issues in European politics. We, too, think the Mercosur deal would be a good idea, but neither of these issues is existential for the future of the EU. Nor is Ukraine. 

Sad though it may be, the EU has zero chance to emerge as a geopolitical power like the US or China. Strategic autonomy was only a slogan. It came with no strategy, and most importantly, with no financial commitments. The way EU countries are currently raising military spending, through debt mostly, and without common procurement, will reinforce their dependency on the US and US-dominated financial markets. At no point did the EU have an agreed end-game strategy for Ukraine – something that goes beyond wishful thinking.

But the EU has a few, sadly neglected, assets. It has a customs union, a single market and a single currency. They don’t win wars, but they matter. If the EU had not fallen behind the US in productivity growth, and if it had not given up on 21st technologies, the EU would be a formidable soft power. The threat of being banned from the world’s largest single market would have been a real choke-hold. The purpose of frugal fiscal policies is not to pay homage to a protestant work ethic, but to give financial headroom to act during emergencies.

If you accept, as everybody seems to do, that treaty change is impossible, an intelligent soft power strategy is the only thing that is left. But that would have meant a lowering of ambitions: no Green deal; no anti-tech legislation; the completion of the banking union with the goal to end the bank-sovereign nexus. In particular, it would have meant more integration.The balance between widening and deepening is way off.

For the talking heads that roam our airways and social media, it is cooler to talk about foreign policy. But for the EU it would be better if its leadership took an interest in the work of standard committees. They should not invite Zelensky to their European Council meetings, but the three economics Nobel Laureates, to give a presentation of the importance of technology to economic growth. The creeping death of the single market is the real existential crisis of the EU. It is not Trump.

If the EU wants to acquire hard power, that would have to be preceded by political reforms: treaty change to establish the EU as a federal union, with tax raising and debt issuing powers, money to fund an army, and a politically accountable military command structure. You don’t acquire hard power with people sitting around tables.

The EU’s tragedy is that it abandoned the necessary to seek the impossible.

Language frames how we perceive the world. This is not only through sounds and vibrations in the spoken language. But also through meaning, the origins of words and what concepts they are associated with. Five researchers have chosen to investigate one particular example in economics, by choosing to test how debt is perceived as a word and as a concept in various European countries and whether this explains their different attitudes towards debt.

In Germanic languages, the word for debt has the same root as the word guilt, Schulden vs Schuld. Can this linguistic overlap explains greater debt aversion in Germanic language countries like Germany, the Netherlands, Sweden and Switzerland? In their study Speaking of debt: Framing, guilt, and economic choices the authors found that using the Germanic word for debt instead of a more neutral term influences attitudes and decision making. Their four surveys and speech analysis found that using the guilt term reduces consumers’ willingness to borrow, lowers their approval for government debt, and influences firms’ financing plans as well as how politicians are framing fiscal policy.

One of their experiments in Switzerland was a sales pitch that offers individuals to borrow at 5% to invest in a financial product guaranteeing a 10% return. When the pitch used the guilt-ridden word for debt, individuals wanted to borrow a quarter less, even if de facto the return was guaranteed. The researchers also analysed speeches in the German Bundestag from over three decades. Proponents of austerity used guilt-inducing language much more frequently when discussing public finances.

We still are on the fence over the causality of their argument. Does language cause people to borrow less or is it a more fundamental cultural predisposition that is reflected in the Germanic language, placing debt next to guilt on the moral compass? We have seen similar moral overtones when it comes to bankruptcy. Did Calvinism and Prussian frugality not leave their mark on how people today still think about debt?

Or would the Germans still have the same aversion towards debt and credit cards if John Maynard Keynes had been born as a German? We will never know the answer to that but we do know that debt is far less of an emotional issue in the UK. It is just a matter of inter-temporal optimisation. No guilt attached.

Moral or emotional language is also not unique to the Germanic culture as Jean-Marc Vittori pointed out in his oped for Les Echos. A research study of French speeches in the National Assembly between 2007 and 2024 found that speeches that fall into the emotional category have more than doubled and now represent 40% of the total. Parties on the far-left and the far-right are the most frequent users of emotional language. The researchers also found that the Rassemblement National abandoned their appeal to anger for playing more towards fear. This helped them to earn more respectability and appeal to elderly voters.

We live in a world where language and imagery is used to project a world that is not real. “When men cannot change things, they change the words,” Jean Jaurès famously said. Whether we talk about the threat of debt and migration or winning the war in Ukraine, these are words that may mobilise emotions but do little of the lifting on the ground. We better not give into these words and focus on discussing modalities of what it actually takes to pay back debt, maintain our work forces or how to end the war in Ukraine.

