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23 August 2021

Not welcome here

Asylum seekers have become the latest weapon in a hybrid war between Belarus and the EU. News broke last week that Poland had deployed around 900 soldiers to its border with Belarus to prevent an influx of asylum seekers from entering the country. More than 30 asylum seekers remain stranded between the Belarusian and Polish border, which is now under military guard and being reinforced with barbed wire.

Poland’s crackdown came after neighbouring Lithuania toughened its own border controls to counter the same problem. Lithuanian officials report that more than 4100 people have crossed into the country illegally this year, the majority of whom arrived in July. But between 5 and 16 August, only 14 people made the crossing from Belarus. Lithuanian border guards are pushing asylum seekers back, and the Lithuanian prime minister is unapologetic.

Ingrida Simonyte, the Lithuanian prime minister, insisted that the asylum seekers crossing into her country are aware that what they’re doing is illegal, and that the European convention on human rights does not say anyone can cross any border at any time.

The convention is just one of many international obligations Lithuania is under, she said, and others – such as guarding the EU border and maintaining the Schengen agreement – are also important. She admitted that Lithuania is hoping to receive EU funding to build more than 500 km of border wall, although the EU has already said it doesn’t finance fences.

Simonyte repeated accusations that Belarus is flying asylum-seekers in from dangerous and war-torn countries such as Iraq, and pushing them into the EU in retaliation for sanctions against Alexander Lukashenko’s regime. Footage has emerged showing Belarusian security forces in riot gear entering Lithuanian territory to push asylum seekers forward.

As the exodus from Afghanistan continues, we expect tensions will get worse. We noted in July that Belarus has been negotiating a visa agreement with Pakistan, which is already home to at least 1.3m Afghan refugees. Belarus obviously lacks the capacity to bring hundreds of thousands of people into the EU, but Lukashenko's strategy has exposed how sharply attitudes have shifted in the past six years. Greece, France, Germany and Austria are on the same page as Lithuania – no repeat of 2015 – leaving asylum seekers vulnerable to becoming weaponised and dehumanised. Furthermore, German and French elections are looming large, and the issue is politically poisonous. Expect future immigration reform to focus more on securing borders and financing third-country camps than meaningful changes to the Dublin regulation. 

6 August 2021

If the EU fails, this is how

No one statistic ever tells a complete story, but this one comes a long way: In the 2020, year one of the pandemic, the number of start-ups in the US rose by 24%. In Germany they fell by 11%. In absolute numbers, the US has five times Germany's GDP, but nine times as many start-ups.

When we discuss European politics, we talk about EU governance, fiscal and monetary policy, immigration and EU enlargement. What Europe's multiple crisis have in common is that they are driven to a large extent by a lack of innovation, and the resulting lack of productivity growth. Stagnant societies close themselves off to change. They oppose integration and open immigration policies. Lack of innovation and over-reliance on old technology is the reason why German foreign policy is trapped in neo-mercantilism. If your current account surplus accounts for 8% of GDP, what else can you do? You have insufficient degrees of freedom left to pursue other political goals.

Earlier this week, we noted a German commentator questioning whether the Greens had even thought about the demise of the old industries that would be accelerated if their programme was implemented. The Green transition would mean that entire industrial segments are in danger of disappearing.

A reader wrote in this week making the point that the EU's planned carbon-border adjustment mechanism would cause disproportional damage to existing industries. Recent physical disruption in global supply chains is only a foretaste of what is to come.

These objections are real. The ideal strategic response should have started a decade ago with a policy to encourage diversification and the development of new industries as old industries die. Virulent creative destruction is disruptive, but would give societies room to compensate the losers, and move forward.

This strategy requires massive investment. It requires a rediscovery of entrepreneurship, and with it a reinvention of an education system that is currently designed to feed industrial employment, as is the case in Germany, or to support elite structures, which is what has been happening in France and the UK. The various plagiarism scandals in Germany are in one respect a sign that society places an excessive value on academic titles, and mostly useless publications. The value of a good education should be in what it teaches, not in the honours it confers. In this sense, we should look at plagiarism scandals as a metric of how far away we are from that reality.

