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22 September 2023

How not to rejoin the EU

In our lead story we write about Sir Keir Starmer's latest flip on the EU and explain why a commitment to regulatory convergence is not going to work politically and economically; we also have stories the next Russian energy shock - this time for diesel; on the French Senate elections; on Italy's pension problems; on what's behind Morawiecki's verbal assault against Ukraine; and, below, an alarming shift in German politics.

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Today's free story

German centre does not hold

It was not a corrupt conspiracy and a dysfunctional constitution that swept the Nazis to power in 1933. It was centrist coalitions that pursued austerity in the years before. German political parties today have drawn the wrong conclusions from the breakdown of the Weimar Republic. By refusing to enter coalitions with the AfD, they are repeating exactly the same mistake their predecessors did in the early 1930s. They are only looking at 1933, when it was already too late. The political error occurred in the years before.

Here is some high-quality evidence that the political centre in Germany is opening up to the far-right. Its latest comes from the Friedrich Ebert Foundation, a political foundation funded by the SPD. The Mitte-Studie, literally the study of the centre, is conducted every two years with a statistical detail that far exceeds any polls. It shows a dramatic lurch to the right amongst voters that used to support centrist parties.  

The population in this study is limited to a group defined as the political centre, not in terms of voting behaviour, but income and social position: society's middle ground. Its lack of representativeness is a strength. The headline result of this study is that the number of people within the political centre that hold extreme right-wing views has gone up from 2-3% two years ago to 8% now. In addition to this, there is 20% of the population that falls into a grey area, people who are not oriented towards democracy, but who are not fully paid-up members of a particular right-wing ideology. What matters is not the headline number, but the relative shifts. This 28% is the group from which the AfD recruits, plus its own core supporters, many of whom would naturally fall outside the classification of the political centre. We have put the AfD's potential support at around one third of the entire electorate. These data suggest that the total potential might be even higher. If you wanted to relate these data to polling numbers, we would read this as follows: of those who used to support the political centre, 28% are open to supporting extremist parties on the right. Not all of them support the AfD, but many do. 

The study identifies a rise in antisemitism, white supremacy, extreme nationalism, and other features one could identify with the far-right. An important shift that took place over the last two years is that people are no longer embarrassed to reveal their far-right attitudes if they hold them. Here is another snapshot: 6% want the Führer back, 16% hate foreigners, and 34% believe that immigrants come to Germany to exploit the welfare system. Another 38% believe in conspiracy theories. 

We are not surprised to see this. If you keep on governing with grand coalitions, don't be surprised that people that used to support you shift to the extremes. That is especially so if you elevate the principle of kicking the can down the road as the principle by which you govern. The more you double down with grand coalitions, the worse it gets. The AfD is now polling at 21-22%. This level makes it progressively harder for the centrist parties to form coalitions.

21 September 2023

Delusions of the lingua franca

The great British delusion about Europe is that they set the big narrative, because they own the language. Brexit was a reality check about the power of British European narratives. But the delusions persist. The most glaring example for us is the insatiable appetite for European editions of newspapers. The latest is the Guardian. Unfortunately, UK media ventures have a long history of being commercial and editorial failures. Older readers may recall Robert Maxwell's The European, a tabloid that should have been the Anti-European. Serious newspapers and news magazines also have their European editions, more favourable to the EU but not any less patronising.

But as someone who has been closely involved in one of these ventures many years ago, we came to the conclusion that this form of media colonialism is doomed to failure. European editions of UK newspapers were never truly European. Nor was the Remain campaign in the Brexit campaign. Neither defended the case for European integration as such, but espoused a special version of European integration limited to Utilitarian transactional relationships. 

The big mistake British intellectuals with a general pro-European disposition keep on making is the idea of English as the lingua franca, and the idea of English liberalism as the guiding ideology. Both betray a colonial mindset. People who live in Finland and Spain speak languages that could not be more different. They don't need English media to make sense of their Europe. Especially not in this digital age. 

It is also trivially true that simultaneous translation of the EU's 24 official languages goes through a single connector language, which is English. This is no longer necessary in the age of machine translation, which has now reached a quality level beyond that of human translators. People still use a version of English when they meet informally. It is still the language spoken around coffee machines in offices. But don't misinterpret this fact as proof of English as the lingua franca. As a former UK minister said to us in a private conversation once: English is a great language for buying, but not for selling. 

