Peter L. Berger's Blog, page 144

Why Sanctions Matter

A long-debated sanctions bill in response to Russian meddling in U.S. elections was signed into the other week by President Donald Trump. The bill provides a framework for the extension of sanctions to various other sectors of Russia’s economy; but perhaps more importantly, it makes the lifting of existing sanctions a much more difficult proposition—nearly impossible, if the long-standing Jackson-Vanik amendment, which was signed into law in 1974 and only repealed when the Magnitsky Act was approved in 2012, is any indication. How painful are these now probably semi-permanent sanctions for Moscow? More hurtful than you might think.

There is a conventional wisdom that Russia’s ongoing recession, still lingering today since 2014, was mostly due to the collapse of international oil prices, and that Western sanctions have only played a minor, secondary role. This theory is as misguided as medieval cosmology. To wit, our eyes tell us that the Sun circles the earth, so it must be true. The same goes for Russia and oil prices: everybody knows that Russia is heavily dependent on oil, oil prices collapsed, and therefore it is self-evident that the main reason for all of Russia’s recent economic woes is low oil prices. The theory that Western sanctions were somehow “unimportant” is a sentiment that has been strongly amplified by a choir of Russian propaganda outlets, their numerous Western sympathizers, and all sorts of “useful idiots”—including a coterie of respected economists who focus on studying oil prices and their effects to the exclusion of all else.

The oil price theory doesn’t stand up to simple common-sense check of the figures. For one, Russia never cut its budget. It managed to keep spending at a constant level—around 15-16 trillion rubles per year, even slightly increasing spending during the 2014-2017 crisis (up from the 13.9 trillion rubles initially approved for 2014). This spending was in part financed from Russia’s Reserve Fund, a vehicle set up with cash windfalls from the period of high oil prices in the 2000s in order to guarantee Russians’ pensions in lean times. It was also paid for by a drastic shrinkage in imports. Despite falling revenues from global oil prices, there hasn’t been a single month since 2014 in which Russia has run anything but a healthy trade surplus.

Oil prices took a tumble both in 2008 and between 2014-2015, but the absolute scale of the collapse in prices was greater in 2008. Yes, Brent temporarily settled at a new low between December 2014 and March 2015, but by then, the worst for the Russian economy was over. But while the ruble took a hit in 2008, it was nothing like the gutting it has endured during the current crisis, losing more than half its value and remaining deeply depressed since. Some have argued that in 2008-2009, the ruble was supported by Russian Central Bank, which heavily spending its currency reserves. But once again, the figures don’t really bear this out. The Central Bank drew down nearly the same amount of its reserves during both oil collapses—$186 billion between July 2008 and April 2009 versus $154 billion between 2014-2015.

So there must clearly be something else going on besides oil, right? The answer is obvious: Western financial sanctions and the international credit blockade facing Russia since 2014 has taken its toll.

One factor is usually overlooked by analysts looking at Russia’s finances: Russian businesses accumulated significant foreign corporate debt between 2009-2014—a key to the modest Russian economic recovery after the 2008-2009 global financial crisis. Russian companies and banks kept borrowing like crazy: their total foreign debt nearly doubled in just 4 years, from $357 billion in July 2010 to the highest peak in July 2014—$660 billion. Much of this was short-term debt, rolled over regularly. When things were good well with the West, refinancing was never a problem.

Credible sources have told me that the possibility of refinancing problems emerging never occurred to Vladimir Putin and his inner circle when he decided to invade Crimea and Donbass. Heavy borrowers like Igor Sechin, the head of Rosneft, were apparently assuring Putin that Western banks had too much profit at stake to ever stop lending. And Western governments—according to this strand in Kremlin thinking—would never go against the interests of their key financial players.

But after the shooting down of Flight MH17 over the Donbas, of course Western governments did just that.

This resolve was a huge surprise to Putin, and the sanctions have caused a lot of pain. The measures not only led to credit drying up for the biggest players in the Russian corporate and banking sector that were directly included on the sanctions lists, but also for most others of Russian origin, just in case. As one major international banker told me at the time, “Who knows whom these Russians could invade tomorrow, and how the sanctions lists will be expanded; let’s just stay away from Russians for now.”

By the end of 2014, total Russian corporate foreign debt has shrunk by $112 billion. The ruble’s stunning plunge in December 2014 was directly tied to the demand for liquidity connected to end-of-year debt repayments. Total corporate foreign debt continued to shrink further, stabilizing roughly at its current levels of about $470 billion only by mid-2016—almost $200 billion in credit gone missing since mid-2014.

The credit blockade has also prevented Russia from borrowing its way to a recovery, as it did between 2010 and 2014. Its financial system is weak and can’t generate quality assets. The greater part of banks’ deposits are short-term. State reserves have been greatly depleted, and Putin appears to have banned their further looting for the purpose of aiding the corporate sector. There were hopes that China would flood Russia with credit, but China has proven to be neither interested nor capable of doing so. The Chinese financial system is four times smaller than that of the United States and three times smaller than that of the European Union. The Chinese have preferred to lend only to support domestic demand, and have only started lending abroad as part of their One Belt, One Road strategic initiative, which pointedly circumvents Russia. When loans have come through, most of the credits have been tied to direct Chinese participation in projects, or to the procurement of Chinese goods and services. And in any case, the scale has not been nearly big enough to make a difference.

The pressure on the ruble accompanying the credit crunch has led to a significant decline in the living standards of average Russians. The reason is simple: Russian standards depend on being able to import consumer goods. During Putin’s reign, Russia has been essentially redistributing petroleum revenue windfalls to raise standards of living. There was enough oil and gas money left over after Putin’s favored were done looting to keep the majority of the population feeling like things were improving. This complacency led to Russia failing to develop the capacity to manufacture quality consumer goods, something that would have required a favorable investment climate, less government interference in business affairs, an independent judiciary—everything that has been anathema to Putin and his increasingly authoritarian and kleptocratic state.

Putin tried to get “import substitution” going in response, most visibly by instituting counter-sanctions on Western food imports. But given the economic model he had nurtured during his reign, this was doomed to fail. Instead of a raft of domestic firms springing up to try to meet the demand of Russian consumers, the highly monopolistic environment and the brutal clientilism practiced by government institutions naturally led to nothing but rising prices for most people and extra profits for a handful of Kremlin-affiliated agro-businesses. With the ruble stabilizing in mid-2016, imports have started to grow again. Russians, fed up with “substitutes” and wanting to go back to better quality products, have started spending their declining wealth on imports nonetheless. According to official statistics, as of June 2017, imports of meat, poultry, milk and dairy products grew by 50-60 percent year on year, while domestic production growth was either in single digits for meat and poultry, or in decline for dairy.

Russian government officials continue to talk about the ruble being “overvalued”, and suggest that another drop may be ahead. Given the continuing importance of consumer imports, this means that domestic consumer purchasing power would once again take a hit. Structural reforms, which could in theory do a lot if they were implemented soundly and in good faith, are almost certainly not in the offing, given that they would involve de-monopolization of the state-owned economy and a massive exit of the government from so-called “vital strategic sectors”. Putin would obviously not allow this, even on his deathbed. And thus, Russia today finds itself stuck suffering the most severe and lasting decline in living standards since the collapse of the Soviet Union in early 1990s.

That all said, the collapse of oil prices is not unimportant—far from it. It remains the underlying factor that keeps Russia down and flailing. But low global oil prices alone would not have knocked Russia this far back, this hard. Western sanctions are playing an underappreciated role. And the fact that it looks like they are here to stay for the long run have put the Kremlin in quite a bind.

The post Why Sanctions Matter appeared first on The American Interest.

Are OPEC’s Cuts Working?