It is arguable that a Schumpeterian process of creative destruction, while ideal in theory, is not attainable in practice given where Europe is right now. It cannot be delivered by the state, or by existing private sector companies. It is too disruptive for European tastes.

The alternative strategy consists of ultra-long adjustment periods, like Germany's infamous 2038 exit date from coal. One politician we see as a typical representative of that strand of thinking is Peter Altmaier, the German economics minister. He is not a climate-change sceptic, but a target-sceptic. He wants to give industry more time to adjust. He is, of course, in favour of Nord Stream 2, because of the energy security it brings.

Where we think this strategy will fail in practice is an over-optimistic take on what extra time can do. The idea of electric cars is hardly new. The German car industry bet the house on diesel technology, and its criminal extension, the software cheating devices. It is somewhat naive to think that a five-year delay in the phasing out of fuel-driven cars would give the diesel boys time to reinvent themselves.

The default position - the one that happens when nothing else happens - is increased dependence: on US technology companies; on Chinese inward investment; and on Russia gas. We might call it non-creative destruction. That result is a gradual impoverishment, more inequality, and rising political discontent and fragmentation. Foreign policy will become even more mercantilist. Nationalism will rise and support for European integration will fall. It cannot conceivably prosper in an environment of technological backwardness. Forget about the conference on the future of Europe. A struggling inward-looking Europe will not move in one or the other direction.

There are signs of hope. The BioNTech vaccine was a rare success in a sea of EU vaccine development failures. If Europe could replicate that success in other areas - like environmental and agricultural technologies, alternative food production, water treatment, robotics and new production technologies, the 21st century would have finally arrived. Europe has slept through the digital revolution, AI, and electric cars. But there are many other exciting 21st-century technological developments to be exploited. The mistake the EU and member states are most likely to make is to rely on existing companies, rather than encourage new ones. We should remember that all of the Big Four are newcomers. The electrical giants of the 1960s are nowhere. The European car companies will not be the leaders in electric cars. Success and failure will depend on new entrepreneurs, not old ones. The real opposites are not the left and the right, industry and union, but old companies and new ones.

As of now, the EU is still living in an extended 20th century, led by 20th century political figures like Angela Merkel, and Ursula von der Leyen. Politicians cannot on their own produce creative destruction, but they can set conditions for it to flourish. They have not done so. The EU is an entrepreneurial wasteland. Ireland and the Netherlands are business-friendly, in the sense that they have loopholes for large American corporates. But unlike the US itself, neither is particular friendly towards young entrepreneurs.

If European integration fails, this is why and how. It won't be because of Viktor Orbán, or austerity, or policy errors committed by central bankers. It will be because Europe continues to live in the past.

5 August 2021

From bad to worse in Lithuania

We wrote yesterday about a new wave of migrants set to hit the EU as Nato forces withdraw from Afghanistan. Turkey is the most likely landing point for most, but the rising crisis in Lithuania might also be made worse by this new wave.

Gabrielius Landsbergis, the Lithuanian foreign minister, called on the EU for more help with border control and asylum applications yesterday. According to him, more than 4000 people had already crossed the border from Belarus this year, when that number would usually be closer to 80. The total number of new arrivals could hit 10,000 by the end of the summer, putting small and relatively remote border villages under unprecedented strain. With just 2.8m people, Lithuania is now receiving more asylum seekers per capita than any other EU member state.

The situation is a powderkeg, and Landsbergis blames Alexander Lukashenko. He’s accused the Belarusian president of bringing planeloads of people in from Iraq, Syria and African countries under the guise of tourism, then sending them to the EU to claim asylum. He noted that the Belarusian government is currently negotiating visa liberalisation with Pakistan and adding flights from Islamabad to Minsk, meaning people fleeing the war in Afghanistan could be the next pawns in this sad game.