In the remote eastern Canadian province of Nova Scotia, you can visit a place called Smuggler’s Cove. The small inlet takes its name from the fact that the eponymous smugglers used it to hide illicit alcohol bound for the US, just across the water, during prohibition in the 1920s. Prohibition failed in large part because, despite the US’s best efforts, the booze kept flowing in. The US’s neighbours, Canada and Mexico, didn’t follow its lead, and became conduits for a lucrative trade in black-market alcohol. Neither country had much incentive to enforce the US’s laws, especially when there was money to be made. The US couldn’t do much to stop them either.

There’s a lesson in this when we look at how our own sanctions policies have worked out. While peace talks over Russia’s war in Ukraine are underway, we are continuing to play sanctions whack-a-mole with Russia’s oil trade. The latest chapter of this sees the EU adopting more sanctions against two oil traders. They have, according to the union, helped Russia sanctions-bust by shipping its oil outside of the western regime.

This isn’t the first time this has happened, and it probably won’t be the last either. There have been a series of sanctions not just against Russia’s oil industry itself, but against a dense network of middlemen who shift it.

This has done little to stop Russia’s oil from flowing, however, perhaps paradoxically because of the sanctions itself. They have caused a gap to open between Russian crude oil prices and global benchmarks, creating an opportunity for arbitrage. If the sanctions tighten and this spread widens, more middlemen flood in, bringing it down again. Having to sell its oil at a discount to global benchmarks does hit Russia’s oil revenue. But it doesn’t eliminate it.

Russia’s oil revenue has recently taken a hit, however, but mostly because of other factors. One is that Ukraine has stepped up its attacks on Russian oil infrastructure, and is going after its exports network in a more concerted fashion. This helped drive a 42% decline month-on-month from October to November in Black Sea oil exports. Russia registered an overall decline in exports that month, perhaps partly a short-term effect due to new US sanctions. But the larger Black Sea decline specifically is thanks to attacks on infrastructure.

Another is a relatively soft global oil market. After early 2023, when the EU first put its embargo on Russian crude oil into effect, Russian oil has traded at a discount to global benchmarks, but its prices have largely risen and fallen in line with global market trends. Urals crude has been on a downward trajectory pricewise since the summer, i.e. before the Trump administration’s big sanctions announcement. What has been going on since then, however, is mounting concern about oil oversupply amongst traders and oil producing countries.

It was Sun Tzu who said:

“Know the enemy’s plans, and you will be able to anticipate them.”

Western leaders had a deep understanding of China and Russia in the pos-war era. They no longer do. That ignorance is driven largely by academics and policy community. A good example of how bad judgements transfer from academia to policy are the writings of Chris Miller, a renowned historian, and author of Chip Wars, a book on the history of the semiconductor industry and its geopolitical role. The book’s strength was that it brought a new perspective to geopolitics, but it also ended with a consequential misjudgement that unfortunately became the policy of the Biden administration. Miller concluded that China, despite many attempts, was incapable of producing semiconductors. Indeed, it is very difficult to produce high-performance semiconductors at scale. Taiwan has specialised on this. China did not. The Biden administration tragically concluded that it had a choke-hold against China when it banned high-performance semiconductor exports. The ban had the exact opposite effect as intended. It gave rise to a competitive Chinese semiconductor industry – one that is on the verge of catching up with the US. 

In a recent article in the Wall Street Journal, Miller has made another misjudgement – this time about Vladimir Putin. He says Putin is a tzar. He does not care about money like Trump.

“Economic outreach to Mr. Putin might work if he were interested in economics. But he isn’t.”

This statement is absolutely false. If US policymakers were to listen to this, they would be making another colossal misjudgement. Since he first became Russia’s president 25 years ago, Putin pursued a policy we would characterise as one of resources-based imperialism. He is an economist by training. He wrote his these on the subject of “Strategic Planning of the Reproduction of the Mineral Resource Base of a Region Under Market Conditions”. His gas deal with his German pal Gerhard Schröder was predominantly economic. It was not a geostrategic master plan. It was about the money. It was only after his annexation of Crimea that it became a geopolitical issue. But the plans were hatched a decade earlier.

One of the things the Trump administration got right about Russia is the understanding that economics is by far the best to way to end the war – to give Ukraine and Russia an economic perspective for the post-war era. The talks in Berlin that are going on right now would not have been possible without economics entering the discussions. They may still fail. But they are worth pursuing - if indeed peace is the objective. 

But be careful what you wish for. And remember Sun Tzu's warning.

