We are the people, who are you?

Hidden away in Jan Werner Mueller’s book on populism is a gem of a quote from Recep Erdogan ‘We are the people, who are you?’ It is a powerful, defiant statement from a politician who has become the embodiment of Turkey – first by seducing its people with progress, growth and national achievement, and more recently by capturing the state – breaking and denuding its institutions, and as a result of his actions and values, annihilating its economy (inflation has pushed close to 100%).

Erdogan will become a central figure in the news in coming weeks. While there are no major elections in G7 countries this year, the Turkish presidential election (first round is on the 14th May) is important internationally for a range of reasons.

It is a decisive pivot point for Turkey, which is clinging to democracy and to the notion of a stable economic structure. A victory for Erdogan will quench that democracy and arguably cause those who still have hope for its economy to throw in the towel. It might dim forever the example of Kemal Ataturk that Turkey should strive to be secular, democratic and lean Westwards.

More broadly, Erdogan is a test case in the ‘autocratic-recession’ thesis – populists like Bolsonaro, Boris and Donald Trump have been derailed, and a change of guard in Turkey would mean that one of the longest standing populists has been rejected, and that Turkey’s democracy might again breathe.

Geopolitically the election is highly significant. There was a time when Turkey was admired as a role model and force for stability in the middle east (notably so in the aftermath of the Arab Spring) and its foreign policy maxim was ‘no trouble with neighbours’. As we have noted in this previous missive, Turkey is enmeshed in conflict at every point of the compass – stuck in the Azerbaijan-Armenia conflict, active in Libya and Syria, at odds with Israel, the most obstreperous member of the NATO alliance and a ‘frenemy of Russia. Simply put there is a lot at stake.

Standing against Erdogan is the veteran politician Kemal Kilicdaroglu – who has been leader of the Republican People’s Party since 2010. He is an economist and civil servant by background and generally regarded as mild-mannered though in recent weeks he has led demonstrations outside the offices of ministers. This is partly because the ante has been upped by the political consequences of the earthquakes which led to 50,000 deaths.

Not unlike the fatal derailing of a train in north-eastern Greece, the human toll in the Turkish earthquake is recognized to stem from the consequences of corruption – either through shoddy engineering or in the failure of Turkey’s institutions to provide help to the stricken.

Erdogan – despite being a career politician is widely thought to be a billionaire, and he as members of his family are derided as ‘Mr 10%’ is some quarters (the original Mr 10% was – allegedly – Benazir Bhutto’s husband who it was said took a fee of ‘10%’ of every major contract in Pakistan).

I have heard people that the same holds in Turkey. Whether this is true or not Turkey is the example I always use to illustrate the negative effects on bond and currency markets of the weakening of institutions (Erdogan’s family and close allies have for example controlled the treasury and central bank).

In this regard, Turkey is a salient tale in the rise and fall of nations. Since the early 2000’s when Kemal Dervis had righted the banking system and the prospect of membership of the EU was dangled in front of it, Turkey made great progress. Lately this has come to a halt as policy making, the quality of institutions and the rule of law have been degraded.

Ironically, the authority on the importance of institutional quality and the need for a sense of civic ethic is Daron Acemoglu (the author with Simon Robinson’s of ‘Why Nation’s Fail?, and they have a new book called power and progress out soon).

Acemoglu, like Dani Rodrik, is one of the leading economists in the world, and Turkish. Both of them I am sure, lament the direction that their country has taken, and both would have clear policy answers to set it back on course.

To return to the election, Erdogan’s latest rick is to ‘pull a sickie’ and cancel campaign events in a move that some insiders say is an attempt at a sympathy vote. My sense is that should the first round of the election be close then Erdogan will go into full populist mode and enact the Trump play card – claiming a conspiracy by the army, outside forces and potentially, a rigged vote. The fate of the mayor of Istanbul, in jailed for speaking out against the Erdogan government, is a sign of how far Erdogan is prepared to go to safeguard his position. A good deal also depends on the cohesiveness of the opposition parties in the face of an onslaught from Erdogan.

Defeat for him would ripple across emerging markets, Ukraine and the middle east.