Landsbergis had a number of concrete proposals that would help Lithuania address the situation, though we are not sure he will find much success at the EU level.

He wants more sectoral sanctions on Belarus, and for the EU to intensify pressure on migrants’ home countries by restricting visa programmes. No European company should facilitate the trafficking route, he said, which means companies should not be renting planes to airlines bringing migrants to the border. One small problem with this – Betavia-Belarusian Airlines, the country’s national carrier, will be receiving its next four leased aircraft from an American company, Air Lease Corporation, having already taken delivery of one new Boeing jet in April this year.

Landsbergis said Lithuania should not be left alone to control the border, and requested both increased technical assistance and an extraordinary Council of interior ministers meeting in mid-August. He also defended plans to build a border wall, telling Politico it would prevent Lukashenko from pressuring Lithuania into submission. The EU has rejected a request to help pay for the project, stating that it doesn’t finance fences. But as we previously reported, Lithuanian border towns don’t want to build camps. And as we argued yesterday, the crisis and stalemate will only be made worse by German and French election seasons, which will delay any efforts to reform the union’s migration and asylum policies. Landsbergis argued that the message the EU is sending is not sufficient to change the way things are, but we don't expect EU leaders to break from the current strategy of doing nothing. Expect the situation to get worse before it gets better.

4 August 2021

La résistance against mandatory rules

Mandatory vaccination and health passes were never going to go down smoothly with the French. As the measures are expected to become official this week, there are first signs of resistance on the horizon. 

Several trade unions are now calling for a strike in the health care sector ahead of mandatory vaccination deadlines. The calls are still dispersed, unlimited strikes were only requested in hospitals in Lyon, Marseille and Bastia. Trade unionists promise that this is not about vaccination as such, but free choice and against the harsh sanctions the law prescribes if they fail to get vaccinated. If the constitutional council confirms the law by August 5, health care workers will have to get vaccinated by September 15 with a second jab by October 15, or else face unpaid suspension.

The second part of the law is about health passes, which would be obligatory for public services and the hospitality and entertainment sectors the moment there is the green light from the constitutional council. Hospitals are fretting about how to organise emergency services with this new requirement to present a health pass before entering the hospital. There may have to be exemptions to the rules.

Then there are restaurants and bars. Some already experimented and introduced health pass rules ahead of the law. Communities in the South chose the health pass to allow bars to open longer than the curfew still in place. All restaurants and bars, though, registered a fall in clients once they started controlling health passes. Will this be different if all restaurants and bars are obliged to check? Or will more people just shun going out to avoid this new control mechanism in their social life? Back to the home dinner parties then? No health pass is needed there, at least not yet. 

3 August 2021

Open society and its fake friends

Germany yesterday extended vaccination to 12-18 year olds, but the story comes with an unusual twist. The country's permanent vaccination commission said it does not recommend the vaccination of children because it is not clear that the risks of children contracting Covid-19 exceed the risks of vaccination.

What we are seeing is an interesting example of what happens when experts and politicians reverse the role. One immediate impact we noted were the usual defenders of anything that experts say now attacking the very experts whose words they followed religiously at the beginning of the pandemic. This is in addition to another interesting role reversal we have been observing in the media: the so-called liberal centrist opinion formers, the kind that support every trade deal or multilateral agreement, are now the ones at the forefront of those who advocate compulsion - pro-lockdown, pro-mandatory vaccination, and violent police crackdowns on anti-vaccination protesters.

For a group of vaccination experts to recommend caution constitutes a disorienting experience. The head of the Commission, Thomas Mertens, said there are not enough data available yet about the long-term side effects, which is why the commission was not able to issue a recommendation. He said it was his commission's task to produce advice on the basis of the best available information.

