Heroes: Europe and the New Right 

 

‘Is this your infirmary 

On the road to recovery 

White car in Germany’ 

 
Whether or not we like it politics and the economy are inter-linked. 

The last 10-yrs in the UK has seen a combination of central bank economic stimulus undermined by government austerity. As a result we have had poor growth, made up of a unique combination of prosperity for the few and misery for the majority. 

This, in the UK has been the catalyst for hard-right politicians. 

In the last 2-yrs, most economies have experienced rising interest rates rise to combat inflation caused by a spike in energy prices triggered by Russia’s invasion of Ukraine. Now that energy prices are falling, it would appear that we are in a new era of normalised interest rates settling at 2-4%.  

If this is to be the case this could prove a catalytic moment for economic growth, restoring the primacy of a market driven economy over the distortions caused by central banks post the GFC, I.E., zero-interest rates and QE since. Business will, in effect, be forced to invest in real stuff, rather than share buybacks, to generate real returns. In addition, normalised interest rates will force households to budget as the realisation that borrowed money has consequences hits home. 

There will inevitably be some pain, but, over the medium-term the global economy will rationalise and revert to growth. 

The bursting of the enormous financial asset bubble created post the GFC will form part of the unravelling. Whilst painful for some, it is the final solution to policies that did little to stimulate growth, and much to widen income inequality. 
 

‘over the medium-term the global economy will rationalise and revert to growth’

 
Casualties will include the housing bubble which could revert to affordable levels, and stock might start to trade at sensible P/E expectations.  

For corporates over-levered ‘Zombie’ companies might fail. For workers, unemployment might increase, and households could face having to budget, limiting discretionary spending. In short, there could be a recession. 

However, these issues maybe counter-balanced by corporates investing in new plant and infrastructure as the world adapts to changed supply chains and geopolitics. Technology, such as AI and increased digitalisation, could stimulate productivity. In addition, there is the increasingly subsidy focused efforts of governments to plan for climate change by sponsoring energy and economic transition, E.G., Biden’s Inflation Reduction Act  

In reality, the biggest fear is fear itself. 

What we must avoid is any knee-jerk reaction if markets falls, and investor clamour for central banks to reintroduce zero interest rates and QE. 

There will be people predicting doom as recessionary deflation and unsustainable debt loads as higher rates mean rising debt servicing costs crowd out all other Governments spending. 

To an extent we are already experiencing this in the UK as a number of regional and city councils declare themselves bankrupt. This has been caused by central government cutting their funding leading to cuts in services. 

This has little to do with economics and everything to do with government policy. The incessant Tory media and bank bench calls for tax cuts are funded by austerity, which, in part, is funded through cutting council funding. Once again, it’s priorities.  

Mainland Europe and the ECB’s policy will be revealing. As more hard-right politicians come to power, I wonder if they will follow the Tories down a low tax, small government, slash and burn road to ruin? 
 

‘As more hard-right politicians come to power, I wonder if they will follow the Tories down a low tax, small government, slash and burn road to ruin?’

 
If so, will the ECB have another ‘whatever-it-takes’ moment, intervening to force down rates, to provide an economic lifeboat? 

Aside from being a massive boost for the dollar, Treasuries and US stocks, it will draw inward investment into the US at the expense of Europe. 

At some interest rate distortion in Europe has to be normalised for it to start growing again. 

To better understand what might happen economically in Europe we need first to understand the current political reality. 

In western Europe, far-right parties are no longer languishing at the margins of politics, where they can be ignored or used by traditional right-wing parties, they are now part of the political mainstream, and becoming increasingly dominant. 

In Holland, Geert Wilders’ path to electoral victory was eased when the leader of the conservative VVD party invited Wilders’ party to become a coalition partner. This was the moment when many voters thought it might just be easier to vote for Wilders party. 

This example should be a lesson to other mainstream parties, accommodating far-right parties in coalition governments let them slip in by the backdoor. 

However, issues such as immigration are becoming increasingly mainstream across Europe, making it difficult for conservative leaders to keep excluding far-right parties from government. Voters are now questioning why parties that sound very similar to theirs, albeit with a more populist stance, are considered beyond the pale for coalition formation. Increasing, voters want to see strong right-wing coalitions, not the more traditional weak centrist ones. Basically, they want governments comprised of parties that share their views on the issues they care about, I.E., stricter immigration controls, law and order, less Europe. 
 

‘Increasing, voters want to see strong right-wing coalitions, not the more traditional weak centrist ones’

 
This is happening now in Holland within the VVD, as their leader has again rejected the idea of joining a right-wing government in which she would serve under Wilders. Also, in Sweden, last year, a majority of the supporters of two of the coalition parties preferred the far-right Sweden Democrats over the centre-left Social Democrats. 

