Defending free speech or spreading fake news?
Today marks the return of Donald Trump to the White House, an event that might be less a historic date in itself but rather symbolic for the retrenchment of democracy across the Western. Just a few days before Meta announced moving away from content moderation to enable more ‘free speech’ and Trump’s announcement to give an extension for TikTok’s enabled the reconnection of this platform the day before Trump took office! This shows the critical role of social media platform: central to the anti-democratic wave are global information wars under the cover of ‘free speech’ and these platforms are the tool.
I would like to take a look back into German history to explain the riskiness of underestimating these information wars.
The Weimar constitution of 1919 was hailed as the perfect constitution, being liberal and democratic. It held for less than 14 years and was followed by the ‘thousand-year empire’, better known as Hitler’s Nazi regime that committed the holocaust and thus the worst genocide in European history, started World War II, and caused 60 million deaths. What is often forgotten is that Hitler reached power through constitutional means (even without ever having achieved a majority in democratic elections), subverted it and then replaced it with his totalitarian regime and all this within a few months. Put differently: the Weimar constitution enabled the rise of its destructor and its own destruction.
The drafters of the post-WWII German constitution (Basic Law) learned from this experience. They did not aim for the perfect constitution, but insisted on a “wehrhafte Demokratie”. This might be translated as “defensive” or “well-fortified democracy”, but can also be seen as a very German concept, motivated and informed by the horrible experience of 1933 to 45. It basically implies that (i) certain constitutional rights are inalienable and cannot be suspended no matter what, and (ii) the enemies of democracy are not granted the same rights. This includes limits on free speech (for example, public denial of the holocaust is punishable under German law). This is a big difference to the U.S., for example, where free speech trumps everything. It will be interesting to see how robust US democracy will be in Trump’s second term to his autocratic tendencies.
An important element of the Nazi totalitarian regime was propaganda; as in 1984 the motto was: do not believe your eyes but believe what your leaders say. There is direct line from Michael’s Gove “this country’s had enough of experts” during the Brexit campaign to ‘alternative facts’ and fake news during Trump’s first term to the social-media fuelled riots in the UK last summer. This has been the modus operandi not only of autocratic regimes across the world (especially by Russia in its war against Western democracy), but increasingly of leaders in illiberal democracies, such as Hungary and of politicians across Europe and the US, including by Trump. Rather than democratising information, social media platforms have turned into the perfect tool for mass hysteria, spreading lies and hatred and enabling illiberal politicians to incite violence. Elon Musk effectively bought himself with X a tool to make and break governments across the world. To put it bluntly, the technical innovation of social media together with the right of free speech is used to destroy democracy, just like in the early 1930s, the Nazis used the tools of constitutional democracy to destroy democracy itself.
And let’s not fool ourselves that people like Musk (or Trump) are really interested in free speech. They are interested in propagating their nonsense and fake news without controls. Liz Truss discovered free speech as a hill to die on after her short and disastrous government, while at the same time suing the current prime minister for libel because he is pointing to the economic disaster she caused. Elon Musk regularly silences people on X that do not agree with him. And Donald Trump is suing his distractors in the US. So, no, this is not about free speech; rather, these people are interested in mechanisms and channels to amplify their hate speech and influence political and policy decisions in their favour, without any accountability.
Those who do not learn from history are doomed to repeat it. The lesson from the 1920s (not just in Germany but across Europe) is that democracy cannot provide a level playing field with the enemies of the democracy. They are NOT to be given the same rights as those who commit to playing by the rules of the game! This includes free speech and public debate!
What is to be done? Shutting down social platforms is not an option. Active moderation was an important step, but is now being dismantled across platforms in the US, following Trump’s re-election. From the European viewpoint, it seems critical to stay in the driver seat. If the US wants to make the liberty of its social media platforms to spread fake news, lies and hatred part of a trade war, Europe should take on the challenge. There is too much at risk; the benefits of democracy and freedom cannot be measured in euros and dollars!
