Insight and Analysis

March 2018

By Daniel P. Erikson and Gabriella Ippolito

In remarks before his trip to Latin America last month, U.S. Secretary of State Rex Tillerson mused about the importance of the Monroe Doctrine, which he called “as relevant today as the day it was written.” Latin American leaders and analysts were largely nonplussed by the Trump administration’s invocation of the nearly 200-year old policy, originally conceived to oppose any efforts by Europe to reassert power over its former colonies in the hemisphere. To be sure, the primary targets of Tillerson’s attention were Russia and China, two states he described as “predatory actors” in Latin America. Renewed engagement by Europe has largely escaped the notice of U.S. policymakers and would, in any case, be seen in a different light. Nevertheless, European and Latin American governments are directing new energies towards developing stronger political and trade ties as they each contend with the challenges posed by shifting U.S. policies.

Despite their deep cultural, linguistic, and historic ties, relations between the European Union and Latin America are only now beginning to reach their potential. According to top EU diplomat Federica Mogherini, “Europe, Latin America, and the Caribbean share a cultural heritage based on centuries of common history. And what is more, we share the same values and world view. We believe in a world order that is based on cooperation, on regionalism, on multilateralism.” The European Union, traditionally focused on managing relations with the United States, the Middle East, and, more recently, China, while the rest of Asia has usually ranked Latin America towards the bottom of its foreign policy priorities. However, Europe’s economic ties with Latin America and the Caribbean have grown in recent years, reaching $235 billion in bilateral trade in 2016. The European Union accounts for half of all foreign direct investment in Latin America and the Caribbean, and it is currently the region’s third largest trading partner behind the United States and China.

In 2018, the European Commissioner for Trade Cecilia Malmstrom is pursuing two major trade deals with Latin America that could lock in long-term economic benefits if they can be achieved. The EU’s trade negotiation with Mexico, launched in May 2016, aims to build on the existing $57 billion in bilateral trade. Even as Mexico remains locked in contentious NAFTA talks with the United States, it is simultaneously pursuing the EU-Mexico free trade deal intended to replace one signed two decades ago and expand beyond industrial goods to include agricultural products, services, and investment.

The European Union is also engaged in trade negotiations with MERCOSUR (the Spanish acronym for the South American Common Market consisting of Brazil, Argentina, Paraguay and Uruguay). The EU, with a population of 500 million and a GDP of $17 trillion, accounted for 21.8 percent of MERCOSUR’s total trade in 2016, and EU investment in the trade bloc more than tripled between 2000 and 2014 from $141 billion to $494 billion. The EU is eyeing MERCOSUR’s population of 275 million as an attractive market for European goods and services. Currently, the EU has bilateral Partnership and Cooperation agreements with Argentina, Brazil, Paraguay and Uruguay. (There is no such agreement with Venezuela, which joined MERCOSUR in 2012 but is currently suspended from the group and facing sanctions by the EU.) After nearly two decades of fits and starts since EU-MERCOSUR negotiations first began in 1999, the current effort, launched in May 2016, is gathering momentum. However, the biggest obstacle may be the fierce opposition by Irish and French agricultural producers, especially in the beef and cattle industries, who are loathe to face increased imports from Argentina and Brazil.

Europe and Latin America’s renewed embrace is driven in part by their mutual desire to diversify their trading relationships as the United States pursues new and more unpredictable trade policies that create greater uncertainty in the global trading system. This new paradigm, if successful, may redirect billions of dollars of trade and investment and tie Mexico and Brazil-led MERCOSUR, the two economic giants of Latin America, ever closer to the European Union.

March 2018

By Étienne Bodard

“2018 will be a decisive year for Europe.”

This was the bold pronouncement made by French President Emmanuel Macron, who used his first New Year Eve speech to outline his strategy for Europe in advance of European elections in 2019.