This is a situation that has been percolating since the late 1990’s, well ahead of the 2016 Brexit referendum. 

In the 1990s, only one national government in western Europe included a far-right party, the Northern League, in the first Berlusconi government in Italy. Other far-right parties, such as the Austrian Freedom party (FPÖ) and the National Front (FN) in France, started to achieve electoral breakthroughs. But although several entered national parliaments, most were still relatively small, attracting only single-digit electoral support. 

 

At the beginning of the 21st century, many far-right parties achieved their political breakthrough. Following this, far-right ideas were brought into mainstream by other parties, including some centre-left parties such as the Danish Social Democrats. At this point the far right effectively became part of the political mainstream. 

As a result, far-right government participation has become increasingly common. They have either joined or propped up national governments in Austria, Denmark, Finland, Greece, Italy, the Netherlands, Norway, Sweden and Switzerland. In several countries, these parties are so normalised that coalitions with them no longer require any special justifications. 

Previously, far-right parties in western Europe had entered coalition governments from a position of weakness, either as junior partners or as external support parties. For them, the main benefit of being part of the government was that it allowed them to become ‘fully normalised’ rather than to push through their political programme.  

Consequently, these western European coalitions have rarely attacked the liberal democratic system in the way that far-right governments have been doing in central and eastern Europe, most notably in Hungary and Poland. 

However, there have been two significant changes that have benefitted the far-right. 

Firstly, the so-called refugee crisis of the mid-2010s, has led to most right-wing parties adopting nativist policies. For example, the European People’s party (‘EPP’) is the largest political group in the European parliament. Their 2019 manifesto discussed the issue of immigration under the heading ‘A Europe that preserves our way of life’.  

A sign of their increasing influence came when Ursula von der Leyen, the president of the EC, tried to give a similar job title to the commissioner and VP responsible for immigration. 

Second, due to their policies becoming mainstreaming and copied by the traditional parties, the far-right has prospered electorally. Today, far-right parties poll first in Austria, Belgium, France, Italy, the Netherlands and Switzerland . Whilst the far-right leads only one national government in western Europe, Giorgia Meloni’s Italian coalition, the next Dutch government could follow suit, with the Austria not far behind. 
 

‘far-right parties poll first in Austria, Belgium, France, Italy, the Netherlands and Switzerland’

 
To balance this scary scenario, it is possible that Wilders may fail to build his coalition. Also, in several western European countries, such as Iceland and Ireland far-right parties remain fairly marginal, and they are far from dominant in Portugal and Spain).  

But in a, mainstream right-wing politicians can no longer simply assume that they will lead, let alone dominate, coalitions with the far right. 

It is crucial that a growing number of countries start to rethink their priorities and strategies for alliance building. Considering the terms of any coalitions they enter into, and what are the red lines that cannot be crossed? And, most importantly, how are these red lines enforced if they are a junior partner? 

Currently, liberal democracy remains the legal framework in both the EU and its member states. But, even though it is broadly supported in its societies, we can no longer simply assume that will always be the case. In today’s Europe, liberal democratic values such as pluralism and minority rights must be asserted rather than assumed.  

In effect they must be defended and strengthened, not just against the increasingly dominant far- right, but also against the radicalised political mainstream that has largely normalised it. 

In essence we have seen, by stealth, the creation of an age of European insecurity.  
 

‘In essence we have seen, by stealth, the creation of an age of European insecurity’

 
In addition to the current hard-right hobbyhorses such as immigration undermining the nation state , the climate crisis, fears of AI and digitalisation, and economic inequality, there is the military threat from Russia. 

These insecurities are not confined to European Union states, and they haven’t been caused by the EU. Non-member states have proved to be just as much a prey to these insecurities as the member states are. Countries outside the EU such as Britain, Norway, Serbia, Switzerland, even Turkey and Ukraine are all impacted. 

In Ukraine, the war is not going as well as hoped, it has become a long war necessary to contain a belligerent Russia. Whilst Europe has spent heavily its assistance is not proving decisive, meaning that the US is bearing much of the burden. However this support may come to an end if Donald Trump is re-elected.  

If Trump did stop US support, Europe is in no position to fill the gap. Its industry is no longer geared towards the large-scale military production required even if Ukraine prevails. Put simply; Europe cannot defend Ukraine, or itself for that matter. 

