Author: Giacomo Valentini

America isn’t back

By Giacomo Valentini

On 19 February this year, in his first foreign policy speech in Munich, Germany, newly elected President Joe Biden declared that “America is back, the transatlantic alliance is back”, promising words aimed at marking a major change in tone compared to the four years in office of Donald Trump. Unfortunately, developments since that date suggest that there is more continuity between the two administrations than Biden seems to be willing to admit. Whether it is China, Iran, or Afghanistan, Biden has not significantly changed the course set by his predecessor.

Recent events only confirm this trend. The swift US withdrawal from Afghanistan, culminating in the sudden takeover of Kabul by the Taliban on August 16th, suggests that America might have undergone a fundamental change. It has no more appetite for being the world policeman. The spirit of the post-world-war-two period, of US international engagement and promotion of western values throughout the world, might be finally over. America is not falling back into 1930s isolationism, but it no longer sees itself as the centre of the world international community.

The change has taken place over the past few years, triggered by the most disruptive political development that America has experienced in decades: the presidency of Donald Trump. It was Trump who started the US pullout, both from Syria and Afghanistan. 

During the 2020 presidential campaign, many democrats vowed to reverse Trump’s extreme isolationism, but once in office, has made few changes in the US policy towards China, Iran or Afghanistan. On Afghanistan, he stubbornly ignored his advisers and international allies and pursued a disorderly and ill-thought pullout. Biden has also refused to change course in America’s dealings with China – portrayed in much US press in almost hysterical cold-war-style tones – or Iran, where despite the rhetoric no progress whatsoever has been achieved on a resumption of the Iran nuclear deal.

This change in American attitude seems to be bipartisan. Both on the right and left of the political spectrum, the prevailing winds favour a modern isolationism. While Trump’s brand of extreme isolationism might still be an outlier in the US political landscape, more moderate forms are now prevalent among both Republicans and Democrats. This situation is not likely to change any time soon, despite Biden’s “America is back” reassurance. And even if a future US President were to seek to reverse course, Trump and Biden have inflicted long lasting, possibly irreparable damage to America’s international image.

To be clear, I am not implying that there is no difference between Biden and his predecessor. Under Biden the US has rejoined the Paris Agreement on climate change, and put an end to Trump’s habit of publicly clashing with his partners at G7 or G20 summits. But Biden’s re-engagement is often limited to diplomatic niceties, or aimed at satisfying the most radical wing of his party. There is little indication that Biden is treating foreign policy with the same high level of priority as presidents Obama, Bush, or Clinton. And the fact that Biden has resumed multilateral diplomacy should not distract from the fact that on military issues, the change in attitude has been dramatic.

Partners in Europe and Asia will no longer be able to look at the US as a reliable partner in defense matters. For Europe, a militarily hesitant America might mean serious exposure to Russian military aggression. To Japan and Taiwan, it might suggest a weakened US resolve to intervene in the face of Chinese or North Korean aggression. Trump’s approach to the Iranian nuclear deal, which included punishing European companies dealing with Iran, has suggested to many Europeans that the EU should seek a greater international role for the euro as an international alternative to the US dollar.

All this risks strengthening the arguments of those in Europe and Asia seeking  more independence in foreign and trade policy. But independence always entails the risk of unilateralism, which portends the risk of a fragmentation of the international order that has dominated the world since the end of the second world war.

Allies feel betrayed

This new American isolationism leaves the UK in a bad position at a crucial time in its history, having turned its back on Europe and seeking a new international profile. The Afghan debacle highlighted how totally reliant the UK is on US military support. It should remind even the most bloody-minded UK Brexiters that the past days of UK international dominance are over, in case they had forgotten the lesson of the Suez crisis of 1956. The image of Britain having to sheepishly follow the US moves when leaving Afghanistan will endure.

Europe is also shocked. The reversal will embolden politicians in France and elsewhere who want to step up European military and financial autonomy from the US. German “doves” such as conservative leader and potential future Chancellor Armin Laschet, who had been arguing that the Trump years were just an exception and that trusted Biden’s “America is back,” will have a harder time now defending that position.

Even in areas like the climate negotiations, the impact of Biden’s ill-judged international policy decisions might be felt. Trump caused consternation in Germany when he sought to block the Nord Stream gas pipeline to Russia, just weeks before its completion. The measure has climate implications since without it Germany would not be able to meet its pledges to phase out coal use by the 2030s. Although the Biden administration has reversed the Nord Stream boycott, it nonetheless shows the extent to which a rogue US President can influence climate and energy policies around the world.

The new climate of uncertainty created by the Trump-Biden foreign policy turnaround is likely to have negative impacts on global trade, and risks pushing China into an openly anty-Western attitude.

Africa: The Good News

By Giacomo Valentini

The press is filled with dire news coming from Africa: in July, riots broke out in South Africa following the arrest of former President Jacob Zuma. In Ethiopia, amidst bloody battles and thousands of deaths, fighters from the rebel region of Tigray are overwhelming the national army and threatening to take the capital Mogadishu. All over the continent, COVID-19 causes deaths amid a chronic shortage of vaccines and concern among the medical community that allowing the disease to advance unchecked could give rise to new variants of the disease. The list of bad stories from Africa could continue.

But while this news is undoubtedly concerning, some important but less headline-grabbing developments offer a much more positive vision of where the continent is heading.

Towards better governance

The riots that caused so much damage in South Africa are actually the result of an unexpected resolve by the government of Cyril Ramaposa to fight back against the corruption that pervaded the country during the Zuma years. The fact that Zuma is actually serving time in jail – limited as it might be compared to the misdeeds he is accused of committing – is remarkable. It will hopefully mark a transition in the country away from tribal-based rule to the building of a modern rule-based state.

