Last year, Greece saw big movements on the left with the re-emergence of the traditional Socialist Pasok as the second largest party behind New Democracy. It seemed for a moment that politics had come full circle.

Pasok replaced Syriza, the hard left party that came to power under Alexis Tsipras during the bailout years, and which imploded last year over leadership differences. But Pasok could not grow its voter base since and New Democracy lost votes since the Tempe train crash in 2023, where a train packed with students collided head-on with a freight train, killing 57 people. The investigation into the train crash is considered by roughly three out of four people as a scam, according to a recent survey. And four out of five believe that the government did not do enough to make the train system safe.

This mistrust has permeated the New Democracy voter base. Conspiracy theories are thriving. Pasok now threatens a no confidence motion should the parliamentary committee find anything compromising about this investigation. But Pasok could not capitalise on its aggressive move either. Trust in institutions is at a low point, and this is a theme that has rattled the two main parties already in the past.

The times when either party could win an absolute majority seems to be truly over, while the fringes are getting bigger. Together New Democracy and Pasok now have 38-41% in vote intentions according to two polls this week, with a ten percent lead for the conservatives. Even if the share of seats grants an extra-bonus for the winning party, a single party government looks increasingly unlikely given where the parties are now.

While the two main parties are losing votes, the share of anti-establishment parties is growing. On the right there is the ultranationalist Greek Solution and nativist Voice of Reason. Greek Solution has established itself as the third party. with 7.6-9.6% of voting intention. On the left there is the populist Course of Freedom, which has made big gains recently, rising to 6.9% in voting intention.

What does this mean for future elections? Nobody seems to expect that the anti-establishment parties would eventually take over. About 66% of them do not see them as viable political options and 55% do not want to see them in power according to one qualitative survey. But this is the crux in elections with a wide choice of fringe parties to express one’s protest vote. If enough people protest, eventually anti-establishment parties could garner more votes than the establishment.

Greece’s Athens was the cradle of direct democracy in antiquity. Today, Greece’s representative democracy is having the same problems that we have seen elsewhere in Europe. Voters are faced with a dilemma of choosing between trust and stability. A snap election may satisfy those who accuse the government of mismanagement, but without a viable alternative to govern, it won’t do much to solve the underlying problem of trust.

Isabel Schnabel signalled an important policy change – it is time for the ECB to pause signalling unidirectional moves. So, it’s back to data dependence.

We would have preferred to hear this before the last rate cut, but a quarter point here or there is ultimately not important. We welcome Isabel Schnabel’s intervention unreservedly. The single most important statement she said came right at the beginning:

“We know that we know very little.”

This is in contrast to all the ECB watchers who know so much, and who have been so certain that both inflation and interest rates are headed into the deep flatlands. We note that some were quite flustered about her intervention yesterday. Our recent disagreements with the ECB were mostly about that – a premise of too much certainty in a highly uncertain political and economic environment.

We are aware that no economist in history has ever discarded a model on the grounds that it does not work – a fact that unfortunately disqualifies macroeconomics from the category of empirical science. The reality about monetary policy is indeed that we know a lot less about the future than we think we do. But at least we can see our current data. We see that they are not looking great. We also see the political pressures around us – all of which are pointing towards higher inflation – trade wars, military spending, climate change spending, investment backlogs.

The second most important statement she made in her interview with Olaf Storbeck is a shift in her own policy stance:

“The data are showing that the degree of restriction has come down significantly, up to a point where we can no longer say with confidence that our monetary policy is still restrictive.”

Central bankers assumed that inflation was headed in a direction that is consistent with 2% inflation in the medium-term. With services inflation stuck at 4%, this has not been the case. It is impossible to have services inflation that high, and overall inflation anchored at 2%. We, too, see wage pressures coming down, later than the models predicted. To be confident that inflation is heading down to 2%, we would at the very least need to see more data that confirm this.

We saw in the UK yesterday that inflation is now back to 3%, again to the surprise of the forecasters, as food and energy prices are rising faster than the target. US inflation rates are also trending upwards. The data are showing a co-movement in global inflation rates that goes beyond the effects accounted for by international trade. That’s another part which we do not understand as much as we should.   