20. January 2025
Interesting JBF papers – January 2025 edition
While I have stepped down as JBF editor, some interesting papers that were recently accepted (by me or other editors).
A lot of ink has been spilled about the effect of Covid on all kind of economic and financial outcome variables, so making an additional contribution seems difficult. This paper by Huang, Bose, Li and Liu (Trading without meeting friends: Empirical evidence from the Wuhan lockdown in 2020) has found a new angle, by focusing on retail investor trading behaviour during the Covid lockdown in Wuhan in 2020. Retail investors significantly reduced their daily trading frequency, their total investment of their portfolios, and the risk level of their invested funds during the lockdown period as compared to investors in other cities. The results suggest that the elimination of face-to-face interaction among individual investors during the lockdown reduced their information sharing, which led to more conservatism in their financial trading. However, consistent with the theory of naïve investor trading, retail investors under lockdown received higher trading returns during the lockdown as they reduced trading aggressively in the absence of face-to-face interactions.
Nicolo Fraccaroli, Rhiannon Sowerbutts and Andrew Whitworth revisit the question of regulatory and supervisory independence and financial stability, using a new indicator that captures the extent to which bank regulators and supervisors are insulated from political pressures from an institutional, regulatory, and budgetary perspective. Institutional independence is captured by the length of the term and who appoints and is able to remove the head of supervision (the farther away from the current government, the higher the independence score); regulatory independence, relates to the question whether government approval is needed for the supervisor to issue secondary binding legislation; budgetary independence relates to whether government approval is needed on the budget of the supervisory authority. Using a sample of over 2,500 banks for 98 countries over the period 1999 to 2019 the authors find that banks in countries with higher levels of independence have lower NPLs and are farther away from insolvency (as measured by the z-score). This relationship does not vary with bank size or government or foreign bank ownership, or across advanced or emerging markets.
Laima Spokeviciute, Hossein Jahanshahloo, Kevin Keasey, and Francesco Vallascas gauge the effect of the purchase and assumption (P&A) resolution technique of failed banks in the US on subsequent bank performance. Specifically, using 2,165 such transactions (where part or the full amount of bank assets and liabilities are auctioned off by the FDIC to other banks, while the rest goes into liquidation) for the period 1984 2020 and matching this with a control group of non-acquiring banks, the authors find over a five-year horizon that P&A transactions are associated with an increase in profitability and a reduced loan risk for the combined entity relative to the matched sample and are not detrimental for the capital strength of the combined entity. They also show that deals characterized by a stronger business similarity between the target and the acquirer do not lead to better outcomes than other deals, while more geographic similarity, as measured by branch-network overlap between the target and the acquirer, seems to be marginally beneficial only for profitability. This does not speak in favour of diversification benefits, but rather economies of scale and efficiency gains. Interestingly, the positive effects of the P&A technique do not decline during times of multiple bank failures, a rather surprising result.
Summarising the recent literature on macroprudential policies can be done via a literature survey, or – as done by Juliana Araujoa, Manasa Patnam, Adina Popescu, Fabian Valencia, and Weijia Yao – via a systematic comparison of findings. The authors construct a database with 6627 results from 58 papers (both published and working), on a wide range of instruments and outcome variables. Using meta-analysis techniques, the authors find (i) statistically significant effects of macroprudential policies on credit, but with considerable heterogeneity across instruments; (ii) weaker and more imprecise effects on house prices; (iii) quantitatively stronger effects in emerging markets and among studies using micro-level data; and (iv) statistically significant evidence of leakages and spillovers. They also find relatively stronger effects for tightening than loosening policy actions and negative effects on economic activity in the near term. Overall, not too surprising, but important results!
8. January 2025
Looking back, looking forward
Another eventful year has ended, though more with destructive than constructive events. The geopolitical picture is becoming worse, the European economy is stagnating and the political outlook is grim. Having said this, at the end of this new year, 2024 might look like the calm before the storm.
