ZURICH — In one of Europe’s wealthiest squares, overlooked by the looming headquarters of a huge international bank that disintegrated just weeks ago, the impeccably dressed men and women who shuffle in and out of gleaming offices are in the grip of a Mafia-like omertà.
“You won’t get anything from anyone,” one of them says with a firmness that’s meant to draw a line under any conversation before it’s even begun. The informal code of silence dominates. His friend drags him away, through the doors of a second global bank — the one that rescued the first for 3 billion Swiss francs.
This is Paradeplatz in Zurich, Switzerland’s biggest city. Home to Credit Suisse, whose collapse in March after 167 years could have triggered a full-on global crisis had UBS not been forced to step in and take it over. The recriminations started almost immediately. Now, amid its rattling trams and luxury chocolate shops, this 17th-century square could rival the Vatican for the way the fog of secrecy has descended.
Stay there long enough and an occasional whisper about the demise of the once-great bank might be overheard. Speculation, nothing more. Gossip about political repercussions or what could happen to bonuses — exchanged over strong coffee and furtive early-morning glances at the Financial Times or Neue Züricher Zeitung. But not with outsiders of course, and certainly not with those who approach with journalist notebook in hand.
It’s easy to spot the bankers in the Swiss financial capital: a perfectly tailored blue suit, single-breasted trench coat, hand-held briefcase (leather, preferably). And what about the demise of Credit Suisse, then? “We can’t talk about it,” says one of them over an espresso with a colleague.
Turn the corner, to where a younger man is smoking, behind the dead bank’s HQ that still stands at Paradeplatz’s northern end. He dismisses all questions too: “For that, we have corporate comms.”
Nobody’s responsible
There’s a reason for all this silence. The Alpine nation, known for its utmost discretion in its role as banker to the world’s rich, is still trying to process exactly what went wrong — and what to do about the people who took Credit Suisse to the brink.
The public is “very angry,” according to Tobias Straumann, professor of modern and economic history at the University of Zurich, especially as it’s been just 15 years since UBS’ own public bailout.
“The taxpayer has to save a bank, where people earned a lot of money, and nobody’s responsible now,” he said. “That’s the feeling.”
With national elections coming up in October, the question turns to who will be on the receiving end of that feeling. Just the bankers themselves? The regulators who watched it go up in flames? The politicians who set the rules in the first place? All of the above?
The Swiss parliament has started exerting its authority — rejecting the government’s request to approve an emergency credit line underpinning the takeover. But that was largely symbolic. It will decide in June whether to launch a parliamentary commission — which would then be able to summon those involved for questioning.
The Swiss parliament has started exerting its authority — rejecting the government’s request to approve an emergency credit line underpinning the takeover | Fabrice Coffrini/AFP via Getty Images
“My prediction would be that in the short run, not much is going to happen,” Straumann said. “But probably after the elections, then you’re going to see a bigger coalition that really does something,”
Pig market
It won’t help the public mood that some Credit Suisse bankers plan to sue over lost bonuses. A few hundred years ago Paradeplatz was known as Säumärt — pig market, and now accusations of snouts in troughs have become ever more common in public discourse.
Céline Widmer, a Swiss Social Democrat lawmaker, has called for a ban on bankers’ bonuses, as well as for higher capital requirements for lenders to make them safer. In her view, Switzerland’s financial watchdog should also get stronger sanctioning powers.
“It was the behavior of the banks, which [demonstrated] they are not accountable,” she said of what went wrong at Credit Suisse.
The Swiss authorities find themselves under intense scrutiny. Although they stopped the bank’s collapse from triggering broader financial contagion, the government and regulators face questions over why they didn’t step in earlier.
As it was, Credit Suisse had problems for years, but over a few days in March, it rapidly lost the trust of financial markets amid broader panic over bank failures in the U.S.
According to Finance Minister Karin Keller-Sutter, the bank would have run out of money without the hasty takeover by UBS, as clients pulled their deposits and its shares and bond prices tanked.
The government promised to swallow up to 9 billion francs of losses if needed and the Swiss central bank offered 100 billion francs of liquidity.
Legal cases are underway contesting the decisions taken over that pivotal weekend of the merger — including the Swiss financial watchdog’s wipeout of 16 billion francs of Credit Suisse bonds, reversing the usual hierarchy of losses in a collapse.
Those investors, whose bonds are now worth nothing, have won an early victory by forcing the release of a contested emergency decree.
A banking monster
And life might get harder for the other bank with its headquarters in Paradeplatz now that it’s gobbled up its rival.
“We created a monster with UBS,” said Thomas Borer, a former Swiss ambassador to Germany, who is involved in representing the interests of Credit Suisse bondholders wiped out in the takeover.
“[It’s now] one of the biggest banks in the world when it comes to wealth management. We are not one of the biggest countries in the world. How should we regulate that? That’s now where the debate is focusing on.”
According to Finance Minister Karin Keller-Sutter, the bank would have run out of money without the hasty takeover by UBS | François Walschaerts/AFP via Getty Images
The parliamentary investigation could lead that debate — and even Switzerland’s tight-lipped bankers are keen.
“We are supporting that there be an independent and complete and open-minded review of these events,” said August Benz, deputy chief executive of the Swiss Bankers Association.
Credit Suisse’s failure had triggered “certain emotions,” Benz said, but hoped an inquiry would help Switzerland pick “the right measures” in response to the bank’s failure. He pushed back against the idea that a global bank like UBS could be too big for the country.
“Germany has one [globally systemic bank], Italy has one, Spain has one, [the Netherlands has one] and Switzerland looks like it’ll have one,” he said.
Stable no more
Back on the streets of Zurich, Credit Suisse’s HQ is a visible reminder of the uncertainty brought about by its failure, peering over at UBS across Paradeplatz.
“It’s a huge institution that suddenly disappears,” says Reinhard Berger, a 36-year-old chemist, waiting for the tram.
A few blocks away, Eliane Christen, a patent engineer, 35, is wistful. The failure makes her “unsure about the stability we always say Switzerland has,” she says. The stability seemed to vanish in one weekend.
HIROSHIMA, Japan — China on Saturday faced a strong pushback from the Group of Seven countries over its stances on Russia, Taiwan, trade bullying, economic monopoly and domestic interference, with the G7 leaders’ statement reflecting a broad convergence of the U.S., Europe and Japan on a need to change tack.
Issued around the time of Ukrainian President Volodymyr Zelenskyy’s arrival in Hiroshima, where the summit is taking place, the statement by leaders of the G7 wealthy democracies asked Beijing to do more to stop Russia’s war on Ukraine.
“We call on China to press Russia to stop its military aggression, and immediately, completely and unconditionally withdraw its troops from Ukraine,” the leaders said in the statement. “We encourage China to support a comprehensive, just and lasting peace based on territorial integrity and the principles and purposes of the U.N. Charter, including through its direct dialogue with Ukraine.”
Crucially, the U.S. and Europe — the two main constituents of the G7 — came round to a common set of language on China. For France and Germany, in particular, their focus on a conciliatory attitude to China was reflected in the final statement, which began the China section by stating “We stand prepared to build constructive and stable relations with China.”
The G7’s repeated emphasis of “de-risking, not decoupling” is a nod to the EU approach to China, as European member countries are wary of completely cutting off business ties with Beijing.
The language on Taiwan remained the same compared with recent statements. “We reaffirm the importance of peace and stability across the Taiwan Strait as indispensable to security and prosperity in the international community,” the statement said, adding there’s “no change in the basic positions” in terms of the one China policies.
Domestic interference
Apart from Russia, another new element this year is the mention of domestic interference — which human rights groups say is a reflection of the growing concern about China’s “overseas police stations” in other countries. “We call on China … not to conduct interference activities aimed at undermining the security and safety of our communities, the integrity of our democratic institutions and our economic prosperity,” the leaders said in their statement, citing the Vienna Convention which regulates diplomatic affairs.
On global economics, both sides of the Atlantic and Japan now see the need to fundamentally change the overall dynamic of economic globalization, placing security at the front of policy considerations.
“Our policy approaches are not designed to harm China nor do we seek to thwart China’s economic progress and development. A growing China that plays by international rules would be of global interest,” the G7 leaders said in the statement.
“We are not decoupling or turning inwards. At the same time, we recognize that economic resilience requires de-risking and diversifying. We will take steps, individually and collectively, to invest in our own economic vibrancy. We will reduce excessive dependencies in our critical supply chains,” they said.
One central theme is economic coercion, where China has punished a wide range of countries — from Japan and Australia to Lithuania and South Korea — over the decade when political disagreements arose.
The G7 countries launched a new “coordination platform on economic coercion” to “increase our collective assessment, preparedness, deterrence and response to economic coercion,” according to the statement. They also plan to coordinate with other partners to further the work on this.
For France, the focus on a conciliatory attitude to China was reflected in the final statement, which began by stating “We stand prepared to build constructive and stable relations with China” | Pool phot by Stefan Rousseau/Getty Images
The joint call for diverse sources of critical minerals, while stopping short of naming China, is widely seen as targeted against the Asian superpower that controls, for instance, 70 percent of global rare earths output. The G7 countries “support open, fair, transparent, secure, diverse, sustainable, traceable, rules and market-based trade in critical minerals” and “oppose market-distorting practices and monopolistic policies on critical minerals,” according to the statement.
They also vow to deliver the goal of mobilizing up to $600 billion in financing for quality infrastructure through the Partnership for Global Infrastructure Investment, a rival to China’s Belt and Road initiative. “We will mobilize the private sector for accelerated action to this end,” they said.
In a bilateral in Hiroshima, British Prime Minister Rishi Sunak and French President Emmanuel Macron “welcomed the strong unity of purpose at the G7 on … our collective approach to the economic threat posed by China,” a spokesperson for Sunak’s office said.
LONDON — Joe Biden is not someone known for his subtlety.
His gaffe-prone nature — which saw him last week confuse the New Zealand rugby team with British forces from the Irish War of Independence — leaves little in the way of nuance.
But he is also a sentimental man from a long gone era of Washington, who specializes in a type of homespun, aw-shucks affability that would be seen as naff in a younger president.
His lack of subtlety was on show in Belfast last week as he issued a thinly veiled ultimatum to the Democratic Unionist Party (DUP) — return to Northern Ireland’s power-sharing arrangements or risk losing billions of dollars in U.S. business investment.
The DUP — a unionist party that does not take kindly to lectures from American presidents — is refusing to sit in Stormont, the Northern Ireland Assembly, due to its anger with the post-Brexit Northern Ireland protocol, which has created trade friction between the region and the rest of the U.K.
The DUP is also refusing to support the U.K.-EU Windsor Framework, which aims to fix the economic problems created by the protocol, despite hopes it would see the party reconvene the Northern Irish Assembly.
The president on Wednesday urged Northern Irish leaders to “unleash this incredible economic opportunity, which is just beginning.”
However, American business groups paint a far more complex and nuanced view of future foreign investment into Northern Ireland than offered up by Biden.
Biden told a Belfast crowd on Wednesday there were “scores of major American corporations wanting to come here” to invest, but that a suspended Stormont was acting as a block on that activity.
