Nine months after invading Ukraine, Vladimir Putin is beginning to fracture the West.
Top European officials are furious with Joe Biden’s administration and now accuse the Americans of making a fortune from the war, while EU countries suffer.
“The fact is, if you look at it soberly, the country that is most profiting from this war is the U.S. because they are selling more gas and at higher prices, and because they are selling more weapons,” one senior official told POLITICO.
The explosive comments — backed in public and private by officials, diplomats and ministers elsewhere — follow mounting anger in Europe over American subsidies that threaten to wreck European industry. The Kremlin is likely to welcome the poisoning of the atmosphere among Western allies.
“We are really at a historic juncture,” the senior EU official said, arguing that the double hit of trade disruption from U.S. subsidies and high energy prices risks turning public opinion against both the war effort and the transatlantic alliance. “America needs to realize that public opinion is shifting in many EU countries.”
The EU’s chief diplomat Josep Borrell called on Washington to respond to European concerns. “Americans — our friends — take decisions which have an economic impact on us,” he said in an interview with POLITICO.
The biggest point of tension in recent weeks has been Biden’s green subsidies and taxes that Brussels says unfairly tilt trade away from the EU and threaten to destroy European industries. Despite formal objections from Europe, Washington has so far shown no sign of backing down.
At the same time, the disruption caused by Putin’s invasion of Ukraine is tipping European economies into recession, with inflation rocketing and a devastating squeeze on energy supplies threatening blackouts and rationing this winter.
As they attempt to reduce their reliance on Russian energy, EU countries are turning to gas from the U.S. instead — but the price Europeans pay is almost four times as high as the same fuel costs in America. Then there’s the likely surge in orders for American-made military kit as European armies run short after sending weapons to Ukraine.
It’s all got too much for top officials in Brussels and other EU capitals. French President Emmanuel Macron said high U.S. gas prices were not “friendly” and Germany’s economy minister has called on Washington to show more “solidarity” and help reduce energy costs.
Ministers and diplomats based elsewhere in the bloc voiced frustration at the way Biden’s government simply ignores the impact of its domestic economic policies on European allies.
When EU leaders tackled Biden over high U.S. gas prices at the G20 meeting in Bali last week, the American president simply seemed unaware of the issue, according to the senior official quoted above. Other EU officials and diplomats agreed that American ignorance about the consequences for Europe was a major problem.
“The Europeans are discernibly frustrated about the lack of prior information and consultation,” said David Kleimann of the Bruegel think tank.
Officials on both sides of the Atlantic recognize the risks that the increasingly toxic atmosphere will have for the Western alliance. The bickering is exactly what Putin would wish for, EU and U.S. diplomats agreed.
The growing dispute over Biden’s Inflation Reduction Act (IRA) — a huge tax, climate and health care package — has put fears over a transatlantic trade war high on the political agenda again. EU trade ministers are due to discuss their response on Friday as officials in Brussels draw up plans for an emergency war chest of subsidies to save European industries from collapse.
“The Inflation Reduction Act is very worrying,” said Dutch Trade Minister Liesje Schreinemacher. “The potential impact on the European economy is very big.”
“The U.S. is following a domestic agenda, which is regrettably protectionist and discriminates against U.S. allies,” said Tonino Picula, the European Parliament’s lead person on the transatlantic relationship.
An American official stressed the price setting for European buyers of gas reflects private market decisions and is not the result of any U.S. government policy or action. “U.S. companies have been transparent and reliable suppliers of natural gas to Europe,” the official said. Exporting capacity has also been limited by an accident in June that forced a key facility to shut down.
In most cases, the official added, the difference between the export and import prices doesn’t go to U.S. LNG exporters, but to companies reselling the gas within the EU. The largest European holder of long-term U.S. gas contracts is France’s TotalEnergies for example.
It’s not a new argument from the American side but it doesn’t seem to be convincing the Europeans. “The United States sells us its gas with a multiplier effect of four when it crosses the Atlantic,” European Commissioner for the Internal Market Thierry Breton said on French TV on Wednesday. “Of course the Americans are our allies … but when something goes wrong it is necessary also between allies to say it.”
Cheaper energy has quickly become a huge competitive advantage for American companies, too. Businesses are planning new investments in the U.S. or even relocating their existing businesses away from Europe to American factories. Just this week, chemical multinational Solvay announced it is choosing the U.S. over Europe for new investments, in the latest of a series of similar announcements from key EU industrial giants.
Allies or not?
Despite the energy disagreements, it wasn’t until Washington announced a $369 billion industrial subsidy scheme to support green industries under the Inflation Reduction Act that Brussels went into full-blown panic mode.
“The Inflation Reduction Act has changed everything,” one EU diplomat said. “Is Washington still our ally or not?”
For Biden, the legislation is a historic climate achievement. “This is not a zero-sum game,” the U.S. official said. “The IRA will grow the pie for clean energy investments, not split it.”
But the EU sees that differently. An official from France’s foreign affairs ministry said the diagnosis is clear: These are “discriminatory subsidies that will distort competition.” French Economy Minister Bruno Le Maire this week even accused the U.S. of going down China’s path of economic isolationism, urging Brussels to replicate such an approach. “Europe must not be the last of the Mohicans,” he said.
The EU is preparing its responses, such as a big subsidy push to prevent European industry from being wiped out by American rivals. “We are experiencing a creeping crisis of trust on trade issues in this relationship,” said German MEP Reinhard Bütikofer.
“At some point, you have to assert yourself,” said French MEP Marie-Pierre Vedrenne. “We are in a world of power struggles. When you arm-wrestle, if you are not muscular, if you are not prepared both physically and mentally, you lose.”
Behind the scenes, there is also growing irritation about the money flowing into the American defense sector.
The U.S. has by far been the largest provider of military aid to Ukraine, supplying more than $15.2 billion in weapons and equipment since the start of the war. The EU has so far provided about €8 billion of military equipment to Ukraine, according to Borrell.
According to one senior official from a European capital, restocking of some sophisticated weapons may take “years” because of problems in the supply chain and the production of chips. This has fueled fears that the U.S. defense industry can profit even more from the war.
The Pentagon is already developing a roadmap to speed up arms sales, as the pressure from allies to respond to greater demands for weapons and equipment grows.
Another EU diplomat argued that “the money they are making on weapons” could help Americans understand that making “all this cash on gas” might be “a bit too much.”
The diplomat argued that a discount on gas prices could help us to “keep united our public opinions” and to negotiate with third countries on gas supplies. “It’s not good, in terms of optics, to give the impression that your best ally is actually making huge profits out of your troubles,” the diplomat said.
Giorgio Leali, Stuart Lau, Camille Gijs, Sarah Anne Aarup and Gloria Gonzalez contributed reporting.
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Barbara Moens, Jakob Hanke Vela and Jacopo Barigazzi
Europe, the world’s biggest consumer of chocolate, and West Africa, the leading grower of the cocoa beans used to make it, share a common goal to make the sector sustainable.
But they have opposing views on how to put an end to the social, economic and environmental harms caused by satisfying Europe’s sweet tooth, heralding a showdown over who will bear the costs of complying: Big Chocolate or cocoa farmers.
The EU is finalizing regulations that seek to ensure that chocolate entering the market is free from deforestation and child labor. At the same time, Ghana and Ivory Coast, the world’s biggest cocoa producers, are demanding higher prices. That’s vital, they say, to make sustainable chocolate a possibility — and not a pipe dream.
The stakes are high: For the EU, cocoa is a test case for how companies and producers react when the bloc tries to impose higher standards. For producers, the push to set up a cartel could drive up prices in the short term — but also risks stimulating oversupply and ultimately causing a price crash that would deepen the poverty already suffered by most cocoa farmers. Chocolate makers, facing rising costs and greater scrutiny, may reroute supply chains to other cocoa-producing countries seen as less risky.
Doing nothing is not an option, said Alex Assanvo, who heads the joint West African initiative to support cocoa prices.
“We are not asking to pay them more, we are asking to pay them a fair price,” Assanvo told POLITICO in an interview. “If we believe that this is going to create oversupply, well then I don’t know, maybe we should stop eating chocolate.”
Bittersweet taste
Chocolate may be sweet but the industry that makes it is not. Most of the beans used to produce the world’s supply are grown by impoverished West African farmers; all too often from trees planted on deforested land and harvested by children. One problem drives the others. Poverty pushes farmers to chop down forests to produce more beans and profits and to put children to work as they cannot afford to pay wages to adult laborers.
To address this, Ghana and Ivory Coast, which produce 60 percent of the world’s cocoa, formed an export cartel in 2019 modeled on the Organization of the Petroleum Exporting Countries (OPEC). They introduced a $400 per ton Living Income Differential, which aims to bring the floor price up enough to cover the cost of production.
In public, big chocolate manufacturers and traders, including Barry Callebaut, Cargill, Ferrero, Hersey, Lindt, Mars, Mondelez and Nestlé, welcomed the initiative.
Yet behind the scenes many of the firms — which between them account for about 90 percent of the industry’s $130 billion in annual profits — have done everything possible to avoid paying the premium and to drive prices back down, according to the Ivorian Coffee-Cocoa Council (CCC), the Ghana Cocoa Board (Cocobod) and their joint Initiative Cacao Ivory Coast-Ghana (ICCIG).
The companies that responded to requests for comment from POLITICO said that they have paid the Living Income Differential (LID) since its introduction. The Ghanian and Ivorian trade boards and the ICCIG claim, however, that they have negated the LID’s value by forcing down a different premium, the origin differential.
Fed up, these countries boycotted the World Cocoa Foundation Partnership Meeting at the end of October in Brussels. They then gave the companies a deadline: commit to the premiums by November 20 or the countries would ban their buyers from visiting fields to carry out harvest forecasts and suspend their Corporate Social Responsibility programs – which sell well with ethically-minded consumers.
More harm than good?
Another proposed remedy comes from Brussels. Cocoa is one of the products to which the new EU legislation on due diligence — Brussels speak for supply-chain oversight and compliance — would apply.
Under this, large firms operating in the bloc will be forced to evaluate their global supply chains for human rights and environmental abuses, and compensate injured parties. In theory, this should reduce deforestation and child labor and improve the lot of farmers.
Yet, as European ambassadors thrash out the terms — and big players like France push for them to be watered down — concerns are growing that the legislation could turn out at best to be ineffective in practice, and at worst do more harm than good.
Cocoa farmers, and the NGOs that support them, have reason to be skeptical: Back in 2000, a BBC documentary exposed the widespread use of child labor on cocoa plantations in Ivory Coast and Ghana. The resulting media pressure led to a proposal for legislation in the United States forcing companies to certify chocolate bars free of child labor.
Companies pushed back hard, Antonie Fountain, managing director of cocoa NGO coalition The Voice Network, told POLITICO. The proposal was dropped and companies committed instead to a voluntary plan to solve child labor, he explained: “And that turned into a two-decade failure of policy.”
The resulting patchwork of pilot projects failed to transform the sector. Despite an initial decline, nearly 20 years after the framework was introduced 790,000 children in Ivory Coast and 770,000 in Ghana are still working in cocoa, with 95 percent of them exposed to the worst forms of child labor, according to a 2020 report.
Deforestation has meanwhile accelerated.
Ivory Coast has lost up to 90 percent of its forest in the last half century. Between 2000 and 2019 alone 2.4 million hectares of forest was cleared for cocoa farms, representing 45 percent of the total deforestation and forest degradation in the country, according to Trase, a data-driven transparency initiative.
The government’s attempts to safeguard what remains are half-hearted and often undermined by corruption: In 2019 a quarter of Ivory Coast’s cocoa production was in protected areas and forest reserves, the Trase study found. This left the EU exposed to 838,000 hectares of deforestation from Ivorian cocoa. Commodity trader Cargill leads the pack, according to Trase, with its 2019 exports exposed to 183,000 hectares of deforestation.
Over the last decade companies have proposed corporate social responsibility (CSR) initiatives that aim to tackle both ills. For instance, Mondelez, the maker of Cadbury and Toblerone, recently committed $600 million to tackle deforestation and forced labor in cocoa-producing countries, bringing its total funding for environmental and social issues to $1 billion since 2010.
These sums are, however, puny by comparison with the profits earned by those firms, said Fountain. Mondelez returned $2.5 billion to investors in the first half of 2022.
Mondelez is “excited” about its investments, the firm said in a statement. But it is calling for more sector-wide actions and rethinking its incentive model. Cargill did not respond to a request for comment.
Social responsibility
The big numbers that companies cite about their CSR programs’ reach often boil down to one-off training sessions on productivity for farmers, Uwe Gneiting, senior researcher at Oxfam, told POLITICO. This was the case for 98 percent of the 400 farmers interviewed for research recently carried out by Gneiting and others from the charity into the impact of sustainability programs over the last decade in Ghana on farmers’ incomes.
The research finds that CSR initiatives, which companies use to tout their sustainability credentials to European consumers, have not meaningfully increased farmers’ productivity or profits, pointed out Gneiting. In fact, farmers end up shouldering the associated costs, because companies offer the training but do not pay for extra labor or the fertilizer that farmers need to put it into action.
Instead, Ghanian and Ivorian farmers have been hammered by the soaring cost of production and of living over the last three years, finds the new Oxfam research. Fertilizer costs have increased by more than 200 percent, said Gneiting, along with labor and transportation costs. That in turn has contributed to a decline in yields that have also been hurt by climate change, with weather patterns becoming increasingly unpredictable.
All of this has meant incomes have declined close to 20 percent since 2019, said Gneiting, which for farmers already living on the poverty line is “existential.” The decline would have been much worse, he added, if it hadn’t been for the Living Income Differential. Nonetheless, 90 percent of the farmers interviewed say they are worse off than three years ago.
Over the same period, as cocoa prices have fallen, companies have made “windfall gains,” said Isaac Gyamfi, director of Solidaridad West Africa. “The raw material became cheaper for them. But the price of chocolate didn’t change.”
Can Brussels sort it out?
To what extent the new due diligence directive will make a difference depends on the final text that was put to a meeting of EU trade ministers on Friday.
