Which Blair Project?

Thoughts on Tony Blair's sins of omission, what he gets wrong on Europe, the end of the eurozone holiday from reality, what Kazakhstan can teach Europe on AI, and the case for Ferrari's new EV

Here’s the latest newsletter. I hope you had a good week, particularly those in Europe basking in a heatwave. If you think this post was a worthwhile use of your and my time, please do consider becoming a paid subscriber. At the very least, do hit the like button as that helps with the algorithms and share it widely with anyone you think might be interested. I look forward as always to your comments and feedback!

• Which Blair Project: Sins of omission

• American Europe: Pipe Dreams

• Eurozone bonds: Depression Risk

• AI Race: Kazakhstan Shows How

• Ferrari’s Luce EV: Prancing Pony

---

1. Radical Centrism

I spent much of last week hiking in the glorious English Lake District and so was denied the pleasure of experiencing in real time the great Labour party essay-writing competition triggered by Tony Blair’s 5,600 word dissertation on the failings of the Labour government and how to fix Britain. But it turns out the Cumbrian countryside was as good a place as any to contemplate the debate, not least because I found myself shut out of it for the lack of a mobile signal.

Locals in Coniston, a pretty centre of the local tourist industry, told me that a patchy 4G mobile data signal is a long-standing issue in the town. And yet, according to a new poll reported today in The Guardian, they are not alone: more than four in 10 people in the UK struggle to access 4G or 5G on their mobile devices for at least half the time they are on the move, while 45% felt frustrated with mobile connectivity outside the home at least once a week.

Last year, the UK slipped to 59th place for mobile download speeds, down from 53rd in 2024 and 51st place in 2023. The UK is ranked 44th in the world for fixed-line download speeds.

Blair can evangelise all he likes on the transformative power of AI and how the British government should embrace this technological revolution. But how can it do so when the quality of its digital infrastructure in parts of the country is so poor? How can you run a business in the modern world if you and your customers can’t get basic connectivity? Nor is this just a Cumbrian problem. In two of the parts of Britain I know best, the New Forest and West Wiltshire, it is just as bad. And don’t even get me started on the train and underground network.

Yet Blair finds no space in his screed to address the central infrastructure challenge facing the country. His essay reads as if it was written in fury in response to a comment of Burnham’s that he dismisses as “a rehash of the far-left critique about nothing good coming out of the last ‘40 years’ of ‘neo-liberalism’, which presumably includes the last Labour government.”

But Blair’s essay would have been stronger if he had acknowledged that his ten years in office occurred in the middle of the 30 years during which Britain didn’t build a single new reservoir, and in which Britain became even more reliant on imported gas having failed to commission a single new nuclear power station, in which the housing benefit bill began its relentless climb to £40 billion today, reflecting a disastrous shortage of affordable housing.

I’m sceptical that there is anything very much to “Manchesterism”, Burnham’s self-declared political creed. But I give the Manchester Mayor some credit for at least recognising the problem. In his own response to Blair’s essay, he wrote:

The Labour government in which I was proud to serve did many great things. It did not, however, take us off the direction set by Thatcher. For instance, the failure to reform right-to-buy and fully restore the public housing stock is the root cause of today’s housing crisis. Similarly, acceptance of the deregulation and privatisation of essential services is the same for the cost of living crisis.

The reality is that many of Britain’s problems can be traced to the failure of the Thatcher privatisation model. That model was fine in theory — and in the early days did indeed deliver significant efficiency gains that amounted to genuine customer benefits — but it hasn’t worked in practice. Regulators, under pressure from politicians not to raise customer prices, refused to sign off on necessary capital expenditure so the utilities simply took the capital as dividends. Other public services such as care homes and probation services were sold off to private equity with disastrous social consequences (see Marked to Fantasy).

What Blair won't acknowledge is that on his watch, Britain didn't just spend the defence dividend — it spent the depreciation dividend too. The bill for that is what Starmer is now trying to pay, at the worst possible moment with the result that prices are rising at a time of intense cost of living pressures and higher cost of capital, reflecting in turn the political volatility in part caused by these failures. That context doesn’t excuse current policy failures. But without it, Blair’s critique is just a man throwing stones from a very comfortable glass house.