The oil cartel OPEC and a coalition of non-member petrostates agreed nine months ago to reduce their collective production in an attempt to inflate oil prices. It’s been almost eight months since that group has put that plan into action, and there’s seven more months of output cuts in the works. So how well is this market intervention working?

It depends on how you look at it. From the price perspective, the price of oil is roughly $5 higher (an increase of more than 10 percent) than it was before OPEC & co. agreed to this strategy, but that sounds a lot less impressive when you consider that Brent crude is trading today at less than half of what it was three years ago.

One explanation for this as-yet underwhelming effect on the global oil market has to do with how diligently (or not, as the case may be) petrostates are adhering to the cuts they agreed to. OPEC’s production rose in July for the third consecutive month thanks to surging output from Libya and Nigeria, two countries that are in the process of rebounding from significant supply disruptions due to civil unrest in recent months and years. But as the FT notes, Saudi Arabia—the lynchpin of OPEC and of this entire production cut strategy—exceeded its own targeted output for the first time last month, according to outside observers. It’s going to be difficult for this plan to work if its undisputed leader makes a habit of exceeding its quota.

But while things may not be going to plan on the supply side of the equation, the news is rosier for producers on the demand side. Prices surged to a summertime-high of more than $53 per barrel last week after OPEC raised its projections for demand for the cartel’s crude next year by 200,000 barrels per day (bpd). The International Energy Agency also reported that global oil inventories fell 14 percent in 2Q, a sign that the rebalancing of the market is still underway.

This is not, however, the market response these petrostates expected (or maybe hoped) their production cuts would elicit, and that may be the best way to judge the success of this intervention. OPEC and its ilk are still struggling to balance the books in this new era of cheap oil, and what meager price rebounds this coalition has so far produced are being undermined from both within (as we’ve seen lately with Saudi, Nigerian, and Libyan output increases) and without (American oil production is up 653,000 bpd in 2017). In today’s market, there’s still precious little to be excited about from a petrostate perspective, and that may be all you need to know to assess these production cuts.

The post Are OPEC’s Cuts Working? appeared first on The American Interest.

Report: Ukraine Sold Rocket Technology to North Korea

The New York Times has an important story today that suggests North Korea’s surprising progress towards building their ICMBs may be due to a Ukrainian rocket plant selling technology on the black market. The story suggests that after the Russian government canceled its orders for missile parts in the wake of the war in Ukraine, the factory fell on hard times and sought other customers. David Sanger and William Broad report:

“It’s likely that these engines came from Ukraine — probably illicitly,” Mr. [Michael] Elleman [a missile expert at the International Institute for Strategic Studies] said in an interview. “The big question is how many they have and whether the Ukrainians are helping them now. I’m very worried.”

Bolstering his conclusion, he added, was a finding by United Nations investigators that North Korea tried six years ago to steal missile secrets from the Ukrainian complex. Two North Koreans were caught, and a U.N. report said the information they tried to steal was focused on advanced “missile systems, liquid-propellant engines, spacecraft and missile fuel supply systems.”

Investigators now believe that, amid the chaos of post-revolutionary Ukraine, Pyongyang tried again.

The article goes on to note that the Russians themselves may have sold this same rocket engine technology, through their own firm Energomash, as they were likely to have spares lying around. Indeed, a security official in Ukrainian President Petro Poroshenko’s government was quick to suggest that the report cited by the Times was misdirected by Russia’s secret services trying to hide their own complicity in aiding North Korea. Though an ICBM-armed North Korea ought not suit the Kremlin much more than it suits China or the United States, one oughtn’t put anything past this Russian regime. Time and again in recent months, the Russians have been caught creating headaches for the United States even where the resultant mess could come bite them hard in the medium term. (Most recent example: arming the Taliban in Afghanistan.)

At this point in time, however, the truth of the matter is impossible to know—and in some ways, it’s besides the point. The main takeaway is that North Korea’s fast progress towards and ICBM represents yet another serious intelligence failure by the West’s various secret services in monitoring proliferation efforts. And that, in part, has to influence how we approach the North Korean nuclear crisis today. When observers say that North Korea can be successfully prevented from sharing its nuclear knowhow with other rogue regimes, they often gesture to our intelligence prowess. The fact that A.Q. Khan had managed to operate for so long without being shut down, getting actual nuclear know-how to North Korea, Iran, and even Libya, should have served as enough of a warning.

Yes, this wasn’t a nuclear technology transfer, but that’s no reason to be complacent. The fact is, the world’s nuke- and Nork-watchers appear to have been blindsided by Pyongyang’s progress on this critical delivery technology—at this point, just as critical to the Kim regime as mastering the nuclear cycle was in earlier years. And a desperate, walled-in Hermit Kingdom will have every incentive to try to find buyers for its knowledge in the future. As far as we know, we have been successful at preventing that from happening up until now. But stories like these have to make us wonder just how certain we are in that assessment.

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Terror in Charlottesville and American Decline

I try my best to not become too emotionally invested in political events. I figure that as a writer, it doesn’t do much good to be terrified, or despondent, or elated; TAI readers are better served by level-headed reasoning.

But I can’t pretend to write about the events in Charlottesville on Friday and Saturday in that mode. This latest round of deadly political violence has me more afraid for my country than I have ever been before.

My parents, both Boomers, grew up in a time when the political system seemed to be breaking down. Their childhood TV screens flashed with images of domestic terrorism, riots, and assassinations, perpetrated by white supremacists and left-wing extremists alike.

My generation, born after the Cold War came to a close, has never experienced this kind of ambient uncertainty about American society’s basic stability. Yes, the 1990s saw race riots in Los Angeles and the bombing of Oklahoma City, but those took place against the backdrop of a competent government and a strong political consensus. Yes, there were the September 11 attacks, but those at least temporarily brought the country closer together.

We’ve had polarization and culture wars before. This is different. This feels different. Stretching back at least to Dylann Roof’s mass murder of black congregationalists in 2015, the country has been getting pushed closer and closer to the edge. The summer of 2016 saw the assassination of five police officers in Dallas by a black activist. Donald Trump’s rhetoric as a candidate flirted with political violence over and over again. And since his election, the temperature has only been escalating. A Montana congressional candidate physically attacked a reporter. There have been campus riots against right-wing speakers, and clashes between Leftists and neo-Nazis on the streets of Sacramento and elsewhere. It was less than two months ago that an anti-Trump activist opened fire on a group of Republican Congressmen playing baseball in Alexandria.

The events in Charlotesville—in which a neo-Nazi ran down anti-racist protesters after a white supremacist march, killing at least one person and injuring many more—were distinctively hideous. The anti-civilizational fascists of the alt-right, no longer confined to marginal online forums, were out in force in a storied American town, maiming people on the streets. The President whom they openly admire (former Klansman David Duke praised him in an interview at the march) deliberately equivocated when given the opportunity to condemn them. Maybe he was egging them on, or maybe he is simply so narcissistic that he cannot distance himself from anyone who has offered loyalty. It doesn’t matter. Neo-Nazi blogs delighted at the President’s non-response. Fascists are emboldened. More on the far-Left will become convinced that racism cannot be fought adequately within the political system.

The events of this weekend are evidence that, as Angela Nagle wrote in her recent book on the online culture wars, the “festering undergrowth of dehumanizing reactionary online politics [is] now edging closer to the mainstream.” And forces on the far-Left are gaining strength in response.

We don’t yet have the same body count from political violence that cast a shadow over the 1960s and 1970s. And yes, racist violence is not new in America. But the carnage over the weekend looks like just the latest step in a rapid march toward political extremism—a process of decay accelerated by a scandal-ridden Federal administration that is beloved by some of the most vile extremists and seen as illegitimate by many of its political opponents. Any outsider looking at America today would see a country struggling to cohere at the most basic level.

