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28 June 2024

Greek EU repercussions

The European elections had huge impact on France with yet unforeseeable consequences for the country itself and its role inside the EU. Another country where EU election results had a direct national impact is Greece. The two main parties both suffered. New Democracy, the incumbents, saw their votes drained by three far-right parties. Syriza lost to its three split-away parties.

Kyriakos Mitsotakis’s New Democracy even responded with a mini-reshuffle after his party did not do as well as hoped for. Three of the four far-right parties got into the European parliament, representing 4 out of the total 21 seats allocated to Greece. That is quite a significant 19% of the total seats. The Greek Solution, Niki, and Voice of Reason are nationalist parties. They cover the full spectrum of far-right voters from ultra-conservative, religious, populists, radicals. The parties did well also because a fourth, the Spartans, were banned by the courts from running in the elections.

Does this mean more trouble ahead in national elections too? The question is whether this is a protest vote against the incumbent government or reflects a deeper sense of what is going on in Greek society. There are those arguing that the far-right is a protest vote against Mitsotakis's more liberal policies, in particular pushing through same-sex marriage. For the more orthodox voters, this is a bridge too far to the centre. Then there are those who argue that it reflects the voters' desire for more security amidst growing uncertainty. The question is whether Mitsotakis will move to the right to compensate, or if this will weaken New Democracy structurally in the political landscape. Both would be common phenomena observed in other EU countries too.

27 June 2024

Preventing another war in Lebanon

Israel could extend its war to Lebanon any time now. Yoav Gallant, Israel’s defence minister, went to the US to secure their backing in case Israel decides to go in. Everyone prefers a diplomatic solution, but the threat of an all-out war is clearly there. Iran-backed Hezbollah and Israel have been engaged in daily cross-border fire since the war in Gaza started. These were mostly tit-for-tat hits, but in recent weeks those strikes intensified and hit deeper into each others territory. Rhetoric also intensified on both sides, Israel has warned that it could wage an all-out war to eliminate Hezbollah while Hassan Nasrallah, the leader of Hezbollah, promised that there will be no place in Israel that will be safe in an event of war. Several countries started warning their citizens not to travel or to leave Lebanon, Al-Monitor reports. Canada is reportedly preparing evacuation plans for its 45,000 citizens there.

If they were to opt for a war, it could affect the Middle East and Europe. Syria and Iraq are likely to be drawn in next via their Iran-backed militias. Others could follow due to politics and proximity. Israel’s all-out war would trigger a large wave of migrants towards Europe just when far-right parties are winning elections in several EU member states with promises to stop immigration. As well as Lebanon's own population of about 5.3m, the country hosts 1.5m Syrian refugees. The EU’s new migration pact could be seriously tested.  Preventing such an escalation is thus a vital interest for the EU itself and for the stability of its neighbourhood. It will be another priority for Katja Kallas once she takes over from Josep Borrell as High Representative for Foreign and Security Policy.

Hezbollah says it will fight Israel as long as the war in Gaza continues. But even if the war in Gaza were to stop tomorrow, Hezbollah and Israel won’t stop as long as the matters between them are unresolved. The current border tension is a continuation of a conflict that goes back since Israel invaded Lebanon in 1982. Diplomatic solutions to end the fighting at the borders have been on the table with the UN resolution 1701 and various proposals from the US and France have been discussed in recent months, but crucial differences remain. Implementing 1701 would require to settle once and for all the borders for Lebanon and to disarm Hezbollah. As long as the territorial integrity of Lebanon is not resolved, Hezbollah can claim to be a resistance force for Lebanon to justify its armed existence. And Israel can continue to argue that it has an enemy at its northern borders, to which it has to respond to. It is a vicious circle. The war in Gaza and the increased attacks from Hezbollah also forced Israel to evacuate an estimated 120,000 civilians from its Galilee region. This is not a sustainable solution. A war with Lebanon also has not made Israel feel more secure in the past.