Britain is hardly alone among western nations in having a huge infrastructure shortfall. But the nature of the country’s political economy make it much harder to resolve. Long-standing readers will know that the neglect of the asset side of the UK balance sheet has been a key focus of Wealth of Nations since inception. I recently published a joint post with Dag Detter looking at what lessons could be learned from Mark Carney’s recent proposal of a sovereign wealth fund to address similar challenges in Canada might offer Britain (see Carney is Shooting at the Wrong Target). I hope that we will have more to say on this soon.

Blair is right that Britain needs bold new policy ideas to compete in the 21st century (see Very British Problems). But I couldn't detect a single one in his 5,600 words that would merit his self-identification as a "radical centrist" — just the standard leader-column critique of Starmer, stripped of context or trade-offs. He has started a debate. He just hasn't contributed much to it.

---

Sponsor content from Axa XL

The future of global investment depends on managing political risk. Are you ready?

Political Risk, Credit & Bond insurance may be little known, but it plays a critical role in enabling investment, trade and infrastructure development across the world.

In this piece, Rafael Docavo-Malvezzi from AXA XL explains how this market supports projects that improve energy access, water security and housing, and why managing geopolitical risk is key to driving sustainable growth.

Read the article - click link:

---

2. American Europe

If Blair’s domestic agenda suffered from sins of omission, his international prescription was guilty of sins of commission, made worse by obfuscation. On the one hand, he argues, to the delight of the right-wing media:

Just as Brexit was never the answer to Britain’s challenges back in 2016, reversing it isn’t the answer to the country’s far worse situation in 2026. Our relationship with Europe should be part of a comprehensive strategy for Britain’s future, and that doesn’t begin with Europe but here at home…

But if we want to go back into some sort of structured relationship with Europe, we can only do so from a position of economic strength. We must be at the farthest end of European competitiveness. At present, we’re not.

Yet several hundred words later, he says:

So, what Britain should do is to say to our European ‘partners’: we want to come back to a structured, formal relationship with Europe, but this can’t be a take-it-or-leave-it offer on either side. We want to engage now in the European debate about its future. We will build strong pillars of partnership with Europe on defence and energy, where already it is clear we have huge common interests. And we need a robust dialogue on technology policy.

It’s hard to know what Blair is arguing for here. He appears to be calling for negotiations with Europe on rejoining in some form but with Keir Starmer’s red lines dropped in favour of a new red line on technology regulation. That smacks of the same kind of delusional cake-ism that has infected British policymaking towards Europe for 80 years (see The Overwhelming Case for Rejoin). But it’s also historically illiterate: the last time Britain entered a structured relationship with Europe, it certainly was not from a position of economic strength.

Nonetheless, Blair’s identification of technology regulation as the key red line is important because technology regulation is also the central focus of US policy towards Britain and Europe — and yet the impact of Blair’s tech carve-out would be to leave the UK even more vulnerable to US coercion than it is already. That is not a trade-off that seems to concern Blair since he remains convinced that Britain should continue to stick closely to America come what may: “America remains the indispensable core of Britain’s security alliance. But staying with it means even when it is difficult or unpopular.” But it should concern the rest of us.

In a compelling new book, The Rise and Fall of American Europe, Glyn Morgan, director of the Center for European Studies at Syracuse University, analyses the transformation underway in US-European relations. He argues that the US is pivoting from “American Europe” — under which Washington was a driving force behind European integration — to “Civilisational America” , whereby the US will try to remake the continent along America First lines, undermining institutions such as the EU and Nato, weaponising dependencies and harnessing Maga-aligned political parties to make it harder for Europeans to act collectively.

Morgan’s gloomy view is that there is not much Europe can do about it, given its huge dependencies on America for defence and technology — and increasingly energy too. “The idea of a geopolitical Europe is at best a multigenerational project and at worst a pipe dream,” he concludes. “Europe’s more immediate prospect is life under a new type of American hegemony.”

Morgan may be right that the odds are long. But life under a Trump satrapy is not something any Brit or European should meekly accept, and the case for Europeans carving out genuine autonomy in a multipolar world remains compelling. That requires, at minimum, much deeper integration, economically and in defence. A New History of Europe by Roderick Beaton is a reminder that the continent has been grappling with the problem of political unity for 2,500 years, but also that there is such a thing as a common European culture and that the continent has found common purpose in response to external threats before.