People from Finland and Spain, when they get up in the morning, read Finnish and Spanish newspapers. That is true even if they are fluent English speakers. So they should. They have newspapers that do a much better job at explaining the EU to them than a UK paper. Have you noticed, for example, that the British media almost invariably refers to the EU as a bloc, as in Eastern Bloc. They all do this, but it is a shorthand that non-English European news media do not use. That choice of language betrays an underlying attitude. Europeans do not all agree with each other on the future of European integration. But even Viktor Orbán is not your classic British eurosceptic. 

We know ourselves from first-hand experience with a UK-based European media venture that they fail because the owners have fundamental misperceptions of the European media market. There was a small market for prestigious international newspapers, but they always ended up as coffee table decoration, unread of course. The lower end of the market discovered that there wasn't a market for British tabloid-style journalism. 

One of the many consequences of Brexit is that UK views no longer count as much in the EU as they used to. We keep on saying that denial is the first stage of grief. Denial is the predominant feature of the British euro debates. It will take some time. 

20 September 2023

Tunisia's double game

Tunisia has well understood how to play the Europeans on migrant flows. The EU acts like a besieged citadel and tends to be defensive. Once in this position, it can be blackmailed, something Tunis has realised. This is the playbook that has been successfully applied before by Morocco and Turkey. And it appears that what we see in Lampedusa is the direct result of similar efforts from Tunisia’s government, to encourage migration towards Europe in order to get the Europeans to pay for it.

Kais Saied, Tunesia’s president, is a believer in the great replacement theory, and is keen to preserve the Arab-Muslim nature of his society. His xenophobic views and actions prompted African leaders to organise repatriation operations for migrants who felt in danger. In Europe, few leaders even noticed what was going on, too focussed on finding solutions to their own migration problem.

The deal that Ursula von der Leyen and Giorgia Meloni agreed with Saied in July was heralded as a new blueprint for Europe’s efforts to keep migrants out. But the opposite seems to be happening now.

Key of the agreement with Tunisia was the EU’s promise to fund the fight against illegal immigration, paying some €105m directly and promising another €150m in fiscal support. Two months later, the Tunisian government complained that no money has arrived yet. Europeans now accuse Saied of moving migrants from the city of Sfax to coastal areas in order to facilitate their departure towards the Italian island of Lampedusa, which is less than 150 kilometres away. Opening the passage towards Europe takes pressure away domestically, which could score the president some points with his supporters.

Saied can also use the situation to pressure the EU into giving him the money without any conditions attached. He does not want to reform the government, nor abolish subsidies on certain products as the IMF has requested. We always warned that deals like the ones the EU struck with Turkey, and now with Tunisia, are a pact with the devil. They invite devious behaviour on both sides without solving anything. As long as Europe’s governments feel trapped between losing out to the far-right in their home countries and making deals with autocrats that make it look like they are doing something to deter migrants from coming towards Europe, this will remain Europe’s Achilles heel.

19 September 2023

Is Goldman infiltrating Syriza?

A surprise winner emerged from the first round of Syriza’s leadership contest. Stefanos Kasselakis, a 35-year-old owner of a shipping company and former Goldman Sachs banker who lives in Miami, came out of nowhere and declared his candidacy in the last minute. Through a well-organised social media campaign, he became the talk of the town in just one weekend. 

Kasselakis came first with 45% of the votes followed by Efi Achtsioglou with 36.2% and Euclid Tsakalotos with 8.78%. So the run-off is between Kasselakis, with an appeal for renewal similar to Alexis Tsipras when he was first elected leader, and Achtsioglou, the former labour minister, who had been the favourite to win this elections until Kasselakis entered the picture. Polls had predicted that she would beat Kasselakis to win this race. This still can happen in the run up next Sunday, but it is no longer a foregone conclusion.

Kasselakis is not known in Greek politics: his political credentials boil down to volunteering as a student for Joe Biden in the 2008 primaries. Kasselakis's more liberal economic views may not square well with the leftists in the party, but he is considered the better candidate to beat Kyriakos Mitsotakis. If he were to be elected the new leader, he could broaden the appeal for Syriza in a political space where New Democracy is claiming the liberals mostly for itself. But it would be an extraordinary turnaround.

18 September 2023

Starmer's European cake

The big delusion of the UK policy consensus before Brexit was that a relationship based on multiple opt-outs was sustainable. As a semi-detached member, the UK never took ownership of European integration. The Remain campaign never knew how to sell.  

Sir Keir Starmer's attempt to re-write the relationship is based on a delusion of a similar kind, that it is possible to stay outside the single market and the customs union, and get a better deal. This is a political lie. It will almost certainly be exposed as such, and not only by us. Based on the polls, Labour has to be regarded as the odds-one favourite to win the next election. Rishi Sunak was a predictably appalling choice for the job of prime minister. We think, however, that the polling gap will narrow as we approach election day as voters will focus on policies for housing and transport, which should favour the Tories in suburban and rural areas. We should remember that the elections are still more than a year off. The Tories will have an opportunity to unpick Labour's agenda as election day approaches.