For the EU, the main interest is to support stability in its neighbourhood, and to prevent an influx of war refugees from Lebanon. The two are interlinked. If the war were to kick off, Cyprus would be the first port of call, some 180km away from the Lebanese coastline. It is also the cheapest route that smugglers offer. Migrant numbers already picked up since the war in Gaza. From January until April this year Cyrus recorded more than 2000 migrants, mostly Syrians, who had arrived in rubber boats on their shores, nearly 60 times more than the previous year. Their administration was overwhelmed and they asked the EU for help. The EU’s response was quick. Another migrant deal was drawn up by early May, and Ursula von der Leyen put the money on the table with basically no conditions attached other than to prevent the migrants from coming to Europe.

If Israel were to invade Lebanon, the government won’t be in the position to hold all those migrants back. Not only will Syrians flee, but Lebanese too as well as those in the region worried about the prospect of a regional war. Lebanon already has the highest refugee per capita ratio in the world, and has not emerged yet from one of the worst financial and economic crises any modern country has ever faced. What will the EU do then? This is not solved by pushing back rubber boats to prevent them from reaching the shores in Cyprus. This could easily end up in a humanitarian catastrophe. The EU has every interest to prevent such a scenario. More diplomatic efforts are required to support Israel and Lebanon finding a solution for their border conflict.

26 June 2024

Why the AfD succeeds

People made a lot of the AfD’s fall in the opinion polls before the European elections, but we think that the overall trend in German politics remains highly favourable to this party. The AfD has also started to bounce back in the latest polls since the European elections.

We saw some interesting research about how the party is starting to take roots in rural parts of western Germany. The party is stronger in the east than in the west, but it is growing faster in the west. This is not a disgruntled farmers' phenomenon at its heart. An analysis of the European election, as relayed by Handelsblatt, shows that the AfD does very well in wealthy rural areas, especially in the lowlands of the north-west of Germany. What the analysis shows is that the distinguishing characteristic is between rural and very rural. The former are regions with a large market town, whereas the latter are more dispersed.

The data don’t tell us why people voted, but the researchers quoted in the article said that they believe that the decisive factor is loss of status in society. After a long period of a high-level stasis, there has been a lot of change going on in Germany in the last few years. Rural Germany has been a largely functional place. Germany has a three-tier school system, where the lower tier would still lead to good jobs, something that is not true in the large cities any more. Lots of small and medium-sized companies are located in rural areas. In Germany, it was industry that kept on giving to all parts of the country. As those industries decline, people in those rural communities are starting to worry about their status.

Perhaps the most shocking scene coming out of Germany recently was that of a group of wealthy young people in designer clothes chanting a Nazi song on the grounds of an exclusive resort in Sylt. What we noted is that despite their outward appearances of wealth, they were not part of the successful professional classes. A young woman in the group got immediately fired from her job – as an assistant to a Youtube influencer. They have wealthy parents – otherwise, they could not afford this expensive resort. But other than that, it is not a group that has much going for them. It’s the German version of a landed gentry which is about to experience a hard landing.

25 June 2024

AfD to form breakaway group

We reported a few weeks ago that Giorgia Meloni and Marine Le Pen were open to a merger of their respective groups in the European Parliament, but right now the opposite is happening. Rather than merging into one big group, Europe's far-right is splitting off into three groups.

After Le Pen’s Identity and Democracy groups expelled the German AfD, one of the largest national groups of right-wing parties in the parliament, we are now on the verge of such a third group being created, as Der Spiegel reports.

Yesterday, the AfD’s executive has decided unanimously, for the party to leave Identity and Democracy European Party formally – after having been expelled from ID’s parliamentary group. The expulsion was triggered by comments from the AfD’s former European leader, Maximilian Krah, who tried to exonerate members of the SS. Right after the European elections, the AfD group expelled Krah, hoping that this would be enough for ID to readmit the AfD. But the negotiations failed.

The AfD had only joined ID a year ago. Since then, there has been a great deal of resentment within the party that it has allowed itself to be talked into positions it did not support. So they are now going it alone.

Under the rules of the EP, the formal status of a group requires at least 23 members, and parties from at least a quarter of the EU’s 27 members - seven countries. The AfD alone has 14 MEPs, or 15 including Krah. The main obstacle is the number of countries.

The AfD’s potential new partners include parties on the extreme right: The Party is Over party from Spain; SOS Romania; the Republican Movement of Slovakia; NIKH from Greece; Our Homeland from Hungary; and Konfederacja from Poland. If all joined, such a group would fulfil the minimum requirements of seven countries being represented.

