Dr. Rebecca Harding
CEO Coriolis Technologies
EU elections will dominate the news this coming week. For all Europe’s main political parties, the vote is about stemming the tide of populist parties. The rally in Milan on the weekend ahead of the elections brought right wing nationalist parties from across the region together to demand changes to Europe’s economic, financial and political governance. Their protests are not anti-EU as such – they are targeted directly at the European People’s Party which is a grouping within Europe of the centre-right, including Germany’s Christian Democrats, Fine Gael in Ireland and the Republicans in France. The protests are a push for the reform, not the demise, of the EU.
In the UK, the elections will be no less populist in nature. But in contrast they will be dominated by Brexit and focused on delivering a clear message to the Theresa May’s government: one of betrayal from the Brexiteers, and one of frustration from the Remainers. This is a very different battle to that in the rest of the EU; the elections were not supposed to be happening and are set against a backdrop of political atrophy and sustained uncertainty for business.
We have reached this point because of the failure of both the EU and national political parties to show clear leadership after the Global Financial Crisis and its aftershocks in Greece and the eurozone. Ordinary people across the region were asked to tighten their belts and accept flat real wage growth. Meanwhile, the world’s largest financial institutions that had instigated the crisis moved their resources to Asia and, by fuelling growth there while European growth lagged, added to the sense that an elite benefited where the masses did not. The effect has been a worldwide backlash against globalisation, the financial structures that drove it and the political classes that supported it.
Yet the difference in perspectives between the populists who want European reform, and those in the UK who just want to leave may well be rooted in a different understanding of the role of trade and national interests. For the populists rallying in Milan, the EU has supported globalisation by allowing the free movement of capital out of Europe and people in to Europe at the expense of national control over fiscal policy. The problem boils down to the fact that a country’s budget deficit within the eurozone has had to remain at less than 3% of GDP meaning that national governments cannot boost fiscal expenditure to mitigate flat growth.
The UK’s economic populism is different because it is not in the currency union. Many of the economic arguments for Brexit channel into one theme: the fact that it is “impossible” to do trade deals within a customs union or single market with a third country. However, Germany signed £17bn of trade deals with China in 2018, Italy has become the first G7 country to become part of the Chinese Belt and Road Initiative despite reservations at a European Union Level, and while these reservations were being expressed, France was signing aerospace and agriculture deals worth $45bn with China. The UK remains the dominant beneficiary of Chinese FDI in Europe by some distance.
So, while it is certainly the case that, while the UK is in the European Union, it cannot set its own external tariffs and it has to trade within the EU’s regulatory framework, it is absolutely not the case that the UK’s businesses cannot form trade deals while it is in Europe. Nor is it the case that those deals cannot be supported by the national government.
More importantly in understanding the effects of the different premises of populism in Europe is the way in which populism itself is now re-aligning trade policy globally. This has become particularly marked within the past three years as the US has taken an overtly nationalist approach towards its trade with the rest of the world, and with China in particular.
The US has a near identical stance towards China, Japan, the EU and the UK in its trade negotiations. It will promote its own security, its own technology, its own agriculture and manufacturing, and its own currency, above all other interests. Trade has become a tool of its coercive foreign policy – the case of Huawei illustrates that it will seek to achieve its own national security objectives by influencing the trade of others, in the case the EU and the UK.
In contrast, as the majority of Europeans go to the polls this week, the core economic issues in the eurozone are the same has they have been since its inception – an over-reliance on austerity and monetary policy at the level of the ECB which has failed to address the concerns of voters on the ground, first in Greece and now in Italy.
As the UK goes to the polls, the manifest and complex issues of trade, globalisation, political failure and the UK’s identity outside of the EU will be subsumed into a protest at the failings of its government to negotiate Brexit. The rhetoric will be of independence but in a world where political influence is driven by the leverage that can be extracted from the size of a country’s trade, the key question is whether or not the UK can survive alone.
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