When the European Commission first came up with the draft it was seen as a game changer, but subsequent wrangling over the regulation’s scope has raised doubts. Last week, ambassadors from France, Spain, Italy and some smaller countries voted down the text in the European Council, seeing the value chain and civil liability provisions as too wide and too ambitious.
Two-thirds of Ivorian cocoa is exported to the EU and the U.K. | Issouf Sanogo/AFP via Getty Images
A European diplomat told POLITICO that France supported the proposed directive “very strongly,” and its view that it was important to concentrate on the “upstream” part of the supply chain was shared by a majority of EU member countries.
NGOs take the view that, while it’s positive that the EU is proposing broad legislation, there is a risk that it ends up replicating the mistakes that undermined the voluntary initiatives. One of these is the potential limitation of the companies’ due diligence obligations to “established business relations.”
“What you’re going to get is a whole bunch of companies that are going to try to have as few established business relations as possible, which just makes supplying commodities more precarious, rather than less,” said Fountain.
Analysis from Trase finds that 55 percent of Ivorian cocoa, two-thirds of which is exported to the EU and the U.K., comes from untraceable sources. NGOs working on cocoa and on other sectors due to be impacted by the new directive are calling for it to be applied to business relationships based on their risk rather than their duration.
The civil liability mechanism, which should guarantee compensation for people whose rights have been violated, has also come under scrutiny. The latest compromise proposal debated in the Council, seen by POLITICO, reduces the risk of companies getting sued by stipulating that a company can only be held liable if it “intentionally or negligently” failed to comply with a due diligence obligation aimed to protect a “natural or legal person” — not a forest, for instance — and subsequently caused damage to that person’s “legal interest protected under national law.” But, it states, a company cannot be held liable “if the damage was caused only by its business partners in its chain of activities.”
Earlier this year, the EU, Ivory Coast and Ghana and the cocoa sector all committed to a roadmap to make cocoa more sustainable, which, they agreed, includes improving farmers’ incomes. Yet it remains unclear whether this will be mentioned in the final draft of the due diligence directive.
“Sustainability cannot exist without a living income,” said Heidi Hautala, Green MEP and chair of the European Parliament’s Responsible Business Conduct Working Group. Hautala, who is among those pushing for the reference to a living income to be included in the final text, added that responsible purchasing practices are “a prerequisite for respect of human rights, environment and climate.”
Living income “needs to be a part of it because otherwise you’re in trouble,” agreed Fountain.
“If you don’t look at what does a farmer need in order to comply, if you don’t make sure that a farmer actually has the right set of income, then all you’re doing is pushing the responsibility for being sustainable back to the farmer. And this is what we’ve done for the last two decades.”
Jamie Dettmer is opinion editor at POLITICO Europe.
LVIV, Ukraine — Inna missed her father’s funeral.
The grieving 36-year-old Ukrainian lawyer learned of his death as she and her two young daughters — one aged seven, the other five — boarded a flight from Heathrow Airport in London to Poland.
It was at the mist-shrouded railway station at Przemyśl, 16 kilometers from the Poland-Ukraine border, that her plan to pay her graveside respects unraveled, as salvoes of Russian missiles slammed into Ukraine’s power grid, also impacting Inna’s hometown of Vinnytsia.
The barrage on the country’s energy infrastructure — the worst it’s experienced since October 10 — not only threw major cities and small villages into darkness and cold, but it’s also wreaked havoc on Ukraine’s railways, grinding trains to a halt and leaving them powerless at stations.
Away from the front lines of battle, this is what Russian President Vladimir Putin’s war on Ukraine looks like — a slight, dignified blond-haired woman, with two young children in tow, trying to mourn her father and reach her 72-year-old mother to comfort her.
Knowing the journey back home would be arduous, Inna had tried to persuade her daughters to stay in Clapham, south London, where the three have been living with an English family for the past six months. “They have been very kind to us,” she explained.
Inna’s studying business administration now. Her daughters are in school. “Six months ago, they knew no English; it was hard at first for them,” she told me. Now, the kids chatter away in English, with the elder explaining her favorite thing to do at school is drawing; and the younger chiming in to announce she loves swimming.
But that calm, predictable life they’ve been living in England seemed far away right now.
The girls had insisted on accompanying their mother to Ukraine because they wanted to see their grandparents … and their cats. “When is the train coming?” the oldest demanded several times.
And as the night drew in, and the cold settled along the crowded platform at Przemyśl’s train station, other flagging, bundled-up kids started asking the same question, while parents — mainly mothers — tried to work out how to complete their journeys across the border.
As they did so and debated their options, a Polish policewoman insisted that smoking wasn’t allowed on the platform, and volunteers wearing orange or yellow vests offered hot tea, apples and fruit juice. Still, there was no sign of the scheduled train, and no information about it either.
While we waited on the platform, through the windows of a small apartment block across the road, Polish families could be seen glued to their television sets — no doubt absorbing the news that a missile had hit a grain silo in a Polish village just 100 kilometers north of Przemyśl.
As the news added to the disquiet among the Ukrainians at the station, the worry became palpable up and down the platform. Daryna, a dark-haired, middle-aged woman, was heading to see her 21-year-old son. “I’ve been living in Scotland with my daughter,” she said. “But he’s studying in Kyiv, and I want to make sure he’s OK.”
Some families are attempting to return to Ukraine to visit or mourn with family, but Russian attacks on the country’s infrastructure left many asking “When is the train coming?” | Paula Bronstein/Getty Images
“Going home now is like being transported from the normal to the abnormal,” she added.
Galina, the director of a small clothing company, was impatient to see her 10-year-old daughter, whom she left in the care of her grandmother in Kyiv while making a quick business trip to Poland. She kept texting them to make sure they were safe, but reassuring replies didn’t assuage her, as both she and the others kept scrolling on social media for news about their hometowns — Kharkiv, Chernihiv, Khmelnytskyi, Zhytomyr, Poltava, Rivne and Lviv, all affected by the nationwide missile bombardment.
My destination, Lviv, was badly impacted by the recent blasts. Several explosions were heard from the city on Tuesday, prompting Mayor Andriy Sadovyi to warn on his Telegram channel that everyone should “stay in shelter!” However, many won’t have received that message, as neither the internet nor the cellular networks were working in parts of the city. Officials said missiles and drones caused severe damage to the power grid and energy infrastructure, despite reports of successful missile interceptions too.
Some 95 kilometers from Przemyśl, Lviv was cold and damp when we arrived shortly after dawn on Wednesday. After giving up on the train, we’d crossed the border by foot and cadged a lift to the city.
As we made our way there, the city was largely without power, the traffic lights weren’t working, and the air raid sirens were clamoring. The only lights we could see were from buildings equipped with generators.
At my hotel, the manager, Andriy, told me it takes 37 gallons of diesel an hour to keep the electricity flowing, but he cautioned the water might not be that hot. “When the all-clear sounds, we will serve breakfast for another hour,” he added helpfully.
By the time I finished breakfast, electric trains were already up and running again in Lviv, less than a day after the city’s generation and transmission infrastructure was hit, and by evening, the lights were on all across the city — yet further testament to Ukrainian resilience, improvisation and refusal to be cowed.
And elsewhere, too, electrical engineers — the new heroes of Ukrainian resistance — managed to patch up the damage to get trains running and homes lit. “We had a blackout yesterday [Tuesday],” friends in Ternopil, a two-hour drive east of Lviv, told me by text. “The whole city was without electricity and water for several hours. But eventually everything returned to normal,” they added.
But with winter approaching and Russia planning to seemingly try to wear down Ukrainian resistance not so much on the battlefield but by targeting its civilian energy and water infrastructure, there are questions about how the country can ride out the pummeling.
In July and August, tens of thousands of Ukrainians who fled overseas started returning home. Manned by a colorful variety of NGOs and charities at the border crossings into Poland, the tent camps thus became largely redundant as the refugee flood leaving Ukraine turned to a trickle, and the tents eventually came down. But now they may well be needed again.
“A lot of Ukrainians will leave if there’s no heat and no electricity,” predicted Inna. She’s now in a quandary, torn between planning for a life in England — if she can get her mother a visa — or seeing her future in Ukraine.
“I was a property lawyer in Odesa, I had a good life, and things were going well. But that’s all lost,” she said, trailing off, lost in her thoughts.
BERLIN — With only six weeks to avoid a transatlantic trade showdown over green industries, the Germans are frustrated that Washington isn’t offering a peace deal and are increasingly considering a taboo-breaking response: European subsidies.
Europe’s fears hinge on America’s $369 billion package of subsidies and tax breaks to bolster U.S. green businesses, which comes into force on January 1. The bugbear for the Europeans is that Washington’s scheme will encourage companies to shift investments from Europe and incentivize customers to “Buy American” when it comes to purchasing an electric vehicle — something that infuriates the big EU carmaking nations like France and Germany.
The timing of this protectionist measure could hardly be worse as Germany is in open panic that several of its top companies — partly spurred by energy cost spikes after Russia’s invasion of Ukraine — are shuttering domestic operations to invest elsewhere. The last thing Berlin needs is even more encouragement for businesses to quit Europe, and the EU wants the U.S. to cut a deal in which its companies can enjoy the American perks.
A truce seems unlikely, however. If this spat now spirals out of control, it will lead to a trade war, something that terrifies the beleaguered Europeans. While the first step would be a largely symbolic protest at the World Trade Organization (WTO), the clash could easily slide precipitously back toward the tit-for-tat tariff battles of the era of former U.S. President Donald Trump.
This means that momentum is growing in Berlin for a radical Plan B. Instead of open tariff war with America, the increasingly discussed option is to rip up the classic free-trade rulebook and to play Washington at its own game by funneling state funds into European industry to rear homegrown green champions in sectors such as solar panels, batteries and hydrogen.
France has long been the leading advocate of strengthening European industry with state largesse but, up until now, the more economically liberal Germans have not wanted to launch a subsidy race against America. The sands are now shifting, however. Senior officials in Berlin say they are increasingly leaning toward the French thinking, should the talks with the U.S. not lead to an unexpected last-minute solution.
Berlin is the 27-nation bloc’s economic powerhouse, so it will be a decisive moment if Berlin ultimately decides to throw its might behind the state-led subsidy approach to an industrial race with the U.S.
Running out of time
The clock is ticking for a truce with Biden that looks increasingly unlikely.
Recent attempts by a special EU-U.S. task force to address EU concerns have met little enthusiasm on the American side to amend the controversial legislation, the European Commission told EU countries this week.
“There are only a few weeks left,” warned Bernd Lange, the chair of the European Parliament’s trade committee, adding that “once the act is implemented, it will be too late for us to achieve any changes.”
Lange said that the failure to reach a deal would likely trigger a WTO lawsuit by the EU against the U.S., and Brussels could also strike back against what it sees as the discriminatory U.S. subsidies by imposing punitive tariffs. Warnings of a trade war are already overshadowing the runup to a high-level EU-U.S. meeting in Washington on December 5.
MEP Bernd Lange Lange said that the failure to reach a deal would likely trigger a WTO lawsuit by the EU against the U.S. | Philippe Buissin/European Union
It’s precisely the kind of spat that the German government wants to avoid, as Chancellor Olaf Scholz hopes to forge unity among like-minded democracies amid Russia’s war and the the increasing challenges posed by China. Earlier this month, Scholz’s government made an overture to Washington by suggesting that a new EU-U.S. trade deal could be negotiated to resolve differences, but that proposal was quickly rejected.
There are sympathizers for the subsidies approach in Brussels, with officials at the EU’s executive saying powerful Internal Market Commissioner Thierry Breton is a leading proponent. Breton is already advocating for a “European Solidarity Fund” to help “mobilizing the necessary funding” to strengthen European autonomy in key sectors like batteries, semiconductors or hydrogen. Support from Germany could help Breton win the upper hand in internal EU strategy discussions over the more cautious Trade Commissioner Valdis Dombrovskis.
Breton will travel to Berlin on November 29 to discuss the consequences of the Inflation Reduction Act as well as industrial policy and energy measures with Scholz’s government.
The German considerations even echo calls from top officials of the Biden administration, including U.S. Trade Representative Katherine Tai, who are urging the EU to not engage in a transatlantic trade dispute and instead roll out their own industrial subsidies; a strategy that Washington also sees as way to reduce dependence on China.
Plan B
Scholz first indicated late last month that the EU might have to respond to the U.S. law with its own tax cuts and state support if the negotiations with Washington fail to reach a solution, lending support to similar plans articulated by French President Emmanuel Macron, who will meet Biden on December 1 in Washington.
Although Scholz does not endorse Macron’s framing of the initiative as a “Buy European Act” (which sounds too protectionist for the Germans), the chancellor agrees that the EU cannot stand by idly if it faces unfair competition or lost investments, people familiar with his thinking said late last month.
Negative economic news, such as carmaker Tesla putting plans for a new battery factory in Germany on hold and instead investing in the U.S., or steelmaker ArcelorMittal partly closing operations in Germany, have increased calls in Berlin to consider more state support to counter a negative trend caused by both the U.S. scheme and high energy prices.
Although the official government line remains that Berlin is still holding out hope for a negotiated solution with Washington, officials in Berlin say that it could be possible to increase incentives for industries to locate the production of green technologies in Europe.
A spokesperson for the German Economy Ministry said that faced with the challenges stemming from the Inflation Reduction Act, “we will have to come up with our own European response that puts our strengths first … The aim is to competitively relocate green value creation in Europe and strengthen our own production capacities.”
The spokesperson warned, however, that both the U.S. and EU “must be careful that there is no subsidy race that prevents the best ideas from prevailing in the market,” and added: “Green technologies in particular thrive best in fair competition; protectionism cripples innovation.”
One important condition that could help Germany and the EU to safeguard said fair competition and to avoid the global free trade system descending into protectionist tendencies would be to ensure that any EU state subsidies remain in line with WTO rules. That means, in contrast to the U.S. law, that those subsidies would not discriminate between local and foreign producers.
German Chancellor Olaf Scholz first indicated late last month that the EU might have to respond to the U.S. law with its own tax cuts and state support | Sean Gallup/Getty Images
Crucially, support is also coming from German industry.
“In the area of industrial policy and subsidies, we could look at measures that are compatible with WTO rules — as the EU is already doing in the chip sector,” said Volker Treier, the head of foreign trade at the German Chamber of Commerce.
