When the leaders of the big countries have nothing important to say, the leaders of the small countries fill the void. It was always thus in the EU. We therefore don't blame the formidable Kaja Kallas for speaking her mind on Russia and Ukraine. Her country spends more per capita than any other country in the world on aid for Ukraine. Her own family has suffered from Russian oppression. She has every right to speak up.

Her positions get widely reported in the media. Outsiders, however, should understand that these are absolutely not the position of the Ukraine's western allies. At what appeared to be a casual chat, she declared the split-up of Russia into smaller states as an explicit western war goal. Previously, she tried to construct the biggest straw man that has ever been seen in European politics: if Russia wins the war, she said, there could be up to 30m Ukrainian refugees who would descend all over Europe. If that does not scare us, what else will? 

The west does not have an agreed war goal in Ukraine. But the one thing Americans, and all the large European countries, agree on is that they don't want to send troops to Ukraine, they don't want to erect a no-fly zone, and they don't seek regime change in Russia. 

Olaf Scholz, for example, never says Ukraine must win. He says Russia must not win. He would, we presume, like a settlement on terms that are deemed favourable to Ukraine, though he does not tell us what he means by that. As Germany is the largest European supporter of Ukraine in absolute terms, and likely to become more important as the role of the US diminishes, we would assume that Germany's own war goal will matter. Even with a change of government after the next year's elections, we don't think that the position of Germany would shift fundamentally. Friedrich Merz would be open to sending cruise missiles to Ukraine, but on the big picture, they are all aligned.

Her warnings about refugees is a form a scare-mongering that nobody takes seriously, if only because the most likely outcome of this war is a draw, not a total Russian victory. We hear a lot of warnings that Europe must step up its defences, or Vladimir Putin would invade our countries too. Having vastly underestimated Putin, we are not overestimating him.  

That said, a strong case be made for more defence spending, and for more efficient defence spending. But to frame this debate as a scare story won't get us anywhere.

When Kallas talks about regime change in Russia, she ends up strengthening opponents of Nato in the west. She appears to reaffirms what they always tell us - that Nato is a western conspiracy to take over the world. It falls into the not-helpful category.

After the death of President Ebrahim Raisi and his foreign minister in a helicopter crash, what will happen next?

Raisi was a loyalist to Ali Khamenei, Iran's supreme leader. He was the ultimate regime insider and a prospective successor to Khamenei. The Iranian constitution mandates early elections within 50 days after a president dies. Any possible contender in these snap elections will need the blessings from Khamenei, while the conservatives are likely to defend their grip to power.

This interim means two months where Iran’s focus will be on internal affairs, rather than a next round of attacks on Israel. But what after the elections? If those snap elections produce another conservative president, this will not change Iran’s geopolitical position. Ties with Russia and other allies are likely to deepen, while their battle against Israel will continue. The helicopter accident could even be instrumentalised to whip up anti-Israeli support. Bad weather conditions and old helicopters are mainly held responsible for the crash. But already there are voices out there, like those of the conservative commentator Foad Izadi on the news channel Irinn, who suggested that foul play by Israel cannot be ruled out.

Benjamin Netanyahu, meanwhile, may meet his own moment of truth in Israel after Benny Gantz and Yoav Gallant pressed him publicly to present a post-conflict plan for Gaza. Gantz issued a six-point plan that includes an international civilian governance mechanism for Gaza, and gave Netanyahu an ultimatum on 9 June to present a credible exit plan. If Netanyahu does not, Gantz would pull out with his party, causing the coalition to collapse. Netanyahu himself played down its significance. It is indeed not clear that Gantz will follow through with his threat in June. What it did provoke is a response from the far-right finance minister Bezalel Smotrich, who laid out his conditions for the IDF to take complete control over Rafah and establish permanent control over the so-called Philadelphi Corridor along the border with Egypt. He also advocates a military takeover of southern Lebanon if Hezbollah does not withdraw from the border. This would be a military campaign on steroids, in complete denial of US concerns.

For the military, the lack of an exit strategy is a formidable challenge. No exit strategy means the military is to fill the void including new operations in areas that were already been cleared by the military before. Something will have to give, and Netanyahu will eventually have to decide.