But there is also hope – hope that outside pressure will push the European Union into the necessary reforms (as detailed in several flagship reports by Enrico Letta and Mario Draghi); hope that Ukraine can stand its ground with the necessary help by European countries; hope that both Germany and France will have (reasonably) stable democratic governments in 2025.
In any case, 2025 will mark a serious milestone in saving democracy from billionaires and populists. We are already deep into an era where billionaires are trying to replace the mechanism of representative democracy with the power of money, under the motto of ‘free speech’ or rather the right to spread false news and drown out rational conversations. With Elon Musk now openly supporting fascist parties and movements across Europe, using his wealth and X platform to influence voters – in addition to the ongoing fake news war by the Russians - , there is a serious question whether the defence mechanisms of liberal democracies in Europe are sufficient.
1. January 2025
JBF – that's a wrap
After 6 years, I will step down as one of managing editors of the Journal of Banking and Finance at the end of this year. I will not write a paper on the experience (as Alex Edmans did when stepping down from the Review of Finance), but here are some thoughts after having handled more than 3,000 papers over 6 years.
Where is my paper? When you submit, you can clearly envision the process: paper goes to journal office, gets assigned to an editor, editor sends to reviewers, reviewers send back their reports and recommendations, editor decides! Straight-forward – a question of a few days, isn’t it? Well, unfortunately, no! In each of these steps there can be delay. Most importantly, neither for editor nor for reviewer, this is their main job. Over the past years, I spent half a day per week going through newly submitted papers, mostly on weekends; but yes, sometimes it took me more than a week to take a decision on a newly submitted paper (assign to associate editor or reviewers, or desk reject) or on a paper with reviews completed. So, what is most needed is for authors is patience! Which does not mean that authors should just sit tight and wait forever. There is a point where a friendly email to the editor(ial office) might be called for to see whether the paper did not fall through the cracks (and yes, this does happen)!
Desk rejections: you pay the submission fee and all you get is a short letter from the editor with a desk rejection. While frustrating, there are good reasons for such a decision. Good and timely reviews are a scarce resources in our profession. There are papers where it is clear that they do not fit into a specific journal, be it the topic, the method or simply a lack of novelty and thus contribution. There is obviously an element of subjectivity in desk rejections, but it is the editor who is responsible for what is and what is not published in a journal. A quick desk rejection can also help the authors move on to a more appropriate journal.
It takes a village: behind the three managing editors as the JBF are a large number of anonymous associate editors and reviewers: the only person whose name authors typically know is that of the editor. But it is the reviewers and the associate editors who spend (often more) time with the paper, identify gaps and deficiencies and make the paper better through comments. It is a rather thankless task, only compensated by the knowledge that one’s own papers are going through the same process!
The best moment: when a (conditional) acceptance decision has been reached. One can only hope the paper got better through the review process, but at least the stamp of approval has been given. That is reason to celebrate! This moment was always a highlight also for me, as editor.
Looking forward: having been an editor at three journals (Review of Finance, Economic Policy, Journal of Banking and Finance) for 11 years, it is time for me to step back or at least take a break. But I know that the JBF will be in an excellent hands, with Christa Bouwman taking over as editor for (among others) banking papers. And the JBF will achieve what might be a first among top finance journal: starting 1 January 2025, all three managing editors will be female!
19. December 2024
Donald Trump and national accounting
Trump‘s economic policies have often been described as contradictory most recently in an article in the Financial Times. On the one hand, he wants a weaker dollar to foster US exports; on the other hand, he wants to force everyone to keep using the US dollar (which implies a stronger dollar), not to mention that closing the trade deficit (another of his objectives) will also put upward pressure on the US dollar. Similarly, he aims to close the fiscal deficit but also promises tax cuts.