In Ethiopia, the hope is that the current tragic civil conflict surrounding the Tigray region will not disrupt other, positive developments in the region. One such development concerns the recent launch of the first major blockchain deal in Africa, whereby 5 million Ethiopian students will be given blockchain-based digital IDs, which by improving the credibility of their credentials, will give them better access to business opportunities and financial assets. 

Another country experiencing dramatic developments is Sudan, where following a popular insurrection in 2019 that deposed the Islamist despot Omar al-Bashir, an unlikely triumvirate of an urban civilian, a military leader and a warlord is ruling the country, gradually moving it towards a more liberal, business-friendly legal system. Over the past two years the government has lifted many restrictions on public speech, banned female genital mutilations, and repealed various Islam-based laws, including lifting dress obligations for women, decriminalising apostasy, ending public flogging, and partially lifting a ban on the consumption of alcohol. 

Clean African energy

On the energy front, the most important development in the Nile basin is the progress in construction of the “Grand Ethiopian Renaissance Dam” (GERD), which will create a gigantic new reservoir along the river Nile, close to the border with Sudan. In July this year, the second stage of the filling of the dam was successfully completed, triggering a new round of complaints from Egypt and Sudan, the down-river countries that are most impacted by the reduced water flow that the reservoir filling is causing. Egypt has issued veiled threats that it was ready to resort to military means should it feel that Ethiopia is damaging its interests with the dam. 

Egypt’s rumblings have a broader geopolitical dimension, given the size of the project. With a planned installed capacity of 6.45 gigawatts, the dam will be the largest hydroelectric power plant in Africa when completed, as well as the seventh largest in the world. It would greatly expand Ethiopia’s role in the region, to the detriment of Egypt, which is currently seen as the regional superpower.

Another aspect of the issue concerns Ethiopia’s decision to finance the dam by internal fund raising through bond selling and persuading employees to contribute a portion of their incomes. This decision came because of Egypt’s efforts to undermine the project by denying it traditional sources of international funding such as through the World Bank. The result is a fully domestic funding scheme, no doubt a source of additional pride to Ethiopians. Ethiopia will be able to use the electricity generated for its domestic uses, but also to export it to nearby countries, boosting the regional economy and meeting many of the “green” goals that the international community is pursuing in the fight against climate change. There are, therefore, many reasons to hope that the current troubles in the region will be resolved soon.

Reducing dependence on imported vaccines

On the COVID-19 front, the situation in Africa remains dire, as vaccination levels remain low and developed countries are reluctant to contribute significant amounts of vaccine doses before their own populations are deemed to be sufficiently protected. Even the limited supplies promised under the UN-backed COVAX scheme have largely failed to materialise. But in the longer term, some important developments are underway, which portends to a much more positive scenario for future pandemics. 

In July, the government of Senegal announced the construction of a vaccine facility in the country, with the financial and technical support of the EU and the World Bank. A former French colony, the country is host to the Institut Pasteur de Dakar, part of the international Pasteur Institute network. The plant is scheduled to begin production by the end of 2022. Further good news on the vaccine front comes from  Cape Town, South Africa, where the Biovac institute announced that in 2022 it will start production of Pfizer’s COVID-19 vaccine, using large batch ingredients from Europe which it will blend and put in vials for distribution in Africa. These will be the first African locations to have vaccine production capacity, a very important step in raising living standards in the continent.

Africa to the stars

One further area of African progress comes from the aerospace sector. In July this year, Uganda became the latest African country to prepare to launch a satellite. It is one of 10 countries on the continent with such plans, while another 13 have already put satellites into orbit. For 2021, African countries are spending over half a billion dollars on their space programmes, roughly double the amount spent in 2018. Many African countries are located at latitudes that are favourable for rocket launches, with increasing interest among international investors in new and existing launch sites on the continent. 

Conclusion

The geopolitical consequences of an African renaissance are to be carefully taken into account. China’s close involvement in many investment projects in Africa should be a warning to western countries that they need to step up their own actions there, to encourage the emergence of modern, pluralistic societies and open economies.

The EU gets fit for 55

By Giacomo Valentini, 31 July, 2021

On 14 July, the European commission presented its “fit for 55” initiative, a package of measures to ensure that the EU will cut its greenhouse emissions by 55% by 2030. 

The plan radically expands and replaces the bloc’s previous reduction plan, which set a more modest 40% reduction target. The new more ambitious goals will allow the EU to boost its international credentials ahead of the COP26 conference to be held in Glasgow on November 1-12. The EU will be able to tell the conference that it is putting itself on a path to complete decarbonisation of its economy by 2050, thus exceeding the goals of the Paris Agreement. It will also be able to claim to be a key player in talks with other major emitters, most notably the US and China, about how to collectively meet the Paris objectives. 

The plan addresses emissions from all major sectors of the EU economy:

  • Industry and electricity generation
  • Transport (road, air and maritime)
  • Buildings
  • Agriculture and forestry

It presents the vision of a European economy in 2030 where all new cars will be propelled by electric batteries or hydrogen, where renewable energy sources provide at least 40% of total energy use, and where coal, oil and gas will be progressively phased out.

The package of measures will have to go through the normal EU legislative process before becoming law. It is likely many of the individual measures will undergo changes as legislators work to produce agreements they can sell to their voters. Already many member states and industry associations have reacted negatively to several provisions of the package, especially the phase out of ICE cars by 2035 and the introduction of emissions trading for automotive and heating fuels. The Carbon Border Adjustment Mechanism is also likely to raise concerns about its trade impacts.

Assuming these negative reactions can be overcome, the individual measures are to start taking effect in a staggered manner, starting in 2023.