One U.S. business figure, who spoke on condition of anonymity, said Biden’s flighty rhetoric was “exaggerated” and that many businesses would be looking beyond the state of the regional assembly to make their investment decisions.
The president spoke as if Ulster would be rewarded with floods of American greenbacks if the DUP reverses its intransigence, predicting that Northern Ireland’s gross domestic product (GDP) would soon be triple its 1998 level. Its GDP is currently around double the size of when the Good Friday Agreement was struck in 1998.
Emanuel Adam, executive director of BritishAmerican Business, said this sounded like a “magic figure” unless Biden “knows something we don’t know about.”
DUP MP Ian Paisley Jr. told POLITICO that U.S. politicians for “too long” have “promised some economic El Dorado or bonanza if you only do what we say politically … but that bonanza has never arrived and people are not naive enough here to believe it ever will.”
“A presidential visit is always welcome, but the glitter on top is not an economic driver,” he said.
Joe Biden addresses a crowd of thousands on April 14, 2023 in Ballina, Ireland | Charles McQuillan/Getty Images
Facing both ways
The British government is hoping the Windsor Framework will ease economic tensions in Northern Ireland and create politically stable conditions for inward foreign direct investment.
The framework removes many checks on goods going from Great Britain to Northern Ireland and has begun to slowly create a more collaborative relationship between London and Brussels on a number of fronts — two elements which have been warmly welcomed across the Atlantic.
Prime Minister Rishi Sunak has said Northern Ireland is in a “special” position of having access to the EU’s single market, to avoid a hard border with the Republic of Ireland, and the U.K.’s internal market.
“That’s like the world’s most exciting economic zone,” Sunak said in February.
Jake Colvin, head of Washington’s National Foreign Trade Council business group, said U.S. firms wanted to see “confidence that the frictions over the protocol have indeed been resolved.”
“Businesses will look to mechanisms like the Windsor Framework to provide stability,” he said.
Marjorie Chorlins, senior vice president for Europe at the U.S. Chamber of Commerce, said the Windsor Framework was “very important” for U.S. businesses and that “certainty about the relationship between the U.K. and the EU is critical.”
She said a reconvened Stormont would mean more legislative stability on issues like skills and health care, but added that there were a whole range of other broader U.K. wide economic factors that will play a major part in investment decisions.
This is particularly salient in a week where official figures showed the U.K.’s GDP flatlining and predictions that Britain will be the worst economic performer in the G20 this year.
“We want to see a return to robust growth and prosperity for the U.K. broadly and are eager to work with government at all levels,” Chorlins said.
“Political and economic instability in the U.K. has been a challenge for businesses of all sizes.”
Prime Minister Rishi Sunak has said Northern Ireland is in a “special” position of having access to the EU’s single market | Pool photo by Paul Faith/Getty Images
Her words underline just how much global reputational damage last year’s carousel of prime ministers caused for the U.K., with Bank of England Governor Andrew Bailey recently warning of a “hangover effect” from Liz Truss’ premiership and the broader Westminster psychodrama of 2022.
America’s Northern Ireland envoy Joe Kennedy, grandson of Robert Kennedy, accompanied the president last week and has been charged with drumming up U.S. corporate interest in Northern Ireland.
Kennedy said Northern Ireland is already “the No. 1 foreign investment location for proximity and market access.”
Northern Ireland has been home to £1.5 billion of American investment in the past decade and had the second-most FDI projects per capita out of all U.K. regions in 2021.
Claire Hanna, Westminster MP for the nationalist SDLP, believes reconvening Stormont would “signal a seriousness that there isn’t going to be anymore mucking around.”
“It’s also about the signal that the restoration of Stormont sends — that these are the accepted trading arrangements,” she said.
Hanna says the DUP’s willingness to “demonize the two biggest trading blocs in the world — the U.S. and EU” — was damaging to the country’s future economic prospects.
‘The money goes south’
At a more practical level, Biden’s ultimatum appears to carry zero weight with DUP representatives.
DUP leader Jeffrey Donaldson made it clear last week that he was unmoved by Biden’s economic proclamations and gave no guarantee his party would sit in the regional assembly in the foreseeable future.
“President Biden is offering the hope of further American investment, which we always welcome,” Donaldson told POLITICO.
“But fundamental to the success of our economy is our ability to trade within our biggest market, which is of course the United Kingdom.”
A DUP official said U.S. governments had been promising extra American billions in exchange “for selling out to Sinn Féin and Dublin” since the 1990s and “when America talks about corporate investment, we get the crumbs and that investment really all ends up in the Republic [of Ireland].”
“President Biden is offering the hope of further American investment, which we always welcome,” Donaldson said | Behal/Irish Government via Getty Images
“The Americans talk big, but the money goes south,” the DUP official said.
This underscores the stark reality that challenges Northern Ireland any time it pitches for U.S. investment — the competing proposition offered by its southern neighbor with its internationally low 12.5 percent rate on corporate profits.
Emanuel Adam with BritishAmerican Business said there was a noticeable feeling in Washington that firms want to do business in Dublin.
“When [Irish Prime Minister] Leo Varadkar and his team were here recently, I could tell how confident the Irish are these days,” he said. “There are not as many questions for them as there are around the U.K.”
Biden’s economic ultimatum looks toothless from the DUP’s perspective and its resonance may be as short-lived as his trip to Belfast itself.
This story has been updatedto correct a historical reference.
BEIJING — Chinese President Xi Jinping showed no sign of changing his position over Russia’s war on Ukraine after talks Thursday with French counterpart Emmanuel Macron.
On the second day of Macron’s state visit to China, Xi took his long-standing line on Russia’s full-scale invasion of Ukraine — saying that “all sides” have “reasonable security concerns” — and gave no hint he would use his influence to help end the conflict.
“China is willing to jointly appeal with France to the international community to remain rational and calm,” was as far as the Chinese leader would go during a press conference at the Great Hall of the People in Beijing.
“Peace talks should be resumed as soon as possible, taking into account the reasonable security concerns of all sides with reference to the U.N. Charter … seeking political resolution and constructing a balanced, effective and sustainable European security framework,” he added, sitting next to Macron.
The French president arrived in China on Wednesday in the hope of pushing China to use its leverage with Russia to end the conflict, and to get Beijing to speak out against the Kremlin’s threat to host nuclear missiles in Belarus.
During his private meeting with Xi, Macron raised Western concerns that Beijing will deliver weapons to Russia, according to a French diplomat with knowledge of the talks. But the French leader didn’t seem to get far.
“The president urged Xi not to make deliveries to Russia that would help its war against Ukraine. Xi said this war is not his,” the diplomat said, speaking anonymously to describe the private session.
The talks — which an Elysée Palace official nonetheless described as “frank and constructive” — ultimately lasted an hour and a half.
Afterward, the action moved to a signing ceremony, where officials and business leaders inked several deals, including the sale of 160 Airbus aircraft. According to the Elysée, the Chinese government approved the purchase of 150 A320 Neo planes and 10 A350s — a delivery that was part of a €36-billion deal Airbus announced last year. The information contradicted previous information from an Elysée official, who said a new sale was being negotiated.
During the deal-signing ceremony, every Chinese minister and business executive bowed deeply to Xi before signing the contracts with their French counterparts.
Xi and Macron then stepped in for their joint appearance, billed as a “press conference with Communist characteristics” — essentially meaning no press questions allowed.
The two leaders’ contrasting styles were immediately apparent. Xi read his carefully scripted remarks while staring straight ahead before ceding to Macron. The French leader then proceeded to speak for roughly twice as long as his host — a protocol faux pas that members of Xi’s Chinese entourage noticed.
Xi himself at times looked impatient and annoyed as Macron continued speaking. The Chinese leader heaved several deep sighs and appeared uncomfortable as Macron addressed him directly while apparently ad-libbing on the Ukraine war and their joint responsibility to uphold peace.
Macron also appealed to Xi to explicitly condemn Russia’s aggression against Ukraine.
“Speaking about peace and stability means talking about the war waged by Russia against Ukraine. You’ve made some important comments,” the French leader said. “This is a war that involves all of us because a member of the Security Council has decided to violate the U.N. charter. We cannot accept that.”
Macron and Xi spent one and a half hours in bilateral talks that were described as “frank and constructive” by an Elysée Palace official | POOL photo by Ng Han Guan/AFP via Getty Images
French lawmaker Anne Genetet, who also held talks Thursday with Chinese officials, admitted there were “no surprises” in the Chinese position on Ukraine, but argued it was still useful to lay some groundwork on the issue.
“It’s the beginning,” Genetet said. “There will be more talks and some private moments [between Xi and Macron]. Maybe we’ll get some other messages.”
Xi and Macron will head to the Chinese city of Guangzhou on Friday, where they will hold more talks and a private dinner.
However, in what will be read as a concession to the French, Xi did talk about the need for the warring parties to “protect victims including women and children,” which comes after the International Criminal Court issued an arrest warrant against Putin over his role in illegally transferring Ukrainian children to Russia.
Xi didn’t explicitly mention Russia in his remarks, though. And in a move likely to irk U.S. officials, Xi also said that China and France should “resume exchanges between the legislative bodies and militaries.” He then included France in a common refrain that Chinese officials use to criticize the U.S.
“China and France shall continue to … oppose Cold War mentality and bloc confrontation, joining hands in addressing all types of global challenges,” Xi said.
On Thursday, Xi also held talks with Macron and with European Commission President Ursula von der Leyen, who was invited by Macron to showcase European unity but who will not take part in many of the events between the Chinese and French leaders.
Indeed, von der Leyen held her own solo press conference as night fell on Thursday in Beijing. Unencumbered by the formalities of a state visit, the EU leader took questions from reporters and sent several pointed messages to Beijing.
She warned it against aiding Moscow’s war effort in Ukraine: “Arming the aggressor is a clear violation of international law — he should never be armed,” she said. “This would indeed significantly harm the relationship between the European Union and China.”
And she touched a diplomatic third rail: Taiwan.
“Nobody should unilaterally change the status quo by force in this region,” she said, alluding to China’s threats toward the self-governing island. “The threat of the use of force to change the status quo is unacceptable.”
Von der Leyen did echo Macron’s message, however, that China could play an important role in Ukraine, calling Beijing’s stance “crucial.”
She added: “We expect China will play its role and promote a just peace, one that respects Ukraine’s territorial sovereignty.”
Clea Caulcutt and Jamil Anderlini reported from Beijing. Stuart Lau reported from Brussels.
ABOARD COTAM UNITÉ (FRANCE’S AIR FORCE ONE) — Europe must reduce its dependency on the United States and avoid getting dragged into a confrontation between China and the U.S. over Taiwan, French President Emmanuel Macron said in an interview on his plane back from a three-day state visit to China.
Speaking with POLITICO and two French journalists after spending around six hours with Chinese President Xi Jinping during his trip, Macron emphasized his pet theory of “strategic autonomy” for Europe, presumably led by France, to become a “third superpower.”