Ursula von der Leyen is busy undoing the green agenda of her last term. Her push to simplify EU rules happened so fast that the policy world in Brussels did not really know about it until it was already happening. No transparency and no forewarning. Everything is decided at the top, with her cabinet officials struggling to influence the decision making process.

It started last November in Budapest, when von der Leyen announced drastic changes on green policy to lighten the burden on industrial competitiveness. An omnibus bill was to simplify existing rules to hold companies to account for environmental and social damages. Since Budapest, the simplification drive widened to include five further omnibus bills in 2025 and the deletion of Commission proposals that are now considered as too onerous. The Commission also asked EU member states to fast-track simplification rules.

Does von der Leyen know what she is doing? Politico spoke to Commission officials at different levels of seniority to national diplomats, European Parliament lawmakers, industry and NGOs.

One national diplomat said the lack of information, and the fact that the Commission’s announced plans kept changing scope, range and timeline raises the issue of credibility. The staffers painted a picture of a culture of secrecy, where key policy initiatives are now password protected and where those involved in the write-up of the legislation are not informed. A leaked work plan of the Commission has a blank section where usually legislative proposals are listed for withdrawal. Another leaked document has a blank space where details of the omnibus bill on green policies should have been. Is it because von der Leyen’s circle did not know what to put in there or because von der Leyen does not want lower level staffers to comment on her plans?

Three weeks ago von der Leyen promised to hold talks with the four major groups in the European Parliament to ensure smooth passage before the bill is presented on 26 February. But the Commission did not reach out to them until this Tuesday. Trade unions, green finance groups, and environmental NGOs also complain that there has not been a proper consultation process.

In democracies, or supranational institutions like the EU, breaking things is more difficult than proposing new legislation. It hurts some interests, and you can get stuck in endless talks to find the right balance between the various interests. But that does not mean decisions should be happening in a vacuum. Von der Leyen still has to explain what she is doing and why.

Looking over to the US, Elon Musk is doing the same job on a massive scale. For sure, it is easier there than here in the EU. But Musk also goes into a media offensive linking his mandate back to the election results that clearly wanted Donald Trump and his programme. There is no surprise there, only for those who underestimated Trump. Von der Leyen does not have the same mandate. The need to explain and get people on board is thus even more necessary.

Nothing really is what it seems. Politically the Europeans postured with their sanctions against Russia as a moral imperative that is to force Russia to let go of Ukraine. This strategy did not work out, nor did we really cut all our links to Russia. Russia’s gas pipelines to Europe may be cut off, but Western companies continue to operate in Russia. This may not be their preferred choice, but the exit costs were so substantial that staying was the lesser evil despite political pressure to exit.

This is a bridge between Europe and Russia that might come back in full force once a peace treaty is enacted. Until then, Western companies help Russia to keep its currency afloat and to finance its war efforts in Ukraine.

According to the Kyiv School of Economics Institute (KSE) there are still 2245 western companies active in Russia, a third of them multinational firms. Only 472 left since the war in Ukraine started, and another 1360 have reduced their activities. This is much fewer exits than the media hype suggested, and much more companies still present.

Their profits, which goes in the tens of billions of dollars, largely stayed inside Russia. Nessim Aït-Kacimi called it the monetary iron curtain in Les Echos. Moscow distinguishes between friendly and unfriendly countries. Companies from the US, UK and the EU are amongst the latter category and their companies can only repatriate up to half of their profits. Companies from friendly countries like China, India and Turkey can theoretically withdraw all their money, but in practice they are pressured to invest the money in Russia.

The final decision over profit repatriation is taken in Moscow. What matters to them is to exert control over the capital in and outflows to keep the value of its currency. If all foreign companies were to retrieve their profits, it would put the rouble under significant depreciation pressures.

Amongst the multinationals still operating in Russia are consumer good companies such as Coca-Cola, Pepsi, Nestlé, Mars, Procter & Gamble. There are also pharmaceuticals like Sanofi and AstraZeneca, or banks such as Raiffeisen. These multinationals are the also the main tax contributors to the Russian budget. The KSE estimates that in 2022-23 all foreign companies paid $41bn, which is equivalent of a third of the military budget. Rough estimates for 2024 suggest that Western companies paid an extra $4-6bn in corporate tax in Russia.

