‘I Struggle, I Overcome’

Bismark wonders what is going on in Europe

The Iron Chancellor Otto von Bismark is said to have remarked that ‘if you like laws and sausages, you should never watch either one being made’. These wise words might well also apply to the making of government, with the recent political scramble in the EU being a case in point. Like a good horse race, or even decent murder mystery, all of the leading candidates at the start of the week (i.e. Timmermans, Weber, Vestager) dropped out of sight and we ended up with some surprise nominations.

Watching proceedings from Paris and Madrid, there seemed to me to be very little process to the nominations, and many Europeans will be left mystified as to how their leadership has come to power. It should be said that in other parts of the world, the formation of governments and cabinets is equally opaque. Famously Dick Cheney, appointed to lead the search for George W Bush’s Vice-Presidential candidate, ended up picking himself.

If there was a method to the creation of the new executive in Europe it is to be found in the tale of political ‘three cushion billiards’ recounted by the late Wilfried Martens, formerly Belgian Prime Minister, in his 2009 book ‘I Struggle, I Overcome’.

In 2004, faced with the prospect of that Guy Verhofstadt could become EU President – a move many Brussels insiders rejected – Martens charmed Manuel Barroso into becoming a candidate, but instead of nominating Barroso he instead proposed Chris Patten, knowing that Patten’s candidature would be rejected and thereby leaving an open space for Barroso. Europeans should be grateful to have such devious leaders.

In the end, the EU has ended up with a leadership that is reasonably well balanced in terms of gender, parties and regions. The losers in the process were the Visegrad Four (Poland, Hungary, Czech Republic and Slovakia), paying the price for their spurning of liberal democracy and the rule of law.

It is notable that two of the prominent leaders in – Lagarde and von der Leyen are women – and this is a positive development. In particular, Lagarde is a role model not just for women but for all young people in France in that her background shows that the route to career success for a French person does not have to pass through ENA. Perhaps the most significant turn in her career was her failure to gain entry to ENA, and she then spent much of her career practicing law in the US.

On a more pessimistic note, the careers of Lagarde and von der Leyen (who studied at the LSE under the name Rose Ladson because of the threat of kidnaping by the Baader Meinhof gang) highlight the risks facing Europe in the future, and worryingly, the lack of willingness to tackle them.

First, the market reaction to Christine Lagarde’s appointment was revealing. Bonds in the riskiest, most indebted nations rallied hard. Italy, which has an entirely unsustainable debt load, a track record of no growth and a reckless government now has a ten-year bond yield of 1.74%. This reflects the market’s assessment that Lagarde’s policy approach at the ECB will be to dose any manifestations of the shortcomings of the euro-zone with more liquidity.

Such an approach increases the long-term risks to the euro. My fear is that Lagarde’s approach will be to dampen crises with politics and easy money, and not to fix the structural issues that provoke those very crises. It cannot be healthy that central banks dull markets’ appreciation of risk. In my view it would be much better to have an ECB President who will pushes Brussels to complete the building out of the euro-zone financial system.

Critics of Lagarde will also point out that under her stewardship, the IMF has lost credibility and Argentina may prove this point in coming months. In my book ‘The Levelling’ I devote some space to the ways in which the institutions of the 20th century like the IMF have become outmoded. In the case of the IMF, it may no longer have a role in a multipolar world where regional approaches to policy are gaining traction. In addition, its analytical and policy prescriptions are increasingly being proven wrong.

Then, Ursula von der Leyen’s previous appointment was as German defence minister, a posting that led some to suggest that she might become the next head of NATO.   Germany’s army, where only a fifth of tanks and helicopters are combat ready and where there is a chronic problem of recruitment is emblematic of a Europe that on one hand is peaceful, but on the other is not prepared for a significant security challenge. In the EU, only France can boast of a credible military and security force.

In the near future, Europe will be increasingly confronted by a range of military and security issues – risks that security guarantees to the Baltic states might be triggered, ongoing cyber attacks on member states, the ‘soft’ incursion of Russia into Hungary and Serbia for instance, the consequences of the disintegration of Syria and Libya and the pressures created by migrants and refuges, to name just a few. Coordination, training and spending all need to be radically stepped up. My worry is that if the state of German army helicopters is a sign of readiness, then the EU will be caught out.

Have a great week ahead

Mike

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