He said “the great risk” Europe faces is that it “gets caught up in crises that are not ours, which prevents it from building its strategic autonomy,” while flying from Beijing to Guangzhou, in southern China, aboard COTAM Unité, France’s Air Force One.
Xi Jinping and the Chinese Communist Party have enthusiastically endorsed Macron’s concept of strategic autonomy and Chinese officials constantly refer to it in their dealings with European countries. Party leaders and theorists in Beijing are convinced the West is in decline and China is on the ascendant and that weakening the transatlantic relationship will help accelerate this trend.
“The paradox would be that, overcome with panic, we believe we are just America’s followers,” Macron said in the interview. “The question Europeans need to answer … is it in our interest to accelerate [a crisis] on Taiwan? No. The worse thing would be to think that we Europeans must become followers on this topic and take our cue from the U.S. agenda and a Chinese overreaction,” he said.
Just hours after his flight left Guangzhou headed back to Paris, China launched large military exercises around the self-ruled island of Taiwan, which China claims as its territory but the U.S. has promised to arm and defend.
Those exercises were a response to Taiwanese President Tsai Ing-Wen’s 10-day diplomatic tour of Central American countries that included a meeting with Republican U.S. House Speaker Kevin McCarthy while she transited in California. People familiar with Macron’s thinking said he was happy Beijing had at least waited until he was out of Chinese airspace before launching the simulated “Taiwan encirclement” exercise.
Beijing has repeatedly threatened to invade in recent years and has a policy of isolating the democratic island by forcing other countries to recognize it as part of “one China.”
Taiwan talks
Macron and Xi discussed Taiwan “intensely,” according to French officials accompanying the president, who appears to have taken a more conciliatory approach than the U.S. or even the European Union.
“Stability in the Taiwan Strait is of paramount importance,” European Commission President Ursula von der Leyen, who accompanied Macron for part of his visit, said she told Xi during their meeting in Beijing last Thursday. “The threat [of] the use of force to change the status quo is unacceptable.”
Chinese President Xi Jinping and French President Emmanuel Macron in Guangdong on April 7, 2023 | Pool Photo by Jacques Witt / AFP via Getty Images
Xi responded by saying anyone who thought they could influence Beijing on Taiwan was deluded.
Macron appears to agree with that assessment.
“Europeans cannot resolve the crisis in Ukraine; how can we credibly say on Taiwan, ‘watch out, if you do something wrong we will be there’? If you really want to increase tensions that’s the way to do it,” he said.
“Europe is more willing to accept a world in which China becomes a regional hegemon,” said Yanmei Xie, a geopolitics analyst at Gavekal Dragonomics. “Some of its leaders even believe such a world order may be more advantageous to Europe.”
In his trilateral meeting with Macron and von der Leyen last Thursday in Beijing, Xi Jinping went off script on only two topics — Ukraine and Taiwan — according to someone who was present in the room.
“Xi was visibly annoyed for being held responsible for the Ukraine conflict and he downplayed his recent visit to Moscow,” this person said. “He was clearly enraged by the U.S. and very upset over Taiwan, by the Taiwanese president’s transit through the U.S. and [the fact that] foreign policy issues were being raised by Europeans.”
In this meeting, Macron and von der Leyen took similar lines on Taiwan, this person said. But Macron subsequently spent more than four hours with the Chinese leader, much of it with only translators present, and his tone was far more conciliatory than von der Leyen’s when speaking with journalists.
‘Vassals’ warning
Macron also argued that Europe had increased its dependency on the U.S. for weapons and energy and must now focus on boosting European defense industries.
He also suggested Europe should reduce its dependence on the “extraterritoriality of the U.S. dollar,” a key policy objective of both Moscow and Beijing.
Macron has long been a proponent of strategic autonomy for Europe | Ludovic Marin/AFP via Getty Images
“If the tensions between the two superpowers heat up … we won’t have the time nor the resources to finance our strategic autonomy and we will become vassals,” he said.
Russia, China, Iran and other countries have been hit by U.S. sanctions in recent years that are based on denying access to the dominant dollar-denominated global financial system. Some in Europe have complained about “weaponization” of the dollar by Washington, which forces European companies to give up business and cut ties with third countries or face crippling secondary sanctions.
While sitting in the stateroom of his A330 aircraft in a hoodie with the words “French Tech” emblazoned on the chest, Macron claimed to have already “won the ideological battle on strategic autonomy” for Europe.
He did not address the question of ongoing U.S. security guarantees for the Continent, which relies heavily on American defense assistance amid the first major land war in Europe since World War II.
As one of the five permanent members of the U.N. Security Council and the only nuclear power in the EU, France is in a unique position militarily. However, the country has contributed far less to the defense of Ukraine against Russia’s invasion than many other countries.
As is common in France and many other European countries, the French President’s office, known as the Elysée Palace, insisted on checking and “proofreading” all the president’s quotes to be published in this article as a condition of granting the interview. This violates POLITICO’s editorial standards and policy, but we agreed to the terms in order to speak directly with the French president. POLITICO insisted that it cannot deceive its readers and would not publish anything the president did not say. The quotes in this article were all actually said by the president, but some parts of the interview in which the president spoke even more frankly about Taiwan and Europe’s strategic autonomy were cut out by the Elysée.
The outlook for the global economy is likely to remain weak in the medium term amid heightened risks to financial stability, according to International Monetary Fund Managing Director Kristalina Georgieva.
“We expect 2023 to be another challenging year, with global growth slowing to below 3 percent as scarring from the pandemic, the war in Ukraine, and monetary tightening weigh on economic activity,” Georgieva said on Sunday at a conference in China. “Even with a better outlook for 2024, global growth will remain well below its historic average of 3.8 percent,” she said.
“It is also clear that risks to financial stability have increased,” Georgieva said. “At a time of higher debt levels, the rapid transition from a prolonged period of low-interest rates to much higher rates — necessary to fight inflation — inevitably generates stresses and vulnerabilities, as evidenced by recent developments in the banking sector in some advanced economies.”
Policymakers have acted decisively in response to threats to financial stability, helping ease market stress to some extent, she said. But “uncertainty is high, which underscores the need for vigilance,” she added.
Georgieva also warned about risks of geo-economic fragmentation, which she said “could mean a world split into rival economic blocs — a ‘dangerous division’ that would leave everyone poorer and less secure. Together, these factors mean that the outlook for the global economy over the medium term is likely to remain weak,” she said.
Georgieva spoke during the second day of the China Development Forum in Beijing. The three-day annual event is a social mixer of politics and business, bringing together members of the Chinese Politburo with dozens of CEOs from Western companies like Siemens, Mercedes-Benz and Allianz.
“Fortunately, the news on the world economy is not all bad. We can see some ‘green shoots,’ including in China,” Georgieva said, adding that Beijing is set to account for around a third of the global growth this year.
Doubts are growing about the wisdom of holding the shattered frontline city of Bakhmut against relentless Russian assaults, but Ukrainian President Volodymyr Zelenskyy is digging in and insists his top commanders are united in keeping up an attritional defense that has dragged on for months.
Fighting around Bakhmut in the eastern region of Donbas dramatically escalated late last year, with Zelenskyy slamming the Russians for hurling men — many of them convicts recruited by the Wagner mercenary group — forward to almost certain death in “meat waves.” Now the bloodiest battle of the war, Bakhmut offers a vision of conflict close to World War I, with flooded trenches and landscapes blasted by artillery fire.
In the past weeks, as Ukrainian forces have been almost encircled in a salient, lacking shells and facing spiking casualties, there has been increased speculation both in Ukraine and abroad that the time has come to pull back to another defensive line — a retrenchment that would not be widely seen as a massive military setback, although Russia would claim a symbolic victory.
In an address on Wednesday night, however, Zelenskyy explained he remained in favor of slogging it out in Bakhmut.
“There was a clear position of the entire general staff: Reinforce this sector and inflict maximum possible damage upon the occupier,” Zelenskyy said in a video address after meeting with Ukraine’s Commander-in-Chief Valeriy Zaluzhnyy and other senior generals to discuss a battle that’s prompting mounting anxiety among Ukraine’s allies and is drawing criticism from some Western military analysts.
“All members expressed a common position regarding the further holding and defense of the city,” Zelenskyy said.
This is the second time in as many weeks that Ukraine’s president has cited the backing of his top commanders. Ten days ago, Zelenskyy’s office issued a statement also emphasizing that Zaluzhnyy and Oleksandr Syrskyi, commander of Ukraine’s ground forces, agreed with his decision to hold fast at Bakhmut.
The long-running logic of the Ukrainian armed forces has been that Russia has suffered disproportionately high casualties, allowing Kyiv’s forces to grind down the invaders, ahead of a Ukrainian counter-offensive expected shortly, in the spring.
City of glass, brick and debris
Criticism has been growing among some in the Ukrainian ranks — and among Western allies — about continuing with the almost nine-month-long battle. The disquiet was muted at first and expressed behind the scenes, but is now spilling into the open.
On social media some Ukrainian soldiers have been expressing bitterness at their plight, although they say they will do their duty and hold on as ordered. “Bakhmut is a city of glass, bricks and debris, which crackle underfoot like the fates of people who fought here,” tweeted one.
A lieutenant on Facebook noted: “There is a catastrophic shortage of shells.” He said the Russians were well dug in and it was taking five to seven rounds to hit an enemy position. He complained of equipment challenges, saying “Improvements — improvements have already been promised, because everyone who has a mouth makes promises.” But he cautioned his remarks shouldn’t be taken as a plea for a retreat. “WE WILL FULFILL OUR DUTY UNTIL THE END, WHATEVER IT IS!” he concluded ruefully.
Iryna Rybakova, a press officer with Ukraine’s 93rd brigade, also gave a flavor of the risks medics are facing in the town. “Those people who go back and forth to Bakhmut on business are taking an incredible risk. Everything is difficult,” she tweeted.
A Ukrainian serviceman gives food and water to a local elderly woman in the town of Bakhmut | Anatolii Stepanov/AFP via Getty Images
The key strategic question is whether Zelenskyy is being obdurate and whether the fight has become more a test of wills than a tactically necessary engagement that will bleed out Russian forces before Ukraine’s big counter-strike.
“Traveling around the front you hear a lot of grumblings where folks aren’t sure whether the reason they’re holding Bakhmut is because it’s politically important” as opposed to tactically significant, according to Michael Kofman, an American military analyst and director of the Russia Studies Program at the Center for Naval Analyses.
Kofman, who traveled to Bakhmut to observe the ferocious battle first-hand, said in the War on the Rocks podcast that while the battle paid dividends for the Ukrainians a few months ago, allowing it to maintain a high kill ratio, there are now diminishing returns from continuing to engage.
“Happening in the fight now is that the attrition exchange rate is favorable to Ukraine but it’s not nearly as favorable as it was before. The casualties on the Ukrainian side are rather significant and require a substantial amount of replacements on a regular basis,” he said.
