A Very Good Week for Europe
No one knows where US politics is heading, or what a Trump-Vance presidency would actually do. But Europe is in a far better place to confront any challenges than seemed possible early this year
This really has been the season for hot takes. With so much political excitement in the air, we seem to be constantly bombarded with instant analysis from pundits all saying the same thing. In the last week, we have been told that the attempted assassination of Donald Trump makes his re-election inevitable, that his choice of JD Vance as running mate guarantees that a second Trump presidency would be even more isolationist and protectionist than his first, and that all this has left Europe even more weak and divided. Earlier in the year we were treated to similarly doom-laden hot takes insisting that the European Union was about to fall to the far right, then India, then France. All wrong, as I suspect much of this week’s punditry will prove too.
I think it’s too early to say with any certainty what direction America will take after November. But what one can say with some confidence is that Europe is in a stronger position to cope with shocks than seemed possible just a few weeks or even days ago.
Who knows whether Trump is now certain to win back the presidency? A poll taken since Trump’s ear was grazed by a bullet show his lead increasing by about one percentage point in battleground states, well within the margin of error. That follows a string of recent polls showing Trump’s lead in key marginals shrinking. Besides, a lot can change in four months, not least the identity of his Democratic opponent. It now looks as if contrary to the initial hot takes, the assassin missed Trump but killed Joe Biden’s candidacy. The next time we hear from Biden after he has recovered from his latest bout of Covid, it may be to announce the terms of his departure.
Republican Party Reptiles
At that point, perhaps the campaign will shift from personalities to policies. Who knows what a re-elected Donald Trump would do in office? The idea that Vance’s appointment reinforces Trump’s protectionist and isolationist instinct presupposes that either man knows what he really wants on anything. They have won the backing of titans of Silicon Valley and Wall Street, apparently salivating at the prospect of large-scale regulation and tax cuts, as well as the powerful Teamsters union whose boss, Sean O’Brien, was clear in a speech to the Republican Convention that what attracted him was protectionism: “I see American workers being taken for granted, workers being sold out to big banks, big tech corporations, the elite.”
Which way Trump will jump if he wins in November is anyone’s guess. The Republican Party platform says next to nothing about what economic policies it would pursue to fix a nation in SERIOUS DECLINE, beyond vague talk of “baseline tariffs” and DRILL, BABY, DRILL. Meanwhile Project 2025, the 1,000 page dossier of policy recommendations compiled by the Heritage Foundation, which Trump insists he knows nothing about even though most of the authors are former staffers, contains two diametrically opposed chapters on trade policy. Vance has mused about whether the dollar’s reserve currency status, which is what keeps America’s borrowing costs so low, is a “curse” and whether the Fed should target a weaker dollar. Someone is going to get let down. My guess is that the tech and finance bros will do just fine.
America’s Gorbachev
The same is true of Trump’s foreign policy. Of course the idea that Trump might pull the rug from under Ukraine and force Kyiv into a humiliating surrender is deeply concerning. His choice of Vance only reinforces those fears, given that the vice presidential nominee was the most vocal critic of providing military aid to Ukraine. But while we are assured by Viktor Orban, the Hungarian prime minister who seems to have carved out a role for himself as Trump’s emissary, that Trump has a “detailed and well-founded” peace plan, not even Orban seems to know what it is.
That may be because Trump doesn’t know either. After all, he has already said that Vladimir Putin’s peace conditions, which include Ukraine’s surrender of the four currently occupied regions and a ban on its future membership of Nato, are unacceptable. How he plans to get Putin to lower his demands when Washington is simultaneously withdrawing military aid from Kyiv is unclear. Nor is it clear that Trump will be able to find any Ukrainian political leader willing to agree to a loss of territory, certainly in the absence of a Nato security guarantee. One way or another, Trump may find he has to escalate to deescalate, pumping even more arms to Ukraine.
As for Trump’s threat to the future of Nato, even this may not be all that it seems. This well-sourced piece in Politico seems to confirm what I wrote here in January, that Trump’s objective is not to withdraw from the alliance but to pursue a policy of “dormant Nato”, whereby the US maintains its nuclear, naval and air defences in Europe but scaled back its conventional land forces. Given that Europe is nowhere near being in a position to fill the gap left by retreating Americans, this will surely have to take place over many years. In this much-talked about essay, Niall Ferguson drew parallels between America today and the dying days of the Soviet Union at the end of the Cold War. To extend the analogy, does Trump really want to go down in history as America’s Gorbachev, the president who lost eastern Europe?
Perfect Day
But if there are reasons to question the hot takes on America, there are even more reasons to doubt the hot takes on Europe. In fact, contrary to most doom-laden prognostications, Europe has just had one of its most promising weeks that I can remember in the years that I have been writing about it. Three things happened yesterday alone that suggest the continent may be in a stronger position to confront the “polycrisis” of geopolitical, technological and climate risks as well as the challenges of a possible Trump 2.0 than the conventional wisdom suggests.