Treier also stressed that “there must be no discrimination” against foreign investors, but added: “This explicitly does not rule out the possibility of settlement bonuses, which in turn should be available to investors from all countries who would be interested in such investment commitments in Europe.”
In Brussels, the Commission’s competition department has also made clear that it’s looking with an open mind at upcoming proposals.
“There are no instruments excluded a priori” when it comes to the EU’s response to the U.S. subsidies, the department’s state aid Deputy Director General Ben Smulders said Thursday.
Barbara Moens, Suzanne Lynch and Pietro Lombardi in Brussels and Laura Kayali and Clea Caulcutt in Paris contributed reporting.
BALI, Indonesia — Every European leader at this week’s G20 summit in Bali wanted a one-on-one meeting with Chinese President Xi Jinping.
Not everyone got one.
The Europeans’ desire to meet Xi was driven by the fact that this week was the first opportunity to meet the Chinese leader at a major diplomatic jamboree since the lockdowns of early 2020, when the coronavirus pandemic started in China and spread to the world.
The Europeans always had to accept that they were going to be fighting for the crumbs in terms of the timetable. U.S. President Joe Biden spent three and a half hours with Xi, while France’s President Emmanuel Macron had to be content with (a still perfectly respectable) 43 minutes.
China conspicuously revived its long-established tactic of courting specific EU countries and their national interests, something it has often used to destabilize Brussels. (When Brussels threatened an all-out trade war in 2013 over China undercutting the EU market in solar panels and telecoms equipment, China expertly shattered EU unity by threatening retaliatory action against French and Spanish wine, playing Paris and Madrid against EU trade officials.)
Once again in Bali, China took the canny nation-to-nation approach, meeting Macron, Spanish Prime Minister Pedro Sánchez, Italy’s Giorgia Meloni and the Netherlands’ Mark Rutte, while avoiding European Commission President Ursula von der Leyen and European Council President Charles Michel. A meeting with Michel, at least, had been widely expected in diplomatic circles.
China bristles at the EU designation that it is a “systemic rival” to Brussels, and instead decided to leverage its influence with individual European countries.
Take the meeting with Rutte. The Chinese leader’s main interest was that the Netherlands, home to chipmaker ASML, a company that makes key equipment for microchip manufacturing, should not join any EU-U.S. trade coalition seeking to box China out of new technologies.
“It is hoped that the Netherlands would enhance Europe’s commitment to openness and cooperation,” Xi noted in a readout of the Dutch meeting. Translation: Don’t make trade trouble over microchips.
With Sánchez, Xi played up the importance of China as a motor for tourism in Spain, a sector where Madrid is particularly interested in high-rolling visitors from Asia. “The two sides need to make good preparations for the China-Spain Year of Culture and Tourism to build greater popular support for China-Spain friendship,” Xi said.
Similarly, the Xinhua state news agency quoted Macron saying he wanted more cooperation on business, specifically in the aviation and civil nuclear energy sectors. The Chinese account of the Xi-Meloni meeting was that Beijing would import more “high-quality” goods — presumably of the luxury and gourmet variety — and would cooperate in manufacturing, energy and aerospace.
Macron cozies up to Xi
In a sign that Xi’s diplomatic strategy was paying dividends, Macron took a non-confrontational approach to Xi, even massaging the Chinese leader’s ego.
The Chinese embassy to Paris promoted a video by TikTok’s domestic Chinese equivalent Douyin, in which Macron passed his best wishes to China after Xi secured a norm-breaking new mandate. (Xi was appointed for a third term as Communist Party general secretary in a highly choreographed party congress.)
Macron also hailed Xi as a “sincere” figure who should “play the role of a mediator over the next few months” in stopping further Russian aggression against Ukraine — even though Beijing has shown no sign of being a good fit for such a role since the war broke out in February.
Ignoring China’s deadly Himalayan tensions with India, escalating tension with Taiwan or military adventurism in the South China Sea, Macron declared: “China calls for peace … [There is] a deep and I know sincere attachment to … the U.N. charter.”
Macron also told reporters he planned to visit China early next year. That looks like a riposte to the visit by German Chancellor Olaf Scholz, who visited China earlier this month. Scholz reportedly rejected Paris’ suggestion for a joint Macron-Scholz visit and decided to go alone with a delegation of big businesses.
“Macron needed this air-time with Xi enormously as he couldn’t be seen to be left out by China when the Americans and the Germans have dominated the headlines,” a Western diplomat said.
While Macron claimed that Xi agreed with him on a “call for respect for Ukraine’s territorial integrity and sovereignty,” China’s own readout made no such mention, saying only: “China stands for a ceasefire, cessation of the conflict and peace talks.”
Brussels boxed out
In stark contrast to the French, Spanish, Dutch and Italian leaders, the Brussels-based EU chiefs didn’t get a look-in.
In a show of Beijing’s continually negative view of the European Union, Xi decided not to go ahead with what POLITICO understood to be a near-certain plan for Michel, the one representing all 27 countries, to meet Xi.
That event, had it been allowed to take place, would have been significant in showcasing the possibility for the bloc’s smaller economies to also make their voice heard, since Xi would otherwise be busy dealing with the bigger players.
Xi’s change of heart over a meeting with Michel came shortly after the EU Council president’s prerecorded speech at a Shanghai trade expo was dropped.According to Reuters, he tried to call out Russia’s war of aggression against Ukraine in the speech, a message that was deemed too sensitive to Chinese ears.
In a thinly veiled criticism of China’s approach to the new Silk Road, von der Leyen said: “The [West’s] Partnership Global for Infrastructure and Investment is an important geostrategic initiative in era of strategic competition.
“Together with leading democracies we offer values-driven, high-standard, and transparent infrastructure partnerships for low- and middle-income countries,” she said.
Her tone, though, proved to be a minority among European leaders during the G20 engagement with China.
“There’s no common message from the EU on China,” according to another EU diplomat in Bali. “But then there never was one.”
To the relief of European diplomats, at least Xi did not handle their bosses in the same way he treated Canada’s Prime Minister Justin Trudeau.
“Everything we discuss has been leaked to the paper; that’s not appropriate,” Xi told Trudeau through an interpreter in a clip recorded by Canadian media.
“That’s not … the way the conversation was conducted. If there is sincerity on your part …” Xi said, before Trudeau interrupted him, defending his country’s interest in working “constructively” with Beijing.
Xi took his turn to interrupt. “Let’s create the conditions first,” Xi said.
Delegates landing in Egypt’s Red Sea resort of Sharm El-Sheikh for U.N. climate talks this week are a global elite bent on tearing down national borders, stripping away individual freedoms and condemning working people to a life of poverty.
That dark view is held by a range of far-right or populist parties — among them Donald Trump’s Republicans, who are seeking to retake control in Tuesday’s U.S. midterm elections. Some of these radicals are rampaging through elections in Europe while others, such as Brazil’s President Jair Bolsonaro last week, have been defeated only narrowly.
Republican and Trump acolyte Lauren Boebert derides the environmentalist agenda as “America last;” Britain’s Brexit-backing Home Secretary Suella Braverman says the country is in thrall to a “tofu-eating wokerati;” and in Spain, senior figures in the far-right Vox party dismiss the U.N.’s climate agenda as “cultural Marxism.”
Right-wingers of various strains around the world have co-opted climate change into their culture war. The fact this is happening in countries that produce a large share of global greenhouse gas emissions has alarmed some green advocates.
“Reactionary populism is now the biggest obstacle to tackling climate change,” wrote three climate leaders, including Brazil’s former Environment Minister Izabella Teixeira, in a recent commentary.
In the U.S., Republicans are eyeing a return to power in one or both houses of Congress in Tuesday’s midterm elections. Many at the COP27 talks will be reliving the first week of the U.N. climate conference in Morocco six years ago when Trump’s election struck the climate movement like a hurricane.
A Republican surge would gnaw at the fragile confidence that has built around global climate efforts since President Joe Biden’s election, raising the specter of a second Trump term and perhaps the withdrawal — again — of the U.S. from the landmark 2015 Paris climate deal.
“I don’t want to think about that,” said Teixeira’s co-author Laurence Tubiana, a former French diplomat who led the design of the Paris Agreement and who now leads the European Climate Foundation.
Some on the American right are pushing a more conciliatory message than others. “Republicans have solutions to reduce world emissions while providing affordable, reliable, and clean energy to our allies across the globe,” said Utah Congressman John Curtis, who will lead a delegation from his party to COP27.
Tubiana and others in the environmental movement are trying to put on a brave face. They argue Republicans won’t want to tamper too much with Biden’s behemoth Inflation Reduction Act, which contains measures to promote clean energy.
“You might see railing against it, and I’m sure there’ll be lots of political talk and rhetoric, but I don’t expect that would be a focus for the Republicans,” said Nat Keohane, president of the Center for Climate and Energy Solutions, a green NGO based in Arlington, Virginia. Nevertheless, if Republicans take both houses, “we certainly won’t make any progress,” Keohane said.
Trump’s first term and the presidency of Brazil’s Bolsonaro — which ended in a narrow defeat in last month’s election — now look like the opening skirmishes in a struggle in which the planet’s stability is at stake.
In parts of Europe, the right present their policies as sympathetic to the risks of climate change while dismissing internationally sanctioned action as sinister elitism that threatens their voters’ prosperity.
“The Sweden Democrats are not climate deniers, whatever that means,” Swedish far-right leader Jimmie Åkesson told a crowd days before a September election that saw his party win big. But Sweden’s current climate plans, Åkesson said, were “100 percent symbolic” rather than meaningful. “All that leads to is that we get poorer, that our lives get worse.”
This is the gibbet on which the far right are hanging environmentalism: depicting them as the witting or unwitting cavalry of global elites.
“We consider it to be a globalist movement that intends to end all borders, intends to end our freedom, intends to end our freedom for our identities,” Javier Cortés, president of the Seville chapter of Spain’s far-right Vox party, said in an interview with POLITICO. “We are not in favor of CO2 emissions. On the contrary, we want to respect the environment. All we are saying is that the European Union has to clarify that it wants to sell us a climate religion in which we cannot emit CO2, while we make our industries disappear from Europe and we need to buy from China.”
To describe this as climate denial — a common but often inaccurate charge — would be to miss the point that this is now just another front in the culture wars.
Online disinformation about the last U.N. climate talks was largely focused on the hypocrisy and elitism of those attending, according to research from the Institute for Strategic Dialogue (ISD). The main spreaders weren’t websites and figures traditionally associated with climate denial, but culture war celebrities such as psychologist Jordan Peterson, Rebel Media’s Ezra Levant and Dilbert cartoonist Scott Adams.
Populist attacks on globalism “rely on a well-funded transnational network,” said Tubiana. “It warrants serious scrutiny.”
But while economic interests may be powering parts of the movement, there is also a sense of political opportunism at work. Huge changes to the economy will be needed to lower emissions at the speed dictated by U.N.-brokered global climate goals. There will be winners and losers — and the losers may gravitate toward populists pledging to take up their cause.
“Far-right organizations are recognizing this as a potentially lucrative topic that they can win votes or support on,” said Balsa Lubarda, head of the ideology research unit at the Centre for Analysis of the Radical Right.
Loving the losers
The far right’s focus on the losers has been “turbo charged” by the energy crisis, said Jennie King, head of civic action and education at ISD, which populists have wrongly argued is the fault of green policy. The European Parliament’s coalition of far-right parties has grown and capitalized on the energy crisis by joining with center-right parties to vote down environmental legislation.
Sweden’s Prime Minister Ulf Kristersson — newly elected with Åkesson’s support — aims to dilute the country’s ambitions for cutting some greenhouse gas emissions, a move center-right Liberal Environment Minister Romina Pourmokhtari justified in familiar terms: “That is a reaction to the reality people are facing.” And in Britain, Brexit leader Nigel Farage retooled his campaign to become an anti-net zero mouthpiece.
Italian Prime Minister Giorgia Meloni says she wants to reclaim environmentalism for the right | Vincenzo Pinto/AFP via Getty Images
Strains of right-wing ecology may also mean that not all groups are actively hostile to the climate agenda, said Lubarda. Italy’s new Prime Minister Giorgia Meloni is a huge fan of the books of J.R.R. Tolkien, which center on the Shire, an idealized bucolic homeland. Meloni says she wants to reclaim environmentalism for the right, but the protection of national economic interests still comes first.
“There is no more convinced ecologist than a conservative, but what distinguishes us from a certain ideological environmentalism is that we want to defend nature with man inside,” she said in her inaugural speech to parliament last month.
While Meloni has announced that she will attend COP27, she has also renamed the Ministry for the Ecological Transition the Ministry for Environment and Energy Security. The governing program of her Brothers of Italy party includes a section on climate change, but it strongly emphasizes the need to protect industry.
It’s this broad sense of demotion and delay that alarms those who are watching these ideas grow in stature among populists on the right. They say that while it may not sound like climate denial, the result is effectively the same.
“You can say that you are climate friends,” said Belgian Socialist MEP Marie Arena. “But in the act, you are not at all. You are business friends first.”
Jacopo Barragazzi, Charlie Duxbury and Zack Colman contributed to this report.
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LIVERPOOL, England — On the long picket line outside the gates of Liverpool’s Peel Port, rain-soaked dock workers warm themselves with cups of tea as they listen to 1980s pop.
Dozens of buses, cars and trucks honk in solidarity as they pass.
Dockers’ strikes are not new to Liverpool, nor is depravation. But this latest walk-out at Britain’s fourth-largest port is part of something much bigger, a great wave of public and private sector strikes taking place across the U.K. Railways, postal services, law courts and garbage collections are among the many public services grinding to a halt.
The immediate cause of the discontent, as elsewhere, is the rising cost of living. Inflation in the United Kingdom breached the 10 percent mark this year, with wages failing to keep pace.
But the U.K.’s economic woes long predate the current crisis. For more than a decade, Britain has been beset by weak economic growth, anaemic productivity, and stagnant private and public sector investment. Since 2016, its political leadership has been in a state of Brexit-induced flux.
Half a century after U.S. Secretary of State Henry Kissinger looked at the U.K.’s 1970s economic malaise and declared that “Britain is a tragedy,” the United Kingdom is heading to be the sick man of Europe once again.