The Ukrainians have acknowledged they have also been suffering significant casualties at Bakhmut, which Russia is coming ever closer to encircling. They claim, though, the Russians are losing seven soldiers for each Ukrainian life lost, while NATO military officials put the kill ratio at more like five to one. But Kofman and other military analysts are skeptical, saying both sides are now suffering roughly the same rate of casualties.
“I hope the Ukrainian command really, really, really knows what it’s doing in Bakhmut,” tweeted Illia Ponomarenko, the Kyiv Independent’s defense reporter.
Shifting position
Last week, Zelenskyy received support for his decision to remain engaged at Bakhmut from retired U.S. generals David Petraeus and Mark Hertling on the grounds that the battle was causing a much higher Russian casualty rate. “I think at this moment using Bakhmut to allow the Russians to impale themselves on it is the right course of action, given the extraordinary casualties that the Russians are taking,” retired general and former CIA director Petraeus told POLITICO.
But in the last couple of weeks the situation has shifted, said Rob Lee, a former U.S. Marine officer and now at the Foreign Policy Research Institute, and the kill ratio is no longer a valid reason to remain engaged. “Bakhmut is no longer a good place to attrit Russian forces,” he tweeted. Lee says Ukrainian casualties have risen since Russian forces, comprising Wagner mercenaries as well as crack Russian airborne troops, pushed into the north of the town at the end of February.
The Russians have been determined to record a victory at Bakhmut, which is just six miles southwest of the salt-mining town of Soledar, which was overrun two months ago after the Wagner Group sacrificed thousands of its untrained fighters there too.
U.S. Defense Secretary Lloyd Austin has hinted several times that he sees no tactical military reason to defend Bakhmut, saying the eastern Ukrainian town was of more symbolic than operational importance, and its fall wouldn’t mean Moscow had regained the initiative in the war.
Ukrainian generals have pushed back at such remarks, saying there’s a tactical reason to defend the town. Zaluzhnyy said on his Telegram channel: “It is key in the stability of the defense of the entire front.”
Volodymyr Zelensky and Sanna Marin attend a memorial service for Dmytro Kotsiubailo, a Ukrainian serviceman killed in Bakhmut | Sergei Supinsky/AFP via Getty Images
Midweek, the Washington Post reported that U.S. officials have been urging the Ukrainians since the end of January to withdraw from Bakhmut, fearing the depletion of their own troops could impact Kyiv’s planned spring offensive. Ukrainian officials say there’s no risk of an impact on the offensive as the troops scheduled to be deployed are not fighting at Bakhmut.
That’s prompted some Ukrainian troops to complain that Kyiv is sacrificing ill-trained reservists at Bakhmut, using them as expendable in much the same way the Russians have been doing with Wagner conscripts. A commander of the 46th brigade — with the call sign Kupol — told the newspaper that inexperienced draftees are being used to plug the losses. He has now been removed from his post, infuriating his soldiers, who have praised him.
Kofman worries that the Ukrainians are not playing to their military strengths at Bakhmut. Located in a punch bowl, the town is not easy to defend, he noted. “Ukraine is a dynamic military” and is good when it is able “to conduct a mobile defense.” He added: “Fixed entrenches, trying to concentrate units there, putting people one after another into positions that have been hit by artillery before doesn’t really play to a lot of Ukraine’s advantages.”
“They’ve mounted a tenacious defense. I don’t think the battle is nearly as favorable as it’s somewhat publicly portrayed but more importantly, I think they somewhat run the risk of encirclement there,” he added.
LONDON — It was clear when Boris Johnson was forced from Downing Street that British politics had changed forever.
But few could have predicted that less than six months later, all angry talk of a cross-Channel trade war would be a distant memory, with Britain and the EU striking a remarkable compromise deal over post-Brexit trade rules in Northern Ireland.
Private conversations with more than a dozen U.K. and EU officials, politicians and diplomats reveal how the Brexit world changed completely after Johnson’s departure — and how an “unholy trinity” of little-known civil servants, ensconced in a gloomy basement in Brussels, would mastermind a seismic shift in Britain’s relationship with the Continent.
They were aided by an unlikely sequence of political events in Westminster — not least an improbable change of mood under the combative Liz Truss; and then the jaw-dropping rise to power of the ultra-pragmatic Rishi Sunak. Even the amiable figure of U.K. Foreign Secretary James Cleverly would play his part, glad-handing his way around Europe and smoothing over cracks that had grown ever-wider since 2016.
As Sunak’s Conservative MPs pore over the detail of his historic agreement with Brussels — and await the all-important verdict of the Democratic Unionist Party of Northern Ireland — POLITICO has reconstructed the dramatic six-month shift in Britain’s approach that brought us to the brink of the Brexit deal we see today.
Bye-bye Boris
Johnson’s departure from Downing Street, on September 6, triggered an immediate mood shift in London toward the EU — and some much-needed optimism within the bloc about future cross-Channel relations.
For key figures in EU capitals, Johnson would always be the untrustworthy figure who signed the protocol agreement only to disown it months afterward.
In Paris, relations were especially poisonous, amid reports of Johnson calling the French “turds”; endless spats with the Elysée over post-Brexit fishing rights, sausages and cross-Channel migrants; and Britain’s role in the AUKUS security partnership, which meant the loss of a multi-billion submarine contract for France. Paris’ willingness to engage with Johnson was limited in the extreme.
Truss, despite her own verbal spats with French President Emmanuel Macron — and her famously direct approach to diplomacy — was viewed in a different light. Her success at building close rapport with negotiating partners had worked for her as trade secretary, and once she became prime minister, she wanted to move beyond bilateral squabbles and focus on global challenges, including migration, energy and the war in Ukraine.
“Boris had become ‘Mr. Brexit,’” one former U.K. government adviser said. “He was the one the EU associated with the protocol, and obviously [Truss] didn’t come with the same baggage. She had covered the brief, but she didn’t have the same history. As prime minister, Liz wanted to use her personal relationships to move things on — but that wasn’t the same as a shift in the underlying substance.”
Indeed, Truss was still clear on the need to pass the controversial Northern Ireland Protocol Bill, which would have given U.K. ministers powers to overrule part of the protocol unilaterally, in order to ensure leverage in the talks with the European Commission.
Truss also triggered formal dispute proceedings against Brussels for blocking Britain’s access to the EU’s Horizon Europe research program. And her government maintained Johnson’s refusal to implement checks on goods entering Northern Ireland from Great Britain, causing deep irritation in Brussels.
But despite the noisy backdrop, tentative contact with Brussels quietly resumed in September, with officials on both sides trying to rebuild trust. Truss, however, soon became “very disillusioned by the lack of pragmatism from the EU,” one of her former aides said.
“The negotiations were always about political will, not technical substance — and for whatever reason, the political will to compromise from the Commission was never there when Liz, [ex-negotiator David] Frost, Boris were leading things,” they said.
Former British Prime Minister Liz Truss announces her resignation outside 10 Downing Street in central London on October 20, 2022 | Daniel Leal/AFP via Getty Images
Truss, of course, would not be leading things for long. An extraordinary meltdown of the financial markets precipitated her own resignation in late October, after just six weeks in office. Political instability in Westminster once again threatened to derail progress.
But Sunak’s arrival in No. 10 Downing Street — amid warnings of a looming U.K. recession — gave new impetus to the talks. An EU official said the mood music improved further, and that discussions with London became “much more constructive” as a result.
David Lidington, a former deputy to ex-PM Theresa May who played a key role in previous Brexit negotiations, describes Sunak as a “globalist” rather than an “ultra-nationalist,” who believes Britain ought to have “a sensible, friendly and grown-up relationship” with Brussels outside the EU.
During his time as chancellor, Sunak was seen as a moderating influence on his fellow Brexiteer Cabinet colleagues, several of whom seemed happy to rush gung-ho toward a trade war with the EU.
“Rishi has always thought of the protocol row as a nuisance, an issue he wanted to get dealt with,” the former government adviser first quoted said.
One British officialsuggested the new prime minister’s reputation for pragmatism gave the U.K. negotiating team “an opportunity to start again.”
Sunak’s slow decision-making and painstaking attention to detail — the subject of much criticism in Whitehall — proved useful in calming EU jitters about the new regime, they added.
“When he came in, it wasn’t just the calming down of the markets. It was everyone across Europe and in the U.S. thinking ‘OK, they’re done going through their crazy stage,’” the same officialsaid. “It’s the time he takes with everything, the general steadiness.”
EU leaders “have watched him closely, they listened to what he said, and they have been prepared to trust him and see how things go,” Lidington noted.
Global backdrop
As months of chaos gave way to calm in London, the West was undergoing a seismic reorganization.
Russia’s large-scale invasion of Ukraine triggered a flurry of coordinated work for EU and U.K. diplomats — including sanctions, military aid, reconstruction talks and anti-inflation packages. A sense began to emerge that it was in both sides’ common interest to get the Northern Ireland protocol row out of the way.
“The war in Ukraine has completely changed the context over the last year,” an EU diplomat said.
A second U.K. official agreed. “Suddenly we realized that the 2 percent of the EU border we’d been arguing about was nothing compared to the massive border on the other side of the EU, which Putin was threatening,” they said. “And suddenly there wasn’t any electoral benefit to keeping this row over Brexit going — either for us or for governments across the EU.”
A quick glance at the electoral calendar made it clear 2023 offered the last opportunity to reach a deal in the near future, with elections looming for both the U.K. and EU parliaments the following year — effectively putting any talks on ice.
“Rishi Sunak would have certainly been advised by his officials that come 2024, the EU is not going to be wanting to take any new significant initiatives,” Lidington said. “And we will be in election mode.”
The upcoming 25th anniversary of the Belfast/Good Friday peace agreement on April 10 heaped further pressure on the U.K. negotiators, amid interest from U.S. President Joe Biden in visiting Europe to mark the occasion.
“The anniversary was definitely playing on people’s minds,” the first U.K. official said.“Does [Sunak] really want to be the prime minister when there’s no government in Northern Ireland on the anniversary of the Belfast/Good Friday Agreement?”
The pressure was ramped up further when Biden specifically raised the protocol in a meeting with Truss at the U.N. General Assembly in New York in late September, after which British officials said they expected the 25th anniversary to act as a “key decision point” on the dispute.
The King and I
Whitehall faced further pressure from another unlikely source — King Charles III, who was immediately planning a state visit to Paris within weeks of ascending the throne in September 2022. Truss had suggested delaying the visit until the protocol row was resolved, according to two European diplomats.
The monarch is now expected to visit Paris and Berlin at the end of March — and although his role is strictly apolitical, few doubt he is taking a keen interest in proceedings. He has raised the protocol in recent conversations with European diplomats, showing a close engagement with the detail.
One former senior diplomat involved in several of the king’s visits said that Charles has long held “a private interest in Ireland, and has wanted to see if there was an appropriately helpful role he could play in improving relations [with the U.K].”
By calling the deal the Windsor framework and presenting it at a press conference in front of Windsor Castle, one of the king’s residences, No. 10 lent Monday’s proceedings an unmistakable royal flavor.
The king also welcomed von der Leyen for tea at the castle following the signing of the deal. A Commission spokesperson insisted their meeting was “separate” from the protocol discussion talks. Tory MPs were skeptical.