Are more of those unethical migration pacts with African beckoning? Just a day after the New Pact on Migration and Asylum was adopted, a letter from 15 member states was released that calls on the European Commission to identify, elaborate and propose new ways and solutions to prevent irregular migration to Europe. They advocate outside the box thinking to address migration at the European level. Does outside the box mean ditching more of our values to keep migrants out?

Migration policies have divided EU member states since the refugee wave in 2015, in particular over the question of who is responsible for what when migrants arrive illegally in an EU country. The reform of the Dublin pact was a compromise to define burden-sharing, by giving choices to member states to either pay or take migrants. It is by no means ideal, and its implementation could restrict rights of asylum seekers further. Recent migration boosts have been instrumentalised by far-right politicians in EU countries, a big theme also in the European elections.

Most of the provisions of the new migration pact will only enter into force in 2026. It thus does not offer any short term relief while the numbers of migrants are rising. The pressures are real, and they seek relief outside European borders.

The 15 EU countries call for more partnerships with countries along migration routes. They cite deals with Turkey and Tunisia or Italy’s bilateral agreement with Albania are cited as examples. The lead in this group comes from Bulgaria, the Czech Republic and Denmark and signatories include Estonia, Greece, Italy, Cyprus, Latvia, Lithuania, Malta, the Netherlands, Austria, Poland, Romania and Finland.

We have been critical about these deals from the start. It leads to Faustian pacts with autocratic regimes that defy human rights that Europe otherwise holds so dear. It gives blackmail incentives to third countries, which migrants can continue their journey towards Europe from. It signals a European position based on fear to the rest of the world, rather than strength. Shifting this to a better place would need a much bigger rethink of Europe’s role in this world, not a petty competition of not-in-my-backyard policies.

In her excellent column for the Guardian, Nathalie Tocci describes Europe’s malaise as one of fear driven policy-making that risks paralysis in a world that is fast changing around us. Fear is the underlying driver in European foreign policy decision-making to the east and the west, be it in Russia’s war in Ukraine, or its anti-immigration pacts, its passive position over Israel’s war in Gaza, or terrified outlook if Donald Trump were to come back to power.

How does fear play out with Ukraine? EU policymakers are more inclined to step up their support for Ukraine when their troops are about to lose, while getting uncomfortable when they win back territories, prompting fears of Russian nuclear retaliation, which eventually leads to too-little-or-too-late support for Ukraine. Fear plays a big role in explaining why the EU is stuck with its damned if you do, damned if you don’t predicament.

Fear also explains Europe’s attitude towards North Africa and the Middle East. Instead of having a rational debate about what sort of legal immigration can be beneficial for us as ageing societies, EU policymakers rush to conclude unethical deals, paying cash to keep migrants out. The recent migration pacts with Egypt, Tunisia, Mauritania, and Lebanon are examples of this fear-driven policy making, which contradicts our interests in the long run. It worsens the image of Europe amongst African countries, presenting us as one that is lecturing the world about human rights while concluding deals to keep migrants away, and lopsided economic agreements with beneficial terms for raw material extractions from their land. It is the absence of a foreign policy with those countries, reducing policy making to a pure transactional approach with a selfish motivation to keep migrants out.

On the Israel-Palestinian conflict, there are many reasons why Europe did not exert its influence. It is not a lack of leverage. After all, Germany is the second-largest military exporter to Israel and the EU as a whole is the biggest donor of Palestinian aid. Fear of being called antisemitic is behind the failure to question unconditional support for Israel, no matter what it does in Gaza. There is no hint that Europe is doing anything about the situation, despite the looming invasion in Rafah and violence in the West Bank.

Looking at the US, Europeans seem to accept that Donald Trump may indeed return back to the White House. But rather than preparing for this, they seemingly prefer to wish it away. This is not how we will emerge into a future with our bearings intact. Maybe we are doomed, as Emmanuel Macron warned. Or are we ready to address our shortcomings?

Israeli tanks are rolling into the east of Rafah, but it is not considered a full invasion yet by neither the Israeli government nor the Biden administration. Benjamin Netanyahu is playing for time with this noisy encirclement of Rafah amid opposing pressures from the US and his far-right coalition partners. Joe Biden is playing for time too, juggling between the outrage by Democratic activists and his commitment to support Israel. Yesterday, Biden sent a $1bn weapons aid bill for Israel to Congress for review. The only concrete sanction taken by the US administration so far has been to halt a single shipment last week. Politically this was immediately exploited by Netanyahu, who united and redirected Israeli outrage against Biden's administration over this decision. This is diplomacy, where each side uses its threat potential to get the maximum out of the other.

