1989 Generation Initiative

Michael Cottakis, President of the 1989 Generation Initiative, recently interviewed Philippe Legrain, British political economist, author, visiting senior fellow at the LSE European Institute and former adviser to European Commission President José Manuel Barroso. In this disccussion, Michael and Philippe discuss Brexit, populism, upcoming elections in Europe and the potential way forward for the Union out of this crisis. The way forward looks grim, but perhaps it is just possible to tackle populism and the associated problems.

 

Michael Cottakis: Memories of 2016 will for a long time produce discomfort for pro-Europeans. What are the main challenges that Europe will have to overcome in 2017?

Philippe Legrain: I think the main problem is that the EU keeps on accumulating new crises without solving old ones. The Eurozone Crisis, the refugee crisis, the crisis over the rule of law and liberal democracy in Hungary and Poland, and so on, will continue to bubble along this year and threaten to erupt violently.

On top of that you have lots of big elections: France, the Netherlands, Germany, probably Italy as well, and in each case, authoritarian xenophobic nationalist parties, often known as ‘populist’, threaten to do very well, indeed in the case of Marine Le Pen and the Five Star Movement in Italy potentially even win. Then you have the expected triggering of Article 50 by Britain. I don’t think Brexit is going to have a huge impact this year, simply because much is not going to get negotiated, though obviously it will continue to dominate our political debate here in Britain.
The huge wildcard is the impact of President Trump on Europe. A trade-war with China and the EU more broadly could trigger a global recession that exacerbates all economic problems. The undermining of NATO, and therefore the security of Europe, poses huge challenges for a Europe which is ill-equipped to defend itself, is deeply divided on how to respond to the Russian threat and so far has struggled to come up with effective common EU defence policies.
Last but not least, a ‘black swan’; there were so many unexpected events in 2016 that it would be foolish in January 2017 to think that we have a crystal ball that can anticipate everything that might happen this year.

Cottakis: Of course there are serious concerns associated with potential backing of the Brexit camp by US President Trump. You mentioned – assuming that Theresa May will indeed trigger the famous Article 50 by the end of March – that Brexit will simmer on in the background without taking centre stage in 2017. What will the first phase of negotiations look like, considering the backdrop of elections in France and Germany?

Legrain: The British media and political class are absolutely obsessed with Brexit. Clearly the European Commission is also obsessed with Brexit, but if you go to other national capitals you’ll find that there are so many other issues that dominate. Brexit is not the main concern and indeed clearly won’t be if you’re facing an election as many countries are this year, or if you are facing many other crises. The idea that people in Athens are most concerned about Brexit at the moment is clearly not true.

That’s part of the problem; the British political class thinks that for Europe this is the most important issue and that Britain is so important that Europe is thinking of nothing else except of how to mitigate the damage of Britain leaving. That is part of the general miscalculation and the general over-estimation of Britain’s leverage.

But, coming to your question, I don’t think much is going to happen this year because, assuming we stick to the timetable that Theresa May has announced, Brexit will be triggered by the end of March, and then you have French elections in April and May, with legislative elections in June, and then German elections in September, plus the time it takes to form a coalition. There’s not going to be much that happens this year. In a sense, 2017 will be the continuation of the phoney war that we’ve had until now. A lot of talk and not much action.

In a sense, 2017 will be the continuation of the phoney war that we’ve had now. A lot of talk and not much action.

Cottakis: London is very much Brexit-orientated at the moment, for obvious reasons. But talking about the implications of the Brexit vote in other major European countries in 2017, do you feel that it strengthens the far-right populist movements in countries such as France, Germany or Italy?

Legrain: I think it could cut both ways. To the extent that Brexit is seen to be a disaster, then it could undermine their support. But I think psychologically, it’s more likely to be a positive, because if a big country such as Britain with a seemingly mainstream government is going ahead with leaving the EU, and so far the economy has not collapsed, it seems much more plausible and reasonable to be arguing to leave the EU, which is an electoral plank of Marine Le Pen in France and Geert Wilders in the Netherlands.