Kyriakos Pierrakakis is the new president of the Eurogroup. Whether he will be a creative or efficient leader for the 20 countries that adopted the euro as their currency we have yet to see. This in part depends on his own capabilities as well as how he is seen by others. It also will be shaped by the events during his presidency. There are plenty of crisis scenarios that he could face during the next two and a half years of his presidency.

This job at the helm of the informal Eurogroup is usually reserved for the smaller member states. Last time it was Ireland. Now it is Greece. In his motivation letter, Pierrakakis referred to his generation being shaped by an existential crisis, the cost of complacency, necessity to reform and importance of European solidarity. He was of course referring to the Greek public debt crisis that kicked off in 2009. It forced his country to adopt three bailout programmes, one debt haircut and many painful reforms under IMF supervision. But the way he phrased it could also describe the situation today.

More than 15 years after the Greek debt crisis, public debt is once again a major topic for the Eurogroup. European countries accumulated public debt since the pandemic, which they find difficult to wean themselves off in this low growth environment. Their fiscal capacities are strained, and the pressures are high to meet the demands for Ukraine or Nato military spending increases.

Is Pierrakakis the man of the hour? Would he be the one to pull the strings in the Eurogroup if France was ever to experience a financial crisis? Will his background help or hinder him?

Pierrakakis's appointment is turning the page for Greece from the image of crisis to leadership country. At the same time, at home, legacy issues from the past suggest that some things are harder to change.

A massive fraud was discovered earlier this year involving agricultural EU fund payments to the OPEKEPE agency for farming that did not exist. As a result, a minister and four deputies had to resign. The government also reacted by transferring their responsibility over to the independent tax authority IAPR. This is part of Mitsotakis's promise of a technocratic overhaul, to clear out decades of an inherited corruption mess. The extent of the fraud is breathtaking and who benefited is still subject of an investigation.

This transition to this dream of a new Greece will take time and is not without growing pains. The transfer to the IAPR, for example, is now blamed for delaying payments to legitimate claimants. New Democracy MPs from rural areas criticised their own government’s strategy, arguing that it is turning the farmers against them. The PM's office first rejected meeting with farmers as long as their protests continue. The government was hoping that the disruption of their blockades would turn public opinion against farmers, according to Macropolis. But polls suggest that the public is overwhelmingly backing farmers. Trust in politicians to solve inherent problems is still low.

The Great Sea Interconnector is a massive submarine HVDC electricity cable project to link energy from Greece to Cyprus. It is one of the prime examples of a complex infrastructure project that Brussels would like to accelerate as a showcase for its energy transition. But it has met geopolitical pushback ever since the construction phase began in 2024.

The French cable laying company Nexans won the €1.4bn contract to lay 1200 km of cable deep underground, sometimes up to 3000 meters, which would make it the deepest electric link ever achieved. But while Nexans may come prepared for the technical challenges, the political challenges are outside its control. This cable project has become a matter for regional diplomacy. And instead of diplomatic solutions this project even risks exasperating regional tensions.

Turkey has been pushing back since work started. Les Echos writes that on several occasions between July 2024 and February 2025 Turkish warships ordered Nexans subcontractor to leave an area east of Crete and another Greek island of Kasos where the cable laying vessel was conducting its explorative missions. This phase of construction has since been halted, jeopardising also the laying of the cable that was scheduled for 2026.

To secure this project, Greece employed various diplomatic levers, even bringing Israel on board. It also signed a cooperation agreement on LNG gas with the US. The Greek government now hopes that the US would have an interest in supporting Greece, Cyprus, and Israel for their energy project in the Eastern Mediterranean. What could possibly go wrong by upgrading this cable project into a fetish for regional power projection?

Not only does this project sits right on the fault-lines of uneasy relationships between Turkey and Greece or Turkey and Israel. There is also Cypriot politics. Cyprus may seem to be the clear beneficiary of the project, yet the government in Nicosia is not embracing it with full force, and even is shifting its position. The principal opponent to this project is finance minister Makis Keravnos, who claims that the project is not viable despite many feasibility studies suggesting otherwise. As finance minister, he refused to pay the €25m deposit towards the project. Cypriot President Nikos Christodoulides seems unable to take a decision, but strengthened Keravnos’s position in a recent cabinet reshuffle.

Nexans is the company right in the middle of this diplomatic quagmire, and it has to pay a price for it. A recent article in the Cypriot local media reported that Nexans had suspended a tender for the project. It share price lost 6.8% that day before the company issued a denial. Politics and profit are closely intertwined in this project. 