Chris Mullin was regarded as one of the most likeable MP’s in Westminster, serving well before it became poisoned and banalised by the Brexit bullies. He had many talents – a human rights campaigner and notable author. His book ‘A Very British Coup’ is very good and was turned into an excellent tv series. His political diaries are amongst the best of the genre.

Early last week, a particular phrase in those diaries came to mind. In 1997, when Tony Blair had come to power, Mullin wrote ‘To my surprise I notice that Blair is given to mild name-dropping. This week he mentioned that in Holland yesterday he had called on the Queen. The other day, he quoted something Hillary Clinton had said to him. On another occasion, he quoted the president of Brazil, on another that he was off to see the Queen.’

My memory of this diary entry was twigged on Monday night in Belfast at the dinner to celebrate the 25th anniversary of the Good Friday Agreement[1], by the sight before me of Blair, obscuring my view of Bill and Hilary Clinton.

‘Get out of my way man!’ I shouted, as I made my way to see Bill (I did not of course say this, but I did manage to snatch a minute of Bill’s time). 

Now that I have gotten my own name-drop out of the way, the real reason I bring up the topic of Bill Clinton is that the economic circumstances of the early part of his presidency give a steer as to what may come next this year.

In particular, with inflation ebbing from high levels fears of a recession are mounting, and institutions like the IMF and the Federal Reserve are warning of this. Macro-wise, lead economic indicators (NY Fed recession indicator, Philly Fed, Conference Board lead indicator) and bank lending data point to a contraction in growth.

While this is now one of the most widely expected recessions (given the debate amongst economists), we should be ready for that debate to amplify with commentators speculating on whether we have a ‘U’, ‘V’ or ‘W’ shaped recession.

In this context, there has not been a traditional business cycle contraction/recession in a very long time – the COVID recession was a ‘shock’ event, the global financial crisis was a calamitous financial system event, and the 2001 dot.com recession was – apart from the technology and banking worlds – not much of a recession. Then 1997/98 was again a mixture of a bubble and financial market crisis. This leaves the recession of the early 1990’s and its aftermath as one of the few recent examples of an ‘ordinary’ recession.

Of course, the oddity with this litany of financial crises is that central bankers (and their economic models) still think in terms of notional business cycles.

So, back to the Clinton years. Perhaps three things stand out. 

High inflation, a war, an oil price shock and rising interest rates all caused the recession of the early 1990’s, and helped deepen the Savings and Loan crisis (a crisis of incompetence and skulduggery). We have just about had all those already. Notably the beginning of the recession ended the political career of George H Bush, who went from having record approval ratings in the aftermath of the Iraq War to a stumble over ‘no more taxes’.

Financially, the aftermath of the recession was very complicated – the ERM crisis led to the ejection of the pound from the currency board, and in 1994 persistent inflation led to a huge unwind in bond prices in the context of ongoing tightening by the Fed. That the Japanese bond market was a significant factor here is worth considering today, given that higher Japanese yields could be the next ‘shoe to drop’.

To gather these strands together, the world is vastly more complicated today than it was in the 1990’s, and the set of risk factors is broader. Of interest also is that the US is not the dominant economy at a time when coordination between the large regions is difficult to achieve.

My expectation is that we are entering into a classic business cycle (U -shaped if you must) that will be greatly complicated by strains across the debt markets. The stark difference between one and three month interest rates in the US is a sign of things to come, and specifically of a messy debt ceiling debate in the USA. If interest rates remain at high levels in 2024, and if they rise further in countries like Japan and the UK, then we might even have a debt crisis.

On that cheery note, have a great week ahead.


[1] Thank you Garret

Fractured World, Part Deux

I had wanted to write on the nature of the coming recession, but something more important came up, and even though it concerns Emmanuel Macron whom we wrote about two weeks ago, it is central to the thesis of The Levelling that the world will be cleaved into three ‘poles’ each driven by different value sets and increasingly distinct ways of doing things.

One of the rules of political leadership is that when in trouble domestically, a leader should go abroad, or start a war. Emmanuel Macron effectively did both last week, when in the vapours of his visit to Beijing, he carelessly distanced the EU from the US, the international fight for democracy and the cause of Taiwan (Macron spoke as five dozen Chinese jets harassed Taiwan, and China war-gamed missile attacks on the Taiwanese mainland).

