Articles by Thomas Gratowski on the GC Blog and GC analysis
The last couple of months have been “suboptimal” for Saudi Arabia, to say the least. The Khashoggi murder has brought the leadership around the crown prince, Mohammad bin Salman under severe international and domestic pressure. Rumours of wider discontent with “MBS” were likely one reason why King Salman extended by another year costly household allowances at the expense of fiscal consolidation. As if that wasn’t bad enough, the drop in the oil price in the last quarter of 2018 has reduced the kingdom’s growth prospects. The IMF’s recent WEO update downgraded the country’s GDP growth forecast by 0.6 percentage points. It is perhaps ironic then that Saudi Arabia’s arch rival, Iran, might well be Riyadh’s best hope in 2019 to reset some of its current problems.
EUROPE: Global Counsel Practice Lead Thomas Gratowski discusses with Sir Peter Torry, former UK Ambassador to Germany, the future of the CDU leadership after Merkel steps down in December and what it might mean for her chancellorship until 2021.
US: Senior Associate Thomas Gratowski discusses the possible outcomes of the US midterm elections.
WORLD: Global Counsel Chief Economist, Gregor Irwin, and Senior Associate, Thomas Gratowski, discuss implications of the global trade war.
This is the third quarterly issue of the Global Counsel Brexit dashboard. More than two years on from the vote – and with just six months before the UK leaves the EU – we are taking the macro pulse of the UK economy, using a balanced set of 15 indicators. We are not attempting to isolate the impact of Brexit from all the other factors affecting the economy, as that is near impossible. Instead, we are providing a health check, to see where the economy is faring better or worse, compared to the years before the vote.
This is the second quarterly issue of the Global Counsel Brexit dashboard. Two years on from the vote – and with just nine months before the UK leaves the EU – we are taking the macro pulse of the UK economy each quarter, using a balanced set of 15 indicators. We are not attempting to isolate the impact of Brexit from all of the other factors affecting the economy, as that is near impossible. Instead, we are providing a health check, to see where the economy is faring better or worse, compared to the years before the vote.
Time is running out for the Iran nuclear deal. Trump’s self-imposed 12 May deadline, by which he wants to decide whether to continue waving sanctions lifted under the nuclear agreement, is just a week away. It appears increasingly unlikely that European proposals will prevent Trump from re-imposing sanctions. But this won’t be the end of negotiations about Iran. Transatlantic diplomacy about Iran policy, the nuclear deal and perhaps a ‘supplemental agreement’, will be complemented by parallel negotiations about what constitutes legitimate business with Tehran. The US administration will likely reintroduce sanctions as waivers expire, thus gradually increasing pressure on European governments to find a political agreement, but also to protect their economic interests.
This is the first issue of the Global Counsel Brexit dashboard. 21 months on from the vote – and with just 12 months before the UK leaves the EU – we can now take the macro pulse of the economy, using a balanced set of 15 indicators, each quarter. We are not attempting to isolate the impact of Brexit from all the other factors affecting the economy, as that is near impossible. Instead, we are providing a health check, to see where the economy is faring better or worse, compared to the years before the vote.
Sunday’s result of the SPD membership vote has been welcomed across Europe. Many, from Paris to Rome and Madrid, are relieved that the SPD will be part of the next government (and the FDP in opposition). What makes Social Democrats so attractive is their commitment to ‘more Europe’ and eurozone reform, and their openness to put additional German money on the table to achieve it. The prospect of greater risk sharing in the eurozone has helped lift the euro in recent months. The hope is that Europe will benefit from both, more German money and Germany’s reputation as a sound fiscal manager. A closer look at the grand coalition agreement however calls into question whether it can deliver both.
Brexit was conspicuous by its absence in the German election campaign. Migration, Islam and relations with Turkey dominated the only TV debate in early September. Relations with the second largest European economy were not even mentioned once. The EU itself also hardly figured in the campaign, beyond the usual vague commitments to the union, and having more of it. That changed after the election, when German debate about the big ideas being floated by Emmanuel Macron gathered steam. Whether or not Germany should be openly debating its future relationship with the UK, its debate over the future of the EU is likely to have important implications for that relationship.
Earlier this month, the German cabinet adopted a directive expanding the scope of the German state’s ability to investigate foreign acquisitions in a wide range of critical infrastructure and the IT services that support it. In parallel, Berlin has led an advocacy campaign at the EU level over the last six months for the creation of a new EU level screening regime for FDI in sensitive sectors where state-backed acquisitions might raise political concerns. This is a material shift from Berlin, and one which has the scope to produce material change in the way the EU approaches inward investment from China and Russia in particular. So is this a pre-election gesture from Berlin, or a sign of a more serious shift in the EU approach to inward investment?
It’s only been three weeks since Trump’s visit to Saudi Arabia, but the repercussions could be felt the moment he left. Only a few hours after his departure to Israel, Bahraini security forces stormed a Shiite village where protesters had staged sit-ins in support of a top Shiite cleric, who Manama accused of supporting foreign interests, meaning Iran. A week later, Egypt’s President Al Sisi enacted a new law restricting NGOs. Up until then, he had been reluctant to sign the law because of pressure from US Congressmen. And a week ago, Qatar was isolated by half a dozen Arab states, not least because its critical Al Jazeera news station has annoyed their leaders for many years.