One can also illustrate these contradictions with simple national accounting equalities, notably the equality of fiscal and savings deficit with the trade deficit and net capital inflows. In the absence of government interventions in the foreign exchange market (i.e., changes in foreign exchange reserves) the current, capital and financial accounts have to add up to zero. Countries with a current account surplus (e.g., Germany and Japan) see net capital outflows, while countries with current account deficits see net capital inflows. Again, these are accounting equalities, not economic hypotheses or ‘laws’!
To illustrate this, consider the following simple accounting equalities:
Y = C + I + G + NX
output of a country consists of goods and services for consumption, investment, government expenditure and net exports (i.e., exports minus imports)
Y + IB = C + Spriv + T
Income (earned though output and IB, income earned abroad minus foreigners’ income at home) is used for consumption, private savings and tax payments
Rearranging these two equalities results in
Spriv + T – IB = I + G + NX
Spriv + T – G - I = NX + IB
Spriv + Sgov – I = NX + IB
S-I = CAB (Current account balance)
So, the difference between savings (private and public, where the latter has been negative in many countries over the past decades) and investments has to be equal to the current account balance. Savings surplus implies current account surplus, a savings deficit (due to low private savings and/or fiscal deficits) implies current account deficit.
The graph below shows these equalities for the US for the period 1960 to 2000. As the gap between net investment and net savings opened up towards the end of the 20th century, the current account went into deficit.
In the case of the US, one can argue that a high level of consumption (and thus low savings) is financed through a trade deficit and net capital inflows. Alternatively, one can argue that high investment (relative to savings) is an indicator of high growth prospects, which is funded by net capital inflows and thus a current account deficit. A reversal of the current account deficit meaning positive net exports would require higher savings and thus lower consumption and/or investment. Is this really what the incoming US president and his voters want?
Looking across countries, Germany, Japan and China are examples of savings surplus societies resulting in trade surplus and capital outflows, while the US is an example of a savings deficit country. Is the US society really willing to change the economic balances mentioned above thoughts less consumption/investment and more savings and how could such a change come about?
First, it is not clear that higher tariffs will lead to a closing of the US trade deficit and they certainly have not allowed to such a reduction in Trump’s first term (rather they they went hand in hand with an increase in the trade deficit) and such tariffs would certainly not help close the saving gap, which can only happen through clear incentives to boost private savings and a lower fiscal deficit.
Second, any ‘quantity’ change imply price changes, i.e., in the US dollar exchange rate. A cheaper dollar can (in the medium, not short-term) reduce the trade and ultimately the current account deficit; however, higher import prices can also reduce consumption and investment in the US, ultimately leading to lower real incomes for the US population. And here is another contradiction - tax cuts as promised by Trump would result in higher consumption (and possibly investment) and a higher fiscal deficit – to be funded again with capital inflows – which brings us back to the initial accounting equality for the balance of payment – net capital inflows imply a current account deficit.
In sum, politicians can promise a lot and they might defy economic laws for some time, but they cannot ignore national accounting equalities.
16.December 2024
After the Draghi report – where next?
I recently participated in a fascinating and timely online debate, organised by the Union of European Federalists, together with Erik Nielsen, on the implementation of the recommendations in the Draghi report.
What are the chances that the Draghi report (together with the Trump 2 shock still to come) will trigger the necessary reforms within the EU to close the gap with the US and come out of the current low-productivity growth trap? The informal European Council in Budapest on 8 November issued a “Competitiveness declaration”, tasking the European Commission to present “a new and comprehensive horizontal strategy on the deepening of the Single Market, including a roadmap with clear timelines and milestones by June 2025”. There is also a unit established at the Commission tasked with specifically following up on the report. I was asked the whether this will be enough and quick enough; I am less worried about the speed (as long as we talk about months and not years or decades) but the focus on the right reforms, which might not necessarily be the ones that are politically the easiest to agree on. It is clear that many of these reforms will have to be implemented over a certain time frame, with effects only coming within a couple of years; it is important, however, to not lose momentum as well as create a positive narrative (currently completely missing).
