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8 September 2020

Why you should not trust the media on Brexit

If one good thing came out of various hyperventilating UK news reports in the last few days, it is that the continental media have finally got no-deal Brexit on their agenda. Complacent minds are a little more focused now. The trigger for the latest bout of excitement is a story that the UK government would bring domestic legislation to nullify the withdrawal agreement. If true, this would have been astonishing. It's not going to happen, of course. The signal-to-noise ratio has hit another low point. 

Whatever the probability of a trade deal was after the end of the previous round of talks, it has not changed. We are very sure that the next round of negotiations will not change it either. This will go until the European Council in October. If EU leaders agree a material change in their negotiating mandate on state aid, there will follow a period of intense negotiations to conclude a deal. If there is no substantive change in the negotiating mandate, it's game over.

The big problem with hyperventilating news reports in the part of the UK press that is read on the continent is that they have been creating persistently false expectations among officials and politicians. From a Brussels perspective, the whole Brexit story has been a series of consecutive political misjudgements, fuelled by wishful thinking. 

This goes back to 2015. Was it really a victory for the EU to blackball David Cameron during the pre-referendum talks?  If you look back at this period today, he really didn't ask for all that much. In 2016, well after the referendum, we recall a well-known newspaper columnist declaring that Brexit was very unlikely to happen because a second referendum was now a near certainty. Subsequently, the media vastly exaggerated the momentum for the second referendum campaign. Brussels listened to those voices. After the lockdown, a well-placed UK journalist reported that the UK government would have no choice but to extend the deadline. That nonsense, too, was widely believed.  Everybody makes political misjudgements from time to time. So do we. UK eurosceptics have likewise misjudged the position of the EU, especially that of Angela Merkel and more recently on the wide support Michel Barnier enjoys. We support the EU in its refusal to accept cherry-picking deals, like the one with Switzerland. Membership of the single market is, and should be, binary. The UK's decision to leave the single market and the customs union invariably means that UK truckers will have to share quotas and that UK airlines will lose privileged access. 

What we know is that Johnson prefers to minimise the costs of a sudden rupture. He does not seek a no-deal outcome. For this reason alone, we are not betting against a deal. If the EU moves on state aid, we think there can be a breakthrough. But we also know that Johnson will not allow the EU to set the parameters of the UK's future state-aid regime. With an election not due until 2024, we think he has more to lose politically from a hamstrung competition policy than from one-off disruptions in trade. You might not want to put yourself into his position, but it is rational for him to reject the deal that is currently on offer, just as it is rational for him to continue the talks.

The news reports we should question the most are those confirming our most deeply-held beliefs. News and beliefs can easily become mutually self-reinforcing. Brexit is the most extreme example of that destructive interaction that we can remember. 

7 September 2020

The far right is gaining ground in the Netherlands

Sigrid Kaag has just been elected leader of D66, the Dutch social-liberal party. Kaag’s win is significant because the Netherlands goes to the polls in March 2021, and D66’s pro-Europe stance will influence the composition of the next coalition government. It also puts the current ruling coalition at risk as popular opinion is shifting away from liberals and europhiles. 

Kaag was a career diplomat and high-ranking UN official before she became minister of foreign trade in 2017. Her political experience is limited. In an interview following her 4 September victory, she called for more European integration. Kaag was also lambasted by some media outlets for saying the Netherlands would have to be realistic about giving up some of its sovereignty to advance a real European defence.

A member of the ruling coalition, D66 is tied for third-largest in parliament with CDA, the centre-right Christian democrats and another coalition partner. Both have 19 seats in the 150-strong lower house. With 33 seats VVD, Mark Rutte’s liberal party, dominates. His coalition also includes the Christian Union with five seats. Rutte is widely expected to win the next election, although he hasn’t yet announced whether he will run again.