Cleverly does it
The British politician tasked with improving relations with Brussels was Foreign Secretary Cleverly, appointed by Truss last September. He immediately began exploring ways to rebuild trust with Commission Vice-President and Brexit point-man Maroš Šefčovič, the second U.K. official cited said.
His first hurdle was a perception in Brussels that the British team had sabotaged previous talks by leaking key details to U.K. newspapers and hardline Tory Brexiteers for domestic political gain. As a result, U.K. officials made a conscious effort to keep negotiations tightly sealed, a No. 10 official said.
“The relationship with Maroš improved massively when we agreed not to carry out a running commentary” on the content of the discussions, the second U.K. official added.
This meant keeping key government ministers out of the loop, including Northern Ireland Minister Steve Baker, an arch-Brexiteer who had been brought back onto the frontbench by Truss.
British Foreign Secretary James Cleverly is welcomed by European Commission Vice-President Maroš Šefčovič ahead of a meeting at the EU headquarters in Brussels on February 17, 2023 | Kenzo Tribouillard/AFP via Getty Images
The first U.K. official said Baker would have “felt the pain,” as he had little to offer his erstwhile backbench colleagues looking for guidance while negotiations progressed, “and that was a choice by No. 10.”
Cleverly and Šefčovič “spent longer than people think just trying to build rapport,” the second U.K. officialsaid, with Cleverly explaining the difficulties the protocol was raising in Northern Ireland and Šefčovič insistent that key economic sectors were in fact benefiting from the arrangement.
Cleverly also worked at the bilateral relationship with German Foreign Minister Annalena Baerbock, while Sunak made efforts to improve ties with French President Emmanuel Macron, Lidington noted.
A British diplomat based in Washington said Cleverly had provided “a breath of fresh air” after the “somewhat stiff” manner of his predecessors, Truss and the abrasive Dominic Raab.
By the Conservative party conference in early October, the general mood among EU diplomats in attendance was one of expectation. And the Birmingham jamboree did not disappoint.
Sorry is the hardest word
Baker, who had once described himself as a “Brexit hard man,” stunned Dublin by formally apologizing to the people of Ireland for his past comments, just days before technical talks between the Commission and the U.K. government were due to resume.
“I caused a great deal of inconvenience and pain and difficulty,” he said. “Some of our actions were not very respectful of Ireland’s legitimate interests. I want to put that right.”
The apology was keenly welcomed in Dublin, where Micheál Martin, the Irish prime minister at the time, called it “honest and very, very helpful.”
Irish diplomats based in the U.K. met Baker and other prominent figures from the European Research Group of Tory Euroskeptics at the party conference, where Baker spoke privately of his “humility” and his “resolve” to address the issues, a senior Irish diplomat said.
“Resolve was the keyword,” the envoy said. “If Steve Baker had the resolve to work for a transformation of relationships between Ireland and the U.K., then we thought — there were tough talks to be had — but a sustainable deal was now a possibility.”
There were other signs of rapprochement. Just a few hours after Baker’s earth-shattering apology, Truss confirmed her attendance at the inaugural meeting in Prague of the European Political Community, a new forum proposed by Macron open to both EU and non-EU countries.
Sunak at the wheel
The momentum snowballed under Sunak, who decided within weeks of becoming PM to halt the passage of the Northern Ireland Protocol Bill in the House of Lords, reiterating Britain’s preference for a negotiated settlement. In exchange, the Commission froze a host of infringement proceedings taking aim at the way the U.K. was handling the protocol. This created space for talks to proceed in a more cordial environment.
An EU-U.K. agreement in early January allowed Brussels to start using a live information system detailing goods moving from Great Britain to Northern Ireland, seen as key to unlocking a wider agreement on physical checks under the protocol.
The U.K. also agreed to conduct winter technical negotiations in Brussels, rather than alternating rounds between the EU capital and London, as was the case when Frost served as Britain’s chief negotiator.
Trust continued to build. Suddenly the Commission was open to U.K. solutions such as the “Stormont brake,” a clause giving the Northern Ireland Assembly power of veto over key protocol machinations, which British officials did not believe Brussels would accept when they first pitched them.
The Stormont brake was discussed “relatively early on,” a third U.K. official said. “Then we spent a huge amount of effort making sure nobody knew about it. It was kept the most secret of secret things.”
Yet a second EU diplomat claimed the ideas in the deal were not groundbreaking and could have been struck “years ago” if Britain had a prime minister with enough political will to solve the dispute. “None of the solutions that have been found now is revolutionary,” they said.
An ally of Johnson described the claim he was a block on progress as “total nonsense.”
The ‘unholy trinity’
Away from the media focus, a group of seasoned U.K. officials began to engage with their EU counterparts in earnest. But there was one (not so) new player in town.
Tim Barrow, a former U.K. permanent representative to the EU armed with a peerless contact book, had been an active figure in rebuilding relations with the bloc since Truss appointed him national security adviser. He acquired a more prominent role in the protocol talks after Sunak dispatched him to Brussels in January 2023, hoping EU figures would see him as “almost one of them,” another adviser to Sunak said.
Ensconced in the EU capital, Barrow and his U.K. team of negotiators took over several meeting rooms in the basement of the U.K. embassy, while staffers were ordered to keep quiet about their presence.
Besides his work on Northern Ireland trade, Barrow began to appear in meetings with EU representatives about other key issues creating friction in the EU-U.K. relationship, including discussions on migration alongside U.K. Home Secretary Suella Braverman.
Barrow “positioned himself very well,” the first EU diplomat quoted above said. “He’s very close to the prime minister — everybody in Brussels and London knows he’s got his ear. He’s very knowledgeable while very political.”
But other British officials insist Barrow’s presence was not central to driving through the deal. “He has been a figure, but not the only figure,” the U.K. adviser quoted above said. “It’s been a lot of people, actually, over quite a period of time.”
When it came to the tough, detailed technical negotiations, the burden fell on the shoulders of Mark Davies — the head of the U.K. taskforce praised for his mastery of the protocol detail — and senior civil servant and former director of the Northern Ireland Office, Brendan Threlfall.
The three formed an “unholy trinity,” as described by the first U.K. official, with each one bringing something to the table.
Davies was “a classic civil servant, an unsung hero,”the official said, while Threlfall “has good connections, good understanding” and “Tim has met all the EU interlocutors over the years.”
Sitting across the table, the EU team was led by Richard Szostak, a Londoner born to Polish parents and a determined Commission official with a great CV and an affinity for martial arts. His connection to von der Leyen was her deputy head of cabinet until recently, Stéphanie Riso, a former member of Brussels’ Brexit negotiating team who developed a reputation for competence on both sides of the debate.
Other senior figures at the U.K. Cabinet Office played key roles, including Cabinet Secretary Simon Case and senior official Sue Gray.
The latter — a legendary Whitehall enforcer who adjudicated over Johnson’s “Partygate” scandal — has a longstanding connection to Northern Ireland, famously taking a career break in the late 1980s to run a pub in Newry, where she has family links. More recently, she spent two years overseeing the finance ministry.
Gray has been spotted in Stormont at crunch points over the past six months as Northern Ireland grapples with the pain of the continued absence of an executive.
Some predict Gray could yet play a further role, in courting the Democratic Unionist Party as the agreement moves forward in the weeks ahead.
For U.K. and EU officials, the agreement struck with Brussels represented months of hard work — but for Sunak and his Cabinet colleagues, the hardest yards may yet lie ahead.
This story was updated to clarify two parts of the sourcing.
NATO Secretary General Jens Stoltenberg plans to step down from his post as planned in October, his spokeswoman Oana Lungescu told German news agency Deutschen Presse-Agentur, dismissing reports of another extension to his term.
“He has no intention of seeking a further extension of his mandate,” she said.
Welt am Sonntag reported earlier Sunday that Stoltenberg’s term may be extended again as NATO seeks to maintain stability during the war in Ukraine, the latest in series of speculation that the NATO chief might stay on.
Stoltenberg’s term has been extended three times already, most recently in March last year just after Russia invaded Ukraine. Stoltenberg, an economist by training, had been designated to become Sweden’s central bank chief at the time.
The boom gates at Croatian border posts swung up at midnight Sunday as the country joined Europe’s zone of free movement as the country also adopted the euro as its currency.
European Commission President Ursula von der Leyen hailed “two immense achievements,” speaking alongside Croatian Prime Minister Andrej Plenković and Slovenian President Nataša Pirc Musar at a border post in the town of Bregana.
“There is no place in Europe where it is more true today that it is a season of new beginnings and new chapters than here at the border between Croatia and Slovenia,” von der Leyen said.
“Nothing is the same after this,” said Plenković, noting the convenience that free movement and currency union will bring to Croatians.
This year marks the 10th anniversary of the former Yugoslavian republic joining the EU. Von der Leyen praised the hard work of the Croatian people and singled out Plenković for pushing through the reforms needed to make the rapid ascension into the EU’s currency club.
She said the euro “brings macroeconomic stability and credibility” at home and abroad.
“Our citizens and the economy will be better protected from crises,” said Plenković.
But more than that, von der Leyen said, the euro coin imprinted with the pine marten — which gave its name to Croatia’s former currency, the kuna — is “a symbol of the successful union between your national identity and your European destiny.”
The adoption of the euro comes on the back of a long campaign to demonstrate that Croatia can adhere to the currency zone’s requirements for economic management. Croatian Finance Minister Marko Primorac told POLITICO last week that he expected the country’s debt-to-GDP ratio to fall steeply in the coming years as the recovery from the pandemic continues.
Shortly after midnight, Primorac withdrew the first euros from a Croatian ATM.
The entry into the Schengen zone means the removal of land and sea border checks with Croatia’s European neighbors. Airport checks from the 26 other countries that participate in the scheme will end in March.
The fall of these barriers to movement is “the final affirmation of our European identity, for which generations of Croats fought and fought,” said Interior Minister Davor Božinović, who opened the barrier at Bregana at midnight on New Year’s Day alongside his Slovenian counterpart, Sanja Ajanović Hovnik.
Parties were organized by citizens at the border. Von der Leyen said those living close to Slovenia and Hungary would see “tangible results” as they were able to travel freely across the frontier for employment and shopping. “Communities will grow closer together,” she said.
The Commission president also noted the responsibility that joining Schengen confers on Croatia, at a time when migration pressures are a matter of growing political tension between the bloc’s members.
“We will need to work very closely together to protect Schengen and preserve its benefits,” said von der Leyen. “In Schengen, we rely on each other and we know that we can trust you and that we can rely on Croatia.”
In a statement, Slovenia’s Hovnik congratulated Croatia on a “historic” step, which her country took just a year before, and tried to settle Slovenian anxiety about security along the newly open border.
“It is an event for which we have been preparing for a long time on both sides of the border,” she said.
A wave of Chinese demonstrations against Beijing’s draconian COVID policies is testing President Xi Jinping, and how they develop from here “will be important to Xi’s standing,” the U.S.’s top intelligence official said.