The immediate cause of Liverpool dockers’ discontent that brought them to strike is the rising cost of living. | Christopher Furlong/Getty Images
Here in Liverpool, the “scars run very deep,” said Paul Turking, a dock worker in his late 30s. British voters, he added, have “been misled” by politicians’ promises to “level up” the country by investing heavily in regional economies. Conservatives “will promise you the world and then pull the carpet out from under your feet,” he complained.
“There’s no middle class no more,” said John Delij, a Peel Port veteran of 15 years. He sees the cost-of-living crisis and economic stagnation whittling away the middle rung of the economic ladder.
“How many billionaires do we have?” Delij asked, wondering how Britain could be the sixth-largest economy in the world with a record number of billionaires when food bank use is 35 percent above its pre-pandemic level. “The workers put money back into the economy,” he said.
What would they do if they were in charge? “Invest in affordable housing,” said Turking. “Housing and jobs.”
Falling behind
The British economy has been struck by particular turbulence over recent weeks. The cost of government borrowing soared in the wake of former PM Liz Truss’ disastrous mini-budget on September 23, with the U.K.’s central bank forced to step in and steady the bond markets.
But while the swift installation of Rishi Sunak, the former chancellor, as prime minister seems to have restored a modicum of calm, the economic backdrop remains bleak. Spending and welfare cuts are coming. Taxes are certain to rise. And the underlying problems cut deep.
U.K. productivity growth since the financial crisis has trailed that of comparator nations such as the U.S., France and Germany. As such, people’s median incomes also lag behind neighboring countries over the same period. Only Russia is forecast to have worse economic growth among the G20 nations in 2023.
In 1976, the U.K. — facing stagflation, a global energy crisis, a current account deficit and labor unrest — had to be bailed out by the International Monetary Fund. It feels far-fetched, but today some are warning it could happen again.
The U.K. is spluttering its way through an illness brought about in part through a series of self-inflicted wounds that have undermined the basic pillars of any economy: confidence and stability.
The political and economic malaise is such that it has prompted unwanted comparisons with countries whose misfortunes Britain once watched amusedly from afar.
“The existential risk to the U.K. … is not that we’re suddenly going to go off an economic cliff, or that the country’s going to descend into civil war or whatever,” said Jonathan Portes, professor of economics at King’s College London. “It’s that we will become like Italy.”
Portes, of course, does not mean a country blessed with good weather and fine food — but an economy hobbled by persistently low growth, caught in a dysfunctional political loop that lurches between “corrupt and incompetent right-wing populists” and “well-intentioned technocrats who can’t actually seem to turn the ship around.”
“That’s not the future that we want in the U.K,” he said.
Reviving the U.K.’s flatlining economy will not happen overnight. As Italy’s experience demonstrates, it’s one thing to diagnose an illness — another to cure it.
Experts speak of an unbalanced model heavily reliant upon Britain’s services sector and beset with low productivity, a result of years of underinvestment and a flexible labor market which delivers low unemployment but often insecure and low-paid work.
“We’re not investing in skills; businesses aren’t investing,” said Xiaowei Xu, senior research economist at the Institute for Fiscal Studies. “It’s not that surprising that we’re not getting productivity growth.”
But any attempt to address the country’s ailments will require its economic stewards to understand their underlying causes — and those stretch back at least to the first truly global crisis of the 21st century.
Crash and burn
The 2008 financial crisis hammered economies around the world, and the U.K. was no exception. Its economy shrunk by more than 6 percent between the first quarter of 2008 and the second quarter of 2009. Five years passed before it returned to its pre-recession size.
For Britain, the crisis in fact began in September 2007, a year before the collapse of Lehman Brothers, when wobbles in the U.S. subprime mortgage market sparked a run on the British bank Northern Rock.
The U.K. discovered it was particularly vulnerable to such a shock. Over the second half of the 20th century, its manufacturing base had largely eroded as its services sector expanded, with financial and professional services and real estate among the key drivers. As the Bank of England put it: “The interconnectedness of global finance meant that the U.K. financial system had become dangerously exposed to the fall-out from the U.S. sub-prime mortgage market.”
The crisis was a “big shock to the U.K.’s broad economic model,” said John Springford, from the Centre for European Reform. Productivity took an immediate hit as exports of financial services plunged. It never fully recovered.
“Productivity before the crash was basically, ‘Can we create lots and lots of debt and generate lots and lots of income on the back of this? Can we invent collateralized debt obligations and trade them in vast volumes?’” said James Meadway, director of the Progressive Economy Forum and a former adviser to Labour’s left-wing former shadow chancellor, John McDonnell.
A post-crash clampdown on City practises had an obvious impact.
“This is a major part of the British economy, so if it’s suddenly not performing the way it used to — for good reasons — things overall are going to look a bit shaky,” Meadway added.
The shock did not contain itself to the economy. In a pattern that would be repeated, and accentuated, in the coming years, it sent shuddering waves through the country’s political system, too.
The 2010 election was fought on how to best repair Britain’s broken economy. In 2009, the U.K. had the second-highest budget deficit in the G7, trailing only the U.S., according to the U.K. government’s own fiscal watchdog, the Office for Budget Responsibility (OBR).
The Conservative manifesto declared “our economy is overwhelmed by debt,” and promised to close the U.K.’s mounting budget deficit in five years with sharp public sector cuts. The incumbent Labour government responded by pledging to halve the deficit by 2014 with “deeper and tougher” cuts in public spending than the significant reductions overseen by former Conservative Prime Minister Margaret Thatcher in the 1980s.
The election returned a hung parliament, with the Conservatives entering into a coalition with the Liberal Democrats. The age of austerity was ushered in.
Austerity nation
Defenders of then-Chancellor George Osborne’s austerity program insist it saved Britain from the sort of market-led calamity witnessed this fall, and put the U.K. economy in a condition to weather subsequent global crises such as the COVID-19 pandemic and the fallout from the war in Ukraine.
“That hard work made policies like furlough and the energy price cap possible,” said Rupert Harrison, one of Osborne’s closest Treasury advisers.
Pointing to the brutal market response to Truss’ freewheeling economic plans, Harrison praised the “wisdom” of the coalition in prioritizing tackling the U.K.’s debt-GDP ratio. “You never know when you will be vulnerable to a loss of credibility,” he noted.
But Osborne’s detractors argue austerity — which saw deep cuts to community services such as libraries and adult social care; courts and prisons services; road maintenance; the police and so much more — also stripped away much of the U.K.’s social fabric, causing lasting and profound economic damage. A recent study claimed austerity was responsible for hundreds of thousands of excess deaths.
Under Osborne’s plan, three-quarters of the fiscal consolidation was to be delivered by spending cuts. With the exception of the National Health Service, schools and aid spending, all government budgets were slashed; public sector pay was frozen; taxes (mainly VAT) rose.
But while the government came close to delivering its fiscal tightening target for 2014-15, “the persistent underperformance of productivity and real GDP over that period meant the deficit remained higher than initially expected,” the OBR said. By his own measure, Osborne had failed, and was forced to push back his deficit-elimination target further. Austerity would have to continue into the second half of the 2010s.
Many economists contend that the fiscal belt-tightening sucked demand out of the economy and worsened Britain’s productivity crisis by stifling investment. “That certainly did hit U.K. growth and did some permanent damage,” said King’s College London’s Portes.
“If that investment isn’t there, other people start to find it less attractive to open businesses,” former Labour aide Meadway added. “If your railways aren’t actually very good … it does add up to a problem for businesses.”
A 2015 study found U.K. productivity, as measured by GDP per hour worked, was now lower than in the rest of the G7 by a whopping 18 percentage points.
“Frankly, nobody knows the whole answer,” Osborne said of Britain’s productivity conundrum in May 2015. “But what I do know is that I’d much rather have the productivity challenge than the challenge of mass unemployment.”
‘Jobs miracle’
Rising employment was indeed a signature achievement of the coalition years. Unemployment dropped below 6 percent across the U.K. by the end of the parliament in 2015, with just Germany and Austria achieving a lower rate of joblessness among the then-28 EU states. Real-term wages, however, took nearly a decade to recover to pre-crisis levels.
Economists like Meadway contend that the rise in employment came with a price, courtesy of Britain’s famously flexible labor market. He points to a Sports Direct warehouse in the East Midlands, where a 2015 Guardian investigation revealed the predominantly immigrant workforce was paid illegally low wages, while the working conditions were such that the facility was nicknamed “the gulag.”
The warehouse, it emerged, was built on a former coal mine, and for Meadway the symbolism neatly charts the U.K.’s move away from traditional heavy industry toward more precarious service sector employment. “It’s not a secure job anymore,” he said. “Once you have a very flexible labor market, the pressure on employers to pay more and the capacity for workers to bargain for more is very much reduced.”
Throughout the period, the Bank of England — the U.K.’s central bank — kept interest rates low and pursued a policy of quantitative easing. “That tends to distort what happens in the economy,” argued Meadway. QE, he said, is a “good [way of] getting money into the hands of people who already have quite a lot” and “doesn’t do much for people who depend on wage income.”
Meanwhile — whether necessary or not — the U.K.’s austerity policies undoubtedly worsened a decades-long trend of underinvestment in skills and research and development (Britain lags only Italy in the G7 on R&D spending). At British schools, there was a 9 percent real terms fall in per-pupil spending between 2009 and 2019, according to the Institute for Fiscal Studies’ Xu. “As countries get richer, usually you start spending more on education,” Xu noted.
Two senior ministers in the coalition government — David Gauke, who served in the Treasury throughout Osborne’s tenure, and ex-Lib Dem Business Secretary Vince Cable — have both accepted that the government might have focused more on higher taxation and less on cuts to public spending. But both also insisted the U.K had ultimately been correct to prioritize putting its public finances on a sounder footing.
It was February 2018 before Britain finally achieved Osborne’s goal of eliminating the deficit on its day-to-day budget.
Austerity was coming to an end, at last. But Osborne had already left the Treasury, 18 months earlier — swept away along with Cameron in the wake of a seismic national uprising.
***
David Cameron had won the 2015 election outright, despite — or perhaps because of — the stringent spending cuts his coalition government had overseen, more of which had been pledged in his 2015 manifesto. Also promised, of course, was a public vote on Britain’s EU membership.
The reasons for the leave vote that followed were many and complex — but few doubt that years of underinvestment in poorer parts of the U.K. were among them.
Regardless, the 2016 EU referendum triggered a period of political acrimony and turbulence not seen in Westminster for generations. With no pre-agreed model of what Brexit should actually entail, the U.K.’s future relationship with the EU became the subject of heated and protracted debate. After years of wrangling, Britain finally left the bloc at the end of January 2020, severing ties in a more profound way than many had envisaged.
While the twin crises of COVID and Ukraine have muddled the picture, most economists agree Brexit has already had a significant impact on the U.K. economy. The size of Britain’s trade flows relative to GDP has fallen further than other G7 countries, business investment growth trails the likes of Japan, South Korea and Italy, and the OBR has stuck by its March 2020 prediction that Brexit would reduce productivity and U.K. GDP by 4 percent.
Perhaps more significantly, Brexit has ushered in a period of political instability. As prime ministers come and go (the U.K. is now on its fifth since 2016), economic programs get neglected, or overturned. Overseas investors look on with trepidation.
“The evidence that the referendum outcome, and the kind of uncertainty and change in policy that it created, have led to low investment and low growth in the U.K. is fairly compelling,” said professor Stephen Millard, deputy director at the National Institute of Economic and Social Research.
Beyond the instability, the broader impact of the vote to leave remains contentious.
Portes argued — as many Remain supporters also do — that much harm was done by the decision to leave the EU’s single market. “It’s the facts, not the uncertainty that in my view is responsible for most of the damage,” he said.
Brexit supporters dismiss such claims.
“It’s difficult statistically to find much significant effect of Brexit on anything,” said professor Patrick Minford, founder member of Economists for Brexit. “There’s so much else going on, so much volatility.”
Minford, an economist favored by ex-PM Truss, acknowledged that “Brexit is disruptive in the short run, so it’s perfectly possible that you would get some short-run disruption.” But he added: “It was a long-term policy decision.”
Where next?
Plenty of economists can rattle off possible solutions, although actually delivering them has thus far evaded Britain’s political class. “It’s increasing investment, having more of a focus on the long-term, it’s having economic strategies that you set out and actually commit to over time,” says the IFS’ Xu. “As far as possible, it’s creating more certainty over economic policy.”
But in seeking to bring stability after the brief but chaotic Truss era, new U.K. Chancellor Jeremy Hunt has signaled a fresh period of austerity is on the way to plug the latest hole in the nation’s finances. Leveling Up Secretary Michael Gove told Times Radio that while, ideally, you wouldn’t want to reduce long-term capital investments, he was sure some spending on big projects “will be cut.”
This could be bad news for many of the U.K.’s long-awaited infrastructure schemes such as the HS2 high-speed rail line, which has been in the works for almost 15 years and already faces a familiar mix of local resistance, vested interests, and a sclerotic planning system.
“We have a real problem in the sense that the only way to really durably raise productivity growth for this country is for investments to pick up,” said Springford, from the Centre for European Reform. “And the headwinds to that are quite significant.”
For dock workers at Liverpool’s Peel Port, the prospect of a fresh round of austerity amid a cost-of-living crisis is too much to bear. “Workers all over this country need to stand up for themselves and join a union,” insisted Delij.
For him, it’s all about priorities — and the arguments still echo back to the great crash of 15 years ago. “They bailed the bankers out in 2007,” he said, “and can’t bail hungry people out now.”
PRAGUE — U.S. Trade Representative Katherine Tai traveled more than 4,000 miles to prevent a transatlantic trade war over electric vehicles, but her EU counterparts signaled on Monday that they would be a tough crowd to win round.
The growing spat hinges on U.S. legislation that encourages consumers via tax credits to “Buy American” when it comes to choosing an electric car.
At a time when the U.S. and Europe want to present a united front against Russia, this protectionist measure has triggered outrage in many EU countries, including France and Germany, two leading European carmaking nations. Beyond the EU, China, Japan and South Korea have also voiced concern.