Leading the opposition is Geert Wilders’ PVV party, with 20 seats. More worrying for Rutte, though, is the Forum for Democracy, or FvD. It only has two seats in parliament, but it is led by the populist upstart Thierry Baudet, a self-styled intellectual. Like Wilders, Baudet is an ardent eurosceptic who has called for the Netherlands to leave the EU.

Baudet made headlines in March last year after FvD’s surprise victory in the provincial elections, which were viewed as a test of Rutte’s third cabinet. FvD won 86 seats against VVD’s 80. Provincial councillors elect the senate, where both parties now hold 12 seats.

Polls from 6 September showed that, if elections were held now, there will be a net gain of eurosceptic forces at the expense of moderates and pro-Europeans. 

Source: Peil.nl/Maurice de Hond

This means that, if the election were held today, the current ruling coalition would win just 66 seats out of 150 compared with the bare majority of 76 it currently holds.

Dutch politics have always been fragmented, and the Dutch model is unique in that opposition parties cooperate with the coalition government much more frequently than in other countries. The elections are also more than six months away and nothing is certain. But the far right is becoming a more serious cause for concern in the Netherlands. 

7 September 2020

Is there an exit to the conflict with Turkey?

Berlin and the EU are to take over mediation between Turkey and Greece, after Nato's attempt to initiate talks failed. Jens Stoltenberg announced that both countries agreed to technical talks. This public comment turned out to be premature. Athens rebuked the announcement, insisting that there will be no talks without Turkey removing its ships from the Greek continental shelf. Since this area is also claimed by Turkey, and Ankara says it is ready to defend it by any means, there is not even agreement on the pre-conditions for talks.

Angela Merkel is once again in charge of mediating between the two countries now, ahead of the EU leaders' summit on September 24/25. It is still not clear yet what Recep Tayyip Erdogan's intentions are. One key date to find out will be September 12, when the current Navtex Turkey's exploration ship runs out. If Ankara renews the Navtex, and the Oruc Reis enters Greek waters around the island of Kastellorizo, it will be seen as a clear sign that Erdogan is choosing conflict, writes Kathimerini. Another factor to bear in mind is that a conflict with Greece and France serves Erdogan at home. Drumming up support on the foreign policy front increased his popularity rating, but what will Ankara's exit strategy be? All conflicts come to an end one way or another. There is no clear endgame here.  

4 September 2020

What to make of the Nordstream 2 discussion in Germany?

If the Navalny poisoning has done one thing, it is to put Norbert Rött­gen on the political map in Germany. The third contender for the job of CDU chairman is demanding that Germany withdraws from Nordstream 2. It is the only substantive policy proposal in the entire CDU succession campaign, which is otherwise devoid of any content. 

We remain sceptical. When we read in almost every newspaper that pressure is growing on Angela Merkel to pull out of Nordstream 2, we ask ourselves: how is this possible? Germany's participation in the project is not some random act. It is the culmination of an energy policy that has given Germany no alternative at this point. A withdrawal from Nordstream 2 would have to be accompanied by a decision to extend the lifespan of the remaining nuclear and coal-fired power stations. Peter Altmaier is, of course, right to say that Germany needs the gas if only as a transitional source of energy. He is wrong to think that this is a perfect sensible position to be in, though. It is possible that pressure on Merkel grows and that she simply goes with the flow. She will not have to deal with the consequence of that decision herself. 

If Donald Trump ends up winning the US elections, or remains in the White House in other scenarios, US pressure on Germany will become intolerable. In any case, we don't expect a Biden administration to lift sanctions on Nordstream 2 either. The obstacles for a successful completion of Nordstream 2 remain formidable. There are ways for Germany and Russia to circumvent the existing sanctions, but Germany would risk a break with the US by doing so, no matter who occupies the White House. 