That said, I think the main reason for their support is due to domestic issues. In France, like elsewhere, there has been a complete loss of trust in establishment politicians who are seen as incompetent, self-serving, out of touch, corrupt. With enduring economic misery for many people and a cultural backlash against immigration, with immigrants seen as convenient scapegoats for all sort of other problems, that fuels the rise of far-right parties, which have very cleverly combined, a bit like national-socialism did, a left-wing economic perspective which appeals to working-class voters with far-right xenophobic policies, which provide a convenient, seeming solution to those problems. So you have a story whereby we have been screwed by establishment politicians we can’t trust who have surrendered our powers upwards to the EU, while allowing in immigrants we don’t want who in turn have made us worse off; that’s a very compelling narrative, and a dangerous one.

Cottakis: Greece has endured immense economic hardship for the last five years and that’s certainly something we need to touch on when talking about 2017. Greece has been relatively pro-European considering the crisis for the last five years; we look at opinion polls and the euro seems to have had between 65% and 75% approval among the general population. This has rather quickly begun to drop in the last six months. Even some liberal Europeanists believe that the best solution in the long-term for Greece is a slow break-up of the Eurozone. This is something exhibited more since the Brexit vote. I think while Brexit might not have immediate political implications for the EU in 2017 there are cultural implications associated with Brexit which cannot be ignored – i.e. the idea that a member state can exit. Greece needs to make a payment to the IMF by the end of February of this year and if it does not manage to cough up the cash it could well lead to the fall of the SYRIZA government. How do you see the Eurozone crisis developing, particularly in context of Greece? Would a change in government be a good thing?

Euro Symbol, Frankfurt

Legrain: My view on Greece, which I expressed publicly in my book “European Spring“, is that Greece has been treated extremely badly by its supposed European partners. That its creditors, other Eurozone governments, have in effect abused Greece’s desire to remain in the Eurozone and the fear of the economic consequences of departure to impose deeply iniquitous conditions on it make it tantamount to a colony; a colony where the creditors are trying to extract as much value as possible, which doesn’t allow the conditions for economic recovery, and which invites political extremism and polarisation.

When SYRIZA confronted Eurozone authorities in 2015 and ultimately backed down then won re-election, it revealed that most Greek voters were so afraid of being thrown out of the Eurozone, having what remains of their savings and assets re-denominated into devalued Drachme and allowing SYRIZA to govern the country without Eurozone tutelage, that they were willing to continue to accept deeply unfair conditions. But while I was surprised by this at the time, I don’t think that the situation is sustainable. Since the Eurozone creditors have continually failed, once the pressure is off, to deliver on their promises of meaningful debt relief, let alone an investment package to enable further growth, and since they manifestly are not running Greece in the interests of Greece, but in their own interest, such a situation is unsustainable. If you tell me that Greeks are finally shifting towards that position, then I’m not particularly surprised. What is more surprising is that it has taken so long; Greece’s economic situation is worse than any country’s outside wartime since the Great Depression. It’s clear that Eurozone authorities are responsible for, if not the crisis itself, then its severity and duration.

Cottakis: And it’s particularly worrying for 2017, this trend is now becoming stronger.

Legrain: The big issue is that for the moment the Eurozone is held together by the accumulated political capital of the European Project and fear of the alternative. The crisis is eroding that political capital, and over time the continuing costs become so great that people say ‘well, we’re willing to take a leap in the dark’. You can say enough Britons were willing to take a leap in the dark by Brexiting, and I think at some point, unless the situation changes, that is likely to happen in Greece or indeed, in Italy too, which of course has had two decades of stagnation and where it is manifest that the euro has been bad for the economy.

Cottakis: I was going to ask you about Italy as well, that’s another kettle of fish. Promising signs show that Italian bad loans have been reduced by 2 billion in the last month, but the bigger picture in Italy is not rosy, is it?

Legrain: Well, the bigger picture is that Italy has suffered two decades of stagnation, with the safety valves that, one, it had a lot of accumulated savings, and two, that talented Italians were able to leave. Then Matteo Renzi became prime minister and there was a hope that he would reform the country and enable it to stay in the Eurozone, alongside a shift in the policy environment with the launch of QE by the ECB, a weaker euro, and a slightly more expansionary fiscal policy.