One of the reasons why regulation is so pernicious are network effects. If a company is under a legal obligation to fulfil a regulatory requirement, it will offload it to others as much as it can.  

This is now going to happen with the supply chain law, euphemistically known as the corporate governance law. Its goal is to make EU companies responsible for their entire supply chain. This national version of the law is already in effect in Germany. In Brussels, EU member states have reached agreement to postpone the start of the new EU-wide law by one year to July 2029, and to make it compulsory only for companies with more than 5000 employees with a turnover of more than €1.5bn. The previous thresholds were 1000 employees and €450m in turnover.

Business lobbyists who pushed heavily for this change celebrated yesterday, but we think this might be premature. The problem with the supply chain law is a classic network effect: an SME that will in future be exempted from the law will still be part of the supply chain of a larger company that is not. And that larger company will be under a legal obligation to verify the entirety of its supply chain, including the suppliers’ supply chain. What appears to be an exercise in deregulation is nothing of the kind.

The law only applies to companies resident in the EU, not to Chinese importers. Economically, this law acts like a tariff for intermediate goods in production, the most counter-productive of all tariffs.

We have talked about regulation a lot on these pages, but regulation is not the deep cause of Europe’s techno-phobia. It is a social culture that gave us both the regulation and a tech industry that cannot compete globally. The business community is as much a part of the problem than the bureaucrats. One of the great AI hopefuls in Germany was Aleph Alpha, a company with a clever name, but as it turned out not a clever business model. As Handelsblatt reports, the company is about to cut its workforce by a third. One of the divisions is described as a reign of terror. When you read about all the corporate intrigues that are going on at this company, this sound more like a German industrial conglomerate than a 21st century tech start-up.

Alepha Alpha's management wants to downside to specialise to two sectors only, public administration and defence – low-hanging fruit because of new spending priorities of the new government. This means that the AI revolution, should it ever reach Germany, will come from US companies.

This is the problem when your AI strategy is partially funded by one of your main customers. Bosch has been one of the largest investors in the company. But it appears that Aleph Alpha did not provide the technological breakthrough Bosch had hoped for. Bosch, which is under a lot of pressure right now along with the rest of the German industry, is now selling the stake.

We were always sceptical of Aleph Alpha’s claim to specialise in large language models that are regulation-compliant. 

One unwelcome product of European political fragmentation is the increasingly common minority government. Administrations without a working majority now pop up in a number of different EU countries, including France and Spain, as well as in places like Sweden, where they have been established practice. Having to negotiate with other parties to pass legislation on a case-by-case basis is kryptonite for a governing agenda. It also allows smaller parties to drive up the bargain without taking any of the potential blame or accountability that comes with holding ministerial offices.

We might be adding another government soon to the tally, however. The Dutch coalition negotiations are in a stalemate at the moment. This is mostly because of the fact that one party, the liberal-conservative VVD, has various blockers against working with others. But because it is in a diminished political centre, it is also almost definitely going to be necessary in order to form a government. The VVD doesn’t want to work with Geert Wilders or his party, which is a very common position in Dutch politics. But it also doesn’t want to work with the centre-left.

The VVD’s preferred government would be one with two other centrist parties, the social-liberal D66 and centre-right CDA, plus the right-wing JA21. But there are problems with this too. D66 is more left-leaning and doesn’t really want to be in a government with JA21, though its red lines are not as thick as the VVD’s. The more serious issue, however, is that this coalition would have 75 seats in the 150-seat Dutch House of Representatives, i.e. not a majority. Working with the centre-left instead of JA21 would give this hypothetical government a sizeable majority, but the VVD is still ruling that out.

An alternative, which is now coming into focus, is a minority government. D66, the CDA, and the VVD would be in this government, and they would seek support from the centre-left, JA21, or both parties to try and stay in office and pass legislation. But to us, this sounds like a recipe for an early cabinet collapse. This group would only have 66 seats in the House of Representatives, 10 shy of a majority. It would be extremely vulnerable to coercion by supporting parties, not to mention the consequences of any coalition partner storming out in a fit of pique.

The problem is not just a Dutch one but a Europe-wide one. Politics is fragmenting not between the left and right, but within these broad political blocs. Switching between blocs is less common, though Dutch politics has gradually been drifting rightward. But switching within these blocs is.

Because of that, you have an incentive for parties to do one of two things, or both in the VVD’s case. You can exclude working with someone from the other side of the political spectrum, and also exclude working with a party in your own bloc that you consider extreme or out of step with your politics. The VVD’s various exclusions have ended up working well for it. But it is a nightmare to work around.