Main actions in the EU’s “Fit for 55” plan

Industrial emissions – EU ETS

  • lower the current cap on EU industrial greenhouse gas emissions, nearly doubling the annual rate of reduction to 4.2%, compared to 2.2% today. This would mean that EU industrial and energy installations would emit 61% less CO2 by 2030 compared to 2005.

Non-industrial emissions

  • Under the EU’s “effort sharing” initiative, each state will be assigned new, more ambitious reduction targets for buildings, road and domestic maritime transport, agriculture, waste and small industries.

Renewable energy and energy efficiency

  • The Commission proposes a new target to produce 40% of energy from renewable sources by 2030, while introducing new sustainability criteria for biofuels
  • EU states will be given new, more ambitious and binding annual targets for reducing energy use at EU level. 

Buildings

  • The public sector will be required to renovate 3% of its buildings each year to drive the renovation wave while creating jobs and saving money for the taxpayer.
  • Fuel for heating buildings will be included in a new fuel emissions trading scheme that will be launched in 2026.

Cars

  • Average CO2 emissions of new cars are to be reduced by 55% by 2030, and 100% by 2035 compared to 2021 levels. All new cars registered as of 2035 will be zero-emission (battery or hydrogen). By that year, EU governments will have to install charging and fueling points at regular intervals on major highways: every 60 kilometres for electric charging and every 150 kilometres for hydrogen refueling.
  • For existing cars and trucks, petrol and diesel are to be  included in the new fuel emissions trading scheme that will start in 2026.

Aviation

  • Jet fuel suppliers at EU airports will be required to blend increasing levels of sustainable aviation fuels in their fuel. This would include biofuels but also synthetic low carbon fuels, known as e-fuels. 
  • The EU will remove most exemptions from its requirement that aircraft flying to or from an EU country are subject to quotas and can trade emissions in the EU ETS.

Shipping

  • Shipping emissions will be included for the first time in the EU ETS.
  • To stimulate the uptake of sustainable maritime fuels and zero-emission technologies, there will be progressively rising purity standards for maritime fuels in EU ports, so that by 2050 these fuels emit 75% less greenhouse gas than today.

Agriculture and forestry (LULUCF)

  • The overall EU target for 2030 will be to remove 310 million tonnes of CO2/equivalent  emissions through carbon sinks. This target would be broken down into individual national targets. By 2035, the EU should aim to reach climate neutrality in agriculture and forestry including both CO2 and methane emissions from fertilisers and livestock.
  • A new EU Forest Strategy will seek to plant three billion trees across Europe by 2030.

Taxation

  • New legislation will be presented to require the 27 EU states to remove all exemptions and reduced rates that currently encourage the use of fossil fuels.
  • To make sure foreign countries with lax environmental standards do not benefit from the increased EU carbon rules, a new Carbon Border Adjustment Mechanism would impose a CO2 tax on imports of certain products.

Funding the transition to a zero-impact economy

  • The entirety of the revenues from the EU ETS scheme will be devoted to funding climate and energy-related projects. This will include a new €72 billion “Social Climate Fund” which in the six years from 2025 to 2030 will help European citizens cope with the costs of installing energy efficient equipment, new heating and cooling systems, and purchasing zero-emission cars. 
  • The EU will increase the funds available under the existing “Innovation” and “Modernisation” funds (intended to help companies meet their EU ETS obligations), and provide new funding to address the possible social impact on vulnerable households, micro-enterprises and transport users. 
  • The EU has established that the €500 billion InvestEU fund (recovery from the COVID-19 crisis) be used in a manner consistent with the EU’s climate and energy goal.s
  • The EU is also requiring that 35% of its €100 billion “Horizon Europe” (2021-2027) research and innovation fund be spent on climate and energy-related innovation. 

Life in a Multipolar World

By Giacomo Valentini

During the four decades following World War Two, the world was divided between two competing ideologies: capitalism and communism. This bipolar world seemed an immutable reality to many. It was a world where the West was democratic, liberal and capitalist, while the Soviet Bloc followed a model of centralised communism where the state controlled all levers of power and the economy.

Following the fall of the iron curtain, the world appeared to have entered a new phase, a unipolar world where the United States was the “hyperpower” in the words of French foreign minister Hubert Vedrine back in 2002. Everything seemed to confirm what Francis Fukuyama had written in 1992 about the end of history, intended as “the end-point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of human government.” Today, however, it looks like such visions of world hegemony were premature: democracy has not superseded other forms of government, and there is no such thing as unipolarity. 

As the years went by after the fall of the iron curtain, it gradually became apparent that the United States was not the world ruler portrayed back in the 1990s. The US has certainly had some major successes in this new world – in 2001 it invaded Afghanistan, and within weeks the Taliban regime was toppled and the Al Qaeda terrorist organisation was rendered ineffective. But the first signs of the US’s inability to have its way in the world came soon after, beginning with the invasion of Iraq in 2003. In restrospect, this  event can be seen as pretty much of a disaster in US foreign policy, heralding the rise of anti-US and Islamist movements throughout the Middle East and sparking turmoil in many countries in the region.

The Iraq invasion and its aftermath showed the world that the American hyperpower was not able to impose its will on distant countries. Regional powers and militia groups were able to hinder US plans. Gradually it became clear that the world was much more complex than it appeared to be in the black-and-white age of the cold war. Even in Afghanistan, after the rapid success, the western presence was not able to bring about lasting change. US troops stayed there longer than in any other war theatre. Their recent pull-out, while not occurring as a result of direct military challenge, confirms to many observers the overall failure of US interventionism, and is further evidence of a return of regional power politics after the cold war years.

