Sanctions on Russia are on a collision course with Europe’s green ambitions

These days, Europe is seen as the weak link in the developed economic world. The European stock market is underperforming its US rival, down 22 percent year-to-date. Even risky emerging markets are doing better. Likewise, Europe’s surging inflation rates, in countries like Germany and Spain (not to mention what the UK is going through), are worse than it is in Mexico.

What is the primary policy culprit for all this economic woe? Most of all this is due to European sanctions on Russian energy as punishment for its aggression in Ukraine. That’s by far the most significant headwind. These sanctions have set off a massive commodity price spike that’s rebounded to damage the European economy.

Green zealots (and there are a lot of them in Europe) say that somehow all this economic misery is actually good for the continent because by abandoning Russian oil and gas, European Union leaders are signaling to its member states and its people that it is boldly moving into a post-fossil fuels world. Ursula von der Leyen, the out-of-her-depth EU Commission president, grandly describes the move beyond fossil fuels as Europe’s moon mission.

But all this utopian fervor hits the skids the moment reality intrudes, for facts are stubborn things. Punchy revolutionary rhetoric won’t turn Europe away from fossil fuels. Instead, ironically, the continent is being forced to return to coal to make up for the energy shortfall as a result of giving up Russian gas, merely to keep the lights on over the coming winter. Yes, coal is back in climate-purist Europe.

The Greens – the second in command in the ruling German coalition and occupying the pivotal Economic and Foreign Ministries– have been dragooned by reality into using more coal, a fatal sin in their climate change religion. This month’s ban on Russian coal just means Germany will simply get it from elsewhere. And the place to make up the difference is with their old American allies.

U.S. coal exports to Europe rose more than 140 percent in May compared to a year earlier — and they are continuing rising at that stratospheric level because Europe desperately needs coal for electricity generation to replace Russian gas. By October, U.S. coal shipments will need to grow far higher than they already are just so enough coal will be available in Europe to keep the heat on by winter, says the U.S. Coal Exports Coalition, part of the National Mining Association.

Despite all the endless nattering about climate change and the Paris Accord getting re-signed by the Biden Administration in his first year in office, the world’s biggest polluters are also not falling in line with Europe’s utopian green agenda, given the raging global energy crisis. For example, India, not wishing to commit economic suicide, said it would delay coal power plant closures recently to maintain low energy costs. This makes perfect policy sense. But to put it mildly, it is not music to the ears of Europe’s green elite.

At the big picture policy level, it is now painfully obvious that energy sanctions on Russia have boomeranged, proving to be a disaster for European commodity prices, fueling the continent’s cost of living crisis, through the law of unintended consequences. On the other side of the ledger, the increase in global energy prices that the sanctions have brought about have led to an unbelievable increase in Russia’s energy export earnings, up a whopping 22 percent in the year to date, as at the end of September. Surely, this is not what the West initially had in mind.

It is time to take a deep breath and actually think in realist terms. Some sanctions placed on Russia are good and serve western interests, but others, clearly, do not. But it has become something of a political nightmare – once the sanctions are in place, which leader could justify rolling them back? In a rush to appear at the front of the pack, many sanctions were slapped on private companies vital to the global economy without a second thought for the unintended consequences.  

Instead, the West has shot itself in the foot on energy, done great harm to climate change initiatives, and risks rising global food prices due to fertilizer production limits, and sky-high energy prices.

At the world market level, there is little doubt that the demand for coal will continue to grow, while the economic reality energy sanctions have unleashed mean that the green agenda in the European Union has been pushed into the background. The massive expansion of renewables is currently mainly on paper – while the increasing hunger for energy today is real.

This piece was originally published in City A.M.

Europe lacks a captain for its drifting ship of state

One of the things I have learned from my decades in the political risk business is that experts usually ignore the fact that specific people truly make policy.

It is easy, and intellectually correct, to focus on the grand historical forces of analysis: to look at things like the global macroeconomic situation, the overall geopolitical state of global power, the abiding ideology of the times. All of this is absolutely necessary to get right, and almost never makes it into the facile and simplistic column inches of the mainstream media, whose lack of genuine depth is increasingly becoming a global problem.

But there is another, historical level of analysis that eludes most of my political risk competitors, and explains their dire records on predicting what will come next in the world; they simply do not understand that specific people, with their individual strengths and weaknesses, are in charge of the world. Really understanding these specific people, as well as comprehending the general state of the planet, is absolutely necessary for getting political risk right.