Macron’s comments on the geopolitical outlook have caused quite the stir and it is worth dwelling on them and on how others perceive and react to them, not least because they give important indications of how the world order is evolving and where points of sensitivity are. 

First, some context, from Paris. Most French people find Macron’s personal manner hard to take because either he reminds them of their boss or like the clever student, he gives lengthy, erudite replies to questions. That his personal style is beginning to grate was in some part behind the motivation behind the recent protests against pension reform.

Second, language and style are important. In French (see the Les Echoes interview) Macron’s comments are not quite as bad as English language headlines suggest. Many of those in apparent shock at Macron may not speak French nor will they appreciate that he speaks in long paragraphs rather than soundbites ready for media consumption. Having said that, Macron might want to speak less.

There were many things Macron should not have elaborated on – the dollar, his view of Taiwan and China’s belligerence towards it. In some respects his views on Taiwan begin to resemble the views of isolationist (mostly far right) American politicians on Ukraine. In many respects, this is a diplomatic victory for China and a defeat for the notion that there is a coherent view across the West on the sanctity of democracy.

There are important elements in Macron’s frame of mind for American diplomats to consider – the side-effects of AUKUS, the risks of another Trump like government in the US and the impact of the IRA Act on European leaders. Worryingly, Saudi Arabia has also taken a step away from its close relationship with the US. 

Further, Macron’s stated desire for Europe not to be a vassal of the US was very badly expressed.

I spent much of last week in Dublin and will be in Belfast next week – and while the visit of Joe Biden to Ireland highlights the extremely close cultural ties between the US and Ireland, the Good Friday Agreement (now 25 years old), the Dayton Accord and possibly German unification, could not have happened without the US. Most Nordic and Baltic states, together with Poland would rather have the US as a close ally, and that likely riles Macron.

However, the Biden visit to Ireland also demonstrated that Europe is changing – Ireland today bears little resemblance to the image of Ireland Biden grew up with, and the America of the Kennedy’s, Reagan and Clinton (all good Irishmen) is a distant memory when we think of the challenges Biden has to contend with.

European governments will not be happy with the expansive nature of Macron’s comments on the role of Europe in the world and on how strategic autonomy is defined, and most of them will feel that President von der Leyen is the correct person to pronounce on these issues. She is often the victim of casual sexism in that the men in the room downplay her views and role.  

However, part of Macron’s comments on strategic autonomy may have been deliberately disruptive. To date, few other leaders apart from Macron have tried to publicly elaborate on strategic autonomy. The time is come for others to step forward – possibly the Dutch prime minister or the Estonian prime minister and even the German foreign minister (also in China last week and who laid out a much firmer line).

Geopolitically, the friction caused by Macron’s remarks is part of noisy evolution of the multipolar world, where the three main regions – the US, China and the EU will fill out their geopolitical identities and frame relationships with each other. Europe in particular has more work to do in defining strategic autonomy in a practical way.

Economically, there are two very important points to make. First, in his weekly note David Skilling draws on recent data and research from the IMF to show that geo-politics is driving the foreign direct investment flows, with flows into strategic sectors and semiconductors now avoiding China.

As David puts it, the implication is that increased geopolitical tensions are likely to lead to FDI being increasingly concentrated within geopolitical blocs.  There are various geopolitical scenarios, but a ‘hard fragmentation’ into closed, competing geopolitical blocs will have a strongly negative economic impact as FDI flows are distorted – the IMF assesses ~2% of global GDP – as countries lose the economic benefits that come from FDI

This shows that the battles of words and ideas over Taiwan has real implications, and in time many corporates will themselves have to start taking sides, and in many cases, pronouncing a view on Taiwan.

My final point this week concerns the coming global recession. Having spent months denying there could be a recession the likes of the Federal Reserve and the IMF are now actively flagging this as a risk, not least as bank lending plummets. Amongst other things, the nature of the next recession will have geopolitical consequences – whichever region manages to come out of recession first, will have the edge in the ‘war by other means’.