Even if EU foreign politics often suggests that there is no continuation as usual, Russia is and remains a large market for western companies. The invasion may have added a high risk premium to such an operation. But Russians may rest assured that they are too big to ignore in the long run and business will come back with those daring to do so.

Donald Trump is sharpening the left-right divide with consequences also for Europe. Europeans have been muddling through with grand or multi-party coalitions. If any party now starts to profile itself with radical ideas like Trump, those coalitions would become impossible.

Take France for example. Emmanuel Macron came to power in 2017 with the promise to overcome the left-right divide and to deliver ideology-free policy. Eight years later it looks like we are back to square one. The Macron episode no longer looks progressive, but like a massive confusion of ideas. Against the backdrop of US politics, there is a renewed desire for clear lines and order again. So is it back to left and right?

It is not only opposition parties that revolt. Bruno Retailleau, interior minister under Francois Bayrou, has no problems with openly saying that there will be no Macronism after Macron. The time of lukewarm water is over, proclaims Retailleau at the front page of Le Parisien.

Retailleau, the most liked conservative politician after Marine Le Pen, Jordan Bardella and Marion Maréchal, is running against Laurent Wauquiez for the leadership of Les Républicains. Both are eager to define a profile for their party that goes beyond the question of whether or not to support Bayrou to prevent another government collapse.

On the left, La France Insoumise stands true to its convictions and explained their break with the Socialists, saying that they do not want to be confused with a party that supports Bayrou and Macron. Can the Socialists still convince left-wing voters as a moderate voice for reason in a climate of radicalised politics?

Even centrist candidates with ambitions for the presidential campaign are repositioning. Gérald Darmanin distances himself from the neither-left-nor-right mantra that so defined Macron’s first term. This is not what the country needs at the moment, he explains. Edouard Philippe and Gabriel Attal are falling in the polls. The latter tries to find a formula that does not betray its roots with some radical but not extremist ideas like eliminating taxation on donations, replacing the pay-as-you-go retirement system with a capital-funded one, and allowing employees to be shareholders in their company. But this is not enough to fill the void that is appearing in the centre. Against Donald Trump and the emergence of European radical parties on the left and right end of the political spectrum, a voice for reason does sound weak by comparison. And it is this weakness that centrists will have to endure and persist before it can get better.

The trouble with the armchair generals that have been leading the commentary in the Ukraine war in the western media, is the reduction to moral posturing. At no point have those who supported weapons deliveries for Ukraine present a costed plan of how to achieve victory. They were hiding behind red lines and the empty slogan that we would help Ukraine for as long as it takes. Not only was there no plan for victory. There was also no plan for second-best outcomes.

The armchair generals include the vast majority of people who attend the Munich Security Conference today, and who hyperventilate about issues whether Europeans should sit at the table. The absurdity of Europe’s position on Ukraine was underlined once again by Olaf Scholz when he said that he would reject a peace by diktat. And then he added in the next sentence, that policy goals must always be for Germany not to be engaged in a war. He is having his war, and eating it. 

It is logical that Donald Trump and Vladimir Putin settle this because there would be no settlement if Kaja Kallas sits at the table. The criticism by the Europeans that Trump gave too much away at the outset is also difficult to take seriously. It was Germany, along with the US, that persistently vetoed Ukraine’s accession to Nato. It is a bit rich for the German defence minister to claim that this issue should have been on the table. And of course, Ukraine will lose land as part of the settlement. Peace deals reflect the military situation on the grounds.

Angela Merkel already said it in 2017 that Europe needed to take its security in its own hands. As ever when confronted with a hard and a soft option, the Europeans chose the soft one. Europeans are the geopolitical equivalent of the righteous welfare recipient, always making demands, and hiding behind others.

Donald Trump will today announce the reciprocal tariffs, according to his press spokeswoman. We are not sure whether his separate threat to impose tariffs on cars, semiconductors and pharmaceuticals fall under this, under a separate category, or both. The EU levies a 10% tariff on imported cars. A reciprocal rule would introduce a 10% tariff on EU imports, but Trump may seek bigger tariffs. In 2023, the EU exported cars worth €56bn to the US, and some €92bn in pharmaceuticals. Machines and chemicals are other sectors in which the EU runs large trade surpluses with the US.