US Supreme Court Justice Oliver Wendell Holmes understood this perfectly when he said of Franklin Roosevelt that he had a second-class intellect but a first-class temperament. It is not that Holmes thought FDR was stupid; he did not, as Roosevelt was one of the smarter men ever to have been president. It is that Holmes correctly saw that the key to Roosevelt’s unparalleled political success lay instead in his character, his almost feline ability to sense, in any social situation, what others wanted, and to know what he was prepared to give. This specific attribute of a specific man is not studied by anyone other than historians (and not by enough of them, either) but it is a vital piece of the puzzle in making specific sense of perhaps the most important person of the 20th century.

All of which brings me to the present becalmed state of the declining great power that is Europe. Yes, there are a legion of structural reasons for the continent’s present malaise: It lacks a common army to matter in our increasingly rough-and-tumble geopolitical world (as well as, in its decadence, the will to have one); it lacks the economic dynamism to grow its way out of macroeconomic difficulties, with far too many entitlements and far too few working hours; it lacks an overarching country able to drive the European process forward, instead having a hodgepodge of great powers (Spain, Italy, France, and Germany) constantly vying for advantage.

All of this is true and all of this must be thought about far more often by a mainstream media that mindlessly cheerleads for Brussels, without wondering why the continent perpetually disappoints in great power terms. But there is also the historical, specific, personal level of assessing the continent’s present leaders that is hamstringing Europe, dooming it to decline even faster than all the more general factors would allow for.

Currently, perhaps only vainglorious, (overly) confident, bold French President Emmanuel Macron has the temperament to move the European project forward. However, his specific political problem is that the French people have just knobbled him in parliamentary elections, denying him a majority precisely because they feel he spends too much time swanning around the world making grand pronouncements and too little time governing France.

Nor is German Chancellor Olaf Scholz the answer. He won office precisely because he was inoffensive, cautious, and meek; in other words, he most resembled the suicidally beloved outgoing Angela Merkel. While having the qualities of your local branch bank manager might work in calmer times, in our age of perpetual crisis such attributes prove to be self-negating.

The other lesser European powers are also of little help. Prime Minister Pedro Sanchez leads a rickety coalition government in Madrid, behind in the polls to his center-right People’s Party rivals. For these specific political reasons, his famously insular country, never keen to take center stage in Europe, can be of little help, even if it wanted to dramatically move the European project forward.

The same is even more true for Italy, where outgoing premier Mario Draghi’s unelected administration — parachuted in to somehow govern an increasingly ungovernable country —failed to provide Rome with the stability that had been confidently expected; it fell in just a year and a half. Instead, Italy’s new (and at least elected) government will come from the right, with populist Giorgia Meloni the putative new premier. While she is unlikely to bite the EU hand that is feeding her (with Brussels set to provide Rome with a gargantuan €200 billion in post-COVID aid), her basic euroskeptic ideology means she is more likely to block Brussels having a common approach (over immigration above all) than to champion the European project.

For all these specific historical and political reasons, as well as grand world historical forces, the easiest bet in the political risk world is to see Europe as an idea whose time has passed. The only way this downward trajectory would be altered is if Europe produced a leader with a first-class temperament, and a decisive political majority to match. In the world we actually live in, that simply won’t happen.

This piece was originally published in Arab News.

Defence and security. If the Germans can rid themselves of their sacred cows, then so can the British.

In The Sun Also Rises, Ernest Hemingway famously said that people go broke “gradually, then suddenly.” History works like this, too. For long periods of time, things continue along a well-travelled analytical path, where little happens, and little changes. Then in a bolt from the blue – gradually, then suddenly – more is altered in days and weeks than has been the case for months and years.

So it is with the Ukraine crisis, as the tectonic plates underlying how the world works are shifting quickly. The EU and Germany are a case in point. For decades, by far the easiest political risk call I made involved Brussels and the major European states over-promising and under-delivering.

That was due to the basic structural fact that, despite having one of the world’s largest economic markets, the EU perpetually punched below its potential strategic weight. Economically sclerotic, militarily impotent, and strategically confused, Brussels almost always amounted to less than the sum of its parts. As I often said during political risk speeches to my clients, my predictive call record has never been hurt by betting against the European Union.

Germany, as ever, lay at the root of Europe’s problems. As Henry Kissinger has sagely pointed out, the structural tragedy for Germany is that it is too important a country merely to be one of a series of great European powers, and too small a power to dominate the whole of the continent. After World War II, this old German problem manifested itself in a new, intractable form. Germany, following the abject horrors of Nazism, simply took a holiday from history, one that the other exhausted European powers initially encouraged.

