SWMBO’s Swansong

Last weekend the CDU suffered an unexpected loss in regional elections in its former strongholds of Baden-Wuerttemberg and Rhineland-Palatinate.Allegations of illegal profiteering on the part of some CDU MPs and, most importantly for the future of the EU, the shocking mishandling of vaccines procurement by Dr von der Leyen’s EU Commission, compromise Angela Merkel’s (aka She Who Must Be Obeyed) legacy. Von der Leyen’s latest futile attempt tom fix her fiasco comes with an empty threat to block vaccines’ exports to the UK. The cold and harsh reality is that the EU, alone among the world’s powers, does not have vaccines and thus cannot protect one of the largest senior populations in the world. Fully 20% of the EU’s population is 65 years or older and they are dying prematurely by the hundreds on a daily basis.

In a democracy, Dr von der Leyen may have been forced to resign already, but the EU is hardly a democracy. Vaccines-gate may well be the trigger of further EU fracture. Hungary’s government has jumped ship from the common sourcing scheme and is buying vaccines directly from Russia. They may soon jump ship altogether. Some people will breathe a sigh of relief at Magyar-exit and getting rid of its autocratic regime, yet little by little, the edifice of a united Europe is crumbling. Already millions of citizens appraised of the success of the vaccination drives in the equally large and complex US must be asking themselves why the EU fails to rise to the occasion with every new crisis. We do not share in the opinion that the EUs’ integration needs these crises to move forward. The evidence points squarely in the opposite direction. So far, Brexit and a surge of anti-EU parties are the sole visible outcome of the EU’s mishandling of the Great Financial Crisis. We are afraid that the timid fiscal response to the Pandemic, but more importantly, the unnecessary deaths of tens of thousands of senior citizens may become the EU’s undoing.

A so-called “Streetlight Coalition” of Socialists, Greens, and Liberals may form the next German Government in the fall. Those of you who followed our coverage of the euro area sovereign and banking crises are well aware of our strong opposition to Merkel’s Government’s imposition of austerity on a periphery, which at the time was reeling from the deepest recession since WWII. The IMF, the US Treasury Department, and the Fed all agreed with our point of view: but not SWMBO, nor her henchman Wolfgang Schauble.  The internal devaluations prescribed by her ideological experts, allegedly would result in welcome gains in competitiveness for those countries, but the immediate impact was a rise in unemployment and underemployment as aggregate demand obviously suffered from lower wages. The policy prescription was as mean as uniformed by economics. What good is an internal devaluation in economies where the manufacturing sector is small, especially since most of the periphery countries were already running surpluses in the services component of their current account balances?

The political landscape in the EU is much more fragmented today because of the social malaise arising from the implementation of austerity measures. Parties, which had been marginal players on the wings of the political spectrum, have achieved parliamentary representation. In the cases of Greece, Italy, Spain, or Portugal, communists or anarchists are currently, or have recently been, members of governing socialist-communist coalitions. Luckily, these contemporary revolutionaries are more interested in the trappings of power than in pushing forward their anti-capitalist agendas, for now. Certainly, their socialist enablers are far more grounded in the harsh realities of EU politics and understand quite well they need to find new allies to obtain the New Generation EU funds, which of course come with lots of orthodox conditionality.

Merkel, who grew up in the Communist GDR may not be afraid of communists. Most of the rest of the world rightly is. Apparently, she did not learn either the most important lesson in modern German history. Hitler reflected that Chancellor Bruning’s austerity policies “help my party to victory and therefore put an end to the illusions of the present system”. The consequences for the euro zone and the EU of the austerity policies of the 2010s are still playing out politically. The periphery is still paying the price as the dwindling segment of the population that makes some money, runs their own businesses, or has any assets is in the sight of the communists for plucking to meet their progressive agenda’s budget. Unfortunately, these same people will soon be in the sight of the Euro Group to make sure public finances return to the path of fiscal probity outlined in the Growth and Stability Pact.