The spread of angry protests and the government’s repressive response to them are “countering the narrative that he likes to put forward, which is that China is so much more effective at government” than the West, said U.S. Director of National Intelligence Avril Haines.
“How it develops will be important to Xi’s standing,” she said. But it’s “not something we see as being a threat to stability at this moment, or regime change or anything like that,” she added.
The comments were delivered Saturday as part of a wide-ranging interview at the annual Reagan National Defense Forum in California.
Several Chinese cities have started easing COVID rules, after demonstrations against the government’s strict lockdown measures swept across the country. Authorities are shifting to more-targeted measures following the wave of angry protests against the country’s strict zero-COVID rules.
Two more deaths from COVID were reported on Sunday, the Associated Press reported. The National Health Commission said the provinces of Shandong and Sichuan each reported a death, the AP said. No information was given about the ages of the victims or whether they had been fully vaccinated.
Haines said she believed the turmoil in China was partly due to the the fact that Xi “is unwilling to take a better vaccine from the West, and is instead relying on a vaccine in China that’s just not nearly as effective against [the] Omicron” variant.
The White House last week criticized the Chinese strategy and response to the protests, insisting that “everyone has the right to peacefully protest” and instead urging a ramp-up in vaccination campaigns.
U.S. and EU politicians, including German Chancellor Olaf Scholz, have pushed for agreements to allow Western-manufactured vaccines to be used in China. But so far “we have not received any requests or any interest by China to receive our vaccines,” a White House official said.
BERLIN — On a balmy September evening last year, an Azeri man carrying a Russian passport crossed the border from northern Cyprus into southern Cyprus. He traveled light: a pistol, a handful of bullets and a silencer.
It was going to be the perfect hit job.
Then, just as the man was about to step into a rental car and carry out his mission — which prosecutors say was to gun down five Jewish businessmen, including an Israeli billionaire — the police surrounded him.
The failed attack was just one of at least a dozen in Europe in recent years, some successful, others not, that have involved what security officials call “soft” targets, involving murder, abduction, or both. The operations were broadly similar in conception, typically relying on local hired guns. The most significant connection, intelligence officials say, is that the attacks were commissioned by the same contractor: the Islamic Republic of Iran.
In Cyprus, authorities believe Iran, which blames Israel for a series of assassinations of nuclear specialists working on the Iranian nuclear program, was trying to signal that it could strike back where Israel least expects it.
“This is a regime that bases its rule on intimidation and violence and espouses violence as a legitimate measure,” David Barnea, the head of Israel’s Mossad intelligence agency, said in rare public remarks in September, describing what he said was a recent uptick in violent plots. “It is not spontaneous. It is planned, systematic, state terrorism — strategic terrorism.”
He left out one important detail: It’s working.
That success has come in large part because Europe — the staging ground for most Iranian operations in recent years — has been afraid to make Tehran pay. Since 2015, Iran has carried out about a dozen operations in Europe, killing at least three people and abducting several others, security officials say.
“The Europeans have not just been soft on the Islamic Republic, they’ve been cooperating with them, working with them, legitimizing the killers,” Masih Alinejad, the Iranian-American author and women’s rights activist said, highlighting the continuing willingness of European heads of state to meet with Iran’s leaders.
Alinejad, one of the most outspoken critics of the regime, understands better than most just how far Iran’s leadership is willing to go after narrowly escaping both a kidnapping and assassination attempt.
“If the Islamic Republic doesn’t receive any punishment, is there any reason for them to stop taking hostages or kidnapping or killing?” she said, and then answered: “No.”
Method of first resort
Assassination has been the sharpest instrument in the policy toolbox ever since Brutus and his co-conspirators stabbed Julius Caesar repeatedly. Over the millennia, it’s also proved risky, often triggering disastrous unintended consequences (see the Roman Empire after Caesar’s killing or Europe after the assassination of Archduke Franz Ferdinand in Sarajevo).
And yet, for both rogue states like Iran, Russia and North Korea, and democracies such as the United States and Israel — the attraction of solving a problem by removing it often proves irresistible.
Even so, there’s a fundamental difference between the two spheres: In the West, assassination remains a last resort (think Osama bin Laden); in authoritarian states, it’s the first (who can forget the 2017 assassination by nerve agent of Kim Jong-nam, the playboy half-brother of North Korean dictator Kim Jong-un, upon his arrival in Kuala Lumpur?). For rogue states, even if the murder plots are thwarted, the regimes still win by instilling fear in their enemies’ hearts and minds.
That helps explain the recent frequency. Over the course of a few months last year, Iran undertook a flurry of attacks from Latin America to Africa. In Colombia, police arrested two men in Bogotá on suspicion they were plotting to assassinate a group of Americans and a former Israeli intelligence officer for $100,000; a similar scene played out in Africa, as authorities in Tanzania, Ghana and Senegal arrested five men on suspicion they were planning attacks on Israeli targets, including tourists on safari; in February of this year, Turkish police disrupted an intricate Iranian plot to kill a 75-year-old Turkish-Israeli who owns a local aerospace company; and in November, authorities in Georgia said they foiled a plan hatched by Iran’s Quds Force to murder a 62-year-old Israeli-Georgian businessman in Tbilisi.
Whether such operations succeed or not, the countries behind them can be sure of one thing: They won’t be made to pay for trying. Over the years, the Russian and Iranian regimes have eliminated countless dissidents, traitors and assorted other enemies (real and perceived) on the streets of Paris, Berlin and even Washington, often in broad daylight. Others have been quietly abducted and sent home, where they faced sham trials and were then hanged for treason.
While there’s no shortage of criticism in the West in the wake of these crimes, there are rarely real consequences. That’s especially true in Europe, where leaders have looked the other way in the face of a variety of abuses in the hopes of reviving a deal to rein in Tehran’s nuclear weapons program and renewing business ties.
Unlike the U.S. and Israel, which have taken a hard line on Iran ever since the mullahs came to power in 1979, Europe has been more open to the regime. Many EU officials make no secret of their ennui with America’s hard-line stance vis-à-vis Iran.
“Iran wants to wipe out Israel, nothing new about that,” the EU foreign policy chief Josep Borrell told POLITICO in 2019 when he was still Spanish foreign minister. “You have to live with it.”
History of assassinations
There’s also nothing new about Iran’s love of assassination.
Indeed, many scholars trace the word “assassin” to Hasan-i Sabbah, a 12th-century Persian missionary who founded the “Order of Assassins,” a brutal force known for quietly eliminating adversaries.
Hasan’s spirit lived on in the Ayatollah Ruhollah Khomeini, the hardline cleric who led Iran’s Islamic revolution and took power in 1979. One of his first victims as supreme leader was Shahriar Shafiq, a former captain in the Iranian navy and the nephew of the country’s exiled shah. He was shot twice in the head in December 1979 by a masked gunman outside his mother’s home on Rue Pergolèse in Paris’ fashionable 16th arrondissement.
In the years that followed, Iranian death squads took out members and supporters of the shah and other opponents across Europe, from France to Sweden, Germany, Switzerland and Austria. In most instances, the culprits were never caught. Not that the authorities really needed to look.
In 1989, for example, Abdul Rahman Ghassemlou, a leader of Iran’s Kurdish minority who supported autonomy for his people, was gunned down along with two associates by Iranian assassins in an apartment in Vienna.
The gunmen took refuge in the Iranian embassy. They were allowed to leave Austria after Iran’s ambassador to Vienna hinted to the government that Austrians in his country might be in danger if the killers were arrested. One of the men alleged to have participated in the Vienna operation would later become one of his country’s most prominent figures: Mahmoud Ahmadinejad, Iran’s president from 2005 until 2013.
Not even the bad publicity surrounding that case tempered the regime’s killing spree. In the years that followed, the body count only increased. Some of the murders were intentionally gruesome in order to send a clear message.
Fereydoun Farrokhzad, for example, a dissident Iranian popstar who found exile in Germany, was killed in his home in Bonn in 1992. The killers cut off his genitals, his tongue and beheaded him.
His slaying was just one of dozens in what came to be known as Iran’s “chain murders,” a decade-long killing spree in which the government targeted artists and dissidents at home and abroad. Public outcry over the murder of a trio of prominent writers in 1998, including a husband and wife, forced the regime hard-liners behind the killings to retreat. But only for a time.
Illustration by Joan Wong for POLITICO
Then, as now, the dictatorship’s rationale for such killings has been to protect itself.
“The highest priority of the Iranian regime is internal stability,” a Western intelligence source said. “The regime views its opponents inside and outside Iran as a significant threat to this stability.”
Much of that paranoia is rooted in the Islamic Republic’s own history. Before returning to Iran in 1979, Khomeini spent nearly 15 years in exile, including in Paris, an experience that etched the power of exile into the Islamic Republic’s mythology. In other words, if Khomeini managed to lead a revolution from abroad, the regime’s enemies could too.
Bargaining chips
Given Europe’s proximity to Iran, the presence of many Iranian exiles there and the often-magnanimous view of some EU governments toward Tehran, Europe is a natural staging ground for the Islamic Republic’s terror.
The regime’s intelligence service, known as MOIS, has built operational networks across the Continent trained to abduct and murder through a variety of means, Western intelligence officials say.
As anti-regime protests have erupted in Iran with increasing regularity since 2009, the pace of foreign operations aimed at eliminating those the regime accuses of stoking the unrest has increased.
While several of the smaller-scale assassinations — such as the 2015 hit in the Netherlands on Iranian exile Mohammad-Reza Kolahi — have succeeded, Tehran’s more ambitious operations have gone awry.
The most prominent example involved a 2018 plot to blow up the annual Paris meeting of the National Council of Resistance of Iran, an alliance of exile groups seeking to oust the regime. Among those attending the gathering, which attracted tens of thousands, was Rudy Giuliani, the former New York mayor and then-U.S. President Donald Trump’s lawyer.
Following a tip from American intelligence, European authorities foiled the plot, arresting six, including a Vienna-based Iranian diplomat who delivered a detonation device and bombmaking equipment to an Iranian couple tasked with carrying out an attack on the rally. Authorities observed the handover at a Pizza Hut in Luxembourg and subsequently arrested the diplomat, Assadollah Assadi, on the German autobahn as he sped back to Vienna, where he enjoyed diplomatic immunity.
Assadi was convicted on terror charges in Belgium last year and sentenced to 20 years is prison. He may not even serve two.
The diplomat’s conviction marked the first time an Iranian operative had been held accountable for his actions by a European court since the Islamic revolution. But Belgium’s courage didn’t last long.
In February, Iran arrested Belgian aid worker Olivier Vandecasteele on trumped-up espionage charges and placed him into solitary confinement at the infamous Evin prison in Tehran. Vandecasteele headed the Iran office of the Norwegian Refugee Council, an aid group.
Following reports that Vandecasteele’s health was deteriorating and tearful public pleas from his family, the Belgian government — ignoring warnings from Washington and other governments that it was inviting further kidnappings — relented and laid the groundwork for an exchange to trade Assadi for Vandecasteele. The swap could happen any day.