The question is whether today's leaders are capable of recognising that the threat is real — and that, unlike Blair, they understand the choice is binary.

You can read my full review of Morgan and Beaton’s books in the Financial Times.

---

3. Depression Risk

I certainly wouldn’t want to be complacent about the challenges facing Europe, particularly on the economic front. I wrote last week about the impact of rising bond yields with a particular focus on America and Britain (see Doom Loop). But could it be ultimately the eurozone that is most vulnerable to a financial shock arising from the impact of the Iran war on oil prices and inflation. My friends Ian Harnett and David Bowers at Absolute Strategy Research recently returned from a marketing trip to America and report back that they were struck by the number of questions they received from anxious investors about Europe:

• Does Europe really understand the new Global game that it is involved in?

• Does the EZ have the wrong mandarins solving for the wrong problems?

• Could any eurozone fiscal crisis morph into a more Global, or US crisis?

• Does Europe have a complete ‘economic stack’ to be a coherent ‘bloc’?

• Is the Eurozone fundamentally broken – as some analysts argue?

One particular concern among US investors was the ECB remains too focused on its anti-inflation “orthodoxy”, with talk of raising rates in June at a time when overall monetary conditions are already tight. They fear that this increases the risk of a policy mistake similar to former ECB president Jean-Claude Trichet’s 2011 rate hike, which helped trigger the Eurozone debt crisis.

If the EU also insists on fiscal orthodoxy, some wondered whether there were parallels with the fiscal and monetary orthodoxy seen in the US ahead of the Depression years.

The macroeconomic backdrop makes this more, not less, worrying. Eurozone GDP grew by just 0.1% in the first quarter, the weakest reading since mid-2025, with France stalling entirely and Germany managing only 0.3% year-on-year. The prospect of rate hikes on an already stagnant economy raises the real risk of stagflation — inflation without growth, which is a recipe for rising debt burdens and makes the continent's fiscal problems even harder to resolve.

All Western governments have enjoyed a two-decade-long holiday from financial reality, courtesy of central banks that shielded them from fiscal pressure by buying their bonds to keep borrowing costs low. For eurozone governments, that holiday was prolonged even after the end of QE, because investors knew the ECB had instruments – such as its Outright Monetary Transactions programme – that could be activated if any country came under severe market pressure. That has helped keep spreads low and borrowing costs broadly similar across the bloc – but at the cost of removing an important element of market discipline.

The question is whether Europe can address these vulnerabilities in the absence of a crisis. So far, it has to be said, the evidence is not encouraging: Instead of a national consensus in favour of reform, most EU countries are seeing deepening political fragmentation. In Germany, fiscal pressures on the regular budget – exacerbated by a rising interest bill – are widening the rift between the two governing coalition parties and contributing to a collapse in Chancellor Friedrich Merz’s approval ratings. In France, where the economy stalled entirely in the first quarter, Marine Le Pen’s National Rally leads comfortably.

The same is true at the EU level. Progress on the Draghi recommendations remains slow. The EU has spent over a decade debating a savings and investment union, yet significant barriers to cross-border investment remain, and the bloc is still haggling over basic supervisory architecture. Proposals for common borrowing to fund defence and other public goods – which economists broadly agree would not only boost investment but increase the supply of safe assets, underpinning the international role of the euro and helping to reduce overall borrowing costs – are going nowhere. Indeed, Merz last week again ruled this out.

David and Ian’s conclusion makes for sobering reading:

Despite ASR having a strong ‘europhile’ bias at its core, we are becoming increasingly concerned that the current Global geopolitical rupture may be pushing the eurozone closer to fracture, not cohesion, than at any point in the the last 20 years.

I still remain of the view that Europe will find a way to navigate these challenges — but I acknowledge that this may be tinged with hope because I fear the consequences of failure will be a far greater crisis than anything seen so far.