The EU's entire trade surplus with the US is a little over €200bn. If Trump wanted to plug most of it, he would need to do more than reciprocal tariffs. From a European perspective, it would cancel the competitive advantages of a weak currency. We conclude that this is not going to do the heavy lifting.

A small reciprocal tariff may well be compensated for by an increase in the dollar-euro exchange rate, so that the impact of the tariffs is mostly neutralised. The question then becomes: what does Trump want from Europe?

We hear a number of progressively implausible suggestions from European policy makers, like Germany's finance minister, Jörg Kukies, who thinks that we can import US hydrogen. The newspapers report this without doing the maths. The entire US production of hydrogen is 10m tonnes. At a price of $5 per kilo, this translates into a total production value of some $50bn. Only a fraction of that will be available for export to Europe. There is no way the EU can credibly plug an export surplus of $200bn with gimmicks like these.

We don't think the Trump administration's goal is to take the EU's surplus down to zero, but we struggle to see how the EU's trade surplus can be plugged by purchases of gas and hydrogen. They will be part of a broader equation.

So would defence goods. In 2025, EU GDP is projected to be some $20tn. If 1% of GDP was spent on arms imports from the US, that alone would plug the entire EU trade surplus. But it would increase Europe's dependence on the US further.

We think the EU would be better off developing its own defence industry, and manage defence spending through a defence procurement union. And weaning itself off its export dependence as a source of economic growth. Given the constraints the EU has imposed on itself in fiscal and financial policies, it looks to us that this will end as another game, set, match contest for Trump.

We have been writing about global imbalances for almost 20 years. China and Germany run economic models that systematically depress consumption, and in Germany’s case investment too, as a result of which the two ended up with large savings and current account surpluses. The US, and to a lesser extent the UK, were the big absorbers of other people’s savings surpluses. 

There is no rule that says that the current account between countries need to be balanced at all times. But large and persistent trade imbalances are something different. China and Germany have been running a Mercantilist systems. Neither country has made any attempt to bring down their surpluses. 

There are only two ways to address the issue of global imbalances. The surplus countries adjust voluntarily – or the deficit countries refuse to absorb the excess savings. The first never happened, and will never happen. The whole of Germany thinks that trade surpluses are a wonderful thing. It’s like winning the football game every time.

Trump is clearly not focused on global imbalances, but about bilateral balances. This is generally not a good idea, but it can succeed in this case because most of the US deficit is accounted for by only a few trading partners – of which the EU is one. What makes his trade agenda serious is his concomitant attempt to bear down on government spending, which addresses some of the deep causes behind the imports of other people’s savings.  

We came across a very interesting blog post by Matthew Klein, who makes the point that the large current account surpluses of Edwardian Britain – like in China and Germany today - reflected deep economic problems. They point to an unhealthy distribution of income, and they also pose risks for the US, as it fosters de-industrialization and currency overvaluation. 

So we should at least address the question whether Donald Trump has a point, rather than hyperventilating and trying to fight a trade war we are bound to lose. Reciprocal tariffs, which he now appears to be leaning towards, are not illegal under WTO rules. It is the EU, and the UK, that impose a protectionist 10% tariffs on cars, which together with regulation to comply with safety standards that were specifically tuned to cope with high speeds on German motorways. The UK missed a big trick with Brexit. They could have opened up their car market to cheap imports. 

Donald Trump surprises us every week with new shocking moves at the domestic and international front. Observers psycho-analyse, they try to get into his head to understand why he did what he did and where he would be ready to take his battles. We are reminded of a similar episode shortly after Vladimir Putin invaded Ukraine. One of the main differences is that Putin created facts on the ground and started to take land by force, while Trump talks about buying the land to create a new seaside resort in Gaza and building nice houses for the Palestinians in neighbouring Arab countries.