So I feel a deep sense of dread—that our social fabric is too corroded to channel disagreements through political institutions; that the American creed is battered and broken; that reciprocal demands for retribution between identitarian radicals will soon reach escape velocity.

Great countries can fall apart. I don’t know what that would look like for America. And I don’t know how to stop it.

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Migrants, Blocked in Libya, Promptly Shift to Morocco

The European migrant crisis has had its share of striking images. The death of three-year old Syrian boy Alan Kurdi, drowned on a Turkish beach, brought world-wide attention to the plight of Syrian refugees. The demolition of the Calais “jungle.” Streams of thousands moving through the Balkans or packed by the hundreds into tiny boats. But few images from the crisis have been quite as striking by contrast as when a full boat of migrants on Wednesday landed at a tourist beach in Cadiz, Spain:

The moment a boat full of migrants lands on a popular tourist beach in southern Spain pic.twitter.com/2eDMFuJqlK

— BBC News (World) (@BBCWorld) August 10, 2017

We’ve written at length and for many years about the challenges that uncontrolled migration poses to the European project, all of which are once again brought to mind here. But perhaps the most troubling new development in the crisis is where these migrants are setting off from, as The Telegraph reports:

Spain could surpass Greece this year as a gateway for migrants entering Europe by sea, international monitors warned on Thursday, as the number of arrivals swells to treble that of 2016.

Amid a crackdown on migration through Libya, more than 8,000 people have turned to the so-called Western Mediterranean Route from Morocco into Spain this year, compared to 2,500 during the same period in 2016.

The increase in migration through Morocco means that the Italian’s progress in controlling the migration flows from Libya might simply be diverting them westwards. After a massive surge in June that saw 12,000 migrants arrive in 48 hours, the Italian government was finally compelled to act. Italy’s navy is now patrolling the Libyan coast. In an interview with Politico, the Italian interior minister laid out Italy’s plan, which is refreshingly sensible:

The Italian minister has three requests to Europe. The first: to allocate to Africa — and especially Libya, which currently accounts for 97 percent of departures [to Italy]— the same amount of “effort and resources” that it devoted last year to stemming migration flows through the Balkans. [….]

Minniti’s second request is for help tackling the problem of migrant reception centers in Libya, where he envisages increased cooperation between the EU and the United Nations. Last week, a report drafted by EU officials detailed severe shortcomings in sanitary conditions in the refugee centers in Libya. [….]

His final request — and perhaps the biggest one — is for Europe to make a five-year commitment to invest in the mayors of the 14 main Libyan cities where migrant smuggling takes place. The best way to stabilize the country, the minister said, is to create viable economic alternatives to the business of human trafficking, which currently constitutes “the only functioning enterprises in Libya.”

The Italian plan is serious in ways that Brussels’ efforts are not. Among the EU’s only notable accomplishments in recent months: limiting exports of rubber boats to Libya. You can’t make this stuff up.

The Italians have learned a hard lesson that Brussels cannot solve their migrant problems and have taken action. The Spanish, as yet, have not. If halting migration flows from war-torn Libya simply diverts those flows elsewhere, then Europe is in for a very long crisis indeed.

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They’ll Be Back

On January 17, Björn Höcke of the right-wing populist Alternative for Germany took the stage in the Ionic-columned ballroom of the glittering Watzke Brewery in Dresden. He was there at the invitation of the party’s youth wing, extended in the hopes that Höcke, a steely-eyed, baby-faced firebrand from the neighboring state of Thuringia, might kick off the election year with a bang. Even if most of the beer-sipping audience was far older than Höcke, the party got what it was hoping for. It was, if you will, the 2017 version of a beer hall speech.

“We will take Germany back piece by piece!” Höcke shouted from the podium. “The AfD is the last peaceful chance to do so.” These remarks would be the least contentious part of his fifty-minute jeremiad. The 44-year-old called for nothing less than a complete reinterpretation of Germany’s history. “We Germans are the only people that have planted a monument to shame in the heart of the capital,” he raged, referring to the sprawling Memorial to the Murdered Jews of Europe just down the street from the Reichstag in Berlin. It is time, he said, to refocus German memory on the great writers and philosophers from the country’s prewar past and to turn away from Germany’s decades-long effort to come to terms with its Holocaust guilt. “We need nothing more than a 180-degree shift in our memory politics!”

To the uninitiated, such a sentiment might induce little more than a shrug. What, after all, is wrong with expressing a desire for your country to leave the past behind and move on? In the past few decades, though, Germany has deeply rooted its re-emergence as an economic power and leader of the European Union in an admirable and ongoing effort to confront its role in triggering a continent-wide inferno and slaughtering six million Jews. Höcke’s speech called all of that into question in a strident, raving cadence reminiscent of Joseph Goebbels.

The reaction was predictably apoplectic. Commentators at all major newspapers blasted away at the AfD, intimating that the party had finally shown its true extremist colors. Chancellor Angela Merkel’s spokesman Steffen Seibert said the speech had “struck at the core” of the country’s identity, adding that Germany’s confrontation with its World War II past had paved its way to becoming a “globally respected free democratic state.” Sigmar Gabriel, still head of the Social Democratic Party at the time, was harsher. The AfD, he said, had become a “receptacle for rightwing radical agitators” and called for the party to be monitored by the country’s domestic intelligence agency.

None of those responses, however, are likely to trouble the consciences of those who attended the speech. They cheered, chanted, and rollicked throughout and finished by granting Höcke a standing ovation—along with a chant for Merkel to be sent to Siberia. Indeed, for all of Höcke’s well-aimed efforts at historical revisionism, other elements of the speech are more helpful for understanding the potential threat right-wing populism poses in Germany, and its prospects in future elections: His scornful references to Germany’s established political parties as “old parties” and his direct attacks on Merkel herself. He even called for her to be led away in a straitjacket, the German version of Donald Trump’s “lock her up” chant.

Germany has long been something of an outlier in contemporary Europe. Even as strong right-wing populist parties have developed in all of its neighboring countries—most notably Marine Le Pen’s Front National in France, Heinz-Christian Strache’s Freedom Party in Austria, and Geert Wilders’ Party for Freedom in the Netherlands—Germany had until recently seemed immune. To be sure, it has experienced periodic eruptions of angst due to neo-Nazi violence, right-wing extremist parties landing seats in the parliaments of eastern German states, and even a murder spree perpetrated by the neo-Nazi terror cell National Socialist Underground, which came to a spectacular demise in November 2011. For the most part, though, a broad consensus in both the country’s politics and society has held that overt racism, nativism, nationalism, and, until the 2006 World Cup, even patriotism were unwanted, unspeakable, and repugnant. Political parties dabbling in such sentiments haven’t lasted.

The past few years, however, have seen that firewall put to the test. The reactions to Höcke’s speech, including opprobrium from within AfD itself, clearly show that historical revisionism remains beyond the pale in Germany, but the 2016 backlash against Merkel’s refugee policies, combined with growing disgust in the country with ongoing Eurozone bailouts, has propelled the AfD to unprecedented heights of popular support. It now has delegates in 13 of Germany’s 16 state parliaments—capped by an astounding 24.3 percent result in Saxony-Anhalt in March 2016—and has excellent chances to send lawmakers to the federal parliament in the September 24 general election.

Over the past year the wave of anti-establishment disgust and political division that propelled the AfD to its crest last winter appears to have receded. Recent state elections have seen the party fall well short of 10 percent, and it has likewise slipped in nationwide polls—from a high of more than 13 percent last autumn to about 7 percent today. There is also evidence that Germans, horrified by Brexit and repulsed by Trump, are returning to Merkel’s camp, seeing her as a bastion of stability in a suddenly unstable world in which dalliances with the political fringes can quickly lead to disaster. A recent, protracted leadership battle within the AfD hasn’t helped the party either.