There is also a deepening crisis in relations between Israel and Egypt, which could withdraw from its mediation efforts for a hostage deal. When Israel started its operation in Rafah, Egypt joined South Africa's ICJ case against Israel. Last night, aid trucks from the militant group Sinai Tribes Union entered Rafah from Egypt via the Philadelphia crossing without clearing those with Israel. That’s a first. This move comes after Israeli settlers looted and attacked aid trucks bound for Gaza the day before.

What a credible relocation plan should look like for those sheltered in Rafah also comes in different shades. The IDF’s highly publicised and noisy preparations to enter Rafah have already prompted some 250,000 to 450,000 Palestinians sheltering there to leave, Al-Monitor reports. This is not an orderly relocation effort as the US would have liked to see. Where they go with areas around them with no infrastructure to cope with so many people? The humanitarian situation is only to get worse. What are the red lines from the US administration in this?

These manoeuvres in and around Rafah also distract from long term solutions that would end this war. The Israeli government refuses to discuss the day after. Ideas about involving the Palestinian Authority to govern Gaza have provoked an angry reaction from the Israeli government, which accuses the PA of offering financial support to families of those Oct 7 attackers and inciting hate against Israel. Netanyahu understands that the lack of an exit strategy is a dilemma for the military, but his incentives are aligned differently.

By not acting to end this war and refusing any proposal that is put in front of them, the coalition government keeps denying the rights of Palestinian people. We think this is likely to lead to more radicalisation in the long run rather than Hamas being eradicated. The US could use its leverage for clear borders and delineation of powers between the two peoples. By choosing to play it soft, Biden is risking a never-ending humanitarian crisis in Gaza, the collapse of the Abraham accords that they brokered to stabilise the region, and even his own re-election in November.

Much of the focus this week will be on the expected US tariff on Chinese cars, which European economists believe will drive Chinese export surpluses into the European market. We are not sure that the effect of high tariffs on Chinese electric cars will work quite as intended. We are also sceptical of hydraulic theories of global trade flows - of Chinese goods suddenly starting to swamp European markets.

The much bigger problem at least for German industry has nothing to do with trade policy, but with China crowding in on previously monopolistic and oligopolistic markets dominated by German firms.

Handelsblatt alerts to research just published by the economics team of Allianz that in our view comes much closer to explaining the current dynamics. Previously, the partnership between Germany and China was complementary. The Germans built the factories and the Chinese made the consumer products. Or the Germans specialised in fuel-driven cars, and the Chinese in electric cars. China is now challenging Germany in areas Germany dominated previously. These are the largest parts of the German industrial economy: machines, chemical and electrical engineering. The study says that in many segments of the market, the Chinese are more successful than the Germans. Ludovic Subran, the Allianz chief economist, predicts that the China boom will be followed by a China shock. 

We see this similarly. In our own research on the shifting nature of German competitiveness, we find that the most important issue is not trade, but technology. Digital technologies are encroaching on classic engineering. Apple's latest commercial of a large steel press crushing a whole bunch of analogue devices caused a lot of criticism. Apple apologised, but the commercial is a good visualisation of what is currently happening to parts of the German economy. Apple was forced to apologise, but the commercial, which goes under the title Crush!, is still on Apple's Youtube site. No trade policy is going to help here. The only effect on car tariffs is to move car production to Hungary or Mexico.

The Germans are now starting to talk the talk they previously associated with the losers of global competition. The head of mechanical engineering association is suddenly using geopolitics as a justification of subsidies. 

What's happened is that Germany made itself foolishly reliant on manufacturing exports, and that China is now playing the same game, only better. The German economic strategy was unsustainable on so many levels. 

A good example of what has been happening at a micro level is the story that Mercedes has given up on a multi-billion investment project for a new manufacturing platform for the electric versions of its larger limousines. The goal had originally been that Mercedes would start shifting all of its production to the new platform from 2028. But since demand for luxury electric cars has collapsed, this investment is not going to pay off. So Mercedes is trying to bolster its future profits not through investments but savings and efficiency gains. This is the classic play book of industrial decline. 