Yet even with all those positive tailwinds, you see an economy that grew by less than one percent per year, and where the best hope for reform – and you can argue that he wasn’t much of a hope at all, but he was certainly the best hope – Matteo Renzi has now lost his job. There is a high chance of an anti-euro government, if not at the next elections then at some point, given that the Five Star Movement, the Northern League and Silvio Berlusconi’s Forza Italia are now anti-euro. To argue as many Italians do, that it’s inconceivable that Italy will leave the euro because of the technical obstacles that exist, I think is a mistake. I think if there is no hope economically then politics is likely to bring about at some point that rupture, and indeed even if it doesn’t involve a formal referendum on leaving, simply the formation of an anti-euro government, the prospect of departure, could in turn provoke a financial crisis that forces Italy out.

To argue as many Italians do, that it’s inconceivable that Italy will leave the euro because of the technical obstacles that exist, I think is a mistake.

Remember that the ability of the ECB to stabilise Italian government bonds is limited given the constraints that exist in its QE programme, and the triggering of the so-called OMT, which was the way that Draghi stabilised the Eurozone in summer of 2012, requires the country to agree to an ESM programme with conditionality. It’s not clear that an anti-euro government would be willing or, indeed, credibly able to commit to such a programme, at which point the ECB, unless it decided to completely throw the rule book out the window, wouldn’t be able to intervene. Nor is it plausible in such circumstances that Germany would agree to leap towards a Eurozone fiscal union with mutualisation of debts. At this point, even if we don’t go to a referendum, Italy could be forced out, and then we are in the mother of all financial crises, and indeed, the mother of all political crises.

Cottakis: Well, it’s a terrifying picture that you’re painting. The 1989 Generation Initiative is organising a conference on Tackling Populism in February, which you’ll be attending. The overarching question that will be raised at the Conference is how to tackle the underlying causes of populism. Now of course, concrete policy proposals are not enough, you need a much bigger shift in direction of policies if you are to defeat the forces of populism and its underlying causes. How would you formulate an action plan to defeat populism?

Legrain: I think that it’s a mistake to think that you can defeat a political backlash with a technocratic fix. So, while a shift of policies is necessary, it’s not sufficient. So-called populism takes many forms and has many causes. But if you ask, why has it gone from being something which was on the fringes to something which is in striking distance of a majority, I think the answer is that the establishment is no longer trusted. They’re seen as incompetent, they’re seen as self-serving, out of touch, corrupt.

Therefore it requires not just a shift in policies to encourage faster economic growth, rising living standards which are broadly shared, falling unemployment particularly among young people, reassuring people about the pace of change, but also a shift in the political system, which means new political leaders emerging who are putting forward positive alternatives, who recognise the mistakes that have been made, who aren’t trying to shut down political debate with rules and technocratic fixes, but are willing to engage in political debate, who are trying to address genuine problems as well as misconceptions, who are seen to be honest and not in the pockets of banks or big business, and so on. The problem is that there are obstacles clearly to that at the national level, and there are even bigger obstacles to that on the European level, given that in effect the European Union is a technocratic organisation which proceeds either by unanimity or by qualified majority, where changes like that are very hard to make and the link between the citizen and the outcome at the European level is distant. Therefore it’s very hard for the European Union itself to change course.

Populism also requires a shift in the political system, which means new political leaders emerging who are putting forward positive alternatives.

Cottakis: We can always try our best. I think it’s safe to say that our Conference in February will be a showcase of opinions on how to tackle populism, among them, your opinion.

Legrain: I mean it’s up to your generation; young people a) take the EU for granted because that’s what they’ve always known, and b) have lived in a kind of lovely liberal world, and that liberal world is now under threat, and unless your generation is willing to become politically active and not be cynical about politics, and not just click “like” on Facebook, but actually mobilise and vote in elections, then by default a gerontocratic Europe where old people do turn up to vote is going to be governed against your interest. We saw that very clearly with the Brexit vote which would’ve gone differently had more young people gone out to vote, and it’s true more widely, so it’s up to your generation in particular to become more politically active.

Cottakis: Absolutely, and of course that’s what the 1989 Generation Initiative is all about. We’ll have some fantastic speakers at the Conference, including you, that will help inspire us into action, and I’m very much looking forward to that.

Stay tuned for our next podcast which will continue the conversation about our predictions for 2017. It will feature Mareike Kleine, Associate Professor of EU and International Politics at the LSE’s European Institute.

Image used under CC license.

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