Recent history, though, has shown that right-wing populism thrives in environments characterized by a prolonged political status quo, providing neo-nationalist firebrands with a welcome target for their “system is broken” message. “Democracies are fueled by the possibility to vote for clear alternatives,” says Marcel Lewandowsky, a research fellow at the University of the Federal Armed Forces in Hamburg:

Usually in democracies, you have two or more big parties that compete and formulate clear alternatives to each other. In Europe after the end of the Cold War, the main parties, at least in the public perception, have shown a certain degree of ideological congruence. In situations where those main parties govern together over a certain period of time, voters conclude that the main parties are more or less the same. They are presented as a cartel. That is what the AfD does.

The same phenomenon is visible elsewhere. In Austria, for example, a pairing of the Social Democrats (SPÖ) and the center-right Austrian People’s Party (ÖVP) has governed the country for 23 of the past thirty years, allowing the populist Freedom Party (FPÖ) to blast away at “the establishment” at will. Not coincidentally, the FPÖ came within a whisker of winning the country’s presidential election this past December.

In Holland, the center-right party of Prime Minister Mark Rutte has governed together with the center-left Labor Party for the past four years. While the parties received 26.6 and 24.8 percent of the vote respectively in 2012, they combined for just 26.9 percent in March elections this year. Populist Geert Wilders just missed out on surging into the lead.

Back in Germany, there is almost no possible scenario this autumn in which Angela Merkel would fail to win a fourth term in office as Chancellor. Her conservatives currently stand at 40 percent in the polls, and what looked initially to be a promising challenge from former European Parliament President Martin Schulz of the Social Democrats is fading fast. Indeed, the best the SPD can hope for, it would seem, is a run-back of the current “Grand Coalition,” pairing Merkel’s conservatives with the SPD. That cementing of the status quo, though—even if the AfD proves unable to tame the forces that are currently threatening to tear it apart—could ultimately set the stage for a comeback for right-wing populists in Germany, particularly if the refugee crisis or the euro predicament return to the headlines.

Perhaps not surprisingly given the country’s history—and Höcke’s speech notwithstanding—Germany’s AfD is not a case of an extreme party attempting to polish its image in an attempt to win over a larger share of the electorate. That well-worn path has been followed by several right-wing populist parties in Europe, most prominently the Front National in France and, by a more circuitous route, the Freedom Party in Austria.

The AfD, rather, stumbled seemingly unwittingly into the largely untapped potential on Germany’s non-extremist right wing, a seedling nurtured in the rich soil of frustration within Merkel’s Christian Democrats (CDU) at the Chancellor’s support for the bailout of deeply indebted Eurozone member states. Officially, the party was founded on February 6, 2013, in Berlin with the semi-prominent economist Bernd Lucke, a long-time member of the CDU, as its driving force. His message: Get Germany out of the euro.

Despite being in direct opposition to Merkel’s and Finance Minister Wolfgang Schäuble’s preferred strategy of wielding a big austerity stick and muddling through with ever-growing bailout packages for Greece and the rest of the PIGS (that is, Portugal, Ireland, and Spain), Lucke’s anti-bailout position was widely shared on the conservative wing of the CDU and among several prominent economists. And the reasoning for their skepticism is, if anything, frighteningly sound.

Essentially, the euro is a political project, pushed through by French President François Mitterrand and German Chancellor Helmut Kohl in the early 1990s as a way of entwining a freshly reunited Germany even more securely within the European community of nations. Indeed, a raft of documents made public in 2010 made it clear that joining forces with France to introduce the euro was essentially the price Mitterrand was demanding for French approval of German reunification. “Nations with a common currency have never gone to war against each other,” Kohl said in an interview many years later. “A common currency is more than the money you pay with.”

In rushing the project, however, Germany abandoned what had long been a key demand in the preliminary discussions concerning the euro, namely that European political union must be established first before monetary union could be considered.

In the years immediately following the euro’s introduction, concerns over that omission were banished to the realm of academic naysayers as the European economy remained more or less stable. Countries like Greece, Spain, and Portugal could suddenly borrow money on the international financial markets at roughly the rates that Germany could, and they embarked on debt-fueled — and ultimately unsustainable — booms. “The euro was a paradise of sorts,” Yiannos Papantoniou, who was Greek economic and finance minister from 1994 to 2001, admitted to the German newsmagazine Der Spiegel in 2011.

When that bubble burst in the wake of the 2007 financial crisis and developed into a full-blown crisis in 2010, Berlin’s response was draconian. It came in the form of brutal austerity policies imposed on several southern Eurozone member states in exchange for massive bailouts, to which Germany was the largest contributor. Some of those countries, Greece first and foremost, still haven’t recovered, with Athens still reporting GDP per capita in 2015 that was about 25 percent lower than before the crisis in 2007. And the Groundhog Day crisis has reemerged this summer, with an ongoing spat over whether Greece has passed sufficient reforms to be eligible for its next bailout tranche.

Just as important, however, it became apparent to Eurozone countries on the periphery that the rules, such as they were, emanated almost exclusively from Berlin, making a mockery of attempts in Brussels to inject more democracy into the European project. That perceived democratic deficit was manna from heaven for anti-EU populist parties across the Continent. In Germany, meanwhile, frustration grew rapidly at the amount of money being made available to bail out the (according to the narrative commonly encountered in the German tabloid press) profligate, irresponsible Greeks, Spaniards, and Portuguese.

The AfD positioned itself perfectly to benefit. “It is part of the AfD’s DNA,” says Michael Bröning, an expert on right-wing populist movements at the Friedrich Ebert Stiftung in Berlin. “They were called the party of professors early on and seen as the so-called voice of reason in the euro crisis. When you look at populist movements in Europe, they are very different, but they all rally against the establishment.”

If the crisis of the flawed common currency was the immediate trigger for the formation of the AfD, its devolution into a bona fide right-wing populist party has in part been a consequence of Merkel’s leadership. “Mutti,” as she has long been fondly called, has been at the helm of Germany since the fall of 2005, and for eight of those almost 12 years in power, she has led a grand coalition with the SPD. Even during the four interim years between 2009 and 2013, when she governed with the business-friendly Free Democrats, it would be difficult to characterize the SPD as having been much of an opposition force. That legislative term included the most acute years of the euro crisis, and rather than provide a different vision for how to solve the deep problems with the common currency, the SPD meekly voted for bailout after bailout, often showing even more enthusiasm for the practice than Merkel’s own CDU.

But it hasn’t been just the bailouts. Merkel had learned during her near loss in the 2005 election that campaigning on a platform of austerity and tax hikes for Germany was not a recipe for a long political career. And early on in her tenure as Chancellor, she made the political calculation that there were more votes to be won in the political center than there were to lose on the far right.

So she shifted. In 2006, her government introduced generous maternal and paternal leave subsidies for new parents. In 2008, she convinced the European Union to make significant emissions reduction pledges ahead of the UN Climate Conference a year later in Copenhagen. In 2010, Merkel’s government jettisoned conscription. In 2011, she announced in the wake of the Fukushima disaster that Germany was shutting down all of its nuclear power plants and targeting a future of 100 percent renewable energies. And in June of this year, she suddenly cleared the way for the introduction of gay marriage.