The first was the comfortable re-election of Ursula von der Leyen as president of the European Commission in a vote in the European Parliament yesterday. Given that there was no obvious alternative, her rejection would have plunged the European Union into weeks or even months of chaos that could have left the EU rudderless in the build-up to the US election in November. As it is, her reappointment caps what has been a remarkably successful few months for the mainstream political forces in Europe. Right-wing parties made smaller gains in the EP elections than expected, while von der Leyen was able to broaden her own coalition of support to include the Greens. That gives her a strong mandate to pursue an ambitious reform agenda.
The second positive development was the European Political Community summit hosted by Britain at Blenheim Palace yesterday. It was remarkably fortuitous that this gathering of 47 European leaders from both inside and outside the EU should take place just two weeks after Labour’s landslide election victory. The summit provided the perfect platform for Sir Keir Starmer to underline his desire for Britain to have a closer relationship with Europe, starting with a defence pact. The change in mood music was palpable. His message that Britain was not in the EU but very much part of Europe, that it shares European values, underpinned by the rule of law, was exactly the message of unity that Europe and the world needed to hear.
The third development has been in France where, as expected, the left-wing alliance that came top in this month’s parliamentary election on a reckless far left manifesto is falling apart. Not only have the four parties in the New Popular Front been able to agree on a prime ministerial candidate, but Macron’s own candidate has just been re-elected as the head of the National Assembly. Macron’s “gamble” in calling the elections looks to be paying off. The centrist alliance that he hoped would be forged ahead of the elections, now looks likely to emerge after it, resulting in a new centrist-backed government that can deliver a sensible budget. The new hot take will no doubt be that this new government coalition will be too weak to last, so the far right risk will grow. I suspect this will be wrong too. What Macron has done is force all parties, other than the far left, to confront reality and accept responsibility.
TINA
Of course, what really matters is whether Europe’s political leaders can turn electoral success into action to boost the continent’s resilience and security. That will require deep reforms to improve Europe’s competitiveness. There is no mystery about what needs to be done. One Italian prime minister, Enrico Letta, set out the necessary agenda in a report to the European Commission before the summer; another Italian prime minister, Mario Draghi, will publish his recommendations to the European Council in September. They include reforms to deepen the single market in defence, capital markets, energy and digital services. I’ve written about all of these many times over the years, including here on Wealth of Nations.
There is a good reason why these reforms never get done: they all encroach on core areas of national sovereignty to a far greater extent than other aspects to the single market. Creating a more integrated and efficient pan-European defence industry will require some countries not only to accept a loss of control over their own defence industrial base but also the right of veto over where weapons are sold. A true capital markets union, essential to improve access to funding for European companies that are being starved of credit by an over-regulated banking system, will require not just a harmonised bankruptcy regime but harmonised enforcement. A common energy market will require governments to put their faith in the ability of that market to continue to function even in a crisis - a faith sorely tested in recent years.
Yet there is a simple reason to think that these are reforms whose time has come: as Margaret Thatcher might have put it, There is No Alternative. There is certainly no alternative for eurozone countries who have no recourse to the economic levers beloved by populists, such as devaluation, monetisation and protectionism, other than by leaving the single currency, which would destroy domestic savings and bankrupt industry. This is the lesson that French political parties are finally learning. Nor is there much alternative even outside the eurozone, as Britain has shown. Not only was Brexit no panacea to the country’s long-standing problems of low growth and weak competitiveness, but Britain has just elected a new centre left government that has had to eschew tax and spend and instead commit to far-reaching supply side reform.
Fool’s Paradise
The hottest of hot takes at every turn this year has been that the march of the populist right is inevitable, whether in Europe or now America. Yet the true lesson this year is that nothing is inevitable. Voters are not fools, and even when they elect fools, difficult trade offs do not miraculously disappear. Reality has a way of forcing itself upon politicians and voters. Populists thrive on the perception that globalisation is not working, that free trade and open markets reward elites and fail to protect citizens. Yet what is clear is that they have no coherent answers to these challenges. Instead, history has shown time and again that it is nationalism that impoverishes people and leaves inexorably towards conflict both between and within nations.
Nowhere has this been clearer than in Britain, the country where the populist revolt began in 2016 but which has now decisively repudiated right-wing populism. Just as the Brexit vote will forever be associated with the election of Donald Trump later that year, could Labour’s triumph yet be a precursor to the eclipse of the populist tide in America later this year? There’s a thought. Let me know what you think.
Britain has now decisively repudiated populism. Really? Not so sure, tbh. The FPTP parliamentary electoral system means we are protected from it but the Brexit vote in 2016 and 14% of voters voted reform (more than the Lib Dems) this time indicate it is still with us and will be marking Labour's homework for the next 5 years.
Refreshingly positive piece thank you. Just a couple of points - you will know better than me but I worry that Trump just doesn’t care about “losing Eastern Europe”. It’s not American. He’s more likely to try and chisel favours out of Putin in return for giving him free rein.
Second, though it’s great that Labour is back in power the breakdown of votes actually showed a rightward shift since the last election. Conservatives voters largely moved right to Reform or stayed home. Labours votes actually dropped slightly since the last election (and of course Labour itself has moved right). Libdem votes stayed about the same. Left leaning SNP dropped. Only the Greens increased vote numbers (on a small scale) due to disaffected Labour voters switching to them. Overall though we moved right, but Labour and Libdems voted tactically to get the Tories out.