What we can definitely say is that the Navalny poising has opened up the political debate in Germany. Like Rött­gen, the Greens, too, have elevated Nordstream 2 and the Navalny poisoning to a campaign issue. Even the pro-business FDP is demanding a moratorium on the pipeline. The SPD is not because of its many friendly links with Russia. The CDU is split internally. As chairman of the Bundestag's foreign affairs committee, Rött­gen leads the transatlantic wing of the party. But there is a massive counter-push from business, specifically from the east committee of German business. We think of the committee as the equivalent of America's national rifle organisation. They are the kind of lobbyists who know where you live.

FAZ writes that Merkel is not ready yet to dump Nordstream 2. Fabian Burkhardt, of the Leibniz institute for east and south-eastern European research, predicts that this whole thing will end up as a fudge, with Germany linking the completion of Nordstream 2 to political demands on Russia. We can already visualise the grin on Putin's face.

The reason we remain sceptical about a shift in policy is the continued support for Nordstream among Germany's political commentariat. They are no longer as influential as they used to be. We quote them not so much for their mostly-shallow insights, but for their role as canaries in the coalmine. If the political winds change, that's where you will notice it early on. In a long commentary in FAZ this morning, the conservative Berthold Kohler warns against hyperactive conclusions from the Navalny case. If a policy change had been in the cards, he would have been briefed, and then would go on to demand it in an editorial. But this is not happening, at least not yet.

To us, the case demonstrates what happens when you become excessively dependent on another country, and when you elevate your economic interests to sole policy goal. We might see a re-run of the story in the autumn, when Germany will make its decision on whether to allow Huawei access to its 5G network. German foreign policy will be ineffective for so long as this dependence on economic interests exists. And this, in turn, will also affect EU foreign policy at large, especially now with the UK out of the picture.

We agree with the historian Michael Stürmer who wrote in Die Welt that, one way or the other, Putin will end up as the winner. The problem with Nordstream 2 is Ukraine. By circumventing Ukraine as a route for gas supplies to the EU, Putin gives himself a strategic flexibility in respect of Ukraine which he currently lacks. Stürmer sees the re-emergence of a Russian empire with Ukraine and Belarus as strategic satellites. Putin will win one way or the other. If the Nordstream 2 goes online, Ukraine is toast. If not, transatlantic relations will break irreversibly. We would add to this observation that the two outcomes are not even mutually exclusive.

4 September 2020

Nato steps in to mediate between Turkey and Greece

Nato and the EU intensify their efforts to de-escalate the situation between Turkey and Greece over the eastern Mediterranean. Nato's secretary general Jens Stoltenberg said the two agreed to technical talks to reduce the risk of military incidents. But the conditions are still disputed: Greece wants Turkey to withdraw all its ships from the disputed area before the talks can even start, while Turkey says it is ready for talks but only without preconditions. It is quite rare for Nato to use its de-escalation mechanism to avoid collisions or exchanges of fire.

Turkey, meanwhile, announced that Russia will hold live naval exercises in the region where the Turkish ships are doing their hydrocarbon explorations. This navigational notice came shortly after the US announced that it would lift the non-lethal arms embargo for Cyprus. Moscow denied though yesterday that Russia is supporting Turkey. 

Angela Merkel talked to President Recep Tayyip Erdogan yesterday. According to his speech leaked to Turkish media Erdogan told her that the selfish and unjust behaviour of Greece is unacceptable. It is far from clear that they are ready for deescalation talks.

3 September 2020

Navalny notwithstanding, we are still buying Russian gas

We recall when the notion of German diplomacy was considered an oxymoron like civil war or EU budget. We were reminded of this yesterday when we saw Angela Merkel hyperventilating about the poisoning of Alexei Navalny, while continuing to support the Nordstream 2 gas pipeline project.

We've surely moved beyond the days when diplomacy was seen merely an extension of war by different means, as Carl von Clausewitz put it. But what hasn't changed is the strategic nature of diplomacy. Outrage could be part of a broader strategy if the goal is to prepare your electorate for unpopular action, like a war. But when that part is missing, outrage turns into hypocrisy.