The CDU’s move to the left under Merkel’s leadership was a significant departure. In 1986, Franz Josef Strauss of the Christian Social Union (CSU), the Bavarian sister party to the CDU, summed up the German center-right’s postwar political approach by saying: “No democratically legitimate party can be allowed to develop to the right” of the conservatives. And Merkel’s slow-motion revolution was consequently accompanied by significant grumbling on the conservative wing of her party and, more so, from the CSU. But they had little choice but to follow. Not only did the electorate broadly favor most of the changes, but Merkel single-handedly transformed the once-powerful SPD into a shadow of its former self, seemingly damning the party to life on the bleating fringe. Even as, in the words of Bröning, “Merkel basically laid an axe to the conservative policies that the party was famous for,” in the eyes of much of German society, Mutti could do no wrong.

But then, she did. Late in the night on September 4, 2015, Merkel made the controversial decision to accept thousands of refugees who had been stranded in Budapest’s Keleti train station and were marching toward the Austrian border. And she did so without a plan for how to stop the flood once it began.

As a result, the cracks that had already become apparent in the German firewall became deep, and dark, fissures.

Even before Merkel’s fateful decision, the well-established consensus within German society to avoid borrowing from the nationalist, far-right lexicon was eroding at the edges. Not all that long ago it was risky to admit a “fascination” with the history of Nazism due to the word’s positive connotations in the German language. Likewise, using the term “select” when choosing one group of people over another was seen as an unconscionable adoption of Nazi rhetoric due to the Holocaust practice of choosing (“Selektion,” in German) which Jews would live and which would be sent to the gas chambers on the Auschwitz train platform.

But as the number of refugees reaching Germany began to creep up throughout 2015, attendance at demonstrations against those arrivals likewise rose. And many of the signs and chants that could be heard and seen at such gatherings bespoke a silent agreement in some swaths of German society that it was time to throw off the chains of political correctness and call a spade a spade.

That sentiment was most obvious in the PEGIDA marches in Dresden. Begun in late 2014, the marches organized by the group—whose name itself (the Patriotic Europeans against the Islamization of the Occident) led more historically minded Germans to shudder—increased in size and emotion throughout 2015. Signs began appearing such as “Germany for the Germans,” “Lying Press!” and “Too Many Foreigners Is Genocide.” On one well-publicized occasion, marchers carried mock gallows reserved for Chancellor Merkel.

At the same time, attacks on refugees and shelters began hitting the headlines with disturbing frequency. The attacks included arson, assaults on individual asylum seekers, and swastikas daubed on migrant hostels. In August 2015, the situation in the eastern German town of Heidenau escalated into running street battles over the course of an entire weekend between right-wing extremists and left-wing anti-fascists in front of a refugee hostel. When Merkel visited the site the following week, she was greeted with a chorus of boos as soon as she stepped out of her sedan. Chants of “traitor to your people” erupted as an apprehensive Merkel marched toward the entrance of the facility. One woman screamed: “You stupid whore!”

Of particular concern, many of those joining the PEGIDA marches in Dresden and similar marches in cities across the country—and, indeed, many of those venting their rage on the refugees themselves—were not dyed-in-the-wool members of the swastika-tattooed, skinhead crowd. Rather, as a 2015 study conducted by Hans Vorländer from the University of Dresden found, “the ‘typical’ PEGIDA demonstrator is from the middle class, is well educated, employed, has a slightly higher net income than average for the state of Saxony (the state in which Dresden is located), is 48 years old, male, and does not belong to a religious confession.”

Furthermore, Islam and immigration were not even their main concerns. “The primary motivation for participation in PEGIDA demonstrations,” Vorländer wrote, “is a general dissatisfaction with the country’s political direction.” The second-most-often-named incentive among the study’s 1,200 respondents was dissatisfaction with the media and with society. In other words, a not insignificant segment of the electorate was suddenly content to vent its rage alongside people carrying signs reading “Rapefugees Not Welcome!” and waving the “Wirmer flag,” a proposed post-World War II flag for Germany that has been co-opted by the extremist right.

Sean Gallup/Getty Images

The PEGIDA marches, though, were not the first indication that Germany’s historical inoculation against rightwing extremism was wearing off. Many political analysts in the country point to an event in 2010 as a key moment when racist rhetoric began seeping into the public dialogue. On August 30 of that year, Thilo Sarrazin published a book called Deutschland Schafft Sich Ab, which can perhaps best be translated as “Germany is destroying itself.” The book’s central thesis is that immigration, in combination with the country’s low birth rate, was making Germany “dumber” because Muslim immigrants are genetically inferior:

The cultural foreignness of Muslim immigrants could be moderated if these immigrants showed signs of special qualifications or intellectual potential. But that isn’t discernible…. There are, rather, indications to the contrary, and it is by no means certain that this is exclusively tied to their invariable lack of education. Genetic liabilities—caused by the region’s common practice of marrying relatives—play a significant role among immigrants from the Middle East.

Thilo Sarrazin wasn’t a nobody. A Social Democrat, he spent seven years in the 2000s as Finance Minister of the city-state of Berlin and was also a member of the executive board of the Bundesbank, Germany’s central bank. And his book was a runaway bestseller; more than 1.5 million copies flew off the shelves. A certain sector of the German population seemed to be thinking that somebody was finally “telling it like it is.”

“Sarrazin paved the way for the AfD,” says Lewandowsky, the Hamburg professor. “His book on Islam was a kind of taboo breaker, not by bringing up something that nobody dared speak about, but by doing so in a language that the liberal media and public thought had been abandoned by Germany since World War II. This language shaped the discourse, and once it is in the discourse it becomes legitimate to use it again to address migration.”

Like all self-respecting right-wing populist parties, the AfD strongly denies having racist or extremist tendencies. But it had begun pivoting toward explicit Islamophobia well before the refugee crisis reached is apex in fall 2015. In late 2014, some in the party leadership began flirting with PEGIDA. Embattled current party co-head Frauke Petry met with the movement’s leadership, and former CDU-member-turned-AfD-deputy-head Alexander Gauland famously said that PEGIDA supporters were “natural allies” to the AfD. In summer 2015, founder Bernd Lucke left the party after losing a bitter power struggle with the party’s right wing. “We had come so far,” Lucke said ruefully in his resignation speech. “But now, the party has irrevocably fallen into the wrong hands.”

Since then, the AfD has followed a path more typical of European right-wing populist parties. Beyond positioning itself as staunchly opposed to Merkel’s decision to admit tens of thousands of Muslim refugees in late 2015, Petry has also sought to integrate the AfD within the community of established Islamophobic political movements on the Continent. In June 2016, for example, she met with Strache from Austria’s FPÖ for a photogenic get-together on the Zugspitze, Germany’s tallest mountain. In January of this year, she invited Geert Wilders from the Netherlands, Marine Le Pen from France, and Matteo Salvini from Italy’s Lega Nord to Koblenz to help her kick off the campaign year in style. And in February, Petry made a pilgrimage to Moscow—a trip that has become de rigueur for European populists—for talks with senior members of President Vladimir Putin’s United Russia party. Russian nationalist Vladimir Zhirinovsky was also among those she met.

Beyond that, the AfD has mastered the populist playbook. It complains frequently of political correctness, it piggy-backs on right-wing media reports of refugee violence and crimes, whether true or not, and it fiercely attacks the “Lügenpresse.” The AfD has also made it party policy to introduce “carefully planned provocations” so as to lure establishment parties into launching indignant attacks on its functionaries. “The more the AfD is stigmatized by them, the better it is for the party’s profile,” a December 2016 strategy paper reads.