“Right now, French, Swedish, German, U.K., U.S., Belgian citizens, all innocents, are in Iranian prisons,” said Alinejad, the Iranian women’s rights campaigner.
“They are being used like bargaining chips,” she said. “It works.”
Amateur hour
Even so, the messiness surrounding the Assadi case might explain why most of Iran’s recent operations have been carried out by small-time criminals who usually have no idea who they’re working for. The crew in last year’s Cyprus attack, for example, included several Pakistani delivery boys. While that gives Iran plausible deniability if the perpetrators get caught, it also increases the likelihood that the operations will fail.
“It’s very amateur, but an amateur can be difficult to trace,” one intelligence official said. “They’re also dispensable. They get caught, no one cares.”
Iranian intelligence has had more success in luring dissidents away from Europe to friendly third countries where they are arrested and then sent back to Iran. That’s what happened to Ruhollah Zam, a journalist critical of the regime who had been living in Paris. The circumstances surrounding his abduction remain murky, but what is known is that someone convinced him to travel to Iraq in 2019, where he was arrested and extradited to Iran. He was convicted for agitating against the regime and hanged in December of 2020.
One could be forgiven for thinking that negotiations between Iran and world powers over renewing its dormant nuclear accord (which offered Tehran sanctions relief in return for supervision of its nuclear program) would have tamed its covert killing program. In fact, the opposite occurred.
In July of 2021, U.S. authorities exposed a plot by Iranian operatives to kidnap Alinejad from her home in Brooklyn as part of an elaborate plan that involved taking her by speedboat to a tanker in New York Harbor before spiriting her off to Venezuela, an Iranian ally, and then on to the Islamic Republic.
A year later, police disrupted what the FBI believed was an attempt to assassinate Alinejad, arresting a man with an assault rifle and more than 60 rounds of ammunition who had knocked on her door.
American authorities also say Tehran planned to avenge the assassination of General Qassem Soleimani, the head of its feared paramilitary Quds Force who was the target of a U.S. drone strike in 2020, by seeking to kill former National Security Adviser John Bolton and Mike Pompeo, the former Secretary of State, among other officials.
Through it all, neither the U.S. nor Europe gave up hope for a nuclear deal.
“From the point of view of the Iranians, this is proof that it is possible to separate and maintain a civilized discourse on the nuclear agreement with a deceptive Western appearance, on the one hand, and on the other hand, to plan terrorist acts against senior American officials and citizens,” Barnea, the Mossad chief said. “This artificial separation will continue for as long as the world allows it to.”
Kremlin’s killings
Some hope the growing outrage in Western societies over Iran’s crackdown on peaceful protestors could be the spark that convinces Europe to get tough on Iran. But Europe’s handling of its other favorite rogue actor — Russia — suggests otherwise.
Long before Russia’s annexation of Crimea, much less its all-out war against Ukraine, Moscow, similar to Iran, undertook an aggressive campaign against its enemies abroad and made little effort to hide it.
Russian police investigators stand near the body of killed Russian opposition leader and former Deputy Prime Minister Boris Nemtsov | Sasha Mordovets/Getty Images
The most prominent victim was Alexander Litvinenko. A former KGB officer like Vladimir Putin, Litvinenko had defected to the U.K., where he joined other exiles opposed to Putin. In 2006, he was poisoned in London by Russian intelligence with polonium-210, a radioactive isotope that investigators concluded was mixed into his tea. The daring operation signaled Moscow’s return to the Soviet-era practice of artful assassination.
Litvinenko died a painful death within weeks, but not before he blamed Putin for killing him, calling the Russian president “barbaric.”
“You may succeed in silencing me, but that silence comes at a price,” Litvinenko said from his deathbed.
In the end, however, the only one who really paid a price was Litvinenko. Putin continued as before and despite deep tensions in the U.K.’s relationship with Russia over the assassination, it did nothing to halt the transformation of the British capital into what has come to be known as “Londongrad,” a playground and second home for Russia’s Kremlin-backed oligarchs, who critics say use the British financial and legal systems to hide and launder their money.
Litvinenko’s killing was remarkable both for its brutality and audacity. If Putin was willing to take out an enemy on British soil with a radioactive element, what else was he capable of?
It didn’t take long to find out. In the months and years that followed, the bodies started to pile up. Critical journalists, political opponents and irksome oligarchs in the prime of life began dropping like flies.
Europe didn’t blink.
Angela Merkel, then German chancellor, visited Putin in his vacation residence in Sochi just weeks after the murders of Litvinenko and investigative journalist Anna Politkovskaya and said … nothing.
Even after there was no denying Putin’s campaign to eradicate anyone who challenged him, European leaders kept coming in the hope of deepening economic ties.
Neither the assassination of prominent Putin critic Boris Nemtsov just steps away from the Kremlin in 2015, nor the poisoning of a KGB defector and his daughter in the U.K. in 2018 and of opposition leader Alexei Navalny in 2020 with nerve agents disabused European leaders of the notion that Putin was someone they could do business with and, more importantly, control.
‘Anything can happen’
Just how comfortable Russia felt about using Europe as a killing field became clear in the summer of 2019. Around noon on a sunny August day, a Russian assassin approached Zelimkhan Khangoshvili, a Chechen with Georgian nationality, and shot him twice in the head with a 9mm pistol. The murder took place in a park located just a few hundred meters from Germany’s interior ministry and several witnesses saw the killer flee. He was nabbed within minutes as he was changing his clothes and trying to dispose of his weapon and bike in a nearby canal.
It later emerged that Khangoshvili, a Chechen fighter who had sought asylum in Germany, was on a Russian kill list. Russian authorities considered him a terrorist and accused him of participating in a 2010 attack on the Moscow subway that killed nearly 40 people.
In December of 2019, Putin denied involvement in Khangoshvili’s killing. Sort of. Sitting next to French President Emmanuel Macron, Merkel and Ukrainian President Volodymyr Zelenskyy following a round of talks aimed at resolving the conflict in Ukraine, the Russian referred to him as a “very barbaric man with blood on his hands.”
“I don’t know what happened to him,” Putin said. “Those are opaque criminal structures where anything can happen.”
Early on October 19 of last year, Berlin police discovered a dead man on the sidewalk outside the Russian embassy. He was identified as Kirill Zhalo, a junior diplomat at the embassy. He was also the son of General Major Alexey Zhalo, the deputy head of a covert division in Russia’s FSB security service in Moscow that ordered Khangoshvili’s killing. Western intelligence officials believe that Kirill Zhalo, who arrived in Berlin just weeks before the hit on the Chechen, was involved in the operation and was held responsible for its exposure.
The Russian embassy called his death “a tragic accident,” suggesting he had committed suicide by jumping out of a window. Russia refused to allow German authorities to perform an autopsy (such permission is required under diplomatic protocols) and sent his body back to Moscow.
Less than two months later, the Russian hitman who killed Khangoshvili, was convicted of murder and sentenced to life in prison. Russia recently tried to negotiate his release, floating the possibility of exchanging American basketball player Brittney Griner and another U.S. citizen they have in custody. Washington rejected the idea.
The war in Ukraine offers profound lessons about the inherent risks of coddling dictators.
Though Germany, with its thirst for Russian gas, is often criticized in that regard, it was far from alone in Europe. Europe’s insistence on giving Putin the benefit of the doubt over the years in the face of his crimes convinced him that he would face few consequences in the West for his invasion of Ukraine. That’s turned out to be wrong; but who could blame the Russian leader for thinking it?
Iran presents Europe with an opportunity to learn from that history and confront Tehran before it’s too late. But there are few signs it’s prepared to really get tough. EU officials say they are “considering” following Washington’s lead and designating the Islamic Revolutionary Guard Corps, a vast military organization that also controls much of the Iran’s economy, as a terror organization. Last week, German Foreign Minister Annalena Baerbock spearheaded an effort at the United Nations to launch a formal investigation into Iran’s brutal crackdown against the ongoing protests in the country.
Yet even as the regime in Tehran snuffs out enemies and races to fulfil its goal of building both nuclear weapons and missiles that can reach any point on the Continent, some EU leaders appear blind to the wider context as they pursue the elusive renewal of the nuclear accord.
“It is still there,” Borrell said recently of the deal he has taken a leading role in trying to resurrect. “It has nothing to do with other issues, which certainly concern us.”
LVIV, Ukraine — Russia’s missile barrages on Ukraine are having much less impact than Vladimir Putin might have wanted, thanks to Ukrainian improvisation and ingenuity.
The Russian military targeted Ukraine’s power grid last week, firing an estimated billion-euros worth of missiles at the country’s energy infrastructure — but for all that money the net result was to cause blackouts only for a day.
“We are very well prepared, and we think out of the box to coordinate after missile attacks,” Volodymyr Kudrytskyi, chairman of Ukrenergo, Ukraine’s state-owned electricity company, told POLITICO in an exclusive interview.
Engineers game-plan possible scenarios to be ready with “re-routing schemes” to compensate for the loss of a transmission station or — even worse — damage to a generating station. “So even with catastrophic damage, even during these hard times, we are still able to reconnect and deliver energy. Of course, we must curtail consumption to maintain the system’s stability,” he added.
Kudrytskyi says: “We can switch on the lights for 80 to 90 percent of Ukrainians within a day of an attack — although you must understand that’s not precise because it largely depends on the nature of the damage. It takes a few more days after restoring basic delivery to fully stabilize the system.”
That’s remarkable considering Ukraine has lost around 50 percent of its electricity capacity, he said, because of the damage caused by the Russian attacks — part of the Kremlin’s strategy to enlist “General Winter” to wear down Ukrainians and break their spirit. “In my humble opinion, we are doing quite well. This kind of assault, the scale of it, on a power grid has never been seen before in the modern world and therefore we must invent solutions. We don’t have anyone else to consult because simply nobody has ever experienced anything even close to this before,” Kudrytskyi said.
Ukrainians now joke that the country’s notoriously poor public services have improved since Russia’s invasion — instead of waiting weeks for electrical or water repairs, things get fixed in a matter of hours, they quip. And while the missile attack is deepening their anger toward Russia, they are also taking some solace and pride in the ingenuity behind the restoration of power and resumption of the water supply, which relies on Ukrenergo energy for pumping purposes, after missile and drone strikes.
The joke is not lost on Lviv’s mayor, Andriy Sadovyi, who told POLITICO that improvisation is part of the secret behind switching the lights back on.
“The power system wasn’t built with the idea that it would have to withstand attack,” Sadovyi said with a chuckle.
‘Coded to be ingenious’
He said Ukrainians have shaken off a debilitating Soviet mentality, one that says nothing is possible when a problem emerges. “We have discovered we’re coded to be ingenious, to improvise, to come up with solutions, to use what’s available and what’s at hand,” he said.
Last week, as with previous Russian assaults on Ukraine’s energy infrastructure — notably on October 10 — the country’s electrical engineers swung quickly into action to re-program computer systems to re-route power from undamaged transmission stations. The improvised patch-ups take time; and repairing physical damage — when possible — takes even longer.
Foreign experts working in the country also highlight Ukrainian improvisation — and not just in the energy sector.