But, as generations passed, and the continent’s economic motor showed no signs of waking from its strategic slumber, what had provided a respite for the world increasingly became a very large problem, as without real German strategic engagement in the wider world any sort of common EU foreign and security policy was bound to be stillborn.

Over the past 20 years, during my time running my own global political risk firm, I have headed to Germany literally scores of times. Arrestingly, during these two decades, the issues discussed with its governments have never changed. In the case of Germany, rather than solving problems, bringing them up became a sort of fruitless mantra, a repetitive catechism that was merely invoked, but absolutely never acted upon.

Could you spend an appropriate level of GDP on defence?”

“Impossible, given our peculiar history and the pacifist leanings of our people.”

‘Can you lessen your addiction to Russian natural gas, which accounts for a debilitating 35 percent of your total–skyrocketing to over 70 percent if the mammoth Nord Stream 2 pipeline comes online?

“Impossible, our gas imports are an economic, not a strategic, concern, and we have a shared and tragic history with the Russians.”

‘(Sigh) Let’s meet next year.’

And so the intellectual merry-go-round went round and round, a string of reasonable strategic questions being unfailingly met with the word ‘impossible.’ Betting against Germany and Europe was the easiest strategic call out there. Until, all of a sudden, everything changed.

For German strategic culture has altered more in the past ten days than in the past 20 years. Suddenly every strategic ‘ask’ I ever made has all come to pass, with the newly-minted Prime Minister, Olaf Scholz, obliterating 16 years of do-nothing Merkellism in a blink of an eye. At last alerted to the longstanding fact that Vladimir Putin’s Russia is a revolutionary power, intent on undoing the post-Cold War strategic outcome, Germany acted, and with wholly uncharacteristic speed.

Nord Stream 2 has been suspended, and is de facto dead. Germany (it wasn’t impossible after all) has agreed to spend the NATO-required two percent of GDP on defense, and has allocated a 100 billion euro defence budget to upgrade its antiquated weapons systems. Every European now finally sees that the purpose of NATO remains vital and unchanging, life insurance in an historically dangerous world. With strong German backing, the EU has agreed to collectively buy defensive weapons, and then given them to the hard-pressed Ukrainians. Germany (and thus, Europe) has awoken from its long strategic nap.

Conclusion: the UK Must Follow

Brexit freed the UK from the clutches of a strategically clueless EU. But what has it done with its newfound independence? John Bew’s analysis for Boris Johnson got the country off to the correct geo-strategic start; the new era is indeed going to be characterized by great power competition.

But speed and strategic clarity also matter. In the time it took Bew and Johnson to recognize the glaringly obvious, drilling down to the operational level (the tactics informed by an overall strategy) has proceeded at a glacial pace.

It is not nearly enough to say that great power competition characterizes our age. The next vital step is to name who the great powers on the chessboard are, and what the arena is that the contest will be played in.

Again, Bew and Johnson are correct in that the Sino-American Cold War – a superpower competition for primacy – is the overriding strategic fact of our age. They are also correct in that the Indo-Pacific is rapidly transforming itself into the world’s pivotal region, where most of the world’s future economic growth as well as much of the world’s political risk come from.

So far, so good, but not enough. For the great powers just beneath the superpowers – who maintain a great deal of room for independent strategic manoeuvre – must also be taken into analytical account. Here is the hidden good news for both the West and the UK, particularly after the momentous events in Ukraine, which have seen a hardening of this evolving strategic picture.

While a wounded, vengeful Russia is now firmly a stooge to superpower China, Robin to Beijing’s Batman, all the other great powers line up firmly in the western-dominated order. Russia and China must contend with the US, India, Japan, and a repurposed EU, as well as Britain and the other Anglosphere countries. The very good news is that the emerging basic power structure of the world favors the UK and an order we can all happily live in.

Practically, this more accurate look at geo-strategy lends itself organically to some practical policy outputs. If even the EU can throw off its shibboleths in a matter of days, now is the time for the Johnson government to do so in the matter of hosting and cosseting Russian oligarchs, as London has shamefully built a pin-striped ecosystem of lawyers, accountants, and PR consultants who allowed the de facto laundering of pilfered Russian money as well as the laundering of reputations for Putin’s cronies.

It is not for nothing that the capital is nicknamed ‘Londongrad.’ This must come to a stop, not in six months, but immediately. If the Germans can throw off their sacred cows, so can the British. It is not impossible.