The seeds of this fall of US dominance were sowed soon after the demise of the Soviet bloc. During the 1990s the religious, ethnic, cultural divisions that had dominated international politics throughout the past centuries but that the Cold War had suppressed, came back to the fore. With the end of the “capitalism vs. communism” confrontation, what remains is a tumultuous world of constantly shifting alliances based on culture, religion, ethnicity, and economics.

The US geopolitical standing took a further blow when President Obama chose not to intervene in the civil wars in Libya and Syria, instead letting Russia, Turkey, and Iran run the show. In Syria, the US played a secondary role, helping the Kurds in the North. 

The end of any hyperpower illusion came with the rise of China on the world stage. During the two decades following the fall of the iron curtain, China was often put in the same basket as India, Brazil, South Africa, Russia (the BRICS countries) as “emerging economies”, but the reality today is quite different: China has emerged as the clear alternative to the United States on the world stage – economically, politically, and increasingly, militarily. 

No way back to bipolarism

Does this emergence of China as a new superpower mean that we are entering a new cold war? The answer is no, we are not returning to those simple old days. Back then, no other country could stand up to the might of the two superpowers. Pretty much everybody found themselves having to choose on which side they wanted to be. The “non-aligned” movement of countries was never successful in providing a real alternative to this duopoly. Back then, the confrontation was between competing ideologies and was fought mainly through military threats. 

Today instead, China is not an ideologically pure alternative to the west, rather it has embraced a form of state-directed capitalism, and despite having nuclear weapons, it is not a global military power comparable to what the Soviet Union was.

Today the conflict is between liberal democracy and alternative forms of government based on high levels of coercion and authoritarianism, but not by a common alternative vision of society. China’s “pragmatic communism” model does not hold the monopoly of the anti-liberalism camp. India, Russia, Turkey among others are ruled by nationalist leaders. In Europe, Hungary’s mini-dictator Viktor Orban is also strongly focused on ethnic purity when he openly theorises “illiberal democracy” as an alternative to the socio-political model incarnated by the US and Western Europe. In other countries, including Iran and Saudi Arabia, religious factions dominate the political scene. 

Because of this more complex picture, our world is not a repeat of the bipolar one we left behind with the fall of the iron curtain, and though the US and China stand out among other minor powers, neither of them is powerful enough to carve up spheres of exclusive influence: even if Europe is obviously in the western camp, several EU countries have kept open dialogue and even made deals with China and Russia, sometimes in the face of US criticism; India has developed a rivalry with China – ranging from border disputes to accusations of using technology for spying and social control – but this has not made the Indians fall into the US’s lap; elsewhere, regional powers including Russia, Turkey, Iran, are engaging in a constant ballet of shifting tactical alliances. 

The risk of inflating the US-China rivalry

Even so, the US has chosen a confrontational attitude towards China. It is a strategic decision that spans presidencies, started under Trump and so far maintained under Biden. The US approach goes beyond considering China as the main US rival in the world, to treating it as an enemy to contain, much like it treated the Soviet Union. There are undoubted domestic policy considerations behind such an approach, but geopolitically, it is counterproductive and dangerous. It raises the risk of a regional military confrontation, for example in the sea of Taiwan, and causes unnecessary economic damage to both countries. It negates decades of constructive engagement with China, which started with President Nixon’s ping-pong diplomacy. 

President Obama wanted to engage with China with initiatives such as the Trans-Pacific Partnership, to create a high level of economic “entanglement” between China and the rest of the world. It was US and Chinese cooperation that helped bring about the Paris Agreement, a major breakthrough in climate diplomacy. The new approach introduced by Trump – and currently followed by Biden – negates this constructive approach, favouring a rivalry which is bound not to benefit either side. 

In a multipolar world, the benefits of this rivalry are most likely to flow to the middle-sized powers, who can use US-China bickering to their advantage. A result of this is a more complex, dangerous world in which risks of nuclear annihilation may be lower than those associated with the Cold War, but where regional conflicts are as likely as ever to flare, as countries compete for supremacy in their respective regions.

In a multipolar world with many regional powers, world governments need more than ever to work together constructively to promote peace and stability and fight common threats. This could establish a new world order based on respect and limited trust, intended as the first steps towards a more constructive way of running the planet.  

Los Angeles, March 2021

Geopolitics in the Trump Era

The media have given scarce coverage of the renaming in late May of the US Pacific Command (PACOM) to “US Indo-Pacific Command” (INDOPACOM). The change was generally reported as a largely symbolic gesture, mainly underscoring the growing importance of India on the international scene.

But there is more to this change than simple symbolism. The PACOM already covered a vast area, including all the Pacific rim. The new designation extends the coverage to large sections of the Indian Ocean, making it by far the largest US command zone. It should be considered in the context of broader developments in the region and in Washington.

The US sees a dual threat coming from China. The country is seen as a commercial and economic threat, but also as a possible future military one, too. By extending PACOM to include India, the US is bringing another emerging power into the South Pacific game. India shares US concerns about Chinese assertiveness in the region and beyond.

The US security community has long been concerned with growing Chinese claims on sections of the Southern Pacific Ocean, putting pressure on US allies such as Japan and the Philippines. This was already becoming an issue under the Obama administration, but the Trump administration has gone further than its predecessor, reassessing the geopolitical threats to the US and putting China at the top of the list of its concerns, followed by Iran as a distant second. The Trump administration does not consider Russia to pose a major threat to US international interests.

Read in these terms, US ouvertures to North Korea could be interpreted as an attempt to strip China of a military buffer, potentially bringing the US army closer to the Chinese border. At the very least, the signs of warming US-North Korea relations are a thorn on the side of China.

Announcing INDOPACOM on 31 May, US Defense Secretary James N. Mattis made it clear that the inclusion of India served an anti-China agenda. He said the new area of responsibility seeks to strengthen country bonds across “a region open to investment and free, fair and reciprocal trade, not bound by any nation’s predatory economics or threat of coercion, for the Indo-Pacific has many belts and many roads,” an unambiguous reference to China’s “One Belt, One Road” policy for the region.