When Vladimir Putin annexed Crimea, he was aware that there would be a counter-push by the west in the form of sanctions. From Putin's perspective, that was a price worth paying. His strategic goal, as we saw again in his dealings with Alexander Lukashenko, is to fortify Russia's wider zone of influence.

Such trade-offs are absent in German thinking. German foreign policy works on two separate levels: the level of the moral outrage over human rights violations in north-western China or outrage about the poisoning of Navalny; and the simultaneous pursuit of German trade interests in those regions. German foreign policy boils down to trade facilitation. When German chancellors travel to far-away lands, they come with a plane-load of businessmen in toe ready to sign pre-arranged commercial deals. Modern Germany has no tradition of defining strategic interests that go beyond exports.

One related issue is excessive dependence. Germany has allowed itself to become dependent on Russia for energy and on China for telecommunications. Putin made the calculation that Germany will never unilaterally suspend Nordstream 2 because it needs the gas. He knows - and Gerhard Schroder will have confirmed this to him - that Merkel's energy policy has been a mess. The same goes for the telecoms licences, which successive German governments auctioned off to the highest bidders, without considering the strategic nature of the business. The result is what is considered today's Europe's worst telecoms network, and total dependency on Huawei technology. 

France is more independent in those sectors. Emmanuel Macron was able to decide to phase out Huawei's participation in the French telecoms infrastructure, without causing a serious disruption to the country's telecoms sector. When Merkel says she wants to maintain trading relations, this is partly to do with dependence. 

We noted that Norbert Röttgen, head of the Bundestag's foreign affairs committee and contender for the CDU's chairmanship, is fighting a lonely fight against Huawei and Nordtream 2. He called for the suspension of Nordstream 2, but this position does not carry majority support in the Bundestag. He see things very much the way we do. Unfortunately, he is better known in London or Washington policy circles than in the streets of Berlin. He has been trailing behind the other two candidates, which is why we are not expecting to see a change in the overall direction of German foreign policy. The two leading contenders, Friedrich Merz and Armin Laschet, are even more extreme than Merkel in their corporatist/mercantilist mindset. 

With the UK out of the EU and becoming more aligned with the US on foreign policy, Germany's weight in EU foreign policy has grown. Our observations about German foreign diplomacy are relevant to the EU level as well. If you are not ready to take a hit in the pursuit of a strategic interest, you are not a foreign policy actor. 

2 September 2020

Mr Wang goes to Berlin

Europe is taking a tougher stance against China, as Chinese foreign minister Wang Yi learned during a recent visit. From Italy to Germany, Wang’s counterparts were more critical of China’s human rights abuses. However, unlike France, Germany still prevaricates on one of the most contentious issues: 5G deployment.

Germany is desperate to include Huawei in its 5G network because it has no alternative, and doesn’t want to threaten its business with China. But it can’t break with France either. The upcoming US elections may be the deciding factor. Yesterday was the final day of Wang’s five-country tour of Europe, his first trip abroad since February. He began in Italy before travelling to the Netherlands, Norway, France, and Germany.

The trip was billed as a charm offensive. Europe has adopted an increasingly tough stance against China in recent months as Sino-American tensions mounted, and Wang repeatedly criticised America’s new cold war during his European tour.

Above all else, China is keen to secure access to European markets for Huawei's 5G-network technology. But Wang’s reception was not exactly warm. Every foreign minister he met was critical of China’s human rights record.

This was especially true in Germany. We’ve previously voiced our disapproval of the German government’s spineless self-censorship after the foreign ministry warned German citizens in Hong Kong not to criticise the Chinese government. But Heiko Mass took a very different stance yesterday during a 50-minute press conference with Wang. Maas pressed Wang on China’s stance in Hong Kong, its pandemic response, and Wang’s assertion that Czech senate president Milos Vystrcil would pay a heavy price for a visit to Taiwan. During the press conference, Maas told Wang that threats don't fit in here.