The current internal and external situation is truly troubling. The political space for substantial reforms is limited given the anti-incumbency bias (reminding us of the quip by Juncker that ‘we all know what is the right thing to do, but don’t know how to be re-elected afterwards’). On the other hand, crisis situations often result in the EU making steps forward in creating the necessary frameworks for addressing gaps and overcoming such crisis situation. As I argued previously, Europe might very well be in a crisis situation within a few months, in case of a trade war with US (and possibly China) as well as rising geopolitical tensions in and outside Europe. Maybe that is what is needed for big steps forward!
The Draghi report is calling for a substantial increase in the investment share in GDP. But how can these investments be funded given that fiscal space is tight in most countries (though not in the largest EU economy, Germany)? One important point to be made in this debate is that public spending should not be treated the same as public investment, where the former is equivalent to consumption (which in best case might result in lower cyclical GDP variation, following the argument of countercyclical fiscal policy), while the latter can be self-financing if it results in higher growth! It is good to see that even in the German debate there is a realisation that the constitutional debt brake is hurting economic growth rather than helping it and calls for reforms are growing stronger. And it is obvious that institutions like the EIB can play an important role. A critical observation, however, is that it is not just about throwing more money at the same problems, but creating the conditions for public and private investment to complement each other and result in higher growth.
It will be difficult if not impossible to achieve consensus on the necessary reforms among the 27 member states, which is why there has been an increasing focus on ‘coalitions of the willing’ (as also recently proposed in a Spanish ‘non-paper’). The concern is, however, that this will result in some countries staying behind, with populist forces becoming even stronger there. In any case it is clear that compromises will have to be found that will be uncomfortable for quite some governments who have to cross their red lines.
One important chapter in the Draghi Report concerns the financing of the necessary investment. Europe is halfway across the ford as to the implementation of banking union and capital markets union. Can Europe deliver on a ‘financial union’ or investment and savings union (as Enrico Letta framed it)? For me, the necessary reforms to achieve a single market in financial services and achieve the necessary scales in financial markets are critical (not a surprising statement given the focus of my research and policy work 😊). As with other reforms, national interests on all levels (political, regulatory and industry) often stand against the necessary steps towards such a market. The narrative for the banking union as crisis response tool 10 years ago was clear; it is important to create a narrative for the necessary capital market reforms.
8. December 2024
Interesting papers - November 2024
Even during these turbulent times, the research process has to go on, including attending interesting conferences, meeting old and making new friends and learning about novel research. Herewith a run-down on some recent papers I found interesting
The research cluster Finance and Society at the EUI organised its first Finance and political economy conference last month. Lots of interesting papers. One was by my former PhD student Etienne Lepers that explores under which institutional arrangements macroprudential policies are most likely to be triggered in case of credit booms. One would think that it is more likely to happen under an independent macro-prudential authority. What Etienne finds, is that it is rather under an institutional arrangement of financial stability councils, with participation of government ministers. Is institutional independence over-rated? Maybe it is all about committee decisions to make macroprudential more credible. This would be in parallel to an earlier literature that shows that stronger checks and balances in a political system can actually make reforms more
Last month I also participated in a highly interesting conference organised by ESMA on sustainable finance and financial markets. While a lot of emphasis has been (not surprisingly) on banking and sustainable finance, investment funds and financial markets, more broadly, play an important role in the attempt to shift more funding towards the mitigation of climate change). The following three papers give a bit of a flavour of this literature. Kevin Birk, Stefan Jacob and Marco Wilkens find that in addition to sustainability ratings, prospectus information and self-declared sustainability objectives, have an impact on both retail and institutional investor flows into investment funds. Margherita Giuzio, Sujit Kapadia, Giulio Mazzolini, and Dilyara Salakhova shed doubts on the impact of the ESG investment fund sector. Specifically, they find that ESG funds identified by Morningstar or classified as such according to the European Sustainable Finance Disclosure Regulation perform better in metrics related to financed activities and carbon emissions than non-ESG funds, while self-marketed funds show less consistent results. However, even being classified as ESG fund results in a relatively limited impact that investment funds currently have in financing the transition to a net-zero economy. Finally, focusing on individual firms, Stefano Battiston, Irene Monasterolo and Maurizio Montone find that adopting sustainable technologies leads to a long-run improvement in firms’ fundamentals, which is only partially reflected in stock prices. Focusing on five-year periods, firms with greener technologies achieve higher returns and are better positioned for the transition to a low-carbon economy. These effects are especially pronounced in financially developed countries and among firms with better climate-related disclosure.