This ties in with the second type of perceived Chinese threat – the economic one. The US is targeting China through steep import tariffs on a variety of Chinese goods. While imports from China are indeed impacting the US market, the sanctions will almost certainly damage the US economy at least in the short term. But on broader terms, they add to US pressure on China at a time when Chinese economic and possibly political expansion is becoming more and more an issue. As in all wars, the US believes it can inflict more damage on China than the damage the trade war will cause the US. And as seen above, the new US approach is also targeted at China’s “One Belt, One Road” initiative – another economic front on which China risks losses.

The other big geopolitical area where the Trump administration is deploying a new approach is the Middle East. The drivers appear to be both economic and ideological.

On the economic side, US shale oil development has lead to a revision in American approach to world oil policy. With few concerns for its domestic supplies, the Trump administration is using US economic, military and diplomatic might to “redefine the rules” on the international oil market.

The Trump administration has been quick at forging a close working relationship with Saudi Arabia. The Saudi leadership appears to be accepting the emergence of US prominence in oil, on the understanding that the US will never become a major exporter, and will thus leave Saudi dominance of the world market intact.

US relations with Saudi Arabia also support another prong of US foreign policy – a renewed “friendship” initiative towards Israel. The motivations behind such friendship are ideological, but tie in nicely with the geopolitical commonality of interests between Israel and Saudi Arabia – motivated by the common perception of a threat from Iran.

By withdrawing from the Joint Comprehensive Plan of Action (JCPOA), the US has clearly taken sides in the broader Middle East conflict opposing the Sunni and the Shia factions of Islam. Unlike previous sanctions against Iran, the Trump administration’s are targeted at destroying the Iranian economy, attempting to form an “cordon sanitaire” around the country. European banks and oil companies have also begun severing economic ties with their Iranian partners, under the threat of serious US fines if they fail to do so. India is also reported to be cancelling oil contracts with Iran.

In this broad geopolitical picture, Russia and Europe do not appear to play a central role for President Trump.

US relations with Russia are ambivalent, with the Trump administration adopting a usually friendly attitude, with Congress instead showing much greater concern at Russian activities – especially its suspected meddling in the US political process and its aggressive policy of annexation of neighbouring territories.

EU-US relations began cooling already during the Obama administration. Asia was identified as being America’s emerging  focus of interest, with Europe seen as a trusted and reliable ally. The Trump administration has brought a dramatic change to this:

  • Trump has distanced himself from the traditional US commitment to NATO, even airing the possibility of withdrawing its 35,000 troops stationed in Germany
  • The US has withdrawn from the Iranian nuclear deal, which had been crafted with crucial EU cooperation
  • The US has imposed tariffs on imported European steel and aluminum, ostensibly as part of its strategy of preventing Chinese exporters from bypassing the tariffs it imposed on them
  • It has withdrawn from the Paris Agreement on climate change, another European pet project, seen as heralding  a new way of tackling complex international problems in a multilateral and inclusive manner.

European reactions

Among European leaders, there is a genuine feeling of betrayal and indignation. Chancellor Angela Merkel recently warned that the trade conflict risks escalating into full-blown war if the car sector becomes targeted. On climate, the EU is attempting to fill the void left from the breakdown of the US-China “axis”, and also to forge a new, more distributed network of “climate leaders”. On Iran, the EU is finding it much harder to forge a strategy to replace the US.

But do not expect a rapid, decisive European response to these changes in US policy. In most policy areas, EU decision making is based on lengthy consultations between its members, a complex and time consuming process.

But an EU reaction is nonetheless underway: trade is one of the rare areas where the European Commission has extensive powers to take rapid action. It has done so with the immediate launch of counter-tariffs in response to the US decision in June to impose tariffs on steel and aluminum imports from Europe.

In the area of defence, Trump’s criticism of NATO has accelerated an already existing project to forge a European defense initiative based on developing a common military procurement market and close military coordination between the EU’s national armies. Attempts to establish a joint European defense and military arrangement, put on hold in the 1950s and restarted in the 1990s in light of the end of the Cold War, have been proceeding at glacial speed. Trump has provided the magic wand allowing for much more rapid progress.

For the longer term, the EU will have to deal with a world where trade conflicts risk becoming more common. This is partly due to a reaction by voters in many countries to post-WW2 internationalism. The EU does not want to become a relic of the past internationalist era. It has the chance of instead showing the way towards a new internationalism.

Outlook

It is to be expected that over time, the international order will adjust to the new US policy. Europe will do its best not to find itself wrong-footed again by future unexpected changes in US policy. It is too early to determine if and how the Europeans will beef up their common foreign policy abilities – for example by giving the EU High Representative for Foreign Affairs more autonomy in forging and representing EU foreign policy. But European governments are never again going to take US support for granted.

China’s response might be more predictable. The country is likely to conclude that the US will never be a reliable partner. It will thus continue to pursue its own pattern of geopolitical alliances and international power peddling.

In the long run, the Trump message to the world is: don’t count any longer on the US as a guarantor of world stability. Emerging economic powers in Asia, Africa and Latin America are listening.

Giacomo Valentini, 6 july 2018

Brexit – a Status Report

After a year of negotiations over the UK’s withdrawal from the EU, there is still much uncertainty over what the EU-UK relationship will look like after formal separation in March 2019. When Prime Minister Theresa May first took office in July 2016 shortly after the Brexit referendum, she said she would seek a close relationship with the EU, but would pull the UK out of the European customs union and ensure the country would no longer be subject to rulings from the EU Court of Justice.