Still, while Europe was unified in pushing back on human rights, it remains divided on 5G deployment. When Wang was in France, Emmanuel Macron made it clear Huawei's 5G networks will be restricted and eventually phased out of France in the next eight years, in favour of European companies like Ericsson and Nokia.

But in Germany, Maas deflected a question about whether Germany will ban Huawei from its 5G network, saying only that the government is currently drafting a new security law that will determine its 5G framework. Maas told the media that a decoupling between the EU and China is not the goal. It is certainly not Germany’s goal, and Angela Merkel is still pushing in favour of Huawei. But Germany needs to present a united front with France. It must also preserve it relationship with the US, where there has been growing bipartisan pressure on Europe to ban Huawei from 5G networks.

Yet Germany may still postpone its decision until after the US elections. A Biden victory might provide an opening. 

2 September 2020

Belarus' opposition is already splitting

We wrote yesterday that it is impossible for revolutions to be micromanaged from abroad. By sheer coincidence, or perhaps not, this exact issue has come up in Belarus this week where the opposition is now splitting into two different factions. One is represented by Svetlana Tikhanovskaya, the presumptive winner of the Belarus elections who fled to Lithuania after the elections. The other one is Maria Kolesnikova, the only leading opposition politician still in Belarus and not in prison. Kolesnikova is the campaign manager for Viktor Babariko, a Belarusian banker and one of the leaders of the pro-democracy movement. He was arrested two months before the elections.

This week two videos surfaced. The first is an address by Babariko on the eve of his arrest. The second is a video by Kolesnikova from this week, in which she announced the formation of a new party with the name Together. Tikhanovskaya and Kolesnikova campaigned together, but the splits between the two women have now sprung out in the open. Barbariko and Kolesnikova seek reforms and are ready to engage with Alexander Lukashenko. Tikhanovskaya takes the view that she won the election and that reform can only happen after Lukashenko's removal. As FAZ noted, before the elections the three main opposition candidates managed to impress the outside world with their unity, but there is intense rivalry behind the scenes. A third woman, who was also a leading opposition campaigner, has fled to Moscow with her husband. 

This situation naturally favours those who are still in the country. The opposition clearly has no military or security base with which to defeat the regime. Street protests do not bring about a change in the government on their own. Strikes are potentially effective in a country with a strong export dependence. But the regime has been cracking down on striking employees with threats of mass sackings. Barbariko and Kolesnikova seem to have concluded that the best strategy for now is opposition within the system. We are not sure that this strategy will succeed, but we see zero chance that political change can be organised from abroad.

1 September 2020

What just happened in front of the Reichstag?

Germany is in shock after the demonstrations in front of the Reichstag building in Berlin. The shocking aspect is not the violence itself, but the coalition of demonstrators: centrist protesters marching together with neo-Nazis against the government's Covid-19 policies.

We see this as the backlash against 11 years of grand coalition politics. The media dismisses the demonstrators as conspiracy theorists. The newspapers are wheeling out historians and sociologists trying to explain what happened in a language that centrist media-types understand. Germany is not a country that rewards non-conformist behaviour. Nor is it one that comprehends it easily, as we witnessed with the almost total failure by the German media and political class to analyse the politics of Brexit in the UK. 

The demonstration was organised by a political movement called Querdenken 711. The word means thinking out of the box. The number refers to the postcode of Stuttgart where the movement was formed by a local businessman. Their statutes say they firmly support the German constitution. Their protests are directed against consensus thinking in general.

Covid-19 has spawned a new political movement. What distinguishes these people is that they act outside the political consensus, yet they are what Germans tend to describe as bürgerlich: centrist establishment, many self-employed. These are not neo-Nazis but, like the conservatives of the early 1930s, they are ready to co-operate with them.