There is an expansive literature (both theoretical and empirical) that explores the relationship between political structure in a country and financial sector policies and institutions. A recent working paper by Yuemei Ji and Clement Minaudier and Orkun Saka adds to this literature and explores the effect of term-limits on post-crisis financial sector policies. Using data on financial policies and crises in 88 democratic countries between 1973 and 2015, the authors show that both term- and non-term-limited politicians revert financial liberalisation after a crisis, but the former more than the latter. Politicians facing a binding term limit are more likely to pass policies that favour financial institutions in the aftermath of financial crises, including higher barriers to entry in the banking sector, bailing out troubled banks and relaxing bank supervision. Using a theoretical model, the authors explain these findings with two opposing forces in the aftermath of financial crises: an increase in the salience of financial policies to voters and the emergence of a window of opportunity for legislators. They provide evidence that politicians in their final term may give policy favours to the banking sector in return for jobs in the financial sector; political allies of term-limited leaders who served in the aftermath of a financial crisis are indeed more likely to pursue a career in the private financial sector after leaving government. This is an important contribution to the debate on political accountability and political factors driving financial sector policies.
Finally, a very interesting paper by Hannah Winterberg on what to expect from more developed capital markets in Europe. Assuming (and showing)t that access to bond finance is primarily a function of firm size and collateral availability, Hannah shows that even if all European firms had access to the public capital market like similar firms in the U.S. have, their aggregate bond funding share would remain significantly smaller than in the US. This suggests that two thirds of the difference between US and EU in total bond funding is actually driven by different firm size distributions rather than less efficient capital markets in Europe. While this result might be somewhat sobering for advocates of a Capital Market Union in Europe, it is important to stress that Hannah assumes an exogenously given firm-size distribution, while this distribution might also react to changes in the efficiency of capital markets. But certainly an important signal to not have too high immediate expectations from more efficient capital markets in Europe.
30. November 2024
The German coalition falls – where next?
There was not much time last week to digest Trump’s re-election, as the German chancellor decided to pull the plug on three years of coalition between Social Democrats, Greens and Liberals. The coalition had started with big hopes in late 2021, but the debt brake spoiled the party; more specifically, when the Constitutional Court put an end to the over- if not abuse of ‘Sondervermoegen’ (special funds) to circumvent the debt brake, there was not enough money for the three parties’ very different priorities. But this is also another example of an incumbent government that has not survived the post-pandemic pain of higher inflation, recession and geopolitical changes. It also suffered from the backlash against the necessary adjustment due to climate change and the promised transition to net zero; the sad reality is that once it affects people’s bank accounts, climate change mitigation declines on voters’ priority list. Finally (and a point I will get back to), the government suffered from the legacy of the Merkel year and its neglect of infrastructure and defence.
The options for a post-election governments are somewhat limited. Based on current polls, the current government parties vote share will add up to 30%, far away from any majority. A ‘Jamaica coalition’ of Christian Democrats, Greens and Liberals might have enough votes (assuming that the Liberals make it back into Parliament), but the Christian Democrats’ election campaign seems so targeted against the Green Party that one wonders whether they can find together after the election. One policy area where they could find together would be the support of Ukraine (although even here the East German part of the CDU is wobbly). But the Liberals’ obsession with the debt brake makes another joint government between Greens and Liberals rather unlikely. The option that remains is the ‘Grand Coalition’ between Christian and Social Democrats, which governed for 12 of Angela Merkel’s 16 years as chancellor. Not very promising given what they did NOT deliver during these years! What about the Putinist side of the German political spectrum? The firewall against the AfD seems to hold so far, but less so the one that should be in place against Sahra Wagenknecht (the Left party will most likely drop out of Parliament). The worst case scenario would be for me a scenario where all democratic parties have to join government and only Putinist parties are left in opposition.