At the time of writing this, achieving these goals is proving to be a complex matter, and there are growing indications that UK participation in the EU customs union and acceptance of EU Court of Justice will not cease completely by B-day, i.e. the date in when the UK ceases to be a EU member. Over the past year, the UK has accepted that a transition period will be necessary for a new relationship with the EU to take effect. This in effect pushes back the UK’s full withdrawal from many of the main elements of EU membership to after December 2020.

 

Brexit – key dates so far

23 June 2016 – referendum on EU membership ends with 51.9% of votes in favour of leaving

13 July 2016 – Theresa May becomes new prime minister

29 March 2017 – UK officially launches the two-year Brexit process to leave the EU

8 June 2017 – Theresa May loses her parliamentary majority in a snap election, and is forced to form a minority government with the support of a small ultra-conservative party from Northern Ireland

26 June 2017 – start of formal negotiations with the EU

15 December 2017 – phase 1 of the negotiations is completed, dealing with the terms of separations (including EU citizen’s rights and the Irish border), and phase 2 begins, dealing with the future relationship between the EU and UK

19 March 2018 – major progress in negotiations, including agreement on a transition period up to 31 December 2020 during which the UK will remain under EU rules pending entry into force of the yet-to-be-agreed EU-UK arrangements

The forces at play

Immediately after the referendum results, pro-Brexit politicians in the UK said they could use a tactic of divide and conquer to undermine the EU. This has never materialised. The EU has proven to be remarkably united and steadfast in defending its negotiating position. Any hope that British euro-skeptics might have had of buying out individual countries has failed, at least so far.

On the other hand, some strong divisions are apparent in the British camp, both within the ruling Conservative party and in the opposition Labour party. Among the conservatives, a group of about 60 members of parliament support a “hard Brexit”, i.e. a complete separation with Europe, and the immediate launch by the UK of trade negotiations with major countries around the world. The rest of the party’s parliamentary membership supports a variety of positions ranging from some kind of “soft Brexit” (i.e. an exit with the continuation of close ties with Europe) to continuation of UK membership. A minority of Conservative members is pro-European. In the Labour camp, the left-wing faction headed by party leader Jeremy Corbyn support a break from Europe, so as to regain the freedom to nationalise and subsidies national industries, but favour a continuation of the customs union with Europe. Many more moderate Labour MPs oppose Brexit.

Britain’s third party, the Liberal Democrats, is strongly pro-European. All in all, a majority of MPs opposes Brexit.

Such divisions in the British camp increase the appearance of EU unity – something that EU negotiators like to stress when they taunt their UK counterparts to come up with a clear, long-term vision of the future UK relationship with Europe. The fact is, the UK gives the impression is still not clear what relationship it wants with continent.

The EU customs union and the Irish question

The border between the Republic of Ireland and the UK province of Northern Ireland has emerged as a major element in the Brexit process. The issues goes back to the Good Friday Agreement of 1998, when Northern Irish Unionists and Republicans agreed to end the sectarian violence there through a deal that included the elimination of the border between the two Irelands. This elimination was made possible by the fact that both the UK and Ireland were part of the EU’s customs union, which eliminated the need for border controls. A British departure from the customs union would require a reinstatement of that border, with the risk of breaking the peace in Northern Ireland.

To avert this, on 15 December 2017 the EU and the UK committed themselves to ensuring that the Brexit deal would include a solution to avoid any new border. This commitment is likely to prove a crucial aspect in the remaining months of negotiation. Theresa May has proposed a system that would allow the UK to maintain “regulatory alignment” with the EU customs union by collecting import duties for the EU at the UK border, along with a number of technical solutions to replace the need for a physical border. The Conservative party’s “hard Brexit” faction supports an alternative solution, where instead of alignment, the hard border would be avoided by a system of advanced technological solutions to monitor traffic and replace border paperwork. Given the technical complexity of such never-tried-before solutions, it is unlikely either solution will be ready for practical deployment by the end of the transition period, and might not start operating before 2022 or later.

In mid-May, the UK media reported that the government had approved a plan to avoid a hard border in Ireland, though no details of this plan have yet emerged. It is likely to involve a version of the “regulatory alignment” already supported by the government. At the same time, hard-line Conservative brexit supporters have started expressing unease at how the government is handling the negotiations, and rumours have surfaced that they might challenge Theresa May in September.

What will Brexit look like?

In light of the above, it is clear that both the UK and the EU have some work to do before a clear picture emerges of the UK’s future relationship with Europe emerges.

Uncertainty reigns in several domains, in particular trade. So far, the two sides appear to be playing for time. The transition period will allow further talks to continue even after the official “Brexit day” of 29 March 2019. The Irish border question might postpone a deadline to the solution even further. But the outlook has changed since 2016. Back in the first weeks after the Brexit referendum, the UK painted a picture of complete British departure from the EU customs union, which would have meant that the UK would have to negotiate a trade deal with the EU similar to that agreed between Europe and Canada.

Today, the tone is different. The UK government is talking of ways of avoiding a hard border, suggesting that in the end, its relations with Europe might end up being more of a mixed system, combining elements of a Canada-style trade agreement with much closer arrangements in some specific areas.

Outside of trade, the UK is likely to gain complete autonomy in its agriculture policy, with the government replacing the EU in managing the current system of agricultural subsidies. In fisheries, the situation is more complex, as reflected in the current negotiations on the topic. The UK will regain formal control on legislation on product quality and safety standards, though in practice its companies are likely to end up implementing most EU rules if they want to sell their products in Europe.