They are mostly signatories of Sofia Declaration, calling for an end of support for Ukraine. The AfD is formally in favour of a German withdrawal from the EU. This is where this group differs from both the ECR and ID. They want out.

We can still imagine Le Pen and Meloni’s group to merge. They are in favour of the EU itself, but want to recoup some rights, for example on immigration and in the case of the RN, on energy policy.  

24 June 2024

Term limits imposed by voters

We would put the structural decline of the EU economy at the very top of our policy agenda. It constitutes the most dangerous obstacle to European integration. It is not the far right, Donald Trump or Vladimir Putin. It is our own weakness.

The political economy of long-term economic decline is not well understood but Italy has offered a glimpse of the political dynamics. Its structural slump started in the early 2000s. Silvio Berlusconi still had a solid run as prime minister from 2001 until 2006. We date Italy’s political jitters to around the end of the first decade. After two more short interludes by Romano Prodi and Berlusconi, Italy had seven prime ministers, including two technical governments, three more or less short-lived governments of the centre-left, one populist rainbow coalition, and now a government of the right. They really tried everything.

For all the admiration Giorgia Meloni attracted since taking over in 2022, we think it is very early days. We have yet to see how she performs under economic stress. The combination of the EU recovery fund and the superbonus housing renovation scheme gave Italy a massive fiscal boost that is unlikely to be repeated, and whose effects are starting to wane. Our baseline is that Italy will revert to the same near-zero productivity growth rates of the last decade. In that case, we would expect the Italian electorate to revert to its anti-incumbent rampage. This is why Meloni wants to secure her power through constitutional change. It would protect her against classic Italian mid-parliament coups.

Italy holds lessons for others. After the 2019 elections in the UK, we heard a venerable pollster predicting that it would take the Labour Party at least two more elections to recover. The gap between the Conservatives and Labour was a 162 seats. Current forecasts predict a Labour landslide. That would mark an electoral swing without historic precedent. The rise of the RN in France is without historic precedent as well, and so is the fall of the SPD and other centre-left parties in Europe. Welcome to the politics of long-duration structural slumps.

Politics reacts to economics with a delay. At the beginning the politics looked stable in Germany under Merkel, in the UK under Cameron, in Italy under Berlusconi. The circumstances between those countries differed wildly, but what they have in common is that structural slumps led to more volatile politics. What we are seeing in Europe right now is not so much a shift to the right, but a shift against incumbents.

For the UK this means that the 2028/2029 election is more open than people might think. As so many Tories are discovering right now, there is no such thing as a safe seat.

21 June 2024

Short circuit

The reason we are following the car industry in such detail is its wider importance for the continental European economy. The car manufacturers are one of the central nodes of massive cross-border supplier networks. The arrival of the electric car is a foreseeable extinction event for the European industry as we know it today. They will still make cars in Europe, but the big profits will be earned elsewhere. Right now, the car industry network accounts for around 11% of Germany’s value-added. Only a fraction of that is in the final assembly.

The electric car news coming from Europe is not good. The latest is that BMW has cancelled a €2bn order of batteries from Northvolt, the Swedish supplier. The reason, according to Manager Magazin, is that Northvolt is two years behind schedule and produces too many defective units. BMW tried to sugar-coat the news with the statement that the two companies are now focused on producing next-generation battery cells. Northvolt is building a battery gigafactory in Schleswig-Holstein, which is due to start production in 2026. We reported recently that a joint venture between Mercedes and Stellantis is also experiencing problems with its planned manufacturing plant in south-west Germany. That venture, too, is behind schedule and suffers cost overruns. A manager of that project was quoted as saying that it was impossible for Europeans to produce lithium-ion batteries at a profit, which is why more subsidies were needed. This is right of out the playbook of industrial decline.

BMW and Northvolt had agreed the €2bn battery deal in 2020. The German company has now sourced the batteries for its production from Samsung SDI, the world’s fourth-largest car battery maker.

The three largest producers account for almost 60% of the global market. They are Contemporary Amperex Technology (CATL) from China, LG Energy Solutions from South Korea, and Panasonic of Japan. BYD, China's biggest electric car firm, is a major battery producer in its own right, but makes them for its own vehicles. The top ten are mostly Chinese and South Korean companies. The Europeans are falling further behind.

