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,


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