After speaking with Tai at a meeting of EU ministers in Prague, the bloc’s trade chief Valdis Dombrovskis predicted it would be difficult to resolve the dispute.
“It will not be easy to fix it — but fix it we must,” he said.
Among the 27 EU countries, anxiety about the U.S. measure is growing. Sweden’s new trade minister, Johan Forssell, whose country takes over the presidency of the Council of the EU in January, told POLITICO on Sunday that aspects of the U.S. legislation were “worrying” and “not in accordance with [World Trade Organization] rules.”
Another senior official stressed: “It’s not only one or two member states, which are concerned … It’s also the small ones; they will have no access at all” to the U.S. market.
French President Emmanuel Macron and German Chancellor Olaf Scholz agreed over lunch last week that the EU should retaliate if Washington pushed ahead with the controversial bill. Macron floated the idea of a “Buy European Act” to strike back.
The new tax credits for electric vehicles are part of a huge U.S. tax, climate and health care package, known as the Inflation Reduction Act, which passed the U.S. Congress in August.
The idea is that a U.S. consumer can claim back $7,500 of the value of an electric car from their tax bill. To qualify for that credit, however, the car needs to be assembled in North America and contain a battery with a certain percentage of the metals mined or recycled in the U.S., Canada or Mexico.
Czech Trade Minister Jozef Síkela, whose country currently holds the presidency of the Council of the EU, said that European carmakers wanted to qualify for the scheme, just as the North Americans do.
In its current form, the bill is “unacceptable,” and “is extremely protective against exports from Europe,” said Síkela as he walked into Monday’s meeting. “We simply expect that we will get the same status as Canada and Mexico.”
U.S. Trade Representative Katherine Tai and European Commission Executive Vice President Valdis Dombrovskis | Jim Watson/AFP via Getty Images
“But we need to be realistic,” Síkela told reporters later. “This is our starting point in the negotiations and we’ll see what we’ll manage to negotiate at the end.”
In a bid to soothe tensions, a joint task force was set up last week by the European Commission and the U.S. The task force is supposed to meet at the end of this week, although the exact date isn’t yet fixed, according to thesenior official.
Asked whether Brussels would retaliate should no agreement be struck with Washington, Dombrovskis took a cautious approach: “Setting up this task force is already … a response of us, raising those concerns … At this stage, we are focusing on a negotiated solution before considering what other options there may be.”
The midterm elections in the U.S., where President Joe Biden’s Democrats look likely to lose ground, compound the difficulties.
It doesn’t seem like the tensions will be eased by the next Trade and Technology Council, which takes place between U.S. and European negotiators in early December.
Dismay over the U.S. subsidies has overshadowed the preparatory work for the next TTC meeting, for which the EU and businesses on both sides of the Atlantic want to see rapid concrete results to avoid the perception that the format is simply a talking shop.
Tai herself had no immediate comment in Prague, but later released a statement on her meeting with Síkela that gave no hint of a breakthrough.
“Ambassador Tai and Minister Síkela discussed the ongoing work of the Trade and Technology Council, and the importance of achieving meaningful results for the December TTC Ministerial and beyond. They also discussed the newly-created U.S.-EU Task Force on the Inflation Reduction Act,” the statement said.
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LONDON — If his key appointments are any indication, the Rishi Sunak era in Britain could actually be … kind of dull.
The new U.K. leader reappointed existing ministers, brought back old hands and largely kept critics on side as he sought to reassure nervous markets, allies and enemies that the U.K. is no longer a hotbed of chaos.
But the prime minister did, at least, have room to take revenge on a number of his most vocal detractors, and refused to offer any kind of promotion to his defeated leadership rival, Penny Mordaunt.
Sunak entered No. 10 Downing Street Tuesday with a promise to “fix” the “mistakes” made by his predecessor Liz Truss, after her radical economic prospectus spooked financial markets and helped jack up U.K. borrowing costs — swiftly bringing down her government amid bitter Tory recriminations and sparking a second Tory leadership race in two months.
Emerging from the wreckage of the Conservative Party, Sunak had pledged to put politics aside and “build a government that represents the very best traditions of my party.”
Nothing to see here
The biggest news of the reshuffle was that there wasn’t much news. Multiple figures who served under Sunak’s predecessor Liz Truss, including some who backed his rival Boris Johnson in the latest Conservative leadership race, kept their posts or were moved to other senior roles.
Sunak’s most important appointment was to keep Jeremy Hunt in post as chancellor, sticking by a Cabinet veteran who Truss had brought in from the cold just two weeks earlier to rip up her failed economic agenda.
James Cleverly was kept on as foreign secretary, while Ben Wallace remained as defense secretary — keeping two key ministries tasked with shaping Britain’s foreign policy intact. Chris Heaton-Harris stayed on as Northern Ireland secretary, while Nadhim Zahawi was moved from the Cabinet Office to become the Conservative Party chairman. All four men had backed Johnson in the leadership contest last week, leaving fellow Boris supporters in the party relieved.
“At this early stage of the reshuffle it looks as if Rishi is aiming to unite the party rather than divide it,” said Tory MP and Johnson ally Michael Fabricant. “Perhaps one of the mistakes Liz Truss made was to pack the Cabinet only with her supporters. That always creates a volatile situation.”
In an eyebrow-raising move, Suella Braverman, a darling of the party’s right who made her own bid for the leadership earlier this year, returned as home secretary less than a week after being fired over a sensitive information leak. Her reappointment looked like a debt being repaid following her unexpected backing of Sunak at the weekend.
Trade Secretary Kemi Badenoch and Culture Secretary Michelle Donelan, both Truss picks over the summer, kept their jobs too.
One Cabinet minister who did not back Sunak in either leadership race said the appointments were clearly a bid for unity: “He has put people in positions with a track record of delivery.”
Senior figures from other wings of the party were impressed too. “The new prime minister is clearly serious about including people from all sides of the party in his new Cabinet,” said Nicky Morgan, a former chair of the centrist One Nation Conservatives grouping in parliament and now a member of the House of Lords. “This is a very encouraging start to his term.”
Soft revenge
Others key allies of Sunak’s opponents were handed demotions, but allowed to remain in Sunak’s top team.
Thérèse Coffey, a close friend of Truss who served as her deputy prime minister and health secretary, was demoted to the environment, food and farming brief. Alok Sharma, who backed Johnson in the second race, kept his job overseeing the COP climate summits, but will no longer attend Cabinet — a clear step down.
But it was the treatment of Mordaunt, the last candidate standing against Sunak in the latest leadership race, that most ruffled feathers. She kept her relatively junior Cabinet-attending job as leader of the House of Commons, a decision seen in Westminster as a snub given widespread expectations that she was due a major promotion.
One former Cabinet minister argued the failure to promote Mordaunt looked like “an act of revenge, or small-mindedness.” Mordaunt had refused to drop out of the latest leadership race until it was clear she did not have sufficient nominations from fellow MPs to make the next round.
Leader of the House Penny Mordaunt leaves No. 10 Downing Street following Prime Minister Rishi Sunak’s cabinet reshuffle | Leon Neal/Getty Images
Yet some argued the very act of keeping her in post was in itself an olive branch, while one person familiar with the discussions on her appointment said she had been offered a different role, but refused it. One of Mordaunt’s allies insisted she was pleased to keep her existing brief.
A Downing Street official insisted: “This Cabinet brings the talents of the party together. It reflects a unified party and a Cabinet with significant experience, ensuring that at this uncertain time there is continuity at the heart of government.”
But there were plenty of rewards too for key Sunak supporters. Close allies Oliver Dowden, Michael Gove and Steve Barclay were handed roles in the Cabinet Office, communities department and health department respectively, just weeks after Truss made clear they had no place in her administration.
Simon Hart was made chief whip, while Gillian Keegan was promoted to the Cabinet for the first time as education secretary and Grant Shapps was moved from his week-long stint heading up the Home Office (to replace the sacked Braverman) to the business department.
To make space for the new appointments, Sunak allowed himself a few ruthless sackings — although he did permit Cabinet ministers to technically resign to spare their blushes.
Ministers seen as close to Johnson, including Brandon Lewis and Kit Malthouse, were fired, as was Robert Buckland, who supported Sunak in the first leadership race only to shamelessly switch to Truss when it became clear she would win.
Jacob Rees-Mogg, one of Sunak’s most vocal critics and a cheerleader for Johnson, was also dispensed with, as well as top Truss lieutenants Ranil Jayawarenda and Simon Clarke. Rees-Mogg had once branded Sunak a “socialist” — although he hastily recanted that criticism Tuesday morning as the new PM picked his top team.
Having told the Tories at the weekend they must “Back Boris” or go “bust”, it was not enough to save him from his fate.
An earlier version of this story included an inaccurate previous ministerial brief.
Chinese leader Xi Jinping on Sunday secured an unprecedented third term as general secretary of China’s Communist Party, according to the state-run Xinhua News Agency.
The appointment comes after a week-long party congress during which the 69-year-old leader tightened his grip over the country, making him possibly the world’s most powerful individual, according to some analysts. And it paves the way for him to get another five-year term as the country’s president at the annual legislative session in March and to continue his confrontational line with the West.
Beijing has grown increasingly aggressive on both the military and economic fronts while cozying up to a warmongering Russia.
At 69, Xi has has surpassed the informal retirement age of 68 and could be in a position for life-long rule. In 2018, Xi scrapped the presidential two-term limit, allowing him to rule indefinitely.
In a dramatic scene on Saturday during the highly choreographed meeting, former Chinese President Hu Jintao was unexpectedly escorted out of the closing ceremony of the Communist party congress, in what was seen by some as a sign of Hu deterring health and by others as a symbolic scene of Xi’s strengthened powers.
He appointed to the party’s Politburo Standing Committee, China’s top governing body, officials who analysts say are his proteges and allies. Among them they mention for example Wang Huning, described as the ideologue who has shaped Xi’s nationalist views; Cai Qi, whose ties with Xi go back over two decades; and Ding Xuexiang, a close Xi aide who often travels with the president.
Russian President Vladimir Putin sent a congratulatory message to Xi on his third term, the Kremlin said. Putin told the Chinese president that he looked forward to further developing the “comprehensive relationship and strategic alliance between our two states.”
German Chancellor Olaf Scholz is planning a trip to China next month and is set to be the first Western leader to greet Xi as the newly re-appointed leader. EU leaders at a meeting on Friday discussed the bloc’s line over China.
While Scholz insisted that the EU must remain a beacon of global trade, even with China, others such as outgoing Italian Prime Minister Mario Draghi said that many leaders during the discussion stressed that “we must not repeat the fact that we have been indifferent, indulgent, superficial in our relations with Russia.”
And they also stressed that “those that look like business ties … are part of an overall direction of the Chinese system, so they must be treated as such,” Draghi added.
Europe, the world’s largest economic bloc, enjoyed stable trade surpluses for a decade but the war in Ukraine and the ensuing energy crisis have tipped the Continent into a spiraling external deficit unseen since the launch of the euro.
The terms-of-trade shock maxed out in August, the latest month for which trade figures are available. And, even though energy prices have since eased, European leaders are still scrambling to shore up supplies of affordable oil and gas to replace lost Russian deliveries. A harsh winter looms.
A breakdown of the trade figures shows that the EU’s manufacturing trade surplus has nearly halved this year.
Can Europe bounce back? Or will its industrial base become hollowed out as industry moves offshore? And will the eurozone, and the EU more broadly, end up being saddled with the chronic external deficits that have long plagued the United States and, more recently, destabilized Britain? POLITICO breaks it down for you:
What’s going on?
The eurozone’s negative trade balance with the rest of the world in August stood at €50.9 billion, the highest deficit ever recorded, compared to a €2.8 billion surplus a year ago, according to the latest Eurostat numbers.
The trade deficit for the EU as a whole spiraled to €64.7 billion.
The eurozone’s current account balance — the balance of all trade in goods and services as well as international transfers of capital, such as remittances — hit a €26.32 billion deficit in August, largely driven by the trade deficit in goods, the European Central Bank reported.
Is that a bad thing?
A trade deficit occurs when a country or trading bloc’s imports exceed its exports. A trade surplus is the opposite. Trade deficits are not per se good or bad, although many countries seek a trade surplus, including by setting up tariffs and quotas to artificially boost their trade balance, a practice known as mercantilism.
Is it temporary?
The trade deficit is largely driven by high energy prices, which in August hit a record €350 per megawatt hour. Prices have come down from their peak, trading at around €150/MWh, but they are still a multiple of where they were a year ago.
“Markets have gone from pricing this energy crisis as being temporary, they are now pricing it to be a much longer-term story, albeit not as elevated as it was in August,” said Kristoffer Kjær Lomholt, chief FX analyst at Danske Bank.
“We think that it is a kind of a more long-term thing that is going to weigh on the currencies of economies that are energy importers, where the eurozone, of course, stands out to a very large extent,” he added.
Others believe that the shift, being largely energy related, could resolve itself over time, said Sam Lowe, who covers trade policy at Flint Global.
An EU official also pointed to EU-Russia trade. “The peak in energy prices has made the value of our imports from Russia increase substantially (while the volume of those imports from Russia decreased), and our exports have spiralled down because of sanctions (export controls),” the official said.
Will the EU be less competitive if energy prices remain high?
A negative trade balance and consequently a weaker currency makes imports more expensive. “Net importers will have to pay more for goods and services,” said Lomholt.
On the other hand, a weaker euro could fuel exports, said Matthias Krämer, head of external economic policy at German industry federation BDI. “If the euro currency was a little bit weaker, it could also make Europe’s position on global markets better by making exports cheaper,” he said.
But there’s another way of looking at this. Lowe argued the sustained large eurozone trade surplus was itself problematic, in that it was a function of intra-EU demand being lower than it should be. “Being overly dependent on external demand also leaves the EU quite vulnerable to both external shocks, and political coercion.”
What does that mean for the euro?
“We expect the euro to decline further in coming months as part of this adjustment,” said Robin Brooks, chief economist at the Institute of International Finance.
A negative trade balance or current account deficit puts downward pressure on the value of free-floating currencies, which move with demand of goods: less demand for a country’s exports means less demand for its currency, which in turn lowers its value relative to others. Conversely, strong foreign demand for goods strengthens a country’s currency.