A convoluted mid-term political crisis in Spain has resulted in the demise of Ciudadanos, a centrist party that tried unsuccessfully to play king maker to the Popular and the Socialists. Fortunately, most Spanish politicians are impecunious and therefore they may be easily persuaded to change positions or even jump parties as long as they retain their regional MP salaries. Thus, the first round of no-confidence votes in regional governments is not playing out as expected by their proponents. The President of the Region of Madrid, which is one of the few places in the EU fully open to business and most social activities, has called for an early election on May 4 to avert a no confidence vote.  Pablo Iglesias, the mastermind of Podemos, who is a Deputy PM of the national government, has thrown his hat in the race. Within minutes, the pliant Spanish media, an industry that barely survives on government handouts, as they have no advertising revenues, has decided to cover his campaign on a 24/7 basis although he polls at 6%. Interestingly, his party is all but disappearing to judge from the results of elections in Galicia, the Basque Country, or Catalonia, but not for these desperate journalists. In the unlikely, but not impossible, event that the left should win in Madrid, there will be a mass exodus of madrilènes, corporations, and capital to greener pastures. Thus will perish the largest source of growth for the Spanish economy for years.

SWMBO is probably not enjoying very much her final days in office. Her legacy will suffer if her party loses the election in the fall. Yet, she may raise her head up proudly as her 16-year term of office is largely devoid of any scandals. There have been huge mistakes but no corruption. We believe that the new German generation, which will be voting for the Greens and the Socialists in droves, need to know that scandal and corruption often plagued officials from these two parties in the past. The fact that Gerhard Schroder, the former SPD Chancellor of Germany, is the Chairman of the Board of Rosfnet, a Government controlled Russian oil major, should be a consideration for millions before they cast their vote.

We face an uncertain future as the US and China pine for the position of global hegemon, each supported by its allies. These camps will face each other for decades. In spite of all the obvious shortcomings of Western democracies, the EU should stand shoulder to shoulder with the US in the defence of our way of life and political constitutions. In the long drawn out battle between the forces of good and evil, the open societies that characterize “Western democracies” are not just morally superior to authoritarian regimes; in addition, they provide far better material living conditions for their citizens. It is also evident that there is a strong correlation between good governance and development even within this group of democratic countries.

As a growing number of people in the West are growing tired of political correctness and woke policies, some of them will be tempted to place social conservatism, and law and order above civil rights and individual freedoms. They may look up to alternative and apparently effective forms of government in countries led by strong men such as Xi, Putin, or Erdogan. We venture to say that most of these autocratic leaders’ foreign supporters have probably never visited the countries they so admire. At the other end of the political spectrum, there is a small number of EU politicians led by former Spanish Socialist PM Zapatero and Podemos, who see Venezuela as a socialist paradise on earth. They also see Nicolás Maduro as a benevolent and just leader.

Both extremes are dangerous and well heeled. These dangers need to be recognized. These extremists are not just another group of political opponents; they are the self- avowed enemies of liberal democracy. They do not accept the constitutions of our Western democracies. Their position is legitimate, but their projects or the State and form of Government lie outside the constitutional guarantees we enjoy, and therefore are illegal.

We hope that the new leader of the EU will not fall into the trap of believing that the EU can be a third actor in the global stage. When Angela Merkel said that Europe could no longer rely on the US to protect it, she interpreted Trump’s grandstanding as a fundamental change in US foreign policy that threw Europe into the arms of Russia for protection. Nothing could be further from reality. In its inevitable confrontation with China, the US will pursue “a full-fledged global ideological battle in defence of political, economic, and societal freedoms against China’s authoritarian state capitalist model”. EU leaders should throw the weight of the little political capital left in this corner of Eurasia fully behind that goal.  Any other course of action will result in a cataclysm, which only an ideologue such as SWMBO could have conceived.

SWMBO will leave her office with Germany in far better shape than it was when she became Chancellor. Nonetheless, her timid approach towards EU Federalism has given ammunition to all EU enemies foreign and domestic. Mark Rutte is the recently re-elected Dutch PM. He is the leader of the Frugal Four countries, which is interesting because aiding and abating tax avoidance is one of The Netherlands’s main industries. He will also become the senior member of the group of EU’s Popular Party Heads of Government when Merkel leaves. He is a man with no vision for the EU either.

Merkel’s legacy makes for a very long list which includes a bonanza for the shareholders of German exporters, a race to the bottom for the wages of the working classes of the EU, little progress in the construction of a Federal EU (unless you see the process through the lens of an optimistic Europhile who will see great progress in what has been done so far), a most incompetent President of the European Commission, little or no progress in the single markets for any goods or services, an insolvent but liquid German banking system, political fracture everywhere, Brexit, and a deeper division in the EU along the line cast by Luther’s Reformation. Only this week did we learn that French Mandarins at the Élysée Palace refer to their German counterparts as “les luthériens”. Some things never change.