Have a great week ahead,


Edmond Dantes?

n France, the latest production of the ‘Three Musketeers’ is hitting cinemas and it is feted for being the most expensive French film ever made. My attention however is focused on another of Alexandre Dumas’ works, ‘The Count of Monte Cristo’, where the main character Edmond Dantes, deviously wronged as a young man, eventually escapes prison on Château d’If, builds a fortune and then exacts revenge on his rivals.
The book was set around the time of Napoleon’s escape from Elba, but this time I associate it with another well known political figure, Donald Trump. If he reads books, Trump might fancy himself as a modern-day Edmond Dantes – he will prove his tormentors wrong when his case for campaign fraud is held at the end of this year, and then march back into power. Yet, I think that ‘The Donald’ is unlikely to enjoy the same triumph as ‘The Count’ but the great risk for America is that the court case turns out to be a damp squib and he manages to turn this to his advantage in the 2024 presidential race.
I hope that this does not turn out to be the case, and the media, social media and most of the Republican party bear responsibility for giving Trump the political oxygen he craves, and not the shame and censure that someone who has debased American institutions deserves.
The prospect of a second Trump presidency and the fragility of American public life is a key reason why European governments now worry publicly about the US as a political partner. More seriously, it has caused some countries – Saudi Arabia as we noted last week – to start to bet against American decline. American declinism is a growing cottage industry, matched by the ‘Europe will fall apart’ brigade, and led by the ‘end of the dollar’ crowd.
This group was out in force last week, forecasting the end of the dominance of the dollar. I think this is unlikely. China – allegedly the coming financial empire – makes up barely 3% of world fx reserves. It has yet to be tested by a full recession and it continues to make the wrong sort of geopolitical friends (fragile states like Russia and Iran). Chinese monetary policy is still opaque, and surprise currency devaluations are a live risk. Further, few Westerners or professionals from countries like Indonesia, Bangladesh and India want to live there and the barriers to doing so are high.
If developed world currencies are likely to lose their place in the world trading system it is likely to be smaller ones like the pound and the Swiss franc. Brexit is making the pound less relevant in a number of ways, and the Credit Suisse debacle will sow fears regarding trust in Swiss laws and the durability of its banks. Traditionally, one reason that the Swiss franc remained strong was that capital flowed into the country and did not flow out. At the margins, this may change – possibly to the benefit of larger American banks.
So, if the dollar is safe for now, there are still two issues to worry about. The first is that whilst it is financially the most dominant nation, America’s diplomatic power is much reduced. One illustration is to think of how it was the central, organising force behind most of the financial and economic rescues of the past fifty years – from the Brady bond solution to Latin America’s crisis to Alan Greenspan’s ‘Committee to save the World’ after the Asian crisis. When the next crisis comes, America will be the most significant player but not the dominant one and the risk for the US, is that the solution to that crisis may tilt financial power away from it.  
The second more profound worry is that at the heart of American society there is a disturbing set of socio-economic trends. America today is debatably the most unequal (in terms of wealth) society ever (I have even compared it to the Roman empire)
Gravely, life expectancy and adult health have dropped sharply – a highly unusual development in a rich country, and one more associated with some kind of emerging market socio-economic shock (Russian life expectancy dropped by nearly five years from 1990 to 2005 for example)
An important paper by Anne Case and Angus Deaton (2015 Nobel winner), “Rising Morbidity and Mortality in Midlife Among White Non-Hispanic Americans in the 21st Century,” highlighted the deterioration in health conditions, especially those relating to mental health, for middle-aged white men and women in the United States.
The mortality rate for this cohort has increased sharply owing to drug and alcohol poisoning, suicides (the United States is seeing a sharp rise in suicides, according to the Centers for Disease Control and Prevention) and related diseases such as cirrhosis of the liver. Groups with lower levels of education saw a sharper rise in mortality. Gun violence is of course another problem (witness the debate in Tennessee).
The worsening of inequality, social and health conditions in the US is a sign that politicians should pay much greater attention to health in public policy. If a serious politician is looking for a mantra and a program to run in 2024 he/she should try ‘Make Americans Healthy Again’.  
Have a great weekend,