“Foreign investors need to be compensated via a real depreciation of the exchange rate, and generally higher real interest rates,” said Lomholt at Danske Bank.
The Danish lender has recently downgraded its forecast for the € to $ exchange rate to $0.93 in 12 months from virtual parity now, driven in part by the energy price shock. “We have for some time been arguing that €/$ looked overvalued and not undervalued … And just given the additional push to the energy crisis that we got during summer, we saw a case that the euro/dollar [exchange rate] should actually hit even lower,” he said.
Is business freaking out?
A bit.
“The data are not so surprising considering the high energy prices, but they are worrying”, said Luisa Santos, responsible for international relations at BusinessEurope. She called on the EU to try to bring energy prices down and to boost exports by opening new market opportunities via more trade agreements.
Germany, the bloc’s export powerhouse, increased its exports by 14 percent in the first eight months of the year but imports have surged by more than 27 percent, according to national trade figures.
“We’re not performing in a segment which is highly influenced by a cost driven competition,” said Krämer at the German industry federation. “But if this situation will last longer of course some parts of our industry will be more and more under pressure.”
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LONDON — It was a revolution 11 long years in the making.
For a small but vocal band of right-wing libertarians, Liz Truss’ appointment as U.K. prime minister on September 6 seemed the triumphant end point of an epic and improbable march that led them from the fringes of British politics to Whitehall’s grandest corridors of power.
In the course of just over a decade, a group of little-known politicians, fringe think tanks and outspoken media figures had helped drag the Tory Party, and the nation it led, from David Cameron’s vision of so-called compassionate Conservatism — hugging huskies and all — to a Brexit-backing, free-market embracing, low-tax juggernaut.
It took them four Tory prime ministers, four general elections and an era-defining referendum to do it — but with Truss in charge, they were finally living their dream. The country was to be remade in their image.
It lasted 44 chaotic days, and no more.
“They felt their moment had come at last,” said Tim Bale, professor of politics at Queen Mary University London. “This would prove that Brexit hadn’t been a ghastly mistake, but a fantastic opportunity. But of course, as it was always based on fantasy, it was always bound to collide with reality.”
Truss was elected Conservative leader — and so U.K. prime minister — last month on the votes of just 81,000 party members, a group large enough to defeat her more centrist opponent, Rishi Sunak, but still small enough to fit comfortably inside Wembley stadium, home of the England football team.
This band of true-blue believers had been wooed by her heady promises of a low-tax, low-regulation state that would embrace the opportunities provided by Brexit.
But as soon as PM Truss started to put her promises into action — via a ‘mini-budget’ on September 23 which included tens of billions of pounds in unfunded tax cuts alongside a massive energy subsidy scheme — the markets began sliding into turmoil. Within days it was clear Truss had triggered an economic crisis — and one that sent the Conservative poll ratings tumbling along with the value of the pound.
Her MPs, facing electoral oblivion, were terrified.
In the weeks that followed, Truss was forced to sack her Chancellor Kwasi Kwarteng and U-turn on most of their economic program in a desperate bid to stabilize the markets. This week her home secretary, Suella Braverman, followed Kwarteng out the door. Her MPs became mutinous, some publicly demanding her head. Support rapidly drained away.
Truss was forced to sack her Chancellor Kwasi Kwarteng and U-turn on most of their economic program in a desperate bid to stabilize the markets | Jeff J Mitchell/Getty Images
Truss’ disastrous six weeks in power were an abject humiliation for the prime minister herself, of course — but also for the libertarian right of the Conservative movement that had fought its corner for years.
Winners and losers
“I’m pretty distraught about it,” said Mark Littlewood, director general of the Institute for Economic Affairs (IEA), one of the right-wing Westminster think tanks that inspired the Truss agenda. (He, like most of the interviewees for this article, was speaking after the abandonment of Truss’ economic program earlier this week, but before she finally resigned Thursday afternoon.)
“It did actually appear as if we had a new government that, in very broad terms, shared the IEA analysis of the problems with our economy, and it not being market-oriented enough.”
But Truss botched the “political execution” rather than economic thinking, Littlewood insisted, lamenting that “if the execution goes badly wrong, it has a rebound effect on the ideas.”
Indeed, Conservative libertarians explain the Truss debacle in various ways: She was not clear enough about what she was doing and the reasons for it; she made the announcements in the wrong sequence; she refused to match her tax cuts with spending restraint; and she failed to produce independent proof that her plans would work. There is certainly little sign of remorse.
“The position we’re in now is that these reforms basically have not been tried,” Littlewood insisted. “Her attempts to implement change were too hurried; too rushed; not thought through; naïve in some regard.”
Former UKIP leader Nigel Farage was another right-wing libertarian who had been advocating for low-tax, small-state ideals for decades.
“I think the hope was that the Kwarteng budget was going to mark a very significant moment,” Farage said. “That now appears to be dead. And I would have thought dead for a very, very long time. The people in the Conservative Party that I talk to, who think on my wavelength … have pretty much given up.”
But Tories opposed to the libertarian agenda are delighted at its failure — if not the disastrous fallout, for country and party alike. “The mild flirtation with Tea Party libertarianism has been strangled at birth, and I think for the general good fortune of the Tory Party that has to be seen as a good thing,” Tory backbencher Simon Hoare told the BBC.
One serving Cabinet minister added: “[The libertarians] are going to have to adjust to reality like the rest of us. They can’t buck the market.”
Former UKIP leader Nigel Farage was another right-wing libertarian who had been advocating for low-tax, small-state ideals for decades | Peter Summers/Getty Images
Nicky Morgan, a former Cabinet minister who previously co-chaired the centrist ‘One Nation’ caucus of Tory MPs, said her party must now return to its former broad-church approach.
“The task for the ‘One Nation’ wing of the party is almost to ignore the libertarian right and get on with reasserting one-nation politics, and prove to everyone from Liz Truss downward that if we want to stay in power, then being sane and sensible in the middle ground is a much stronger place to be,” she said.
The long march
For some on the conservative right, so-called Trussonomics was the inevitable end point of a march toward deregulation that began with the Brexit movement in the early 2010s. Farage was one of a number of Brexiteer thinkers who wanted the U.K. to leave the EU in a bid to drive up business competitiveness.
Bale said the libertarian strain in the Conservative Party had in fact been present for decades, but that the Brexit cause emboldened it and brought it to the fore.
The turning point came in 2011, when a number of right-wing Conservative MPs — many of them newly-elected the previous year — rebelled against then-Prime Minister David Cameron and voted in support of a referendum on EU membership. “That was the first time they realized their strength,” Bale said.
Across the country, anti-EU sentiment was rising, fueled by the eurozone crisis and soaring levels of immigration.
“There was a ‘push me, pull you’ going on,” Farage said. “The stronger UKIP got, the more emboldened the Tory Brexiteers got. 2011 was the moment when UKIP suddenly started coming second in by-elections. This group in the Tory Party, and this group outside the Tory Party — namely my group — always had very similar policy goals.”
Cameron was spooked, and the pressure from within and without his party forced him to agree a referendum on Britain’s EU membership. It was won by the Leave-supporting side in 2016, cheered on by a highly vocal section of the right-wing U.K. press which also supports low taxes and deregulation.
“The referendum allowed them all to coalesce around a single issue,” said David Yelland, a former editor of the Rupert Murdoch-owned, Brexit-backing Sun newspaper, who now speaks out against the influence of right-wing media.
“The right of the Conservative Party and their supporters in the media and the think tank world knew they had one go at this. They had to win Brexit, otherwise they were finished. And they did. And since then that has emboldened them.”
Keep pushing on
With Cameron forced from office, the group’s next battle was with his successor Theresa May, a euroskeptic Remainer who tried to negotiate a less drastic form of Brexit which would have left Britain tied to many of Brussels’ rules and regulations.
Farage said the “loose relationship” between pro-Brexit libertarians inside and outside the Tory Party maintained its hold over the new Tory leader, ultimately blocking her proposed Brexit deal in Parliament and forcing her resignation.
Theresa May was a euroskeptic Remainer who tried to negotiate a less drastic form of Brexit | WPA pool photo by Henry Nicholls/Getty Images
Boris Johnson then emerged as the next prime minister, a genuine ‘Vote Leave’ campaigner who was able to push through the hard-nosed form of Brexit the group had dreamed of. But his personal brand of domestic politics was less to their taste — a sort of high-spending boosterism which appealed to millions of Tory and pro-Brexit voters, if not to the libertarian right.
“The core Brexiteers were not ultra-libertarians,” explained former Tory MP Stewart Jackson, who lost his job as a ministerial bag carrier to vote with the pro-Brexit rebels in 2011.
“There were a few that wanted [London to become] Singapore-on-Thames … but the bulk of Brexiteer MPs and definitely Brexiteer voters were much more what I would call communitarian.”
But Jackson said the vacuum of ideas about how best to respond to Brexit, even among many Brexiteers, left space for the libertarians to fill. “They were the only game in town in terms of a new intellectual concept that the U.K. could consolidate on, being outside the European Union,” he said.
With Johnson’s departure in July following a series of personal scandals, the likes of Littlewood — as well as his brothers in arms at neighboring think tanks the Taxpayers Alliance and the Adam Smith Institute — found themselves in the ascendance.
Their ideas found favor with Truss — who despite not being a Brexiteer at the referendum, was a follower of the libertarian cause — and her Chancellor-to-be Kwarteng. The ambitious pair were among colleagues who wrote a now infamous 2012 pamphlet named “Britannia Unchained” offering radical right-wing solutions to Britain’s economic problems.
Less than two months after Johnson’s departure, their economic prospectus was finally put to the test — and exploded on impact.
The arc of history
As Truss and Kwarteng look back at the ashes of their brief Downing Street careers, the pro-Brexit right is licking its wounds and wondering where it goes next.
Shanker Singham, another libertarian thinker who is close to Truss and the IEA, insisted it was too soon to tell whether the low-tax, ultra-competition agenda is too damaged by the Trussonomics experiment to resurface in the near future.
Brexit supporters march in Fulham in the final leg of the March To Leave Rally on March 29, 2019 | Dan Kitwood/Getty Images
“It’s a very febrile atmosphere, and things have to settle down,” he said. “There’s a big arc of history here, and Liz Truss’ mini-budget does not suddenly transform the arc of history.”
Littlewood insists there will be another chance to implement libertarian policies in less than a decade, given the structural economic problems Britain faces.
“Had this [mini-budget] gone as smoothly as I had imagined it in my dreams, rather than as badly as it has gone in my living nightmare, I think we could have got quite a lot of this done now,” he said. “Unfortunately, a large amount of it is off the table now, but I think it will have to be returned to.”
Brexiteers of a different persuasion — of which there are many — are hoping for an urgent change of direction, however.
“The vision of Brexit as ‘Davos on Thames’, only ever held by 10 percent of the Conservative electorate, is dead,” wrote Matthew Goodwin, an academic who has charted the rise of the populist right. “The only way forward for the Conservative Party now is to get back to what Brexit was really about for the 90 percent, and to reconnect with their 2019 electorate.”
But Bale, of Queen Mary University, believes the libertarian strain among Conservatives will forever lurk just beneath the surface, insisting their radical solutions to the nation’s ills have still not been properly tried.
“When the spaceship doesn’t arrive,” he said, “the cultists simply say ‘we got the date wrong’, and that it will be coming in two years’ time.”
Additional reporting by Annabelle Dickson.
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LONDON — Westminster is in turmoil, the U.K. economy is floundering, and Tory MPs are about to pick their fifth prime minister in just over six years.
But in a sign of total normality in this fully-functioning Western democracy, Brits have instead spent much of the past week fixated on a livestream of a head of iceberg lettuce, wearing a wig.
Set up by tabloid the Daily Star, the paper’s newshounds bet big that a 60p supermarket lettuce would outlast Prime Minister Liz Truss, after her fledgling regime was gripped by unprecedented chaos in its first few weeks.
And they were right. Truss finally resigned Thursday, just 44 days into the job, making her the U.K.’s shortest-serving prime minister. The Daily Star broke out the Champagne, declaring: “The Lettuce Outlasted Liz Truss.”
So how did Truss put her salad days behind her, and why did she wilt under the public gaze?
Let POLITICO take you on a whirlwind tour of Truss’ 44-day premiership — but be warned, there are more than a few icebergs ahead.
Smashing the orthodoxy
September 6: It all started so well. After seeing off suave-but-dull rival Rishi Sunak in a rancorous Conservative leadership contest, Truss looked triumphant as she took the reins at No. 10 Downing Street and vowed to “transform Britain into an aspiration nation.” She had good reason to be cheerful, too, vacuuming up support from thousands of grassroots Tory members, getting the key Conservative-backing newspapers on side, and confidently brushing off the fact that the majority of her own Tory MPs had doubts about her competence. What did they know, after all? They’d only worked with Truss in Westminster for the past decade.
September 8: Upon taking office, Truss picked her close friend and neighbor Kwasi Kwarteng as her top finance minister, and immediately tasked him with taking on the stale “orthodoxy” at the Treasury. In a savvy first move, Kwarteng immediately sacked the most senior civil servant in the ministry — a man so clever his name is literally Tom Scholar — and so ensured that outmoded, orthodox qualities like “experience,” “credibility” and “economic literacy” were expunged at just the right time … amid a global economic crisis.
Also September 8: A busy day this one, what with Britain’s longest-reigning monarch dying that same afternoon. As the country mourned Queen Elizabeth II, Truss faced her first big communications test on the job: How to capture the nation’s deep sense of grief? She duly rose to the occasion, ripping up lines painstakingly prepared by career officials to deliver a heartfelt tribute with all the enthusiasm of a Q4 sales report. The country wept, for at least one Liz.
September 23: The queen’s death put normal politics on ice for a couple of weeks. But the pause allowed Team Truss to put the finishing touches on their very own Mona Lisa: the mini-budget. A sleeker, more aerodynamic budget than the normal kind, this mini version did away with tired conventions like “independent fiscal scrutiny by the government’s own watchdog,” and “making the sums add up.” Instead, Truss and Kwarteng pressed ahead with debt-funded tax cuts and a multi-billion pound plan to subsidize energy bills. Kwarteng also showed he retained a populist touch with crowd-pleasing measures such as cutting taxes for the U.K.’s super-rich and removing a cap on bankers’ bonuses, all in the middle of a cost-of-living crisis — before heading off to a Champagne reception with hedge fund bosses to party the night away. Cheers!