But a lot has changed since that strategy paper was issued. For one, the ongoing Brexit horror show, combined with growing fears about what, exactly, Donald Trump might mean for long-term Transatlantic relations, seems to have focused European minds. A survey released in June by the European affiliate of the Pew Research Center shows that approval of the EU has rocketed upward by 18 percentage points in both Germany and France since last year, by 15 points in Spain, and 13 in the Netherlands. Meanwhile, perhaps partially due to her strong pushback against Trump thus far, favorability ratings for Merkel and her party have returned to the high levels scored before the refugee crisis.

That is bad news for German right-wing populists. A confidential AfD strategy paper leaked to the press in early February confidently claimed: “In 2013, Angela Merkel was still a great advantage for (conservatives). Now, though, a significant portion of the population has grown tired of Merkel. She embodies the arrogance, the abuse of power, the incompetence and the detachment from reality that characterizes the established parties…. The AfD would be well advised to transform the 2017 election into a ‘plebiscite against Angela Merkel.’” That focus now seems misguided.

But that’s not all. When Petry emerged to shove Lucke aside in 2015, the party was ecstatic to have a young, attractive former businesswoman as its leader. It has been all downhill from there, though. Indeed, the primary reason for the party’s slide in the polls likely has less to do with the Anglo-American political meltdown and more to do with the AfD’s ongoing conflict about where exactly on the far right spectrum it stands. At a party convention in late April, Petry was essentially sidelined as a new duo was chosen to lead the AfD in the parliamentary election campaign: Alexander Gauland and Alice Weidel, both well-versed in strident Islamophobia. But the latter, who lives with her lesbian partner and two children, is hardly a bastion of AfD traditional family policy. The bickering hasn’t stopped there, and neither has the party’s sliding poll numbers.

“I think there is a solid core of populist radical right voters…but they are not necessarily wedded to the AfD,” says Cas Mudde, associate professor in the School of Public and International Affairs at the University of Georgia and author of several books and papers on European right-wing extremism. ”The biggest threat to the AfD is the AfD itself. They have a solid breeding ground, but their internal politics are putting many Germans off.”

Perhaps equally problematic from the AfD perspective, however, is that Merkel’s CDU is now doing to the right wing what it once did to the SPD: co-opting its issues.

At the Christian Democrat party convention in the western German city of Essen this past December, delegates adopted several planks for the 2017 campaign that read like a repudiation of Merkel’s third term in office. First and foremost, the party decided to do a U-turn on dual citizenship for children of foreign parents. Introduced at the end of 2014 as part of its coalition deal with the SPD, the CDU now wants to return to the old policy of forcing such children, once they have reached adulthood, to decide which passport they would like to keep.

Additionally, the new platform places a greater emphasis on deporting economic migrants and calls for banning the burqa, despite the fact that such coverings are rarely seen outside of the expensive boutiques in Munich during visits by Saudi sheikhs and their families. Merkel may be continuing to reject demands from the CSU in Bavaria to introduce a hard cap on migration, but the message from her party is clear: It is time to go back to the CDU basics.

“It is a simple strategic evaluation,” says Philipp Lengsfeld, a CDU member of parliament in Berlin and part of the party’s conservative wing:

Can we be the better Green Party? No way. Can we be the better Left Party? Absolutely not. Can we be the better Social Democrats? I don’t think so. Whatever they’ve been thinking in the past, the current position is that we as conservatives are in the political center and that’s where we belong and that is where we are going to fight.

The recent history of right-wing populism’s success, however, suggests that it will be more complicated than that. Even if Merkel is bolstering her popularity in part by standing up to Trump and playing hardball on Brexit, she remains a contentious figure on the conservative right. And the conditions that led to the AfD’s rise have not gone away. Indeed, when it comes to the euro, the next crisis could be just around the corner. At the end of June, Italy dipped into public funds to bail out two failing banks, underlining the persistent threat to the currency union that has been emanating from the country for years. Its sovereign debt is up to 130 percent of GDP, its economy has been stagnant for years, and its banking sector problems go far beyond the institutions that were just recently saved from collapse. More worryingly, with a January Eurobarometer survey finding support for the euro in Italy at just 41 percent, the popular Five Star Movement is calling for a national referendum on the country’s Eurozone membership.

For all Europe’s talk about securing its borders and preventing a repeat of the 2015 refugee crisis, a stable solution to migration hasn’t been found either. This spring saw a 30 percent uptick in the number of migrants reaching Italy from across the Mediterranean over the same period last year. Just short of 40,000 people reached Italy from North Africa from January 1 to April 19 of this year, according to the UN’s International Organization for Migration, and reports have suggested that millions more could be preparing to risk the trip.

That threat, combined with the distinct possibility of another terror attack similar to the one just before Christmas last year in Berlin, means that Germany’s right-wing populists could once again find themselves back in business. The table may have tipped away from the AfD this spring, but it might not take much to tip it back by this fall, or soon thereafter.

The post They’ll Be Back appeared first on The American Interest.

The Least Bad Option in Venezuela

Days after Venezuela’s newly elected constituent assembly held its first meeting, the U.S. responded with economic sanctions earlier this week. AP:

The United States is imposing sanctions on eight more individuals, including the brother of the late Venezuelan President Hugo Chavez, for undermining democracy in the South American country.

The Treasury Department says seven are current or former Venezuelan government officials. The U.S. accuses them of supporting the creation of a constituent assembly that’s charged with rewriting Venezuela’s constitution and has declared itself superior to all other government institutions.

It should come as little surprise that battle lines across Latin America have been drawn along ideological lines: Left-leaning states like Ecuador, Bolivia, Cuba and Nicaragua affirmed their support of Maduro’s moves at a meeting in Caracas, while a 17-member bloc, meeting in Lima, has condemned the Maduro’s “dictatorship.” Peru, Canada, Brazil, Chile and Colombia were among the countries that criticized the deteriorating human rights conditions in Venezuela, and vowed to seek a peaceful end to Venezuela’s political crisis. While leaders like UK’s Jeremy Corbyn still seem to have a soft spot for bungling lefty despots like Maduro, the kind of repressive state socialism practiced by the likes of Chavez and the Castro Brothers seems to be increasingly cursed across the continent.

As Venezuela teeters on the precipice—disgruntled soldiers attacked a base in Valencia last weekend, in what some at the time thought might be the first sign of a slowly developing coup—it’s not clear what the United States might do next. Senator Marco Rubio has been at the forefront arguing for the strongest measures against Maduro’s government, which might include measures directly targeting Venezuela’s state-run oil enterprises.

Is this the right way forward? It’s not a simple question. For one thing, tighter energy sanctions would likely push Maduro further into Russia’s arms. Indeed, Reuters is reporting that Rosneft has been secretly negotiating with the state-owned Petroleos de Venezuela (PDVSA) for ownership stakes in various oil projects in the country since earlier this year. Perversely, this might make a harder line against Venezuela more likely. As Moscow’s direct financial interests become more pronounced, its incentives to keep propping up Maduro increase; if Maduro is overthrown, after all, it’s not likely that whatever “deals” were negotiated on behalf of the country with Russia would be left in place. At the same time, Moscow’s increased involvement, especially in the energy sector, ups the chances that Washington—Congress, if not the White House—will start turning the screws with even greater zeal.

But while vigorous energy sector sanctions would hit Maduro where he is most vulnerable, they would also further brutalize the Venezuelan population, which has already suffered an astounding fall in its standards of living. Food and medicine shortages are now rampant in a country that until recently has been reasonably prosperous, in large part due to the erosion of global oil prices. While further pain inflicted on the country as a whole might hasten Maduro’s exit, there’s little reason to think that such a transition would play out in America’s best interests. Rampant poverty, anarchy, street fighting, and civil war are not the usual ingredients conducive to the emergence of decent, representative governments.