The Dutch election has set a precedent: It pays for ‘mainstream’ European politicians to take a tough line on Turkey, which has become the symbol for the challenges of immigration in many EU member states. Mark Rutte’s stand-off with Ankara was certainly a vote winner. This has not gone unnoticed by party strategists in Paris and Berlin, who are preparing for their own landmark elections this year. Turkey is also heading towards its own vote in a few weeks, making domestic politics an important part of current disputes between the Turkish government and its counterparts in Europe. Once the dust settles later this year, will both sides return to more cooperative relations?
Donald Trump may be a deal maker, but on the Iran nuclear deal he is a wild card. He has said he would police the strict implementation of the nuclear deal with Iran, which is President Obama’s primary foreign policy achievement. He has also said his top priority is to dismantle it. Such contradictory statements are a Trump signature, but make understanding his Iran policy no easier. One thing is clear, he cannot ignore Iran. To uphold the US side of the deal, he must regularly use his executive powers to renew sanctions waivers. The question is, will he do this? There are many possible actions Trump might take as president but only three plausible scenarios for the future of the nuclear deal with Iran.
The German federal election is less than a year away and strategists in the two large coalition parties are both preparing to answer the same question: how to change the subject from migration. This week hinted at the likely answer, and it is not a particularly novel one: money.
The nuclear deal between Iran and the West was no ‘grand bargain’. It was a narrow agreement to curb the Iranian nuclear programme in return for Western sanctions relief. Tehran continues its support for organisations such as Hezbollah and collides with the West over Syria. Its missile programme still angers NATO and violates at least the spirit of the deal. With the deal’s first anniversary on Thursday, it is worth asking why it has had relatively limited effect in restarting commercial links between the two sides, which was both a rationale for the deal but also part of the calculus for what might make it stick.
While a lot has been written and said about the impact of Brexit on EU member states (and we have offered our own assessment), less attention has been paid to Turkey. One of the few statements came last week from the head of the Turkish-British Business Council, Remzi Gür, who said that the country would not suffer any commercial or strategic losses if the UK left the EU. This might be an overly optimistic assessment, however.
Right after John Kerry met with the CEO’s of Europe’s largest banks last week in London, HSBC’s chief legal officer reflected the general mood among UK banks when he said that his firm had “no intention of doing any new business involving Iran”. Given that this was the point of the meeting, one wonders why Kerry bothered showing up.
Flicking through the news channels in the last two weeks has revealed an image of Turkey sliding deeper into political turmoil. One of the reasons for this is President Erdogan’s ambition to change the political system to an executive presidency, a path we can now say with near certainty he has chosen over economic reforms. The game he is playing is about numbers. His AKP has 317 seats in parliament which is not enough to change the constitution. Only 330 votes would allow him to unilaterally put constitutional changes to a referendum, and with 367 votes the AKP could do it alone. This simple arithmetic demonstrates that achieving an executive presidency would require extraordinary measures.
Picking carefully through the numbers from the March 13 state elections in Germany brings home an important point about just how blue collar the AfD has become as a party. The AfD which did well in Baden-Württemberg, Rheinland-Pfalz and Sachsen-Anhalt, as it was expected to do. In doing so, it demonstrated how the crisis has transformed the party from one of professors into one of economic and cultural protestors.
Turkey’s incumbent prime minister and AKP party leader Ahmed Davutoglu kicked off coalition talks this week. The strategic calculations of the AKP will be heavily shaped by the recognition that winning back voters and exploiting a quirk in the Turkish electoral system will be the only way back to single-party rule in the future.
As was to be expected after his majority win on 1 November, the new Turkish government has left little doubt about Recep Tayyip Erdogan’s dominance in the AKP, and the AKP’s confident status as a majority government. The AKP now has four years to govern alone with no major election before 2019: will Erdogan use this political space for structural reform, or to cement his bid to create an executive Presidency? Can he do both? There is good reason to believe that for the short term the choice is a binary one. Whatever observers might hope to see in Turkish policy, their best tool for predicting the most likely future remains a close reading of Erdogan’s calculus about how to achieve his political aim of leading Turkey in 2023 as its executive President.
For almost exactly one year the German Grand Coalition government has preserved Angela Merkel in power and handed the centre-left SPD exceptional influence over energy and microeconomic policy. The trade-offs at the heart of the coalition were possible only because apparent German economic strength allowed a ‘consensus’ on simultaneous fiscal discipline, expansive energy spending and a deepening of the German social safety net. 2015 will be the year that this consensus starts to unravel, as Germany comes under increasing economic pressure. Both sides of the coalition are now focused on reasserting their own diagnosis and prescriptions for German growth and Ms Merkel is perched above this fracturing partnership. Can she control it? What choices will it force on her? And given Germany’s centrality to policy choices at the European level, what does this German domestic landscape imply for the rest of Europe?