This is why mis-guided politicians such as Liz Truss should keep their opinions on US politics to themselves. The very last thing we need is an isolationist, America first, president 

Next month, the EU will begin the formal process of Ukraine’s accession. Whilst, in geopolitical terms, it is a significant act of solidarity, there are some valid reasons for caution. In one stroke a large portion of the eastern boundary of democratic Europe will be on Russia’s doorstep. 

In addition, there is the huge financial cost of rebuilding Ukraine, the migratory impact on Ukraine’s already immigrants sensitive western neighbours, the effect on the under-pressure EU budget, and the impact on EU decision-making and institutions in a bloc that may soon number 36 member states.  

All member states, the central Europeans in particular, will also be wary of the potential impact of 44 million Ukrainians on their labour markets under freedom of movement rules. While member states retain their right of veto over EU foreign policy initiatives, the common response that some EU leaders crave will be hard to achieve. 
 

‘Europe cannot defend Ukraine, or itself for that matter’

 
Much of the success of Ukraine’s integration into the EU is predicated on when the German economy recovers. 

Whilst we are no longer a member state, Brexit has in no sense freed us from these larger influences and connections. In some respects, it has merely made them worse. Neither are hard-right politicians and their pernicious effect of traditional right-wing parties. In ‘The Right Marches to the Tune of Anti-Immigration’, I quoted Cas Muddie, who said; ‘Look at Britain’s Tories. In their discourse and rhetoric, they are radical right’. If that isn’t enough, there is the spectre of Farage and Reform being part of a coalition government. 

Brexit may have stopped us being a member state, but we are still part of Europe. Every single issue haunting modern Europe haunts modern Britain too, whether it is the Ukraine war, growing the economy, redressing social inequalities, managing migration, climate crisis and even the decline of the nation state.  

We have to partner with Europe, our insecurities and our hard options for overcoming them are not different, in the majority of cases, they are exactly the same. 
 

‘… Now the winter comes down, I can’t stand the chill 

That comes to the streets around Christmas time’ 

 
Philip left his preamble apended today, and that is perfect because it provides valuable insight into his thought process, but also includes some ‘bonus tracks’ that didn’t make it into the main event!

‘Rishi finally found a way to forget the Elgin Marbles, he copped of to Cop 28 (or whatever number we are up to now). I suspect this will another flop to follow his flip when he decided that oil and cars were the way forward. 

Speaking of the marbles, Stamer’s quip that Rishi has lost his marbles was much appreciated. That wasn’t the only loss, apparently the Home Office has no idea where 20,000 ‘illegal’ immigrants are. 

Elsewhere, the Covid enquiry rumbles on, confirming what we already know; we were totally unprepared, and the government was comprised of incompetents. 

Given this, I have taken the opportunity to consider European politics, and the possibilities and challenges offered by the ‘normalisation’ of interest rates. 

As a summary, what we are seeing is mirrored in most European countries, the hard-right is marching, and its policies, however repugnant, are becoming mainstream as traditional right-wing parties rush to join the party. 

Ukraine joining the EU is gesture of solidarity, but brings Europe closer to threat offered by Putin’s Russia. 

Lastly, I want to highlight the health problems that are being caused by the pollution of our seas and rivers by privatised water providers. 

The campaign group Surfers Against Sewage reports that in the last year, there have been C. 2,000 cases of people falling ill after being in the sea. N.B., these are only the reported cases.  

Since the water companies were privatised in 1989, under the promise that they would upgrade our Victorian sewage system, they have accumulated £54bn in debt while paying out at least £65bn to shareholders. There has been no sizeable upgrading of infrastructure, and so billions of tons of sewage have been dumped into our seas. There is also evidence of dry spills (when sewage is discharged into the ocean despite no rainfall) and failures to upgrade monitoring technology – all allowed to happen because of a lack of regulation. Water companies have consistently shown that they will put profit over the adequate maintenance of our water system, until they are compelled to do otherwise. 

Surfers Against Sewage’s latest water quality report shows that last year 60% of popular inland swimming spots in England would have a quality rating of poor according to the Environment Agency methodology.  

Lyrically, we start with The Associates ‘White Car in Germany’. To finish we pay tribute to the last Shane MacGowan. I met him a few times in late 1976, and we were both following the nascent punk scene, led by the Sex Pistols. RIP Shane! 

From their debut album, we play out with ‘Dark Streets of London’ by The Pogues. Enjoy!
 
@coldwarsteve
 

 
 

 

 

Philip Gilbert is a city-based corporate financier, and former investment banker.

Philip is a great believer in meritocracy, and in the belief that if you want something enough you can make it happen. These beliefs were formed in his formative years, of the late 1970s and 80s

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