The best way forward therefore might be the path we’re currently on: a well-paced expansion of targeted, individual sanctions in hopes of splitting off various bases of support for Maduro, and thus hastening a more peaceful transition of power. It may not be as viscerally satisfying as a stronger display against a deplorable regime that has already extracted such a heavy toll on its people, but it may be the best hope for salvaging a decent outcome from what is already a remarkable tragedy in our hemisphere.

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When Identity Politics Turns a Profit

The most interesting response to the firing of James Damore, the Google engineer who wrote a provocative memo questioning his company’s diversity practices, didn’t come from the establishment center-left, which predictably proclaimed Damore’s arguments beyond the pale, or the conservative right, which predictably said Silicon Valley elites had become intoxicated by political correctness. Rather, it came from the lonely members of the old-fashioned, class-conscious, social democratic Left, which framed the issue in terms of worker rights and the unaccountable power of employers over their employees.

Writing in The Week, Jeff Spross argued that even if Damore was in the wrong, the episode highlights the way American companies as a whole have too much power to fire workers at will.

To put it bluntly, most workplaces in America today are miniature dictatorships ruled by their employer. “Workers can be surveilled by their employer, compelled to work long hours, and even denied bathroom breaks,” Jacobin explains. “In most parts of the U.S., employers can legally terminate employees for being ‘too attractive,’ for having the wrong political affiliations, and for choosing a particular sexual partner.”

In many other Western economies, employees cannot be fired “at will”; they can only be let go after a lengthy legal process. Laws often require employers to negotiate with unions and other labor groups. Some countries even require that worker representatives make up half of all corporate boards. Point being, workers have input of real consequence into how the companies that employ them are run. And they cannot be fired except under circumstances agreed to be fair by society as a whole.

This angle is worth considering because it complicates the dominant partisan framing around the Google affair. Perhaps by supporting the rollback of labor regulations and private sector unions over the past few decades, the American Right helped create the social conditions that led to Damore’s ouster. And perhaps by cheering Google’s diversity enforcement scheme, liberals aren’t actually furthering the interests of the oppressed but simply giving cover to unaccountable, inequality-producing mega-corporations. More broadly, perhaps right-wing market economics and left-wing identity politics aren’t opposed but mutually-reinforcing.

That is more or less the thesis of the Columbia historian Mark Lilla’s forthcoming book, The Once and Future Liberal. Lilla (oversimplifying liberally) divides American political history over the last hundred years into two great epochs. The first is what he calls the “Roosevelt Dispensation”—a solidarity-based liberalism that emphasized what American citizens owed to one another. This worldview was dominant “from the era of the New Deal to the era of the civil rights movement and the Great Society in the 1960s, and then exhausted itself in the 1970s.” The second is what he calls the “Reagan Dispensation”—an individualistic, expressive, pro-market ethos that was inaugurated under the Gipper and is today coming to a close.

Rather than challenging the Reagan Dispensation, Lilla says, the American Left retreated from actual politics, relying more and more on an inward-looking “politics of recognition” that eschewed concepts like citizenship and the common good. The emerging liberal focus on race and gender and sexual orientation wasn’t an alternative to neoliberal economics; it was the social corollary of it. Both were rooted in the a drive for individual self-actualization that arose after the Roosevelt Dispensation faded away.

It is hardly a coincidence … that a cult of personal identity also developed in our universities in the age of Reagan and became the governing ideology of the liberal power elite in the Democratic party, the media, and the education and legal professions. While many students studied business and economics in order to make money for themselves, others were taking classes where they learned how very special those selves are. Some took both sorts of classes, satisfying both their pocketbooks and their consciences. The intellectual and material forces of the age were working together to keep them self-involved, and to convince them that narcissism with attitude was both good business and good politics. Identity is not the future of the left. It is not a force hostile to neoliberalism. Identity is Reaganism for lefties.

This brings us back to Google, where many of these trends have come together over the past week. In the firing of Damore, we have a fantastically wealthy mega-corporation—a symbol for the kind of profit-producing creative destruction the Reagan Dispensation lionized—practicing identity politics in its rawest form. The content of Damore’s memo is besides the point (I certainly don’t agree with everything he wrote). What matters is that he questioned the design and execution of Google’s lavishly-funded but not particularly successful diversity initiatives, created a firestorm of outrage, and was summarily dismissed for his offense. After all, Lilla says, a defining feature of identity politics is that argument is replaced by taboo.

Google’s decision is being taken by many liberals as a blow for justice—a strong stand against discrimination in the workplace. But it’s also possible to see how the corporate diversity apparatus that led to Damore’s dismissal is actually a self-interested mechanism for big companies to get bigger, to extend control over their workers, and ultimately command even bigger profits. First, a code of inviolable political taboos disempowers workers and gives them less of a say in how their company is being run, putting Spross’s “democratic” workplace even further out of reach. Second, buying into campus style identity politics helps mobilize the coalition for immigration reform, which technology companies are lobbying for aggressively. Third, and perhaps most importantly, the self-conscious mixing of social justice politics with profit-making adds valuable luster to technology companies’ brand and recruitment capacity—allowing them to attract idealistic and intelligent young people who think that they are carrying out a wider social mission even as they act as cogs in the machine of a ruthlessly efficient quasi-monopoly.

Conservatives looking at the Google spectacle with fear and dismay, then, shouldn’t necessarily see it simply as the product of an overreaching elite Left. It represents something wider—the exhaustion of Lilla’s “Reagan Dispensation,” which mixes capitalist self-expression and a laser-like focus on “the feeling self and its struggle for recognition.” Moving beyond this fraying marriage of convenience will require a politics of solidarity that steps away from the narcissistic individualisms of Left and Right and mobilizes Americans around a compelling vision of the common good. You won’t find such a politics in the conventional platforms of either party, but there are stirrings on the horizon.

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UAE Boycotts Western Banks With Qatari Ties

Unable to force Qatar to capitulate directly, the “quartet” of Saudi Arabia, the United Arab Emirates, Egypt, and Bahrain have increasingly been trying to shift pressure on Qatar to the United States and Europe. The UAE is now imposing informal secondary sanctions on Western banks, as the Financial Times reports:

Abu Dhabi has launched an informal boycott of western banks with significant Qatari shareholders, broadening the impact of the Arab quartet’s two-month embargo against the gas-rich state.

Officials have told bankers that lenders such as Credit Suisse, Deutsche Bank and Barclays are unlikely to win significant mandates in the capital of the UAE in the coming months because of large shareholdings held by Qatar’s sovereign wealth fund and members of the ruling family. [….]

Some quartet officials have suggested that sanctions could be extended to companies doing business with Qatar, although western officials say they have warned their allies against imposing more expansive restrictions.

“We have been told there is an informal boycott, there is nothing we can do,” said one banker. “There is no public blacklisting, but behind-the-scenes skulduggery.”

Estimates vary, but Abu Dhabi’s sovereign wealth funds have about a trillion reasons why foreign banks would want to do business in the Emirates. Likewise, the Abu Dhabi National Oil Company is privatizing parts of its businesses with multi-billion dollar IPOs organized by foreign banks.

There’s some limited signs that the economic pressure is having an effect. The normally rock-steady Qatari riyal, which like most Gulf currencies is pegged to the U.S. dollar, is undergoing some minor inflation. Secondary sanctions on banks operating in Qatar, whether imposed formally or not, would be a huge blow to Qatar.

But the move also has the potential to backfire. Some banks are already moving operations from Dubai’s financial hub to London and New York to reduce any potential exposure to political pressure from the quartet.