The German state health ministers yesterday decided to disregard the recommendation and paved the way for a voluntary vaccination of children. The decision was unanimous. It will be up to parents to decide whether the children get the vaccination or not. We would expect legal challenges. The deputy chairman of the FDP, a lawyer by training, said he would not recommend politicians ignoring an expert panel if only on the grounds that this decision might not survive a judicial review.

The frenzied debate in Germany also reflects panic about the delta variant. It is not yet widely registered in Germany that case numbers in the UK have been falling rapidly. The UK only has a marginally higher vaccination rate than Germany - 57.5% vs 51.2%. But the spread of the delta variant started much earlier in the UK, so the gap in vaccination rates, relative to the spread of the variant, is non-material.

We are reminded of Brexit - another issue where both sides took principled positions, and bent the data as it suited them. We see a big trap for liberal democracy. The biggest disservice you can conceivably make to raise acceptance of vaccination is to make them compulsory. Just as it was the biggest mistake of the pro-EU forces in the UK to pretend there was no alternative to EU membership.

The open society is not threatened so much by its enemies, but its supporters.

2 August 2021

No jab, no job

Mandatory vaccination is now part of the tool box to manage the spread and to return to life as usual. Even if recent studies suggest the protection is drastically reduced to about 60% against the delta variant, this narrative is still upheld by politicians and companies alike. We expect the pressure to proceed with mandatory vaccination to continue as long as the variants continue to spread and there is a lack of ex-post remedies against Covid and all its mutants. 

The no-jab no job policy is already rolled out by several companies including Google, Facebook and Netflix. Morgan Stanley and Goldman Sachs have their mandatory policies in place in the US, but for their staff here in Europe they only issued strong recommendations so far. Will more companies in Europe follow suit? Health passports are seen as impractical for daily routines and people are keen to take off their masks. Trade unions across the continent have been advocating both safe workplaces and the vaccine, but added that employers unilaterally demanding workers to be vaccinated is not acceptable. If companies go ahead in imposing mandatory vaccination for staff, workers could refer to the European Convention on Human Rights (ECHR) – specifically Article 8, which protects the right to private life - to push back any form of mandatory vaccination plan. But this would probably not apply to new hirings.

There may also a no-jab no-job policy for employment in the civil service. Mandatory vaccination has already been introduced in the healthcare sector. Next in line is the education sector, where several member states are preparing mandatory vaccinations for teachers and strong incentives for students. In federal states, vaccination mandates involve the states. Some are keen to move ahead. Lower Austria, for example, just announced that the state sector will only hire those who are vaccinated and commit to updating their vaccinations. Other states are still considering their options. There is a call for a federal obligation to avoid litigation and competition between states, though this is rejected by states run by Social Democrats or the Greens.

Expect a cacophony of different approaches across companies and government sectors, and a flood of litigation to come.

30 July 2021

The new 48%

One of the great cautionary tales of the last five years is how to start off with what looked like a strong case and end up with 48%. What happened to Britain’s Remain campaign is now happening to the campaign to deploy vaccines: Tell the anti-vaxxers that they are stupid; exaggerate your case like the French education minister, who told the lie that vaccination means that you can longer infect anybody. Or lecture people that they should listen to experts; and when things get really bad, talk about compulsion. Compulsory vaccination is the second referendum of our time. If we can’t get what we want, we have other ways.

It is unsurprising therefore that the vaccination rate in the US is stalling at just under 50% - almost exactly where the Remain vote ended up five years ago. We have never seen a more misguided political campaign than that one - until now.

Vaccination is one of the great success stories of modern science. It is one of the great success stories of German and British science in particular. The focus should be to make vaccines available to anybody, anywhere in the world, and also to make all the information about them available. We are not going to fight anti-vaxxer lies with official secrecy.

Readers may well remember how the news of the AstraZeneca blood clots leaked almost by accident, when an independent German research lab raised alarm bells. At that time, many more doses of that vaccine had already been deployed in the UK. Why did the NHS, or the British government, not volunteer that information? They did only when the medicine agencies, alarmed by the German research, asked for it. Why not share the data voluntarily? Can the public not handle it?