The radicalisation of Germany's political centre does not surprise us at all. Angela Merkel's long reign has given us two legacies:  Her policies have contributed to the change of a monetary union from potentially unstable to irreversibly divergent. The recovery fund is a late attempt to correct this divergence but, as we have been arguing, with no great effect. 

These protests are about her other legacy, the radicalisation of German politics. She was the political master of consensus politics. It is not easy to establish successful political opposition against that consensus within the existing party system. Or to rise to the top of a political party or media organisation. But even in Germany, the role of the classical media is declining. The fabric that held the consensus mush together is losing its grip as it has done elsewhere too. 

Covid-19 is an almost ideal trigger. The virus is the ultimate immigrant, alien and unseen. Whatever conspiracy you might have can be folded into this. 

The AfD succeeded in catching that anti-immigrant mood of Germany's centrist establishment in 2015, but has since become too preoccupied with itself. Its main problem is the lack of a natural leader, and an inability to define new themes. The party now polls around 10%, its hardcore support. As the demonstrations in Berlin show, the discontent that once supported the AfD is still there. We estimate that around 25% of the German electorate is susceptible to a radical movement. 

This movement, too, lacks a leader, which limits its ultimate effect. But once such a leader emerges, the diffuse right could turn itself into a political force, possibly counter-balanced by a populist movement of the Left superseding the Left Party and absorbing the frustrated left wing of the SPD.

It appeared at one point that the age of the political movement had bypassed Germany. But that is not so. It is just happening with a delay. Querdenken 711 is a German version of Cinque Stelle. That, too, started life as a businessman's initiative. The German version is on the right for sure, but equally anti-establishment and out on the streets. We are not sure whether they will form the kernel of a future political party. What we are sure of is that old-style centrist politics, like a non-federal eurozone, is fundamentally unsustainable.

1 September 2020

When revolutions fail

There is no hard-and-fast rule to determine in real time whether a revolution is going to succeed or fail. Some, like the Polish uprising of 1980, failed at first but succeeded later. 

But there is one tell-tale sign of revolutions that fail: the leader leaves the country. The Catalan independence movement, which had its moment in 2017, ended the second Carles Puigdemont fled to Brussels to continue his campaign from there. Svetlana Tikhanovskaya, the Belarusian opposition leader, left for neighbouring Lithuania, as she said, for the sake of her children. These decisions are all perfectly understandable. At the same time, revolutions cannot be micromanaged from abroad.

A new opposition party has now been formed in Belarus with a different leader, but the police crackdown is also intensifying. The foreign press is being expelled. The story has disappeared from the front pages. 

One other element that is essential in a successful revolution is the participation of at least some sections of the security services. That was the case clearly in the famous revolutions in France and Russia, but absent in the failed uprisings in Egypt or China's Tianenmen Square. If Alexander Lukashenko looked after one section of his country, it was the military and the police.

And he managed to secure the support Vladimir Putin, at least for now.

We see democracy in Belarus closely intertwined with democracy in Russia itself. Belarus is clearly in the Russian political sphere, and destined to remain there. Unlike in Ukraine, the issue for the opposition in Belarus is not whether to align more closely with the EU and Nato. The protests are about democracy and the constitutional rule of law.

We are confident that the wider Russia-sphere will eventually return to democracy, without repeating the early-1990s mistake of imposing from above a free-market ideology for which the country's institutions were not ready. The authoritarian pushback in the mid-to-late 1990s in Russia and Belarus is the result of a failed westernisation of those countries.

What is encouraging about the Belarus revolution is that this is not a western-funded Chicago-school type movement. There is a good chance that the Minsk uprising will eventually be regarded as a turning point in Belarus' history. Its significance is probably to have spawned a generation of young leaders who are ready to take over from Lukashenko when the time comes. Poland had a generation of democratic leaders in 1990, while Russia didn't. As with high tech, we should not overestimate the speed of change, but focus on the quality of the change instead.