To say that Germany faces enormous economic challenges would be an understatement. During the Merkel years, Germany benefitted from an export boom, cheap Russian gas and being the safe haven of the Euro area, The first two are gone, with China having adapted much better to new demands for cleaner automobiles, for example. Cheap Russian gas is gone, for obvious reasons. At the same time, the Merkel years were wasted in terms of public and private investment. The constitutional debt brake and the ordoliberal obsession with balanced budgets prevented investment into the future. The ill-judged exit from nuclear energy was an additional bad choice. The new government has an enormous in-tray of tasks, which is probably even too big for a rather homogenous government, not to speak of a government made up of very different parties.
Where Germans often regarded the EU and the euro area as holding back Germany during the 2010s and complained that they had to ‘bail-out’ peripheral countries, the only opportunity for Germany to get out of the doldrums is Europe – the Draghi and Letta reports have set the agenda. If the German polity is looking for a medium- to long-term path to get out of a long-term stagnation and decline, this path leads through Europe, the strengthening of the Single Market (including banking and capital market unions) and a move away from the heavy reliance on China (economically) and US (for security). One can only hope that the next German government overcomes its ordoliberal arrogance and its ‘we know better than you’ attitude towards the rest of the EU and takes again the leadership role towards strengthening Single Market and strategic autonomy.
12. November 2024
Trump 2 – brace for impact
I still remember the morning after the 2016 US elections, when I woke up in a hotel in Frankfurt, turned on the TV to see the (then) surprising results that made Trump 45th US president, and felt very depressed. The following years turned out to be chaotic, to put it mildly. Many expect another four years of chaos – that would be the best-case scenario. Unless in 2016, Trump and his team are well prepared, to do maximum damage to institutions and democracy in the US, not only closing borders but massive deportation waves, imposing tariffs, increasing budget deficits, and ‘coming to an arrangement with Putin’ on Ukraine. Yes, there are still checks-and-balances in the US (most importantly the judiciary on the lower level that can delay policy actions, less so the Supreme Court) and not everything might turn out as bad as I described it. 2nd term presidents are often lame ducks as they cannot run for re-election, but even so it will be an important test for US democracy. At a minimum, no one on the other side of the Atlantic can say that they did not know what they voted for!
For Europe, the situation is at the same time grey, but at the same time offers enormous opportunities. It is clear that the Trump election will encourage Putin even further. Without even stronger European support, Ukraine will lose this war and Putin will be at the doors of NATO and the EU. If the ‘peacemongers’ still think that he will stop there, they might be in for a surprise. Adding a strong defence component to the EU (clearly overlapping with the European part of NATO) is one important element. Focusing even more on strategic autonomy across economic sectors another. Given the tendency towards economic isolationism and away from international trade (and this is something that is now popular on both sides of the political divide in the US), strengthening the European Single Market is critical. Some of us have been asking whether it takes another crisis to get the CMU (now being renamed as Investment and Savings Union) moving forward – well , it seems we are just getting this crisis served on a silver tray.
Critical to understand is that the European idea, including openness and democracy is facing enemies within. The upcoming elections in Germany will offer a clear contrast between anti-democratic Putinists from left and right against democratic pro-European parties. Several Central European countries are being governed by right-wing populists that will try to put the brakes on any further integration and strengthening of the EU. Coalitions of the willing seems to be the way to go (the ESM was established as intergovernmental organisation given UK resistance). This is an important wake-up call for Europe! May we not waste this crisis!
6. November 2024