Woke markets cancel Truss
September 26: Eek. Then came the backlash. Financial markets — famously stuffed with tofu-munching lefties who hate conservatism and everything it stands for — failed to understand the mini-budget’s genius, while the unruly pound, which probably voted to Remain in the EU, crashed to its lowest-ever level against the U.S. dollar. Kwarteng, sounding a little shaken, promised he would publish all his fully-worked-out sums in, oooh, November? That sound OK?
September 28: The pound’s reign of terror continued, and, as U.K. borrowing costs soared and British pension funds teetered on the brink of collapse, those radical communists at the Bank of England were forced to step in with an unprecedented emergency bond-buying program “to restore market functioning.” Their hippie best mates at the International Monetary Fund also got in on the act, saying Kwarteng’s plans would “likely increase inequality” and urging the government to “re-evaluate” its tax measures. Chill out, guys!
Prime Minister Liz Truss is seen returning to Downing Street | Rob Pinney/Getty Images
October 3: Phew — she made it through to the Tory party conference. Political party conferences, after all, are normally a glorious victory lap for newly-crowned leaders, but Truss again decided to smash the status quo by turning hers into a deeply embarrassing few days of U-turns, backpedaling and noisy Tory infighting. Less than 24 hours after insisting she was sticking by her economic plan, Truss suddenly junked her centerpiece proposal to cut taxes for the rich. Kwarteng admitted the idea had “become a distraction” from the government’s “overriding mission.”
October 4: Indeed, the U-turn allowed the real “overriding mission” of the government — to needlessly piss off its own MPs — to shine through. No sooner had the tax cut been ditched than Truss’ ever-loyal Cabinet ministers were onto their next target, publicly pressuring the PM not to impose a real-terms cut to social security payments. One minister even capped off the day by telling a room full of drunk communications professionals that the government’s own comms strategy was “shit.” And who could argue?
October 10-11: A week after ditching their flagship policy, Truss’ government had another go at calming the still-spooked markets. Kwarteng’s new idea? Bringing forward the publication of his next fiscal plan to a date in no way guaranteed to be, erm, spooky: October 31. The Bank of England loved the cut of his jib, again stepping in with a major market intervention to prevent what it called a “fire sale” of U.K. government bonds. Which sounded worrying.
Actually, we really love the orthodoxy, please come back
October 14: After weeks of economic turmoil, Kwarteng was dragged home from a trip to Washington D.C. so that he could be sacked on the spot while still jet-lagged — a bad day at the office by anyone’s standards. Finally free of a chancellor who had repeatedly defied her by *checks notes* implementing her exact policy wishes to the letter, the PM then ripped up her long-standing pledge to ease taxes on big business, admitting in an epic eight-minute-long press conference that she’d gone “further and faster than markets were expecting.” We’ve all been there. Reaching out to the center of the Tory party, Truss appointed former Health Secretary Jeremy Hunt as her new chancellor, shoring up her faltering premiership for a full 36 hours.
October 16: Team Truss’ strenuous efforts to build bridges with her now-mutinous party ramped up another notch over the weekend, as a No. 10 insider branded her former leadership rival and ex-Cabinet colleague Sajid Javid — who had reportedly just been sounded out by Truss’ team itself about the chancellor job — “shit.” It didn’t go down too well with him, or his mates.
October 17: A biggie, as Hunt put a bullet in the entire Truss agenda, live on TV. In an astonishing move, the new finance minister issued a televised statement in which — by his own admission — he ripped up “almost all” the mini-budget pledges the Truss government had announced just a few weeks earlier. Even the energy support plan, clung to by Truss supporters as one of the few remaining positives of her premiership, was to be significantly pared back — although hard-pressed voters should be able to warm themselves this winter by standing near the giant “dumpster fire” that’s been Westminster the past six years. Truss capped another glorious day by avoiding an urgent question in the House of Commons and sending a junior Cabinet minister to reassure angry MPs that the British prime minister was not, in fact, “hiding under a desk.”
October 19: Very much the End Times. A rollercoaster of a day — if rollercoasters only went downhill — as an under-pressure Truss first offered up yet another U-turn, this time on pension payments; then a senior Truss aide was suspended as that clever “shit” quote to the Sunday newspapers got investigated by No. 10; then her home secretary was sacked and posted what was essentially an extended anti-Truss sub-tweet as a resignation letter; and then the government somehow turned a really boring House of Commons vote into a bitter row about “manhandling” its own MPs, as one of them literally cried on live TV. For those watching from abroad — this is why people in the U.K. drink a lot.
October 20: With the game finally up and her authority shot to pieces, Truss bowed to the inevitable and resigned Thursday, reeling off all her achievements in an 89-second statement on the Downing Street steps. Yet all is not lost. Tucked away in a newsroom in London, there’s one little lettuce who never lost hope. And in its still-crisp and delicious center lies the promise of national renewal. We can but dream.
German Interior Minister Nancy Faeser has fired Arne Schönbohm, head of the country’s cybersecurity agency (BSI), following a controversy over his alleged contacts with Russia.
Schönbohm is to exit the Interior Ministry with immediate effect, a ministry spokesperson told local media in Berlin today. In addition, disciplinary proceedings have been initiated against Schönbohm. Previously, Spiegel had reported on Schönbohm’s involuntary departure.
Schönbohn founded an industry association in 2012 — the Cyber Security Council — and chaired it until he became head of the BSI in 2016. According to a ZDF report from October 7, the association was prone to Russian espionage and influence; rumors of Schönbohm’s ouster followed the broadcaster’s investigation.
However, throughout the past week, experts across Germany jumped to Schönbohm’s defense, pointing to his good record as BSI chief: “You have to acknowledge, he really pushed the BSI forward,” said IT security expert Manuel Atug.
Other experts even criticized Faeser for not standing by her cyber agency.
“The Ministry of the Interior must finally stand up for [the BSI] in order to limit the damage to its image. So far, nothing has come to light in this context where the [BSI] has acted in a problematic or wrong way,” said Sven Herpig, international cybersecurity policy director at Stiftung Neue Verantwortung, on October 13.
Faeser has now decided to give the BSI a fresh start with a new face — but Schönbohm’s successor is not yet known.
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PARIS — U.S. President Joe Biden needs to watch out; France is resuming its traditional role as Europe’s troublemaker on the transatlantic trade front.
It had seemed like the bad blood between Brussels and Washington was easing on Biden’s watch. Facing a common foe in China, the EU and the U.S. last year struck a truce on the tariffs that former President Donald Trump slapped on European steel and aluminium. Over this year, Russia’s war against Ukraine has meant that America and Europe needed to present a united front, at least politically.
Cracks are now starting to re-emerge, however. The EU is furious that the U.S. is pouring subsidies into the homegrown electric car industry. Accusing Washington of protectionism, Europe is now threatening to draw up its own defenses.
Unsurprisingly, French President Emmanuel Macron is leading the charge. “The Americans are buying American and pursuing a very aggressive strategy of state aid. The Chinese are closing their market. We cannot be the only area, the most virtuous in terms of climate, which considers that there is no European preference,” Macron told French daily Les Echos.
Upping the ante, he called on Brussels to support consumers and companies that buy electric cars produced in the EU, instead of ones from outside the bloc.
There are good reasons why the Europeans are fretting about their trade balances.
The war has delivered a huge terms-of-trade shock, with spiraling energy costs hauling the EU into a yawning bloc-wide trade deficit of €65 billion in August, from only €7 billion a year earlier. In one manifestation of those strains, Europe’s growing reliance on American liquefied natural gas to substitute for lost Russian supplies has re-ignited tensions.
Macron’s comments are a reflection of EU consternation over Washington’s Inflation Reduction Act, which incentivizes U.S. consumers to “Buy American” when purchasinga greener car. The EU argues that requiring that car needs to be assembled in North America and contain a battery with a certain percentage of local content discriminate against the EU and other trade partners.
The European Commission hopes to convince Washington to find a diplomatic compromise for European carmakers and their suppliers. If not, that leaves the EU no choice but to challenge Washington at the World Trade Organization, EU officials and diplomats told POLITICO — even if a new transatlantic trade war is the last thing both sides want to spend their time and money on.
Macron’s comments “are clearly a response against the Inflation Reduction Act,” noted Elvire Fabry, a trade policy expert at the Institut Jacques Delors in Paris. “Macron plays the role of the bad cop, compared to the European Commission, which left Washington some political room to make adjustments,” she noted.
‘American domination’
The Commission hopes to find a diplomatic compromise with the U.S. for European carmakers and their suppliers | Ludovic Marin/AFP via Getty Images
France has traditionally been the bloc’s most outspoken country when it came to confronting Washington on a wide range of trade files. Paris, for instance, played a key role in killing a transatlantic trade agreement between the EU and U.S. (the so-called “TTIP”). Its digital tax angered U.S. Big Tech and triggered a trade war with the Trump administration.
More recently, during its rotating Council of the EU presidency, Paris focused on trade defense measures, which will give Brussels the power to retaliate against unilateral trade measures, including from the U.S.
New tensions are bad news for the upcoming meeting of the Trade and Tech Council early December, which so far has had trouble to show that it’s more than a glorified talking shop.
France won’t be left alone in a possible trade war on electric cars. According to Fabry, these tensions will bring Paris and Berlin closer, as the German car industry is also particularly affected by the U.S. measures.
But the “Buy American” approach is not the only bone of contention. The fact that Europe is increasingly relying on gas imports from the U.S. brought European discontent to the next level.
Although gas import prices fell in September from their all-time highs in August, they were still more than 2.5 times higher than they were a year ago. And, taking into account increased purchase volumes, France’s bill for imports of LNG multiplied more than tenfold in August, year on year, by one estimate.
Economy and Finance Minister Bruno Le Maire last week warned that Russia’s war against Ukraine should not result in “American economic domination and a weakening of Europe.” Le Maire criticized the U.S. for selling LNG to Europe “at four times the price at which it sells it to its own companies,” and called on Brussels to take action for a “more balanced economic relationship” between the two continents.
That very same concern is shared by some Commission officials, POLITICO has learned, but also among French industrialists.
It is “hardly contestable” that the U.S. had some economic benefits from the war in Ukraine and suffered less than Europe from its economic consequences, said Bernard Spitz, head of international and European affairs at France’s business lobby Medef.
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China’s President Xi Jinping has some good news for Europe — his country’s draconian zero-COVID policies aren’t likely to be dropped.
That’s a relief for European buyers of liquefied natural gas, as China’s economic slowdown has freed up LNG cargos crucial to replacing the Russian gas that used to supply about 40 percent of European demand.
“Regardless of what you think about the Chinese zero-COVID policy, simply looking at it only from the perspective of European gas supplies, it would be very helpful if China continued this policy,” said Dennis Hesseling, head of gas at the EU’s energy regulator agency ACER.
Xi took to the stage Sunday to kick off the week-long 20th Communist Party congress, and he doubled down on the zero-COVID approach, calling it a “people’s war to stop the spread of the virus.”
The once-in-five-year summit is “mostly a political meeting for within the party itself” but it does send crucial signals, said Jacob Gunter, a senior analyst at the China-focused MERICS think tank. So far it indicates China plans to “stick with [zero-COVID] for a while,” he said, adding that’s partly because government pandemic messaging has so spooked the population that lifting it would cause “chaos,” while Chinese vaccine hesitancy also remains high.
Since the outbreak of the pandemic in 2020, China has ruthlessly pursued its policy of crushing the coronavirus, involving snap lockdowns of entire cities accompanied by mass testing, surveillance and border closures. The slowdown in growth and depressed demand led to China’s LNG imports sinking by one-fifth, or 14 billion cubic meters, year-on-year for the first eight months of 2022, according to Jörg Wuttke, president of the EU Chamber of Commerce in China.
China and the EU each imported around 80 million tons of LNG in 2021, but China’s imports will fall to 64 million tons this year, according to data by market intelligence firm ICIS. That’s helping the EU buy gas on the global market and using it to fill the Continent’s storages ahead of the winter heating season.
“Europe is lucky that China has a severe economic downturn which will last well into 2023,” said Wuttke, adding that the drop in demand from China — historically the world’s largest LNG importer — is “roughly equivalent to the entire annual LNG imports of Britain.”
2023 worries
China’s President Xi Jinping | Anthony Wallace/Pool/AFP via Getty Images
With EU gas storage now over 90 percent full, the conversation in Brussels has already begun to shift to securing enough supplies for next year. At last week’s summit of EU energy ministers, International Energy Agency chief Fatih Birol warned that “next winter may well be even more difficult.”
As things stand, Beijing’s LNG imports are likely to rise back to 2021 levels next year, according to senior ICIS gas analyst Tom Marzec-Manser, with deliveries typically increasing around the winter season and then likely to ramp up again next summer.
China has already ordered its state-owned gas importers to stop reselling LNG to the EU to preserve stocks for the winter season at home.
But if the zero-COVID policy is scrapped, that could lead “to a step-change in growth again,” said Marzec-Manser.
European countries are well aware of this risk.
In a presentation given by ACER during last week’s informal Energy Council, ministers were told that “China’s COVID-driven demand decline in LNG volumes is currently being absorbed” by the bloc. “This raises questions as to when China’s LNG demand may turn back towards normal growth rates,” it added.
Although Russian shipments have fallen to less than 9 percent of EU demand, some Kremlin gas is still getting through. But “that may not be available at all next year,” said ACER’s Hesseling, adding that if there is no Russian gas and Chinese demand comes roaring back, more radical energy-saving measures would be needed in the EU.
EU leaders will meet later this week to discuss further measures to tackle sky-high energy prices in Europe, including measures for next year such as joint gas purchasing.
According to one senior EU diplomat, “competition from Asia [is] mentioned constantly,” adding that “it’s quite evident” a change in Beijing’s lockdown policy “may raise global demand and raise prices.”
“China is indeed a competitor and that needs to be taken into account whatever we might be doing,” they said.
