The inauguration of Donald Trump as 45th President of the United States represents the triumph of populism over the world’s greatest democracy. It also sets the stage for populists to make further gains across Europe. Trump’s affection for Nigel Farage is plain to see. His affinity for (and his attraction to) populists of other shades is easy to find as well. The challenge is to sort out what this means for the European project. Populists tend to stake out Euroskeptical positions, and Donald Trump has made no secret of his indifference for the European Union, but it is hard to say just how populists can have a lasting impact unless they somehow manage to seize control over government.
The surprise victory of Donald J. Trump in the United States (US) presidential elections briefly pushed the euro, the Swiss franc, and the Danish kroner up against the dollar. It also pushed down the yields on high quality sovereign debt and it temporarily sent equity markets into the red. This was all to be expected. Like almost everyone, market participants thought Hilary Clinton would gain the White House alongside a predominantly Republican Congress. They placed their bets to take advantage of another four years of competent administration and legislative logjam. A Trump victory upset that calculation and so some of those market participants were trying to safeguard their capital until they could get a better sense of what is happening. The assumption they made was that Europe can act as a safe-haven. Unfortunately, that assumption is mistaken.
Europe’s heads of state and government face a real dilemma. They want to attract support for European integration from the people of Europe and they also want to show the outside world that the European Union remains a major source of dynamism and innovation. So the question is how best to achieve those two goals. Should they propose a new project that will attract everyone’s attention or should they try to come up with some ‘vision’ that explains why Europe still matters?
There is a growing chorus of disenchantment with Europe and populist parties are preaching anti-European slogans across the member states. Today’s British referendum on European Union (EU) membership is only the most extreme manifestation of that disaffection. Whatever the outcome, the turmoil surrounding popular attitudes toward Europe is not going to end. The reason is a lack of vision.
Free trade is welfare enhancing. Interdependence requires cooperation. Central banks should be politically independent. And the United States is the indispensable world leader. These are the certainties we used to offer graduate students in international relations. Now they are all aflame.
The European Council has delivered an agreement on Britain’s new relationship with the European Union. The agreement acknowledges that the British government has no obligation to engage in further political integration, it recognizes that not every country will adopt the euro as a common currency, it strikes a balance between the need for common rules and the desire for national autonomy in the area of financial market supervision, it stresses the importance of effective regulation for competitiveness, and it introduces a mechanism to phase in the benefits that accrue to workers who move from one member state to the next. These concessions become effective once the British government informs the European Council of the United Kingdom’s commitment ‘to remain a member of the European Union’. The challenge now is for British Prime Minister David Cameron to win the ‘yes’ campaign. At least, that is what it says in the post-summit script. The agreement may just be enough for the British people to play along.
Mario Draghi reassured the markets at the 21 January press conference of the European Central Bank (ECB) by making it clear that the Governing Council is unanimous in its desire to reassess economic conditions at the upcoming March meetings and to reconsider its policy stance if necessary. He stressed that there is no limit to the action that the ECB can undertake to achieve its mandate. And he reiterated that whatever the actual policy decision in March, the ECB is already working to resolve any technical issues that might prevent it from using the full range of instruments at its disposal. The response in the markets was immediate. Bonds and equities rallied while the euro moved lower against the dollar – all good things from the ECB’s perspective. ECB watchers were cautiously optimistic. A few voices noted that the ECB had promised in October of last year only to under-deliver in December; this time actions should speak louder than words. So should results. Draghi has reiterated his July 2012 promise to do ‘whatever it takes’. What he did not say is that ‘it will be enough’. Instead, he insisted: ‘We don’t give up.’