Robinson Hambro
Robinson Hambro: Board Search and Chairman Advisory

Karina's Column

An insider’s view on the City of London and beyond

The Western Alliance, European integration & Brexit

 

A deathly trio

The Western Alliance is in its death throes; European reform & integration is finished; Brexit is bust. Following attendance at some superb seminars and conferences in the last months, ranging from the Club of Three in Paris to the Global Female Leaders Summit in Berlin, these are the conclusions I have come to. Read on.

1.The Western Alliance is in its death throes; resurrection unlikely

There have been disagreements and upheavals in the US/European relationship before, ranging from the Iraq War in President Bush’s era to President Reagan’s Strategic Defense Initiative, known as Star Wars. But these were very specific and took place within a rules-based international order that was set up post World War II and built on in the next decades – from Bretton Woods to the World Trade Organisation (WTO) – with the leadership of the US.

The “fragmenting West” is no longer being lead by the US, in the words of a former UK spy baron. President Obama began the disengagement of the US from Europe with his “pivot to Asia” policy based on the rise of China and the increasing economic importance of Asia. He added to it with the abdication of US power, a pragmatic decision given the waning appetite of the American public for foreign adventures.

Donald Trump’s crass crashing out of the G-7 summit in Canada, calling Canadian Prime Minister Trudeau “weak and dishonest,” stands in stark contrast to the love-in with North Korea’s Supreme Leader Kim Jong-un whose downtrodden people “love him…you see the fervor.”

But don’t be duped into thinking the jaw-droppingly ludicrous tweets and bizarre policies such as starting a trade war with longstanding allies are temporary aberrations. These mask a long-standing US isolationism that goes back to the founding of the country by immigrants determined to leave behind the troubles of the lands of their birth. Trump’s very determined supporters, around 35% of the electorate, fight against foreign invasions of Chinese goods and foreign workers.

Trump’s undermining of the office of the President, of the outward-facing US institutions like the State Department, and of global bodies like the WTO, is irreversible. Even if the Democrats win the upcoming elections to Congress and the presidential election in 2020 – unlikely at this moment – the most that could be done would be a moderating of those policies. That would not be enough to save the system.

China is the winner, epitomised by the smooth running of the Shanghai Cooperation Organisation’s (SCO) summit mid-June with its concluding statement criticising trade protectionism and reaffirming support for the Iran nuclear deal. The SCO includes China, Russia, India, Pakistan and Central Asian countries, equal to half the world’s population.

How ironic that China’s emergence as the responsible, statesman-like world power has been fast-tracked by the US’s toddler-like behaviour.

2. European reform & integration is finished

It collapsed a few years ago, when the refugee crisis led to the re-establishment of border controls and barbed wire. EU reform and integration had a death bed rally in 2017 through Emmanuel Macron’s enthusiasm – who can forget the French President’ triumphal post-electoral march to the EU’s anthem, Beethoven’s Ode to Joy? France is determined to lead Europe, noted EU Minister Nathalie Loiseau at the Club of Three’s opening dinner. However, without the support of Germany, the other major European power, France stands no chance of forging ahead.

“The totally stagnant” German coalition government is incapable of agreeing any action on domestic politics, let alone controversial reform and unification, noted a German foreign policy supremo. This week’s very public fight on the refugee issue between the major ruling parties, the CDU and Bavarian sister party CSU, underlines its inability to govern.

Meanwhile, Italy’s economic travails, its political revolution lead by an anti-EU, cobbled together coalition government, and its resentment at shouldering too much of the refugee burden, has put the nail in the coffin of European reform and integration.

The EU summit later this month will likely concentrate on refugees and budget negotiations.

3. Brexit is bust

Brexit was meant to be a focus of the summit, but the British government’s position paper has been officially postponed to July.

The UK is reliving the trench warfare of the First World War. Except that the battles are within the government and parties of the UK itself: Tory against Tory, Labour against Labour, back and forth in an endless cycle of destruction, breeding cynicism and despair. The EU is an incidental protagonist, popping onto the field of battle, only to be shouted at and then ignored while the real war continues.

Behind closed doors, civil servants say Brexit “cannot be done,” reports a former foreign policy civil servant of his erstwhile colleagues. They despair of a divided government and an insurmountable task. This can’t be blamed on their unwillingness. It is simply an impossibility given the intricate web that ties the UK and the EU together.

Foreign Secretary Boris Johnson says the Treasury department is the “heart of Remain.” Not surprising, given that their priority is the economic health of the United Kingdom.

The EU has given the UK a deadline of four and a half months from now for Brexit negotiations to be complete and thus for all parties to have enough time to sign a deal. This will not happen. What is most likely is an endless transition via a postponement clause which is applied annually, resulting in the continuous erosion of investment and slower growth.

This Groundhog Day scenario could end with another referendum, say three to five years down the line. By then a younger contingent, who are more pro-European than their elders, will be voting, while lessons about the importance of the vote will have come home to roost. The negative economic effects of the UK’s attempt to extricate itself will be more apparent.

Given the end of European reform and integration, the EU will have morphed into a body bearing many similarities to the former Common Market, albeit with the Euro – a sellable proposition to many, if not all, Brexiteers. Meanwhile, America’s absence from Europe will make the UK’s military alliance with Continental Europe, which is in a very healthy state, even more important. The UK will vote to remain in a European Union whose emphasis is on economic and military ties.

Fantasy land? We are already living in one.