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LONDON — Jeremy Hunt, the man brought in to save Liz Truss’ floundering premiership and calm spooked markets, is “not taking anything off the table” when it comes to rethinking the government’s economic policies.
In a round of broadcast interviews Sunday, Hunt — appointed as the U.K.’s top finance minister Friday after Truss sacked Kwasi Kwarteng — left the door open to fresh about-turns on the debt-funded, tax-cutting promises that helped Truss become Conservative leader just weeks ago.
“We are going to have to take some very difficult decisions, both on spending and on tax,” Hunt told the BBC’s Laura Kuenssberg. “Spending is not going to increase by as much as people hoped, and indeed we’re going to have to ask all government departments to find more efficiencies than they had planned, and taxes are not going to go down as quickly as people thought, and some taxes are going go up,” he added.
Hunt — a former Cabinet minister and two-time leadership contender drawn from the center-left of the Conservative Party — is now in an extraordinarily powerful position, having been drafted in to salvage Truss’ premiership amid collapsing poll ratings and economic turmoil.
Conservative MPs have been openly criticizing her leadership, amid fevered speculation in Westminster that the party will try to oust her — a move that would likely require a change to the party’s internal rules and could put the U.K. on its third prime minister this year.
As well as sacking her chancellor, Truss was on Friday forced to abandon a totemic pledge from her leadership campaign, and she will now increase corporation tax as had originally been planned by the man she defeated in the Tory contest, Rishi Sunak. It followed a humiliating climbdown over plans to cut taxes for Britain’s top earners, unveiled in a so-called mini-budget in September that was not subject to the usual scrutiny by Britain’s independent fiscal watchdog and prompted an emergency intervention from the Bank of England and a sharp rise in mortgage rates.
Hunt went armed to his BBC interview with a message to voters and nervous MPs. “One thing I want to reassure families who are worried at home is that our priority, the lens through which we’re going to do this is as a compassionate Conservative government, and top of our mind when we’re making these decisions will be struggling families, struggling businesses, the most vulnerable people and we will be doing everything we can to protect them,” he said.
Pressed on the scope of his revised tax-and-spend plans ahead of a fiscal announcement slated for October 31, Hunt told the BBC: “I’m not taking anything off the table.”
But he warned Conservative MPs against trying to oust Truss, saying a further leadership contest was “the last thing that people really want.”
Elsewhere on Sunday, Tory MPs expressed their anger at the Truss administration. Senior backbencher and education committee chairman Robert Halfon said he was not calling for Truss to go “at this time,” but demanded a “dramatic reset” of her premiership.
The government, he told Sky News, had looked like “libertarian jihadists” who had treated the country like “laboratory mice.” Crispin Blunt, a former minister, became the first to publicly call on Truss to step aside, telling telling Channel 4 News: “U think the game’s up, and it’s now a question as to how the succession is managed.”
Amid efforts by some government ministers to paint the U.K.’s economic woes as entirely global, former Bank of England Deputy Governor Charlie Bean told Sky’s Sophy Ridge show: “Frankly, I think it’s disingenuous to say it’s all a global phenomenon; it’s not.”
On interest rate rises now facing the U.K., Bean argued that around two-thirds is down to global factors, with the rest a U.K.-specific phenomenon that’s developed since the mini-budget. “Basically we’ve moved from looking not too dissimilar from the U.S. or Germany as a proposition to lend to, to looking more like Italy and Greece,” he said.
U.S. President Joe Biden laid into beleaguered U.K. Prime Minister Liz Truss’ tax-cutting agenda Saturday, calling it a “mistake” and warning that a lack of “sound policy in other countries” could hold back the United States.
Truss, just weeks into the job, is fighting for her political life after proposing — and then being forced to abandon — debt-funded tax reductions for Britain’s top earners and businesses that roiled the markets.
The U.K. leader on Friday sacked her top finance minister, Kwasi Kwarteng, and junked a totemic commitment to reduce corporation tax.
Speaking on a campaign stop in Oregon, Biden claimed it was “predictable” that Truss would have to row back on her agenda, which was also openly criticized by the International Monetary Fund.
“I wasn’t the only one that thought it was a mistake,” the U.S. president said of Truss’ plans. “I think that the idea of cutting taxes on the super-wealthy at a time when […] I disagree with the policy, but that’s up to Great Britain.”
With inflation expected to play a major part in the upcoming U.S. mid-term elections, Biden said the American economy remained “strong as hell,” but that he is “concerned about the rest of the world.”
And he added: “The problem is the lack of economic growth and sound policy in other countries. It’s worldwide inflation, that’s consequential.”
Biden’s swipe at the Truss agenda is an unusual move, given that presidents tend to avoid commenting on the domestic policy of allies.
It came as Truss’ newly-appointed chancellor, Jeremy Hunt, signalled further fiscal U-turns could be on the cards.
“We have to be honest with people and we are going to have to take some very difficult decisions both on spending and on tax to get debt falling but the top of our minds when making these decisions will be how to protect and help struggling families, businesses and people,” Hunt said in a statement issued overnight.
Truss and Hunt will on Sunday hold talks at the prime minister’s country retreat, Chequers, the BBC reported, ahead of a fresh economic plan due to be unveiled October 31.
Russia is rushing to repair the bridge connecting occupied Crimea to Russia after a major blast on Saturday, in an attempt to downplay the attack.
Suburban train lines are scheduled to start running again on the Kerch Bridge as of 7 p.m. local time, according to a message from the Russian Transport Ministry posted on Telegram Sunday. Long-distance freight and passenger trains on the bridge already “are moving according to the standard schedule,” the ministry said.
The fiery explosion Saturday morning marked a huge symbolic blow against Russian President Vladimir Putin, who grabbed Crimea from Ukraine in 2014 and started building the bridge connecting the Ukrainian peninsula to Russia that same year.
“This incident will likely touch President Putin closely,” the U.K. Ministry of Defense said in analysis published on Sunday, since the blast happened “hours after his 70th birthday” and his childhood friend Arkady Rotenberg built the bridge.
Putin tightened security for the bridge after Saturday’s explosion, and he ordered a government commission to investigate the damage. The initial report from Moscow’s inspection of the bridge is due later Sunday.
Meanwhile, the Russian Foreign Ministry appeared to be downplaying the blow as it tweeted a video of the Kerch Bridge with traffic flowing. Despite Moscow’s message of business as usual, the U.K.’s Defense Ministry said that transport “capacity will be seriously degraded” on the bridge.
“The extent of damage to the rail crossing is uncertain, but any serious disruption to its capacity will highly likely have a significant impact on Russia’s already strained ability to sustain its forces in southern Ukraine,” the U.K. ministry said.
Russia’s Ministry of Transport wrote on Telegram Sunday that vehicles containing perishable goods would be given priority on ferries crossing the Kerch Strait.
The Ukrainian government so far hasn’t been commenting about the origins of the apparent bombing. Ukraine’s Deputy Foreign Minister Emine Dzheppar posted a picture of the collapsed bridge section on Saturday with the hashtag #CrimeaIsUkraine.
Over the past few weeks, Ukraine has been leading a counteroffensive against Russia and regaining territory and towns held by Moscow. Kyiv is now asking for more Western weapons, including air defense systems. The Kremlin signalled on Sunday that if the West were to provide Ukraine with heavier long-distance arms, Russia would retaliate.
“Deliveries of long-range or more powerful weapons to Kyiv” would cross Russia’s “red lines,” Russian foreign affairs official Aleksey Polishchuk told the country’s state-owned news agency TASS on Sunday.
Ukrainian Foreign Minister Dmytro Kuleba renewed the call for additional defensive systems on Sunday, after at least 17 people were reported killed overnight by Russian shelling on the city of Zaporizhzhia.
“Russia continues its missile terror against civilians in Zaporizhzhia,” Kuleba said in a tweet. “We urgently need more modern air and missile defense systems to save innocent lives. I urge partners to speed up deliveries.”
European far-right politicians just stormed to victory in Italy, after achieving historic results in France and Sweden.
“Everywhere in Europe, people aspire to take their destiny back into their own hands!” said Marine Le Pen, the leader of France’s far-right National Rally Party.
But if you think there is a new wave of right-wing radicalism sweeping Europe, you’d be wrong. Something else is going on.
Analysis by POLITICO’s Poll of Polls suggests far-right parties in the region on average did not increase their support by even one percentage point between the start of Russia’s invasion in Ukraine in February and today.
POLITICO looked at the median and average increase of all parties organized in right-wing European Parliament groups of Identity and Democracy, the European Conservatives and Reformists or unaffiliated parties with political far-right positions.
Overall, the results indicate that if an increase in support occurred for far-right parties, it happened several years ago.
The Sweden Democrats’ first surge happened after the 2014 election, when the party grew from around 10 percent to 20 percent, the same one-fifth share of the vote they received in this year’s election. The far-right Alternative for Germany AfD in Germany grew fast in 2015 and 2016 reaching 14 percent in POLITICO’s polling tracker. In Italy, the Northern League overtook Forza Italia for the first time in early 2015, and peaked in 2019 at 37 percent before starting a downward trend ending on 9 percent in last month’s election. In the Italian election, voters mostly switched between rival right-wing camps.
The far-right has moved from the fringes of politics into the mainstream, not only influencing the political center but also entering the arena of power.
“There is a normalization of far-right parties as an integral part of the political landscape,” said Cathrine Thorleifsson, who researches extremism at the University of Oslo. “They have been accepted by the electorate and also by other, conventional parties.”
Cooperation between the center-right and the extreme-right has become less taboo.
“The rise of far-right parties is only part of the story. The facilitating and mainstreaming of far-right parties as well as the adoption of far-right frames and positions by other parties is at least as important,” tweeted Cas Mudde, a leading scholar on the issue.
This may risk destabilizing Europe even more than winning a couple of percentage points in the polls.
Italy’s far-right firebrand Giorgia Meloni is a clear-cut example. While her party draws its origin from groups founded by former fascists, she’ll now lead the EU’s third-largest economy.
Leader of Italian far-right party “Fratelli d’Italia” (Brothers of Italy), Giorgia Meloni | Pitro Cruciatti/AFP via Getty Images
In Sweden, the center-right party has started coalition talks for a minority government which would have to draw on opposition support, most likely from the far-right Swedish Democrats. Far-right parties have also entered governments in Austria, Finland, Estonia and Italy. Other countries are likely to follow.
George Simion, the leader of Romania’s far-right party, Alliance for the Union of Romanians (AUR), celebrated Meloni’s win in Italy, saying his party is likely to follow in their footsteps.
Spain heads to the ballot box next year and socialist Prime Minister Pedro Sánchez may have a tough time winning re-election. The conservative People’s Party is between five and seven points ahead of the Spanish socialists in all the published polls, but it is unlikely to garner enough votes to secure a governing majority outright.
That means it may have to come to an agreement with far-right party Vox, whose leader, Santiago Abascal, is an ally of Meloni’s. While the People’s Party previously refused to govern with Vox, last spring its newly elected leader, Alberto Núnez-Feijóo, greenlit a coalition agreement with the ultranationalist group in Spain’s central Castilla y León region.
Tom Van Grieken, the right-wing Belgian politician, also pointed to Spain as the next likely example, especially because of the possible cooperation with the PP. “All over Europe, we see conservative parties who are considering breaking the cordon sanitaire,” he said, referring to the refusal of other parties to work with the far-right. “They are tired of compromising with their ideological counterparts, the parties at the left end of the spectrum.”
Chairman of Vlaams Belang party Tom Van Grieken | Stephanie Le Coqc/EFE via EPA
This didn’t happen overnight. The far-right worked hard to shrug off their extremist, neo-Nazi image.
“In some of the reporting on the Swedish Democrats, you’d think they’ll deport people on trains as soon as they’re in power. Come on, these parties have changed,” said one EU official with right-wing affiliations.
The far-right invested in “image adjustment and trying to tread carefully with some issues, while unashamedly catering to others,” said Nina Wiesehomeier, a political scientist at the IE University of Madrid. “This is particularly obvious in Italy right now, with Meloni sticking to the slogan of ‘God, homeland, family,’ as a continuation, while having tried to purge the party from more radical elements.”
In Belgium’s northern region of Flanders, the right-wing Vlaams Belang (Flemish Interest) explicitly dismisses the label “extreme-right.” Just like his counterparts in Italy, Sweden and France, Van Grieken, the party’s president, denounced the more extremist positions of his group’s founding fathers and moderated his political message to make voting for the far-right socially acceptable.
Overt racism is taboo. Instead, the rhetoric changes to criticizing an open-door migration policy. By carefully catering to centrist voters, the far-right aims for a bigger slice of the cake, while still riding on the anti-establishment discontent.
“There is a clear fault line between the winners of globalization and the nationalists,” Van Grieken told POLITICO. “This comes on top on the concerns about mass migration, whether it’s in Malmö, Rome or other European cities.”
Perfect storm
Now, the time is right to capitalize on that transformation.
As Europe is battling record inflation and Europeans fear exorbitant heating bills, governments warn about the political implications of a “winter of discontent.”
“It’s a massive drainage of European prosperity,” Belgian Prime Minister Alexander De Croo told POLITICO recently. “In the current situation, it’s hard to believe in progress, it’s very hard to make progress. So there’s a very pessimistic feeling.”
The current war in Ukraine is the latest in a succession of crises — in global finance, migration and the pandemic. Experts argue that this is key to understanding the rising support for the far-right.
“Such existential crises have a destabilizing effect and lead to fear,” said Carl Devos, a professor in political science at Ghent University. “Fear is the breeding ground for the far-right. People tend to translate that fear and outrage into radical voting behaviour.”
Migration and identity politics are less prominent in the media because of the Ukraine war and rising energy prices, but they’re still key issues in right-wing debate.
In Austria, the coalition parties fought over whether or not asylum seekers should receive climate bonuses. In the Netherlands, the death of a baby at the asylum center Ter Apel led to a renewed debate over the overcrowded migration centers.
The combination of those issues is likely to feed into more right-wing wins across the continent. “The far-right offers nationalist, protectionist solutions to the globalized crises, said Thorleifsson. “We see how the migration issue was momentarily off the agenda during the pandemic, but now it’s back.”
Aitor Hernández-Morales, Camille Gijs and Ana Fota contributed reporting.