---

4. Kazakhstan Shows How

The rest of the world is not standing still while Europe grapples with its economic vulnerabilities. I recently returned from a trip to Kazakhstan and was struck by the extent to which this central Asian republic has put AI at the core of its national strategy — in ways that put most European governments to shame.

Kazakhstan has already achieved Estonian levels of e-government. It ranked 24th out of 193 countries in the UN e-government development index in 2024, and 10th for online services. It has established a dedicated AI and digital services ministry at the heart of government and required every department to appoint a deputy minister responsible for digitisation. AI has been incorporated fully into the school curriculum, with the aim of training 100,000 digital engineers and preparing one million citizens for AI roles.

The government is investing heavily in digital infrastructure. Ultra-cheap energy at just 2.5 cents per kilowatt-hour — compared with an EU average of 18.3 cents — is being used to attract data centres. The Astana Hub digital innovation campus is home to more than 2,000 startups, a quarter of them foreign, attracted by zero corporate income tax, residency permits for digital nomads, and free access to two supercomputer clusters for training and scaling AI models. Alongside it, the Astana International Financial Centre, modelled on Dubai's DIFC and governed by English law overseen by English judges, is designed to attract foreign capital.

This focus on digitization is already delivering results. Higgsfield, an AI video-generation platform, became Kazakhstan’s first unicorn last year. Freedom Bank, a Nasdaq-listed Kazakh fintech with Blackstone among its shareholders, has captured 50% of new mortgage approvals in five years from a standing start — succeeding in part by harnessing digitised government services to offer loan approval within 24 hours, while its super-app gives customers access to everything from grocery shopping to government services in one place.

Kazakhstan faces huge challenges, not least a paternalistic political culture characterised by corruption and weak civil rights. But it is a striking example of how far some countries are prepared to go to seize the opportunities of the coming technological revolution.

Blair has attracted criticism for ignoring the very real risks of AI that require state intervention to manage — and not without justification. Even the US government, which has attacked Europe for its risk-averse approach to regulation, is now considering executive orders that would allow the administration to block the release of new AI models on purely subjective grounds. The risks are real and cannot be wished away.

But Blair is surely right that the AI revolution is coming whether we like it or not, and that the countries adapting now will be the ones that prosper. It is a shame that amid his 5,600 words he did not find space to spell out more precisely what that might involve. Kazakhstan, of all places, is showing the way.

This item draws on my latest essay for Bloomberg: Kazakhstan Makes a Big Bet on Being in the Middle

---

5. Prancing Pony

I am a member of a large WhatsApp group that includes a lot of Italians. Last week it came alive with indignation at the unveiling of Ferrari's new electric vehicle, the Luce, designed by the British former Apple chief designer Jony Ive. I'm not really much of a car person, but clearly former chairman Luca di Montezemolo, 78, spoke for the tifosi when he said the car is so unappealing even the Chinese wouldn't copy it:

We risk destroying a legend, and I’m truly sorry about that. I hope they at least remove the prancing horse from that car.

Nonetheless, my friend Stephen Clapham, who very much is a car person, offers some interesting perspective on the drama in his latest Behind the Balance Sheet post on Substack. He notes that the Luce isn’t a bad car — for almost any other manufacturer, it would probably be seen as impressive. But Ferrari is not supposed to be “any other manufacturer.”

Ferrari sells noise. Drama. Emotion. Mechanical theatre. Exclusivity.

An EV risks turning Ferrari into just another luxury badge competing with Tesla and increasingly capable Chinese manufacturers on technology, software and battery range. That is a much more difficult game.

Yet what many people, including my Italian friends, have missed, reckons Stephen, is that Ferrari’s move is actually pretty smart.

Of course, most Ferrari enthusiasts wouldn’t want a Luce. They are going after a whole new market – the person who wants an electric car and who doesn’t want to drive a Tesla; the person who wants people to know he or she has money to burn.

The reality is that the EV transition is an existential risk to a company like Ferrari. Unlike other luxury goods companies, which will still be making essentially the same products in a hundred years’ time, Ferrari’s challenge is to transfer its brand to the new products. That prancing horse badge, notes Stephen, is worth 30 points of gross margin, maybe more. It might be the company’s only route to survival.

Perhaps this was the moment that the technological revolution finally became real for Europeans - or at least Italians.