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January 20, 2020

The EU in a diplomatic bear hug

Wolfgang Munchau and Zaki Laidi offer a similar analysis of the new diplomatic situation the EU is confronted with, but arrive at different conclusions. As Laidi puts it, the US, Russia and China all have an interest to stop European integration, and actively conspire to do so. Munchau writes that the US and China have simultaneously discovered that the easiest way to put pressure on Germany in particular is to threaten car imports. China has done so in connection with Huawei's 5G bid whereas the US has threatened tariffs to put pressure on the EU over Iran. Munchau's main point is that the EU’s has made itself vulnerable through its policy to run large and persistent current account surpluses, a residual of the eurozone crisis. This has made the EU susceptible to political blackmail. The US, China and Russia know how to put a wedge between EU countries or, in the case of Huawei, to force the EU into compliance. 

Laidi has just taken on a job as senior adviser to Josep Borrell, the EU’s high representative for foreign policy. He says that the best way forward for the EU is to leverage the tools it already has. He notes that, through its power as one of the world's largest markets, the EU is in a position to set world standards. He mentions the general data protection regulation as one example. But Europe has yet to develop its monetary, industrial and military capacities to similar effect.

Munchau and Laidi agree that internationalising the euro would be one of the most effective ways for the EU to stand up to international pressure. Munchau does not think this is likely to happen, and expects the status quo to continue, more or less. The EU is not at risk of disintegration, he concludes, but of losing its cohesion and becoming a playground for the diverging interests of foreign powers. Laidi, by contrast, believes that the EU could mount a credible defence through a strategy of what he calls effective modesty, as opposed to vacuous ambition.

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January 20, 2020

French pension strikes come to a halt as violence grows

The pension reform protests in France are running out of steam as transportation slowly returns to normal. Protesters changed tactics and resorted to wildcat actions over the weekend. Some of those targeted Emmanuel Macron directly. Protesters entered the theatre where Macron was attending and disrupted a play with anti-Macron slogans. Others later firebombed La Rotonde, the restaurant where Macron celebrated his election victory in 2017. There were also some 30 protesters violently forcing their way into the headquarters of the moderate CFDT union, and a flash mob of protesters at the Louvre led to a temporary shutdown of the museum. One is reminded of the gilets jaunes protests a year ago.

There is a high chance that the shift to violence turns public opinion against the protests. Those trade unions lobbying for a complete withdrawal of the reform were quick to distance themselves from the violence. But after 45 days of industrial action, the longest period in France for employees to participate without being paid, pressure is high and morale is low. 

Macron may well emerge from this stand-off as the president who cannot be stopped, neither in his actions nor in his desire to reform. This makes him a personal target and is likely to further provoke violent rejection.

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January 20, 2020

Scholz to stick to fiscal surplus in 2021

Der Spiegel reports that Olaf Scholz is sticking to the fiscal-surplus policy, in defiance of his party leadership’s wishes for a fiscal expansion. The magazine got ahold of a letter Scholz sent to ministries, asking them to list their priorities within the bounds of the previously-agreed fiscal balance. 

We have remarked before that the new SPD leadership made a mistake not pulling out of the grand coalition and dumping Scholz as finance minister. There is still a small window, technically, when SPD and CDU/CSU start talks about the remaining 18 months of the grand coalition, but we are not holding our breath. The SPD is now stuck, and associated, with these fiscal policies. We think the SPD wasted the moment when it could have gone in a different direction.

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