The UK has already outlined plans to forge a deal with the EU to continue its involvement in the Horizon programme for Research and Innovation, thereby continuing to pay into that part of the EU budget. On specific issues, such as the Galileo satellite positioning system, the EU has indicated that the UK will not longer be allowed to participate due to security issues. But this could change if the two sides reach a suitable arrangement. On energy and climate policy, the UK is likely to pursue an independent policy. For the future of the climate negotiations, the UK is likely to work in close coordination with the EU.

To summarise, current trends suggest that in trade, the UK might end up with a deal where it will closely match the EU’s customs union,

Key dates from now:

  • 28-29 June 2018 – EU summit, where the EU leaders are to endorse the Brexit timetable agreed by negotiators in March
  • Mid-October 2018 – scheduled completion of Brexit negotiations
  • 18-19 October 2018 – EU summit, where the leaders are to approve the Brexit Treaty, thereby launching the process of ratification by all countries involved, including by the EU itself
  • 29 March 2019 – the UK will cease to be a full EU member state, but will remain under most EU laws until 31 December 2020, and will remain in the EU customs union until a suitable technical solution can be found to ensure that the border between Northern Ireland and the Republic of Ireland remains open
  • 31 December 2020 – end of the transition period and start of the new EU-UK relationship

Giacomo Valentini,
25 May 2018

Impact of Populism on European Policy Making

Relaunching the blog

This article relaunches IPM’s blog after over a year of silence. We hope to provide more frequent, timely updates on issues that are of interest to our clients and friends.

Giacomo Valentini

 

THE IMPACT OF POPULISM ON EUROPEAN POLICY MAKING

In recent years, a majority of European countries have experienced a rise in populist movements, a trend which is affecting national politics and even brought populist leaders to occupy important government positions.

In Hungary, on 8 April the nationalist and populist Fidesz party won a two-thirds parliamentary majority, reconfirming Viktor Orban as prime minister. Orban based his election campaign on fighting alleged foreign meddling in Hungarian politics, in particular by financier George Soros, and on preventing refugees and migrants from entering the country.

Since 2015, Poland has been ruled by the populist PiS Party, adopting policies that tend to reject international cooperation, set limits on freedom of expression, and focus on domestic issues.

In Greece, the current government is a coalition between anti-establishment parties. It adopts positions that are often at odds with those of the country’s EU partners.

In Austria, following a general election in 2017, the country is ruled by a coalition between the mainstream conservative ÖVP Party and the right-wing populist FPÖ party, with an anti-immigrant agenda. In the Netherlands, the mainstream conservative VVD Party of Prime Minister Mark Rutte heads a coalition designed to keep the right-wing party of Geert Wilders out of power. To win the election, Rutte adopted some of the anti-immigrant rhetoric of his right-wing opponents. Populist parties have appeared elsewhere in Europe, from Spain, to Finland, Norway and Sweden.

Not to be undone in this competition, Italy has spawned not one but two populist parties. The election of 4 March saw big gains for both the Five Star Movement and of the League, while the two main traditional parties lost badly. The two parties are discussing a possible coalition government, which might focus on adopting measures against immigrants, promoting greater government spending, and challenging EU authority in economic matters. While the United Kingdom does not currently feature a prominent populist party, the recently deceased UK Independence Party (UKIP) fitted that definition during the years leading up to the 2016 referendum which resulted in the UK announcing its withdrawal from the EU.

The last bastions of European stability and continuity appear to be Germany and France. However, in both countries populist movements have emerged. In France, the elections of 2017 saw the defeat of the country’s two main traditional parties, Republicans and Socialists, and the rise to prominence of two outsiders, the centrist Emmanuel Macron – who eventually won the presidency – and right-wing populist leader Marine Le Pen. In Germany, the right-wing anti-establishment AfD party made significant gains at the 2017 general election, with 12.6% of the vote and 94 members in the 600-seat parliament.

The populist parties that have emerged in Europe in recent years can be divided into two broad categories:

  • Parties that defend the “ordinary citizen” against the power of the “elites” – an umbrella name which covers supposedly corrupt politicians, multinationals, and unspecified occult powers.
  • Nationalist parties which claim their country is under attack from foreign threats – including immigrants, supranational organisations such as the EU, the UN, or the IMF.

These two categories often overlap, and most populist parties include both elements. Both these groups of parties tend to be inward-looking, in the sense of being relatively uninterested in international issues. Many of the populist parties in power in Europe adopt inward-looking policies, and try to divert government expenditure towards measures to help vulnerable groups – in particular the unemployed and retirees.

Implications for European politics and policy making

Election results in recent years suggest that in most of Europe, traditional parties are struggling to maintain their popular support. Many factors might be cited to explain this decline – including the financial and economic downturns of the past decade, increased automation on the factory floor and outsourcing of production to countries with cheaper labour costs, the long-term political and ideological consequences of the end of the cold war in the 1990s, the rise of social media, the refugee crisis that followed the civil war in Syria, and hypothetical Russian disinformation campaigns.

The changes in government are already having an impact on EU politics. However, the impact on policy making has so far been much more muted. This is because EU institutions are somewhat shielded from political swings. The civil service plays a central role, and top civil servants are career officials, thereby relatively immune from changes in the political mood.

This means that sudden swings in policy are unlikely as a result of political shifts in government. Nonetheless, over time the political changes will make their way into EU policy making.

Policy outlook

It is quite possible that over time, the rise of populist parties could result in subtle changes in the EU’s policy focus. Populist parties tend to be suspicious or outright sceptical of policies that would require them to spend money on international issues, or on issues which appear to be removed from the concerns of the ordinary citizen. On climate change, some populist parties are openly climate-sceptic. This is, for instance, the case of Poland.

For instance, in energy policy currently the EU concentrates its efforts on market deregulation and coordination of national energy policies. A rise in populist parties might result in more attention being paid to electricity prices. On climate change, populist parties are likely to assign a low priority to climate-related policies, if these involve major costs or budgetary expenditures.