Putin does war, Trump talks business. Both want to own the land, but while one causes physical destruction, the other just wants to build on what Israel left behind. In Putin’s war, people are dying, in Trump’s battle it is ideas and identities. Both men are testing the limits of the law. Which one is the more powerful, which one is the more ruthless? When it comes to ruthlessness everyone would point to Putin. But in terms of power, Trump could be winning this contest. Putin used his military while Trump uses his words as his weapon of choice.

Trump plays with the imagination of the people, who project their worst fears or best hopes on it. He still has not yet moved to action, thus he still has the whole potential of options from which to chose. He waits for others to react first.

Trump is selling his relocation plan of the Palestinians away from Gaza as a benevolent act and is confident that Egypt and Jordan, or Saudi Arabia, will agree eventually to a deal, if not voluntarily then by bullying them into accepting one. The King of Jordan is in Washington this week to plead with the US president not to proceed. Egypt also says no on many different channels. Trump already publicly reminds them that this would be the quid pro quo for the billions of aid to their country.

The US president also bragged that Saudi Arabia would accept normalisation with Israel without a Palestinian state, and that the bill for the clean-up for Gaza would be paid by the Gulf States. That irked the Saudis. Riyadh issued a statement shortly after insisting that Saudi Arabia would not accept normalisation without efforts towards a Palestinian state. On Sunday they warned that these statements should not divert attention away from the crimes Israel committed in Gaza. They said Israel does not understand the Palestinians' emotional, historical and legal connection to this land. Is this a break in relations?

Crown prince Mohammed bin Salman or MBS had build his path to power on good relations with the US and Israel, writes David Hearst, editor of the Middle East Eye. He kept his kingdom quiet throughout the 15 months of war in Gaza. But the words from Washington and Tel Aviv are now forcing Saudi Arabia’s foreign policy to revert back to Arab nationalism. From their view it is only a matter of time before Israeli expansionism destabilises the whole region with significant consequences also for Saudi Arabia.

The Abraham accords in Trump’s first term were negotiated as an anti-Iran pact. Now that Iran is weakened and Syria is no longer in its fold, Saudi Arabia does not have the same interest in such an accord. MBS has also established himself as a powerful and modernising leader in his kingdom. He may not personally care about the Palestinian issue, but 70% of his people do. So Arab nations may not so easily fold into this plan, as Trump and Benjamin Netanyahu make us believe. Peace by force is a no go for them.

Trump wants to end the war in Gaza, Netanyahu wants to prolong and extend it. The US administration eventually has to decide whether they want to be drawn into a religious conflict that it not theirs and support Israeli expansionism. It will be up to Trump and his administration to decide whether business means war just with other means and whether they are ready to pay the price for it. But even if this plan does not come to fruition, it will have affected the political dynamics in the Middle East. It will also be a measure of Trump’s threat potential and a test of his power beyond US borders.

We heard a claim yesterday from a seasoned BBC journalist that an interview helped end Margaret Thatcher’s career. Our own recollection of the period was rather different. Her end was triggered by a combination of the poll tax, deep divisions in her party in the run-up to the Maastricht Treaty, and a general sense that 11 years is more than enough. 

The media have a tendency to overplay their role, and that is even more the case today, where their influence is seriously diminished. As we saw in the US election campaign, and in Germany yesterday, TV debates are irrelevant to the dynamics of an election campaign. In the US, they have no impact on the result any longer. By the consensus of media commentators, Donald Trump lost the two debates against Hillary Clinton, and the one against Kamala Harris, and went on winning the elections.

A little over a week ago in Germany, the media had been running a relentless campaign against Friedrich Merz over his decision to introduce legislation on migration with the backing of the AfD. Normally a campaign of such magnitude would have ended the candidate's political career, but the polls did not move one small bit.

The legacy media still have one important lingering role. They remain an important echo chamber for political insiders. A TV debate did end the political career of Joe Biden, because his own people lost confidence in him. We recall the role the media played in the downfall of Boris Johnson. Their relentless campaign against him had little effect on public opinion, but it goaded Tory MPs into replacing him – an act of political backstabbing from which they never recovered. Modern political campaigns are won and lost on social media, on YouTube, on podcasts, on Substack, and the other post-legacy-media formats that roam our debating space today.