We recently cited an article by several German and French economists about what they called the mid-technology trap. We think this story, now available in English, goes a long way to explain the dynamics of what is going on. The issue is not only that Germany specialised on the wrong technologies, but that German companies have no incentives to move out of them. The consequence of this is that a high-tech industrial sector can only happen through new companies, not old ones. Yet European and especially German industrial policy is focused on the protection of existing commerce.

It is also interesting and telling that there is not a whiff of this in the European election campaign. We do not know of a single political party that has a strategy to address this issue.

On the face of it, Pedro Sánchez’s plan for dealing with the Catalan separatists by relying on them for support is working. In Catalonia’s regional election, which took place yesterday, the separatists lost their combined majority in Catalonia’s parliament. This is the first time they have not held a majority in more than a decade. The Socialists’ regional branch took victory, and increased their share of seats from 33 to 42 in Catalonia’s 125-seat parliament. The party is in the best position to form a government there.

Ending separatist dominance of Catalan regional politics is, without a doubt, a major development. The region having Socialist leadership will also make its relationship with the central government in Madrid less contentious. This could be important for managing financial matters between the central government and the regions in particular.

But the elections also demonstrate that neither the Socialists, nor anyone else, will be able to leave the separatists behind. They will need to rely on one of the region’s two main separatist parties to form a government. At the national level, Sanchez and his party also still depend on both of these parties for parliamentary support.

What has happened is that the Catalan separatists’ relationship with the rest of Spanish politics has moved onto a new phase. Instead of confrontation, there is now a kind of awkward coexistence. The separatists are becoming less popular, and definitely do not command enough support to press all of their demands. But they also aren’t going away completely. Any future Spanish government will have to live with them as a feature of Spain’s political life.

The separatist movement is also, arguably, radicalising as it loses followers. The ERC, the more moderate of Catalonia’s two separatist parties, was the major loser yesterday. It went from 33 to 20 seats. Carles Puigdemont’s Together for Catalonia, the more hard-line of the two parties, picked up a few seats, improving from 32 to 35. Aliança Catalana, a far-right and anti-immigrant separatist party, also entered parliament with two seats.  

The headline might be bordering on the hysterical, but the big idea in German politics right now is to re-introduce the general draft. This is not happening because Germany expects to be at war. It is not about the military at all. Under the plans, young people, male and female, can choose between the Bundeswehr or a year of forced labour in the social services, essentially uncompensated. 

The main reason we see is that their fiscal rules have depleted them with the resources to fund the Bundeswehr and critical social services like old-age care. For example, there is a big row going on right now within the coalition currently between Boris Pistorius, the defence minister, and Christian Lindner, over Pistorius' demands for another €6bn for the Bundeswehr. The discussions on the reintroduction of the draft are at an early stage. They won't affect the current budget dispute. But it could go some way to fix the Bundeswehr's budget issues. 

The SPD leader Lars Klingbeil sugar-coated the idea as giving young people an opportunity to serve the state at one point in their lives. Another underlying assumption is that young people are infinitely stupid. German high school goes until the age of 19. This is higher than elsewhere because German children do not start school until they are 6. With a year of enforced military or social services, they won't start their studies or apprenticeship until they are 20. A Bachelor's degree takes three, but this is usually not sufficient. So they will be 24 or 25 when they hit the labour market. This puts them at a distinct disadvantage to young people elsewhere.

Germany introduced the general draft in 1956 and abolished it in 2011. West Germany sat right at the frontier between east and the west during the Cold War. Along with the abolition of the draft in 2011, the Bundeswehr turned into a low-quality employer. Recruitment became a social policy. We know of people who got refused because they were overqualified. The classic Bundeswehr soldier was a low-achievement school leaver. It is also unsurprising that the Bundeswehr became a breeding ground for the Junge Alternative, the youth organisation of the AfD. Germany depleted the Bundeswehr of its human and physical resources. They failed to turn the Bundeswehr from a conscription army into a modern professional army. 

We expect mass emigration as a result. Young Ukrainian men who try to escape the draft often do so at the risk of their lives. Romanian police have discovered bodies of young Ukrainians trying to swim through the Tisa river into Romania. Young Germans won't have to swim through the Rhine. They can just go anywhere within the Schengen area, and study where they like. For a country that is facing structural labour shortages, the re-introduction of the draft is about the worst policy decision imaginable. The smart people will leave.

The political support is strengthening. The FDP has called for it. The SPD is also now in favour. The CDU says it is open to a discussion. The AfD will naturally support it. The Greens and the Left Party are opposed, but that won't be enough to stop it. 