20 June 2024


We noted a discussion yesterday that was at least trying to present a rational explanation of western strategy for Ukraine, which we think is worth relaying. The basic strategic idea is to force Russia into a long war of attrition that a western-supported Ukraine will ultimately win because of our superior resources. As one commentator noted, the west can produce more warplanes in a week than Russia can in a year. In the process, the US also manages to get European countries to spend more on defence and to buy arms from US manufacturers.

There are multiple problems with this analysis. The most important is that the West is not a single, strategically acting war gamer, but a group of democratically elected governments that struggle to find common ground.  

It is indeed true that our capacity to produce weapons vastly outstrips Russia’s, but it is also true that Russia is focused on this one conflict only. Russia is defending territory that it has occupied for more than two years. It has a clear war goal, the annexation of four Ukrainian oblasts whereas the war goals of western leaders are not aligned. A war of attrition suits the west because it is the military equivalent of kicking the can down the road, which is what the west has been doing in virtually all policy areas.

Another political factor is Ukraine fatigue. We see this even amongst some of the previously loudest cheerleaders for Ukraine, like the CDU. Two CDU MPs this week suggested the withdrawal of social payments to Ukrainian refugees in Germany, on the grounds that they are needed back home to fight the war. This is the CDU telling that the observance of fiscal rules is more important than anything else. Paul Ronzheimer writes in Bild that solidarity with Ukraine extends only for as a long as it is popular. That is indeed something we have been observing too.

The question of whether a war of attrition is winnable is not primarily about capacity, but about politics. The anti-Ukraine political forces in Germany will not be in government in 2025 – but they will be the main opposition parties. The German systems is dependent on a minimal degree of cross-party co-operation because of majority thresholds needed for constitutional changes, and because many laws require bicameral approval. Germany will remain a supporter of Ukraine, but we would think than another 10pp switch in public opinion against military supplies and financial aid would lead to a shift in politics no matter who is in government.

While Ukraine plays a much smaller role in French politics, a weakening of Emmanuel Macron would be another factor to consider. Jordan Bardella is a lot more reserved on Ukraine than Macron. If he were to become the next prime minister, the French position would be much less supportive. And then there is always the possibility of a Trump victory in the US election.

In the meantime, Russia inflicts massive damage on the ground. Last night was one of the worst since the start of the war - with one of the heaviest Russian assaults on Ukrainian power infrastructure.

19 June 2024

Why locking out Meloni will backfire

The dispute over who would get what between the EPP and S&D groups was not the only reason this Monday’s EU negotiations broke down. They also reached an impasse because of the approach the other parties took to Giorgia Meloni. Leaders from the three main centrist parties excluded Meloni from pre-dinner talks. They also made it clear that a deal to agree on the European Commission president and the other top positions would not include Meloni or her ECR group. This obviously was not something Meloni could accept.

Moving to block Meloni is not surprising. What’s interesting is how Meloni herself approached the talks beforehand. Meloni’s strategy had been to try and secure a high-profile position within the European Commission for Italy and her party, as well as a vice-presidency. We saw reports in the Italian media suggesting that Meloni would either angle for an economic position, perhaps budget, or defence. Budget is a key portfolio. We are sceptical about how useful in practice the new defence portfolio will be, but it is doubtless high-profile.

This points to how Meloni views the EU more generally. Our own assessment is that she is difficult to describe using the conventional pro-European or Eurosceptic labels. Instead, she is closer to the position the median Italian voter probably takes on the EU: euro-agnosticism. From this viewpoint, the EU is less a good or bad thing, and more simply a fact of life.

The EU of course constrains what you can do as a national leader. But as previous experience has shown, trying to leave or weaken it when you belong to the euro area, especially if you are Italy, is easier said than done. Like the rest of us, Meloni saw Lega and Five Star’s botched attempt to lay the groundwork for an Italian euro-exit in 2019. So long as the EU exists, you might as well work within it to get what you want.

Meloni’s euro-agnosticism is, we think, a key difference between her and Marine Le Pen, a firmly convinced Eurosceptic. But it is also why we think the attempt to isolate Meloni and exclude her from the EU’s negotiating table will backfire.