And why not admit that there is logically a degree of uncertainty about the long-term side effects of the vaccines? Never before in history have vaccines been developed and deployed in such a short time. In the German debate about whether to give the vaccine to under-18 year olds and small children, that uncertainty is at least acknowledged by officials. It is logically also true that the risk of a side effect from a vaccine relative to the risk of severe illness from Covid-19 is different for children than for older adults.

There is also a lack of information about vaccine effectiveness. All the hard data we have seen in respect of the delta variant came from Israel and the Netherlands. How is that possible, when there are so many more delta variant infections in the UK? The Israeli studies suggest that the vaccine offers a high protection against severe illness, but a lower level of protection against becoming infected and against spreading the virus.

If that is so, what then is the logic of making vaccination compulsory for certain groups of people? Would testing not be more effective? The reason governments want to drive up vaccination rates beyond original targets is precisely because the vaccines are less effective. You need more of them to achieve the same degree of herd immunity.

Knowing how government communication works, the most plausible explanation we have is that information is deployed on a need-to-know basis. Governments don’t want awkward data to get in the way of the campaign. But remember that if you withhold information, you give the floor to the people on Facebook who tell us that the vaccines contain a microchip of Bill Gates' brain.

At that point you have lost the moral high ground. And you end up with another 50-50 division, like Remain-vs-Leave, or Trump vs Clinton. For the vaccination campaign to be successful, it requires a bigger margin of victory than Joe Biden’s over Donald Trump.

29 July 2021

Compulsory schooling vs compulsory vaccines

We are still in the summer holidays, but what will happen in schools once the children return in September is the next big controversy in countries where mandatory vaccination is already in place for health care workers. Should teachers have to vaccinate to protect the children? Should children vaccinate to stay in school? If so, from what age? How will compulsory education be compatible with various vaccination speeds?

The French government already released a new protocol: In secondary schools, once a case is confirmed, vaccinated students can stay in class while non-vaccinated have to go home for seven days. Teaching will then be delivered both physically and virtually. It did not take long for the first criticism to arise: How will this work in practice if half of the class is in the classroom, the other at home? Also, who is controlling the status of vaccination? What about classes with children aged less than 12 years? Will the entire class have to be sent home if there is a case in the older classes? 

There will be strong incentives to get the children vaccinated, with vaccination facilities coming directly to the schools. Legally, vaccination remains the prerogative of the parents. There is strong pressure to vaccinate though. Jean-Michel Blanquer, education minister, hammered down the message yesterday: once you are vaccinated, you no longer contaminate others. This is factually not true, it depends on the vaccine and the variant. But if this message prevails, it will create a division between those vaccinated and non-vaccinated, despite reassurances to the contrary. Expect a messy school start, frustrated teachers and confused parents. 

In Italy the coalition spat over what to do with the education system is not over yet. Mario Draghi and Matteo Salvini met but could not agree on mandatory vaccination for teachers. Salvini insisted on freedom to vaccinate. What is then the difference between school personnel and health care workers? The plan is to meet next week and see whether data suggests a worsening of the spread or not. Time is pressing though. Schools and parents expect clear guidelines what to do in September when the schools reopen. The education ministry already has a plan out there, with staggered entries and a goal of getting 60% of the under 12 year olds vaccinated. President Sergio Mattarella weighed in on the debate, stating that vaccination is a moral and civic duty. The smooth running of the next school year is an absolute priority to fill the gaps that have emerged during the pandemic, so the president. 

In Greece, plans to make vaccination mandatory have been shelved for now. The government decided that forcing schoolteachers to get the jab or face suspension without pay would cause too much disruption. There were also concerns over pitting government and educators against each other while trying to push through an education reform.