Rafah seems to be a real red line for Joe Biden. For the first time, his government publicly announced a halt of some military shipments if Israel were to proceed with a ground operation into Rafah. There are of course various shades of grey, and nothing is quite like it seems. Monday’s operation was not considered part of the invasion of Rafah, as it was at the outskirts of the city at the border crossing with Egypt. There are also various scenarios of what going into Rafah actually means. Amongst eight military plans for Rafah from which the war cabinet gets to chose options range from specifically targeted operations to full ground invasion.

A full-blown invasion is most certainly a red line for Biden. But what about those other options? Threatening a pause of US weapons for Israel and actually delivering on this threat are also two different things.

The threat is clearly part of a power play between the US and the Israeli government, with relations currently at a low point. Benjamin Netanyahu is quietly briefing the Israeli media that the US tricked him by promising Hamas that the war will end with a cease-fire. Israel now also accuses the US of undermining Israel’s strategy in the deal for a ceasefire and hostages return by witholding weapons.

For Biden, Rafah is becoming a liability ahead of the upcoming US elections. Democrats are increasingly in favour for this war ending, and they see Rafah as a turning point. Axios reports that a Rafah invasion would risk a rebellion amongst Democrats in the House of Representatives.

Biden will also have to think about the next generation of voters. After pro-Palestine protests at least 130 university campuses across the US, high school students are starting to mobilise too. They held sit-ins and walkouts in Chicago, Salem, Oregon, Austin, Texas and other places throughout Washington state to call for a ceasefire in Gaza and the end of US aid to Israel.

Congress took note, and some of the school directors had already been called to testify at the relevant GOP-led House committee. There, they had to rebuff accusations that they allowed anti-Semitism in their schools.

The urgency and pressure young people feel is to be understood not only as an expression of their age but also as a result of how they access information. While the older generations still rely on mainstream media for their information intake, the young generations gets their news from social media. Without the media filter or self-censorship, they have been seeing images from inside Gaza via Instagram and TikTok and are thus much more aware of what is happening there every day. For them those images do not add up with the inaction and diplomatic rhetoric of their government.

Israel may be using its tactics to win the war against Hamas, but they are about to lose the hearts of those young. If older generations were to watch those images on TikTok, Instagram or Twitter, would they still be unmoved in their position? It boils down to the question of who holds the narrative. And it looks like the younger and the older generations are seeing very different stories, one close-up to the ground the other focused on power-politics.

The next Opec+ meeting is not until 1 June. But that has not stopped there being a new round of speculation about what the cartel will do over the summer. Alexander Novak, Russia’s deputy prime minister, poured a bit more fuel on the fire, both literally and figuratively, yesterday when he talked about the possibility of increasing production. This seems a bit counter-intuitive, given that oil prices have not risen massively since the last round of Opec+ production cuts began in earnest. But this line of thinking may become more common in the future.

Opec+’s immediate difficulties are with trying to parse how oil demand and extra supply from non-Opec members will interact this year. Alongside this, the geopolitical risk premium for oil seems to have receded somewhat. We are, however, more interested in the long-term picture. The cartel will have a series of choices to make as road transport electrification begins to eat more into oil demand.

This point may be approaching. Electric car sales may be taking a hit in Europe and North America. But that is not the case in China, where they may make up 45% of new vehicle sales this year. The International Energy Agency still anticipates that around a third of all Chinese cars on the road by 2030 will be electric. This is already having an impact on the country’s oil demand. Bloomberg NEF expects its road fuel demand will peak this year, and that the global peak will happen by 2027.

At the moment, electric cars are cutting into oil demand to a more modest extent. Bloomberg NEF estimates it was 1.5m barrels per day on average in 2022, a small fraction of the more than 100m barrels per day of global demand. But this is a large enough figure to knock yearly demand growth figures, which are critical for oil producers, off-course. It will also only grow. Before we get to peak oil, whether that happens by the end of the decade or later, peaking oil will come first.

If you are Opec+, this sets up the long end-game dilemma: whether you restrict output further to protect prices, or pump what you can to crowd out higher-cost producers and make extra cash. For the rest of us, we will have to live with that decision for as long as we mostly rely on oil, even if the end is in sight. Especially if China leapfrogs us in the transition away from the internal combustion engine.