Her attitude to the EU is predicated on the idea that you can achieve your policy and political priorities by working within the system. The most obvious policy priority for Meloni is migration, though economic policy is always a concern for Italy. Politically, securing more prominent positions in Brussels burnishes Meloni’s leadership credentials domestically.

If you concede at least some of what she wants, you can co-opt her. This is something Ursula von der Leyen realised, and tried. When there is no avenue open, that is when she might become a threat.

18 June 2024

Austria saves the planet

Leonore Gewessler, Austria's Green environment minister, made a calculated move when she backed the nature restoration law without the approval of her coalition partner, the centre-right ÖVP. Her decision, together with that of Slovakia, made it possible for the law to pass finally in the EU Council.

Back in Austria, there was much outrage on show, but not of the serious kind. The ÖVP not only wants to call for an annulation of the law before the European Court of Justice, but also sue Gewessler for abuse of office. That a version of Austrian-style grandstanding, however. What really matters is that Karl Nehammer, the Austrian chancellor, did not end the coalition with the Greens. And an abuse of office investigation won’t stop the coalition from working.

The ÖVP, as well as its six federal states, have been against signing the nature restoration law, while Gewessler and her Green party have always been for it. But not all federal states were lately against the law, and there is broad support amongst the public.

Nehammer would have compromised his own prospects if he had ended the coalition shortly before the elections in September. This would have meant that parties needed to find majorities on a case-by-case basis until then. For a prime minister who likes to describe himself as a guarantor of stability, this prospect of political chaos is not appealing. Also it would have been expensive. The last two times this happened, in 2008 and 2019, it increased overall spending.

The ÖVP ending its coalition with the Greens would have meant relying on the far-right, the FPÖ, to get its remaining projects over the finish line. This would undermine the ÖVP's credibility in an election campaign shortly after they designated the FPÖ as their main adversary. So Gewessler had a free hand, which she played.

The bigger problem for parties is their weakness in the polls ahead of the elections. The latest polls have the FPÖ in lead position. An ÖVP/Green coalition would no longer have a majority.

17 June 2024

Supporting Ukraine helps Meloni for now

While hosting the G7 summit last week, Giorgia Meloni confirmed one key tenet of her foreign policy platform: her strong support for Ukraine. It is not exactly a position that she tries to hide or downplay, either to a foreign or domestic audience. This is despite the fact that support for Ukraine is lukewarm in Italy, compared to other European countries. Whether you are looking at support for military assistance, sanctions, attribution of responsibility, or the desired outcome of any peace negotiations, it is similar. Italians tend to be less pro-Ukraine than other large European countries.

In Italian politics, there are also no shortage of options for those who are unhappy with support for Ukraine. Matteo Salvini and Giuseppe Conte in particular have taken a much less pro-Ukraine stance than Meloni. But it hasn’t helped either of them. Five Star, Conte’s party, has gone backwards. At the last European elections, it dropped below 10% of the vote. Salvini has also not been able to stop Lega’s slide into irrelevance. Meloni is still the most popular Italian party leader by quite a distance, ahead of Conte and very far ahead of Salvini.

It’s possible that this may have to do with their positions on other issues. But it also may be that, despite being unpopular in isolation, supporting Ukraine helps Meloni politically in the context of the persona that she is trying to craft. Part of the key to her appeal is both showing a certain level of conviction, and looking serious on the world stage. Deliberately falling behind a less popular policy can be helpful if it convinces supporters that you are not cravenly chasing their votes. Meloni is also very good at playing the statesperson, and carries a gravitas that Salvini and Conte lack.

There is a lesson and a warning in this. The lesson is that effective politics is not just about looking at a big list of policies and deciding which is popular. They have to be consistent with a narrative that you are trying to set. In Italian politics, nobody else comes close to Meloni in understanding this and employing it effectively.

The warning is that if you look at Italian attitudes to the war in Ukraine, the country’s stance is more fragile than Meloni makes it seem. The war may drag on in the long term, or Russia could try again after a ceasefire. By then, someone could replace Meloni. If they have their own narrative and persona, Ukraine may not be a part of it.