Perhaps more troublingly for the quartet, there’s little evidence that Americans believe—or particularly care—about the accusations they are making against Qatar despite the PR battle each side is waging in the American media. The Saudis have paid at least $138,000 for anti-Qatar TV ads while the Qataris have hired trucks to drive around Washington’s Dupont Circle:

Seen in DuPont Circle today. Takeaway: #Qatar clearly has plenty of $ 2 spend but is still running around in circles pic.twitter.com/yveXj81ke3

— Matthew Levitt (@Levitt_Matt) August 2, 2017

As we’ve written before, the evidence seems to suggest that this crisis was at least partly the result of Saudi Arabia and the UAE convincing President Trump that Qatar was a uniquely bad actor in the region. While Qatar does plenty of bad things that the U.S. would prefer to cease, the crisis now seems to be driven by parochial Gulf mud slinging that is of precisely zero strategic interest to the United States. UAE funding for think tanks or whether Qatar hosts a Taliban embassy that the United States wanted opened are inconsequential compared with actual U.S. objectives in regards to Qatar like continued operations at al-Udeid airbase and getting them onside against Iran. As new U.S. envoys arrive in the region for shuttle diplomacy, they would do well to filter out the noise being generated by both sides.

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Germany and the Return of a Europe of Nations

Europe’s politics remains steeped in history, even for states like Germany and France, whose intellectuals often claim to have moved well into a postmodern era. This makes it inherently difficult to approach calmly phenomena that borrow categories from the past, for terms such as “nation” and “nationalism” almost reflexively call to mind earlier invocations of an exclusionary “Volk” community, with all the implications such groupings carried for Europe. Hence, much of the debate over resurgent nationalism in Europe has been swept under the much safer—if confusing, and ultimately analytically questionable—category of “populism.” But the term “populism” denotes a way of making political claims on behalf of the people in opposition to an allegedly corrupt elite. As such it is only marginally useful when analyzing the sea change in European politics today. Populism is not so much an ideology as a manner of political discourse that can be superimposed on a range of ideologies, but can never substitute for them. Nationalism, on the other hand, offers a consistent set of ideological assumptions about those who belong to the larger national community and those who do not. And it is but a step away from the idea of sovereignty that grows from the sense of belonging to a nation.

Today nationalism is a powerful undercurrent in European politics, one that will define the future of the European Union and its largest state, Germany. It reflects changing public attitudes toward the European Union and the return of the idea of national sovereignty, even though, overall, the common European project enjoys strong public support. The surge of nationalism across Europe is about more than the usual skepticism about various supra-national claims by the leaders of the European Union. There is a core transformation underway in the European body politic shifting the tide toward greater national assertiveness in intra-EU politics. This change is not the product of some residual chauvinism of the sort that brought Europe its horrendous bloodletting in the 20th century, but rather a response to the two urgent and interrelated questions facing it today: immigration and Germany’s leadership on the continent.

No other factor has driven the re-nationalization of European politics more than the responses to the surge in migration from the Middle East and North Africa that began in 2015. In hindsight, historians are likely to view the decision by Germany to open its borders to migrants as the turning point for the European Union, for it has triggered across Europe strong demands by nations to retain full sovereignty when it comes to deciding whom to let into their countries. While most of the media reporting on resistance to migration has focused on Central Europe—with particular attention paid to Hungary and Poland, both vocal opponents of quota resettlement—in fact, across the continent 74 percent now insist that immigration decisions should be made by national governments, and not the EU. Among those nations that oppose EU intrusion into immigration decisions, Hungary is in the lead at 82 percent, with Poland in second place at 77 percent, but—tellingly—followed immediately by France and Germany, both at 75 percent. While Europeans remain generally accepting of foreigners, the unchecked flow of migrants into Europe—which, following the opening of the Libyan route, is predicted to surge now that an estimated 6.6 million migrants can cross into Europe—has hardened public opinion against immigration, with intra-EU tensions rising between governments over migrant resettlement, making this ultimately an argument about the sovereign right of states to self-govern. To Berlin and Brussels, the pushback against the EU’s various migrant resettlements schemes looks like little more than a lack of EU solidarity. But a growing number of states in Europe see it as standing up to Germany.

Increased wariness of Germany’s influence in the European Union is thus a major factor kindling the fires of nationalism across Europe. Almost half of Europeans (49 percent) express concern that Germany has too much influence over decision-making in the EU. German influence in Europe is overwhelmingly the organic result of its dominant economic position, and that position is poised to improve significantly in relative terms in the coming years, with the looming exit of the United Kingdom, the second largest economy in the EU. Germany’s €3.134 trillion GDP in 2017 is approaching those of France and Italy combined. It is more than seven times greater than that of Poland, Belgium or Sweden. The German economy is 27 times the size of Hungary’s, 78 times the size of Slovenia’s, and 125 times the size of Latvia’s. Given such great disparities in the overall power distribution across Europe, one would expect smaller states to favor federalization as means of ensuring that Germany remains enmeshed in the Union’s larger supranational structures. In fact, this argument worked relatively well until about a decade ago, for successive German governments went to great pains to convey to their partners that, for Germany “to be German, it had to be European first.” The 2008 economic crisis, and the Greek economic meltdown that unfolded in its wake, changed this perception. By laying down the law on fiscal policy and forcing Athens to take bitter medicine, Berlin sent a powerful if unintended message that, on core economic issues, other countries were to “be German, if they were to remain European.” The crisis also exposed the growing divide between Germany and the rest of the continent, especially the southern tier of the EU, over how to approach fiscal and monetary policy.

For a growing number of EU member-states, the vision of a “federalized” Europe is fast becoming one of a German Europe, and of a Germany that—in the view of their publics—increasingly demands adherence to its priorities on migration, fiscal policy, and Eurozone priorities. Germany’s recent clash with Poland over its decision to build Nord Stream 2 and its brewing confrontation with Italy over fiscal targets and banking are cases in point. In a sign of changing attitudes among Europe’s publics, there is growing resistance to allowing Brussels to negotiate trade agreements—an authority which has been the hallmark of the European project since 1957. Today, majorities in Greece (63 percent), Sweden and France (both 56 percent), Hungary (55 percent) and Poland (51 percent) with the Spaniards and Italians growing increasingly national on economic policy, at 50 percent and 48 percent respectively—want their national governments to make decisions on trade. The balance of public opinion in the EU is now 51 percent in favor of re-nationalizing trade deals, though Germany remains an outlier at 35 percent.

The return of nationalism to Europe need not be bemoaned. Rather, it should be understood as a baseline for how the continent is likely to adapt to the consequences of mass migration and shifts in the relative economic weight between states. The shift in public attitudes on national sovereignty is increasingly about the changing internal power dynamics in Europe and, by extension, about how Germany’s leadership in the European Union will evolve. The challenge facing Berlin today is to rethink how it exercises its leadership in a way that addresses the national concerns of a growing number of EU member-states. As it approaches a seminal general election, Germany has a decision to make over what role it will play in Europe going forward and how to foster a new consensus across Europe. Intra-EU debates about the “core” and “periphery” that seem to dominate the current thinking on how the EU wants to move miss the point. The preservation of the common European project is an interest shared across the continent, but the current approach of “deepening” by de facto federalizing Europe’s community has already run its course. The future of the European Union rests not only on whether those countries that are positioning themselves in relative opposition to Germany eventually reach a compromise on policy, but also on whether Berlin comes to appreciate how increasingly troubled inter-state relationships across the continent have become. This crisis is not simply about obstinate Hungarians and Poles, increasingly stubborn Italians, or the perennially difficult Greeks. The future of the EU hinges first and foremost on Germany’s capacity to exercise its leadership in a way that responds to those national concerns and defuses the growing intra EU tension, rather than surging ahead with a “two-tiered” solution that, by definition, would divide the Union.

It is up to Germany to figure out what it needs to do next to preserve the idea of a common Europe as a shared project.

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