28 July 2021

Elites vs elites

One of the changes that is happening in the UK is that elite universities are recruiting more students from state schools. One unsurprising response from the left is Andrew Adonis’sno more Borises comment. As observers but not participants of the British class wars, our take is somewhat perpendicular. We see the problem not only in the people Oxford recruits, but in what Oxford does. A three-year course in politics, philosophy and economics - that ends with a Bachelors' degrees and a masters degree thrown in for free, is hardly an elite education. Oxford is still great to go if you want to develop the next generation of vaccines, or study the classics. They are good at material science. But all these departments are in heavy competition with many others in the world.

There are two types of elites, the meritocratic and the privileged. The privileged is the one that seals itself off in places like Davos, in exclusive clubs, and in glorified finishing schools. We know of organisations in London that used to recruit from Oxford and Cambridge only. These organisations had similar characteristics of those universities. They used to be in the financial sector, like merchant banks, coddled oligopolies with a high capacity for rent seeking. Those businesses either no longer exist, or have changed so fundamentally that they can no longer afford to do this. Smart employers choose blind recruitment, not based on interviews or CVs, but based on performance criteria, a method pioneered by the Israeli army. Membership of an elite school no longer guarantees membership of an elite university. And membership of an elite university no longer guarantees an elite job - at least not in competitive industries.

Elite universities are one of the category errors of our time. Yesterday, we noted the annual publication of the list of the world’s top universities, with the usual suspects in the usual places. The US has five, the UK has four and Switzerland has one among the top ten. The best school in France was Paris Sciences et Lettres, on place 44. The best in Germany was the Technical University of Munich. For France and Germany, these categories mean nothing. When you graduate from high school in Germany, you don’t start by picking your university but the subject. In some subjects, prospective students have a free choice of universities. But not in others. In such a system, it makes no sense to compare universities. The right unit for comparison would be departments.

The world's most successful modern companies are not creatures of universities. Bill Gates and Steve Jobs were college drop outs. The founder of BioNTech, Germany’s most promising company for decades, studied medicine at Cologne university, which is not on the list. Real elites don’t live in lists.

27 July 2021

Where Cummings is right

The tragedy of Dominic Cummings is that he has a deep understanding of Britain’s political dysfunctionality, yet no way to impact this outside of government. When in government, he chose the wrong priorities, and kept too high a profile. His lasting claim to fame will always be the Vote Leave campaign. Without him there would have been no Brexit, we are sure of that.

Behind this victory lies a deep understanding of the failure of successive UK governments - a lesson of importance for the rest of Europe as well. In the final consequence, it is a failure to harness productive growth through innovation. In the flood of his recent tweets we discover a thoughtful reference to an author who puts this in a nutshell: civil servants and ministers prefer to be in control of mediocre processes, rather than be out of control with super-productive processes. We completely agree with this. If only he had focused on this stuff and kept his head down, he could have had a chance to implement some of this.

The trend towards mediocrity is the bane of modern governments in general. When people stop marvelling at Angela Merkel’s political longevity, they will find a country that has no functioning systems in place to evacuate people. Or a system that can't manage a nationwide vaccine rollout. Or a system that doesn’t know how to pick winners. The German government invested €300m in Curevac, the German vaccine that didn’t make it. The Wirecard episode is ultimately a systems failure - one based on a wrong understanding of good vs bad innovation. German energy policy has been a random walk - that ended up with a dependency on Russian gas.

The UK has had a more strategic approach to vaccination, financial regulation and energy policy, but it is in danger of failing in the post-Brexit world. Brexit is an event that can only work if you drop the business-as-usual mindset. It is anti-conservative in nature. If nothing happens, all that is left of Brexit will be the predictable and predicted fall in the trade in goods with the EU. Brexit comes with a certain downside and an uncertain upside. Cummings understands this issue at a much deeper level than Johnson and his people. It will take some creative destruction for the UK to yield positive results from Brexit.

We expect Cummings will eventually return to politics because he knows how to campaign and because he has something to say. This, not what he thinks about Johnson, is much more interesting and likely to be impactful.