“Where there’s a will, there’s a way. They are doing some amazing things,” says Terry Taylor, a 75-year-old British water engineer who left a comfortable retirement in Oxford to bring his decades of experience working in Asia and Africa to Ukraine.
Taylor’s been overseeing a project for a Danish charity in Mykolaiv, the southern coastal city which has withstood a months-long Russian siege. Thanks to Russia’s sabotaging a pipeline in April, Mykolaiv has been without potable water for half-a-year. “There’s a stunning unity of purpose and passion here; it really is remarkable,” Taylor said. “People just get on with it; clean away debris and repair as best they can,” he told POLITICO.
When it comes to the power grid, the Ukrainians were also prepared — even before Russia’s invasion in February. They had been storing up stocks of spare parts, switches and cabling. “We accumulated significant stock of materials and equipment, probably one of the largest in the world,” Ukrenergo’s Kudrytskyi said.
Until October, when Russian targeting of energy infrastructure started in earnest, Ukraine had even been able to export electricity to the EU, but it is now in need of imports. Kadri Simson, the EU energy commissioner, visited Kyiv on November 1 and expressed the bloc’s readiness to help replenish stocks amid the latest waves of Russian attacks. And it’s a big job.
Strong message
The huge stocks of equipment and material that Ukraine has laid by are running out fast, Kudrytskyi said.
Mayor Sadovyi in Lviv admits that if the attacks continue and the winter is a harsh one, improvisation will have its limits. Sadovyi said that in last week’s attack the Russians managed to cause some damage to the interconnection with neighboring Poland.
“Today my message must be strong. We must be ready to survive without electricity and heating for one, two, maybe three weeks,” he said.
He said Lviv and Ukraine are going to need tens of thousands of diesel- and thermal-power generators.
How many exactly? He pulls a face when asked indicating that it is almost incalculable. Lviv bought three huge diesel generators six months before the war, and they have been used three times to maintain the hot water system for 50 percent of the city’s population, he said.
One of his biggest worries is how to keep Lviv’s main hospital going, which has been expanded enormously to rehabilitate both military and civilian war wounded and to manufacture and fit prosthetics. Sadovyi and other city mayors in Ukraine are in frequent contact to compare notes and to offer each other advice and assistance when they can.
But as the first snows of the season fall and with temperatures already dropping below zero Celsius, he’s in no doubt his city, where he has been mayor for 16 years, could soon be in a perilous position — a sentiment echoed by Kudrytskyi for the whole of Ukraine.
“We are preparing as best we can to build up resilience and we have to be ready for worst-case scenarios,” Kurdrytskyi said. “So, outages may be longer than the standard current five hours, but we are doing everything we can to try to prevent that happening.”
“But our stock is being exhausted,” he said. “We need spare parts, cabling relays for sure, but also some quite large items,” such as transformers and switching equipment. “We need them quickly and we can’t wait for them to be manufactured — we must find them somewhere soon,” Kudrytskyi said.
Aside from that, the energy boss makes a plea — echoed by city mayors like Sadovyi and national Ukrainian political leaders — for the West to supply more air-defense systems to shield the power grid from Russian missiles and air strikes.
“We are fighting on an energy front. More air-defense systems would increase our chances to avoid massive damage to our grid. So the more air-defense systems, the less damage,” he said.
“Because even if you look at the last big onslaught last Tuesday, we managed to knock out 70 or so of the 100 missiles launched at us, giving us a better bet to keep the system integrated, keep it running and to repair [it] than might otherwise have been the case,” Kudrytskyi said.
BALI, Indonesia — Rishi Sunak will invite Xi Jinping to collaborate more closely on global challenges in the first meeting between a British prime minister and Chinese president in nearly five years.
Sunak and Xi will hold a bilateral meeting Wednesday on the margins of the G20 leaders’ summit in Bali.
Ahead of the meeting — confirmed only 24 hours before it was due to take place — Downing Street insisted it was “clear-eyed in how we approach our relationship with China.”
The prime minister’s spokesman said there was a need “for China and the U.K. to establish a frank and constructive relationship,” but stressed that “the challenges posed by China are systemic” and “long-term.”
The two leaders are likely to discuss the war in Ukraine, energy security and climate change among other issues, No. 10 said.
Theresa May was the last prime minister to meet Xi, during a visit to Beijing in January 2018, at a time when Downing Street was still referring to the “golden era” of relations supposedly ushered in by David Cameron and George Osborne.
U.K.-China relations have worsened in the wake of China’s crackdown on democratic freedoms in Hong Kong, the oppression of the Uyghur Muslim minority of Xinjiang province, and concerns about the security implications of allowing Chinese companies to build critical national infrastructure in the U.K.
News of the meeting comes after Sunak softened his language on China and suggested he was abandoning plans to declare the country a “threat” as part of a major review of British foreign policy.
In response to questioning from POLITICO during the trip, Sunak described China as “a systemic challenge” but stressed that dialogue with Beijing was essential to tackling global challenges such as climate change.
Speaking to Sky News Tuesday, the PM said: “I think our approach to China is one that is very similar to our allies, whether that’s America, Australia and Canada — all countries that I’m talking about exactly this issue with while we’re here at the G20 summit.”
Sunak’s spokesman said Tuesday that the prime minister would “obviously raise the human rights record with President Xi” at the meeting.
But he added: “Equally, none of the issues that we are discussing at the G20 — be it the global economy, Ukraine, climate change, global health — none of them can be addressed without coordinated action by the world’s major economies, and of course that includes China.”
Xi has already held bilateral talks with various leaders during the summit | Kevin Frayer/Getty Images
Xi has already held bilateral talks with U.S. President Joe Biden, French President Emmanuel Macron and Australian Prime Minister Anthony Albanese among other leaders during the summit.
In addition to the talks with Xi, Sunak will also hold meetings with Biden, Albanese, Indian Prime Minister Narendra Modi, Japanese Prime Minister Fumio Kishida and Indonesian President Joko Widodo.
Iain Duncan Smith, the former Tory leader and co-chair of the Inter-Parliamentary Alliance on China, warned that the U.K. was “drifting into appeasement” with Xi.
“I am worried that the present prime minister, when he meets Xi Jinping, will be perceived as weak because it now looks like we’re drifting into appeasement with China, which is a disaster as it was in the 1930s and so it will be now,” he said. “They’re a threat to our values, they’re a threat to economic stability.”
Bob Seely, another Tory MP and member of the Inter-Parliamentary Alliance on China, added: “We need to talk to nations, especially those that may challenge our values and stability, but it is dangerous to normalize relations when they are not normal.”
But Alicia Kearns, chair of the Commons foreign affairs select committee and a member of the China Research Group, welcomed Sunak’s meeting with Xi. “It is important they meet to prevent miscalculations,” she said. “We cannot simply cut off China, we must work to create the space for dialogue, challenge and cooperation.”
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.”
According to the Financial Stability Board (FSB), a global financial standard-setter, most of the cryptocurrency market should be subject to the same tough rulebook that governs traditional finance.
The FSB, which was born in the wake of the 2008 financial meltdown to stave off further shocks, will propose the plan to rein in crypto to finance ministers and central bankers from the Group of 20 industrialized countries gathering in Washington next week, the plan’s chief architect, Steven Maijoor, told POLITICO.
“A lot of the activities in crypto assets and crypto assets markets resemble activities in the traditional financial system and therefore we take the approach: Same activity, same risk, same regulation,” Maijoor, who sits on the Dutch central bank’s governing board and oversees banking supervision, said in Prague in early September.
The move is set to put major crypto trading platforms on red alert, coming as the U.S. Securities and Exchange Commission seeks to impose securities regulation on cryptocurrencies and as the EU prepares its own rules for digital markets.
More broadly, the FSB’s work on digital assets is likely to act as a cold shower for crypto currencies that seek to expand their services without complying with regulations.
Regulators fear the lack of investor safeguards could see volatility in cryptocurrency markets spilling over into the traditional finance sector, as banks and money managers venture into the market.
Some $2 trillion of the market’s value has evaporated since its highs of November last year, triggering corporate collapses and exposing scams that left millions of crypto investors penniless. Risks within the crypto markets are still contained. But that could quickly change and threats could spill over to financial markets from various channels, according to the European Securities and Markets Authority.
Maijoor will present G20 policymakers with draft recommendations that he’s been developing with a team ofglobal regulators within the FSB since April with the view of securing financial stability as crypto goes mainstream. Countries around the world will need to decide whether new rules are needed for novel arrivals within the crypto market, such as digital wallets. The rest should be captured by new or existing financial rules.
“This is not only related to securities,” said the 58-year-old, who used to lead the EU’s securities regulator before getting a job at De Nederlandsche Bank. “There are also already some crypto activities that are captured by anti-money laundering laws and regulations and we can observe that also, in that case, there is non-compliant behavior.”
The example of companies skirting around dirty money safeguards is an easy one for the Dutchman to give. His central bank in late April fined the world’s biggest crypto exchange, Binance, €3 million for offering services to Dutch citizens without having cleared the required Dutch safeguards against dirty money — gaining a competitive advantage against its rivals. Binance objected to the fine in June.
The Financial Stability Oversight Council, chaired by U.S. Treasury Secretary Janet Yellen, said the crypto industry needs to be brought to heel in several areas | Alex Wong/Getty Images
Ministers and governors will also get updated recommendations on how to regulate global stablecoins, digital tokens that are tied to national currency or a reserve of financial products to keep their value steady. The stablecoin update is separate from the crypto recommendations and came in response to Facebook’s failed bid to introduce a virtual currency for some 2.9 billion social media users around the world.
Maijoor’s work will be subject to consultation, so companies and countries will be able to suggest changes to what will become the global blueprint for supervising the market.
Locking horns
The recommendations could embolden U.S. banking and markets regulators, which are increasingly taking the position that digital asset trading platforms and brokerages should follow existing regulations.
The Financial Stability Oversight Council, which is chaired by U.S. Treasury Secretary Janet Yellen and counts SEC Chair Gary Gensler and the heads of other federal agencies among its members, on Monday released a report that identified several areas where the crypto industry needs to be brought to heel.
“Crypto cannot exist outside of our public policy frameworks. That’s regardless of what [Bitcoin’s pseudonymous creator] Satoshi Nakamoto might have initially thought, or what market participants might say today,” Gensler said during Monday’s FSOC meeting.
Ripple and Coinbase, both major crypto exchanges that have locked horns with Gensler, will be hoping for a different outcome that involves new rules.
Coinbase has argued that crypto assets are more akin to commodities and that the SEC classifying them as securities is like putting a straitjacket on how the market could develop, especially considering those rules were developed in the 1930s. The Commodity Futures Trading Commission would be a far better fit, according to the exchange.
“I think it is reasonable to assume that none of the authors who drafted these securities statutes from the 1930s … did so while thinking of a day when a decentralized, cryptographically-based, automated financial instrument would be adopted en masse by millions of people in the United States and around the world,” Coinbase’s chief policy officer, Faryar Shirzad, wrote in a blog in July.
Sam Sutton contributed reporting from New York.
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