Similarly, on policies such as innovation, transport, or industrial policy, populism is likely to promote diversion of expenditure towards meeting the concerns of the ordinary citizen, away from more lofty or long-term goals.

Giacomo Valentini

Europe and the Energy Transition Challenge

September 14, 2016

Energy transition has become a buzzword to indicate the many transformations under way in the energy sector. The term is generally used to denote the transition from traditional forms of electricity generation – mainly fossil fuels and nuclear power – towards renewable energy sources (RES), especially wind and solar. But as a recent Financial Times article (paywall) points out, further transitions are under way in the energy world. I am here highlighting the following:

  • transitions in the oil and gas markets, which make the west less vulnerable to traditional suppliers in the Middle East and elsewhere;
  • a transition in energy use, with the prospect of electric vehicles (EVs) taking increasing shares of the market from gasoline- and diesel-powered vehicles
  • a transition in the patterns and dynamics of power production – with a shift away from large centralised utilities in favour of a variety of alternative production centres, from industrial self-producers, all the way down to individual consumers with their own PV panels – the “prosumers”.

All three these transformations are producing profound changes in the European energy landscape. The interaction between them makes it particularly hard to forecast the exact direction of the energy transition.

In the oil and gas markets, the US has undergone its shale revolution, essentially securing it against the uncertainties of world markets. In Europe, the ripples caused by the US shale revolution, along with gas deals with various countries and enforcement of EU gas transmission and distribution rules, are gradually reducing dependency on Russian gas supplies, though for oil, Europe remains largely dependent on imports from major world producers.

Compared to other OECD countries, the EU countries share a large, liberalised and increasingly integrated energy market. It is EU gas market rules that prevent Gazprom from forging monopoly supply deals with EU countries – prompting European countries to seek new intra-EU pipelines, and Russia to threaten to abandon the EU as a customer for its gas. And it is EU market rules that can facilitate the other transformations under way: large utilities have lost their monopoly status, leaving space for new and innovative market players.

Before the launch of EU liberalisation in the late 1990s, most of Europe’s electricity systems were beholden to centralised, vertically integrated utilities. Market liberalisation helped set the conditions for the expansion of renewables. So far, the main beneficiaries of the transformation in Europe have been RES generators. They have benefited from relatively open markets and from favourable government policies such as feed-in tariffs, which are intended to promote renewable energy but also help Europe’s chronic dependence on imported energy sources.

But Europe’s liberalised energy market can do more than that. It is often said that a common European energy policy is still hampered by the fact that the EU Treaty explicitly grants EU governments the right to set their energy strategies in full autonomy. However, the impact of the limited energy legislation that does come out of Brussels – from the energy market rules to climate legislation and state aids guidelines on RES subsidies – have had a major impact on the continent’s energy landscape. Over time, a convergence of policies is happening, partly because European countries, though autonomous in energy matters, already share so much in terms of economic policy and are increasingly interlocked politically, that energy policy making is is following a more general trend towards common goals.

Thus, energy transition also means transition towards shared European goals.

The current Polish government is an outlier in the EU, being the sole supporter of continued coal development and discouraging renewable energy development. Most other European countries are embracing an approach based on pragmatic support for renewables, combined with due recognition that traditional energy sources will remain part of the energy mix for the foreseeable future.

This common trend towards low-carbon energy and energy security, combined with the EU’s energy market rules, can create fertile ground for the application of innovative ideas, some of which are already being pioneered across the continent.

Energy storage is probably the area of greatest importance right now, and the one where the greatest opportunity for business innovation lies. Storage is necessary to make best use of intermittent energy sources such as wind and sun. It is needed to store power produced by RES installations at times when the sun is shining or the wind blowing while demand is incapable of absorbing all the RES supply. Batteries might never evolve to the point of storing the vast amounts of energy needed to power Europe’s economy during times of low wind and/or sun. But they are already being used for stabilisation of the electricity system, a crucial function to maintain reliability of power supplies as more and more intermittent RES come on the grid.  Car batteries are one possible way to store renewable energy. Several Vehicle-to-Grid (V2G) projects have tested the idea of transforming Europe’s EV park into a distributed store of electricity to help manage the transition to renewables.

The European energy market also sets positive conditions for companies to establish their own power production, which they can design to meet their specific needs while selling or purchasing any excess supply or demand.

But for the above energy transitions to succeed in Europe, the European energy policy must evolve further. The Energy Union initiative of Commissioner Maros Sefcovic is reinforcing a trend that has already been under way for some time.

But because all rapid transitions tend to be messy, unfortunately there are some losers in this process. Traditional European utilities are facing a period of crisis. Several are responding, as testified most visibly by E.ON’s decision to rebrand itself as a “green company”, putting its traditional generation activities into a slightly revised version of its former self. But the process of transformation is costing the sector billions.

The current financial weakness of Europe’s utilities could undermine Europe’s economy. While RES are on the rise, they still provide just above a quarter of Europe’s total electricity generation, and 13% of total energy consumption. With EVs set to grow in number, electricity demand is set to increase significantly over the coming decade. For the years to come, Europe will still need varying amounts of coal, gas and nuclear to provide the remaining 75% of electricity. European policy makers should not forget this or they risk putting the future of the whole process in jeopardy.

 

 

Brexit and the UK’s energy and climate policy

July 15, 2016

It is early to start making detailed predictions about how UK climate and energy policy will evolve following Brexit. The latest developments suggest that the new British government, headed by Theresa May, is likely to balance the need for climate ambition against the goals of affordable and reliable energy supply for the citizen. The result is likely to be a reformulation of the country’s priorities and programmes. Continue reading Brexit and the UK’s energy and climate policy