Probably the biggest delusion yet to be unpicked is Sir Keir's repeated assertion that there is a better deal with the EU out there. This is simply not true. There was a lot of vindictive commentary from the EU during the entire Brexit process, but the deal that was eventually agreed was a reasonable third-country trade deal. The two big remaining issues at the time have since been resolved: Northern Ireland and Britain's associate membership of the EU Horizon's science programme. If your bottom line is that you do not wish to rejoin the single market and the customs union, there really is not a lot more out there.

The existing agreement is up for renewal in two years. There will be a new European Commission by then. Germany, France, Italy and the Netherlands are all struggling with their economies, and experiencing political uncertainty. When Sir Keir calls Johnson's trade deal too thin, he misjudges what a trade deal with the EU can do. 

He lists the following areas where he thinks he could improve on the deal: business, veterinary compliance, professional services, security, innovation, and research. We can't rule out that they will cooperate on vaccines, for example, or some other limited areas, for which there was no time to reach agreement during the negotiations in 2020. The reason why trade deals with third countries are thin is because vested interests intervene. If the trade deal had been negotiated over a longer period, it would have not produced a materially different treaty. 

We have been arguing that the EU needs to rethink its third-country relations from the ground up. In particular, we think it is a good idea to create an outer layer of integration with countries that seek to be members of the single market, but without the monetary union and other joint policies, for example on immigration. But if the UK does not want to join the single market, there is not much the EU can do. 

Here is a scenario for how this can play out. The contradiction of Sir Keir's policy on Europe will either become an election theme. Or it will become apparent once they hit reality. If the EU plays hardball, as it surely will, pressure will grow from inside the Labour Party for another referendum. The only way to do this would be the way David Cameron did this: put it in a manifesto and see whether you get a majority. Cameron did this in 2015, very much to everybody's surprise, including his own. We would not bet on history repeating itself in the reverse direction. Getting back in is a harder job than getting out. At the very least, you would need somebody who knows what they are doing. 


15 September 2023

How close is too close?

If Brexit is comparable to a breakup or divorce, it is one where the party who ended the relationship talks about it all the time, whilst the other basically ignores it and moves on with their life. The UK’s political class insist that the post-Brexit status quo is not changing. But as Brexit has become increasingly unpopular, and neither party shows much sign of delivering a compelling way to make it work economically or politically, it feels inevitable that there will be some movement.

The EU has not discussed this much, which makes some sense as the UK is undecided about what it wants. That can only go on for so long, however. At some point, the EU should think more about what its own desired endpoint for relations with the UK look like, why, and what this will mean for the EU’s institutional framework as a whole.

We say this as Labour has now defined its approach to irregular migration, the so-called small boats issue. The domestic approach to this will be: softer on the people, harder on the people-smugglers. But the more interesting part is Labour's policy to try to negotiate a returns agreement with the EU. Its response to the question of whether there would be a quid pro quo, taking some refugees or asylum-seekers in exchange for allowing returns to the EU, was that it would be a matter for negotiation.

If this emerged, it might be a proof-of-concept for an even deeper relationship with the EU later on. The biggest red line for the UK has been freedom of movement. Unlike the Windsor framework over Northern Ireland or re-entering the Horizon programme, a returns agreement with quotas would mean budging on migration maximalism. If the political capital Labour gains from being able to solve the small boats problem exceeds the backlash over quotas, that suggests there may be more leeway over migration if it delivers tangible benefits.

But a pro-single market government would pose a problem that it doesn’t seem like the EU has thought much about. Right now, there are countries that are part of the single market, or which use the euro, that sit outside the EU’s decision-making framework. But these countries are much smaller than the UK, both economically and in terms of population. The UK’s sheer size relative to the average EU member state would give it a level of informal influence that Norway or Switzerland don’t have, even if it was outside of the EU’s decision-making process.

Here the internal UK debate is, once again, misleading. It is one about rule-takers and rule-makers, and about seats at the table. As almost anyone who has worked in the EU institutions will attest, it is difficult enough to force member states to implement legislation they have actually agreed to. The EU still has to resolve numerous disputes with Norway and Switzerland. Imagine what it would be like if a much larger country perennially stalled. As for seats at the table, even outside of the EU institutions there are opportunities for the UK government to try and persuade EU member states.