But at a deeper level, what is required is a rapid change in British strategic thinking. Britain’s calling is to lead the Anglosphere, a great power almost no one has given nearly enough thought about. It must shift its gaze to the dominant Indo-Pacific region. Britain can become a vital player on the world stage, the closest ally of the world’s ordering superpower. If Britain does all this quickly and decisively it will emerge as a major force in the dominant new great power coalition. It is all in Britain’s grasp, but it must do that hardest of things; it must act fast and keep up with history.

This post was originally published in Conservative Home.

What comes next in Europe might surprise us

As the writer, Anais Nin put it, “All the art of analysis consists in saying a truth only when the other person is ready for it.” Political risk analysis — which is essentially an art rather than a science, and no less essential for it — demands thinking ahead so as to always be ready for whatever comes or, as Nin would put it, to always be ready for the truth. To never be surprised when seemingly unlikely events unfold is an artistic prerequisite to doing political risk well.

At present, two somewhat unconsidered but quite possible political currents are unfolding in the heart of Europe. While the potential of Giorgia Meloni of Italy and Valerie Pecresse of France to rise to power has been under-evaluated, it is also likely that at least one of these “surprising” events will happen. To see what comes next in Europe, it is imperative to take the possibility of their success seriously, and to do so now.

Outside of Italy, almost no one has thought through the fact there is a very real possibility that Meloni, leader of the far-right Brothers of Italy, could soon be prime minister. She has proven to be a savvy political operator, working with some success to detoxify a party that still has all too many ties to the fascist nightmare of Benito Mussolini.

In addition, Meloni sensibly opted to stay outside of Mario Draghi’s COVID-19-inspired government of national unity. She has ably criticized the Draghi government’s many panicky zigzags regarding pandemic policy, as well as emerging as an eloquent (if somewhat unlikely) champion of parliamentary sovereignty and the need for the technocratic-heavy government to more openly and democratically submit its program to the Italian people. All of this has done her a world of good, as her party has risen to second place in the most recent Italian polling ahead of the next scheduled election in 2023.

Politico’s Jan. 10 poll of polls put the center-left Democratic Party at 22 percent, with Meloni’s Brothers of Italy just behind at 20 percent, the far-right League on 19 percent, and the populist and foundering Five Star Movement at 15 percent. These numbers make it obvious the right will be heavily favored to win the 2023 parliamentary election.

Better still for Meloni, she has put in place a deal with Matteo Salvini of the League — long the golden boy of the far right — that whichever of their parties does best in the next election will have its prime ministerial candidate favored by both, making them the odds-on favorite to assume power. While Italian politics is byzantine at best and while there are many twists and turns to come over the next 18 months, at present a strong case can be made that the far-right Meloni (with all the policy repercussions this entails) is as likely as anyone to be prime minister, and as soon as next year.

Likewise, in France, a largely unknown woman has also quietly made political inroads. Pecresse, the leader of the Paris regional council and former Cabinet minister in the Sarkozy government, has surprisingly emerged as the Gaullist candidate for the French presidency, with the two rounds of voting to be held in the late spring and early summer of this year.

The latest polling numbers from Politico find President Emmanuel Macron with 25 percent of the vote, the far-right Marine Le Pen with 17 percent of the likely tally, Pecresse breathing down her neck at 16 percent, and with Eric Zemmour — the far-right talk show superstar — at 13 percent. Given the complexities of the French voting system, this means that Macron would easily get through to the decisive second round, but that the other three all still stand a real chance of advancing in the second slot.

Unlike the personality-driven campaigns of Macron, Le Pen and Zemmour — who merely have factions rather than established parties behind them — Pecresse is the heiress of the Gaullist Party, the oft-ruling governing party of the French Fifth Republic. The party has branches throughout the country, long-established community ties, money and organizational clout, giving her a level of support the other three candidates simply cannot match. Also, Pecresse, as opposed to her far-right rivals, simply cannot be demonized as a threat to the safety of the republic — she, like Macron, is a moderate center-right politician who demonstrably poses no threat to the French state.

As such, if there is a runoff between Macron and Pecresse, the incumbent cannot count on disaffected leftists to unenthusiastically but decisively vote for him, as they did in the 2017 showdown between Macron and Le Pen. Instead, the president’s many detractors — due to his imperious intellectual nature, he has never been loved by his countrymen, if admired as capable — now have a real opportunity to vote against him. With Pecresse only a point behind Le Pen as the campaign gets into full swing, she has a real chance to claim the Elysee Palace.

For both Meloni and Pecresse, victory is far from assured. However, as Nin’s analytical injunction makes clear, neither should these seemingly surprising political risk outcomes really surprise us if they swiftly come to pass.

This blog post was originally published in Arab News.