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November 02, 2016

How not to address the rise in populism

The US elections are firmly outside our reservation, but we can't help noticing some eerie parallels to the Brexit referendum, and would like to reiterate a narrative we have been telling our readers for some time - that the policy establishment is in danger of losing out not only because of bad policies, but also because of grave tactical misjudgements. These misjudgement are now becoming prevalent in both the US elections and the Italian constitutional referendum.

With less than a week to go in the US, the similarities between the Brexit referendum and the US elections are becoming more striking. The US has had its equivalent to the disastrous Project Fear campaign. Just as the Remain campaign failed to make a positive case for their position, the Democrats have failed to generate a positive message for their candidate. And now we are reading that 370 economists have written a joint letter to warn against Donald Trump. The issue is not the content of the warning but the arrogant tone, in particular the criticism that Trump is not listening to experts (another eerie parallel with the UK), and the delusional idea that this could in any way help Clinton or damage Trump. It tells us that the US policy establishment has not grasped the nature of the populist challenge, which is directed at them personally. It reeks of arrogance from a profession that lined up behind policies that have generated persistent global instability and economic weakness. And it tells us that the economics profession in particular still clings to the illusion of political influence and glory, while in reality they are the main targets of the insurrection. This is no longer 1992, when economists shaped the economic programme of the then president-elect Bill Clinton. Today's public blames economists for what has been happening, and the tactically correct response from economists would be to take the opportunity to lay low and shut up for once.

We also note a strong reliance on opinion polls, which culminated in the expectations until recently that Trump could not possibly win. This election will be decided by turnout, which polls may not be able to capture very well. Do not be fooled by numbers.

The other potential shock ahead of us over here in Europe is a No vote in the Italian constitutional referendum, where the polls continue to show No supporters slightly ahead. After President Barack Obama's endorsement of the reforms (remember his endorsement of Remain in the UK?), comes the German interior minister Lothar de Maiziere, who spoke of the Italian government's courage to change the constitution. The European experience of such outside interference is disastrous. Remember Angela Merkel's support for Nicolas Sarkozy in 2012 against François Hollande? The more the rest of the world tries to influence the Italian debate, the more this will backfire. There was a time when Italians listened to the outside world's opinion. That is no longer so. The Forza Italia and Five Star Movement immediately accused the German minister of interfering in Italy's own affairs. 

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November 02, 2016

German Social Democrats - the defenders of Putin's interests

One of the genuinely positive things about the terminal decline in the German SPD is the extent to which its leadership is literally in the pockets of Russia. This is more true today than it used to be. The allegation has always been made in respect of Willy Brandt and Herbert Wehner, Brandt's parliamentary chief in the 1970s, but no credible evidence has surfaced to support this. But we do know that Gerhard Schroder was once in the pay of Vladimir Putin, and that both Sigmar Gabriel and Frank Walter Steinmeier are Schroder's protegés - the former was his successor as prime minister in Hanover, the latter his chief-of-staff in Berlin.

FAZ this morning outdoes itself with a very good report on the lobbying behind the Nord Stream 2 gas pipeline project, which like its predecessor has Gerhard Schroder as supervisory board chairman. The CDU - but not Angela Merkel - is beginning to roar against Nord Stream 2. Norbert Rottgen, the head of the Bundestag's foreign policy committee, says that the German government was wrong to say that Nord Stream 2 was a purely private-sector operation, given that the effect it has on the security interests of Ukraine, Poland and the Baltic states.

Gabriel supports Nord Stream 2 as a project of mutual Russian and German interest - as it also involves, apart from Gazprom, some German companies including BASF and Uniper, previously known as Eon. Gabriel defends the project on the grounds that Europe needs a lot more energy in the coming decades, a view not shared by all experts. But, as FAZ notes, the reason for Gabriel to support this project is political. He is preparing the ground for a phase-out of sanctions against Russia, which is one of the SPD's few distinctive foreign policy positions ahead of the elections. The paper notes that Germans are afraid of a war with Russia and support the SPD's policy of detente, as a result of which the SPD is hoping for a political peace dividend next year.

Schröder's is to keep the SPD's party leadership aligned in favour of the project. Gazprom requires European partners, but this is difficult because Poland is threatening heavy fines on any company with Polish subsidiaries that participates in the project. As for Merkel, she is keeping out of it. She needs the SPD until the end of her term, and she, too, realises that the SPD's pro-Russia policy has a political constituency which she is not willing to leave to the SPD. 

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