The EU has said numerous times that it is not a fan of à la carte arrangements, but the UK would carry too much weight for any current framework to be workable. Doing so would destabilise the EU, as legislators would have to constantly consider how laws would impact a country that would account for a large proportion of the single market’s GDP and population, despite it not being formally part of the process. It would also be different from Ukraine, since you couldn’t bundle it into the accession process. Ukraine comes up a lot in current discussions on treaty reform, but it’s time to talk about the UK too.

14 September 2023

How sanctions created new markets

Sanctions on Russia were meant to stop trade and coerce Vladimir Putin into a U-turn on Ukraine. Instead, Russia continues to bide its time in Ukraine, and Russian oil in particular continues to flow into world markets. The buyers may have changed and the way markets operate. What was transparent before all of a sudden turned opaque.

The west did also not completely cut themselves off from Russia despite all rhetoric. Western firms and banks are still operating in Russia, even if the numbers have dwindled. Russian gas is still flowing into Europe, albeit at much-reduced volumes, and could even increase thanks to a recent deal between Bulgaria and Turkey. Russian crude oil is still exported into the world, avoiding sanctions by trading below the price cap of $60 per barrel. Western companies can even make profits thanks to the war in Ukraine. It is not only the military equipment industry which is booming thanks to the war.

Elisabeth Braw, writing for Foreign Policy, has a cracking story about how Greek shipowners made a fortune selling their oil cargo ships second hand. Since the war in Ukraine started, Greece sold 290 ships. They do not sell at a discount. On the contrary, the story gives examples of where the ship price has doubled or tripled compared to the original price the Greek owners paid. In markets like these where money is not a limiting factor, tankers are a desired object that cause a hike in prices. A whole new tanker market has come alive as a result of the war.

The buyers are much more mysterious than the sellers. Companies based in the United Arab Emirates bought most of the tankers, followed by buyers in China, Turkey and India. In 2022, a stunning 864 new maritime companies with an association or link to Russia emerged according to S&P Global Market Intelligence. Sometimes there is not even an email address linked to those companies. The role of the UAE is not surprising, as Dubai has emerged as the new Geneva for Russian oil trading companies. China and India both have stepped up their imports in Russian oil and need tankers for transport.

But those tankers, and cheap oil, come at the peril of predictability. Second-hand tankers enter the sea with unclear insurance, and take roundabout routes, and use technical tricks, to avoid being spotted. What happens if one of those tankers leaks or catches fire may not be a concern in the sale. Once such an incident occurs though, it has implications not only for people onboard, but for the oceans and maritime wildlife.

What is happening with Russia should not be a surprise to anyone. The tricks it is using are right out of Iran's sanctions-avoiding playbook. But Russia produces roughly three times as much oil as Iran does on average, meaning that it has a materially larger impact. 

13 September 2023

Two geezers meet

When Eurointelligence got going 17 years ago, Gerhard Schröder and Oskar Lafontaine had already disappeared from the mainstream political scene. Their feud was one of the most consequential political divorces in modern German history. It split the left, and paved the way for 16 years of CDU rule. It is remarkable now that the two are publicly staging their re-union. We would not be writing about this if it were not for the fact that the two are united in rejection of Olaf Scholz's support for Ukraine, and the fact that Lafontaine's wife, the politician Sahra Wagenknecht, is about to launch a new party to exploit that very sentiment.

FAZ reminds us this morning that Schröder and Lafontaine used to be political allies back in the 1970s, united in opposition to Helmut Schmidt's support for the stationing of US cruise missiles on German ground. They both became SPD state premiers during the reign of Helmut Kohl, but fell out over economic policy in early 1999. We doubt they have spoken much in the intervening years. But the two met for five hours in Lafontaine's house in Saarbrücken on the occasion of Lafontaine's 80th birthday. Schröder, who will turn 80 next year, also published an open letter of congratulations, thanking Lafontaine for years of friendship.

What unites the two today is exactly what united them in their youth: opposition to Nato and the wish to reset relations with Russia. Both of them have alienated themselves from their former parties - two parties in the case of Lafontaine, who was party leader of the SPD, and later the Left Party. Neither of them are seeking high office, but that won't stop them from wielding power. The AfD is currently the only party that serves those who oppose German arms supplies to Ukraine. Naturally, neither Schröder nor Lafontaine would ever align with the AfD. Nor would Wagenknecht. Bild reported on the weekend that the Wagenknecht party is about to go ahead, though there has been no official announcement yet. We believe that too, with Schröder and Lafontaine acting as godfathers in the background. Wagenknecht defines her main political adversary as the Metropolitan centre-left: modern Greens and Social Democrats who are pro-Nato and pro-EU. 

The main hope of the Scholz government had been for the Left Party to fail to clear the 5% hurdle at the next elections in 2025, and for the AfD to run out of steam. The AfD has been getting stronger, and if a new Left Party were to rise from the ashes of the old, that calculation would turn out to be complacent. We see the electoral potential of the two extreme parties at around one third of the electorate. This is why we are not dismissing the get-together of these two political geezers as a celebration of the good old times.

12 September 2023

EU's Africa policy has failed

How should we understand the series of coups in Francophone West Africa? A contagion of seemingly unrelated events? What does it mean for the EU?

The immediate effect is that it is de facto ending the EU’s foreign policy doctrine of combining security and development. It produces political turmoil in African countries just when stability is most needed to combat climate change. And it opens the scene for Russia and China to enter as an alternative partner to Europe.

The coups in Mali, Niger, Burkina Faso, Guinea and most recently Gabon are all different in kind. In Gabon, a political dynasty is coming to an end after half of a century, and after manipulating the polls one time too many. In Niger, a democratically elected president has been overthrown by the military in their quest for power and money. The two cases could not be more different. Yet the common denominator is poverty and poor democratic institutions.

Mo Ibrahim, one of Africa's most informed and listened-to voices, asks: why is it that a continent ten times the size of India, three times the size of China, with 18% of the world's population and 30% of its mineral resources, remains by far the poorest continent? This question is what agitates a new generation, fed up with lecturing from the west that has not produced any lasting results. They will have to find their way forward, and the west needs to take a back seat.

Europe has to do a rethink in its foreign policy. The French logic of military presence as a way to influence policy there no longer works. French troops are being kicked out and the new leaders refuse to be told what to do. French-bashing is thriving in Francophone Africa. Dominique Moisi describes the dilemma in Les Echos as one where on the one hand a continent rejects its own responsibilities by passing the baton on to former colonisers. On the other hand, the west is refusing to understand that in Africa the past is still present and always will be. Those past traumas of slavery, exploitation and genocides will not simply heal by ignoring the past. Africa has been the object, not the subject, of many of our conflicts and economic exploitations over past centuries. It is likely to become once more the object and focal point for another cold war confrontation between the west, Russia and China.

We agree with Nikolas Busse in FAZ when he concludes that a values-based foreign policy, promoted by Germany and other EU countries, does not work in such a world. It is virtue signalling without practical relevance. And it is seen as interference in their affairs. As peaceful Europeans, we like the world to be as we are. But this is not the reality on the ground. For those countries that turn away from us, the western reflex is to impose sanctions. The EU has already agreed on some for Mali and is preparing others for Niger. This has nothing to do with real politics, which would require us dealing with non-democratic leaders. But turning away as it happened in Afghanistan is also not an option and should not be repeated in West Africa.

This means re-examining our foreign policy and development doctrines. What direction should aid take in the future? How to face migrant flows and jihadis that are coming towards Europe? These coups expose our hypocrisy that migration and terrorism is best dealt with in countries where they come from. But by sending troops and development aid to the country, we are still far from dealing with the root causes.

11 September 2023

Zelensky's fair weather friends

Volydymr Zelensky has gained an important insight about his new political friends in Europe. Many of those who pretended the loudest that they are supporting Ukraine are now starting to lose interest. The following remark, made in an interview with the Economist, struck us.

“I have this intuition, reading, hearing and seeing their eyes [when they say] ‘we’ll be always with you,’he says… But I see that he or she is not here, not with us.”

We are seeing that too. At the moment, everybody is sticking to the script, but we struggle to see the same degree of support surviving another winter and another summer. The brutal reality is that Europeans are factually and politically not able to take ownership for Ukraine's support without the US, and that there is a lot of Ukraine-virtue-signalling going on in European capitals, and in the media. 

Mark Milley, the chairman of the US joint chiefs of staff, said Ukraine has about 30-45 days with its counter-offensive, and that we should withhold judgement of its success or failure until then. When those 30-45 days are gone, and the cold weather sets in, this will be the critical moment. Russia will have another winter to build up new defence lines. It will become progressively harder for Ukraine to liberate lost territories. We do not think that Joe Biden will want to enter the pre-election summer season with a war still raging. In Germany, political support for Ukraine is not as strong as it was, and is weakening. In the absence of a magical turnaround, Olaf Scholz may be fighting for his political survival. 

We are well aware that outcomes of wars are hard to predict. Our baseline scenario, that Ukraine will manage to re-occupy some, but not all of its territories, literally splits the difference. That judgement may turn out to be wrong. But we are sticking with our judgement that in the absence of an overwhelming military success shortly, western support for Ukraine is time-limited. Zelensky is reading the body language right.