Macron clearly has 2019 in his sights, partly due to the fact that the European election results will be taken into account for the appointment of the next President of the European Commission and the 26 EU commissioners. These positions are particularly important because the European Commission has the “right of initiative” to propose and draft new bills. The Commission could, in theory, support Macron’s proposals for Europe or, on the contrary, block them. In 2014, for the first time, the leader of the largest political party was automatically appointed as President of the Commission. The European Parliament is pushing to keep this appointment method but President Macron is seeking allies among other EU leaders to change it and facilitate the accession of his preferred candidate to the EC presidency.

Behind these institutional debates, it is the future of Europe which is at stake.

Macron’s Vision for Europe

In September 2017, President Macron unveiled his ambition to rebuild a “sovereign, united and democratic Europe” at his major address at La Sorbonne, in which he presented a detailed 10-year roadmap plan. Delivered at just the moment when German Chancellor Angela Merkel – Europe’s undisputed leader so far – was in a difficult domestic position following Germany’s Federal elections, Macron has sought to position himself as Europe’s leading agenda setter in the post-Brexit era.

Macron’s underlying premise is clear: Europe is the only and right answer for European citizens facing global and contemporary challenges – such as climate change, digital transition, terrorism, and social and tax dumping. And yet at the same time, this vision is threatened by a growing wave of anti-EU ideas illustrated by rising nationalism, protectionism, and isolationism. To address this paradox head-on, Macron’s hopes to bring Europe closer to its citizens, to involve them in the construction of the European project, and to call for a “multi-speed” Europe, allowing some member states to move ahead of others in some areas.

To paraphrase Macron’s words, stand up for Europe and rebuild Europe.

To succeed, President Macron will have to challenge the two-party system in the European Parliament, navigate smoothly, and find allies among other EU leaders – as he will not be able to impose his views only by himself. In this respect, he has Germany's Social Democratic Party to thank, which approved on March 4 the renewal of its coalition with Chancellor Angela Merkel, a key Macron ally.

However, whereas the political crisis in Germany is now fixed, it’s now Italy that is facing political instability following its recent general elections results. This instability, the defeat of former social-democrat Italian Prime Minister Matteo Renzi (potential Macron ally), and the emerging populist and hard-right majority will render Macron’s challenge even more difficult.

Macron’s EU Strategy

To disrupt the European political game, one of Macron’s major proposals was to reallocate some of the UK’s 73 MEPs seats freed up by Brexit to instead serve on so-called “transnational” electoral lists (common lists of candidates who are able to run for election across the whole EU territory, rather than at their own national level) for the 2019 European elections. This maneuver would have encouraged European citizens not to vote for national candidates or based on national considerations, in turn strengthening the very concept of EU citizenship and a European dimension to the elections. This was Macron’s symbolic response to Brexit.

Such a pan-European list would have been a perfect Trojan horse for Macron to influence the choice of the next President of the European Commission, which is one of Macron’s key objectives to solidifying his EU vision; the President could have been chosen among the candidates elected on this pan-European list rather than by political parties, as the EU’s current “Spitzenkandidat process” requires.*

While his maneuver ultimately failed, President Macron made it clear that he will keep fighting for the transnational list system to be adopted for the 2024 European elections. Indeed, only a few weeks after this defeat, Macron and his counterparts questioned the Spitzenkandidat process itself. This then opened the door to a third way forward, which offer a significant opportunity for Macron; rather than choose the next President of the European Commission from among the largest political group at the Parliament, instead choosing him or her from among the largest coalition, made up of several political groups.

This approach would enable Macron to create new political alliances and, ultimately, facilitate the accession of his preferred candidate to the EC presidency. This is a key strategy of Macron’s to shore up support from the European Commission presidency for his vision to rebuild Europe and back the implementation of his 10-year agenda.

Ultimately, Macron’s potential alliances across the EU will depend on the results of the 2019 European elections, which will also serve as his first national political test (akin to U.S. midterm elections) since his 2017 French presidential victory. One option will be for Macron to create his own new political group at the European Parliament with the support of other EU leaders, including such moderate MEPs as those from the ALDE (center), EPP (conservative), and S&D (social-democrats) political groups.

However, knowing that a political group must gather at least 25 MEPs coming from at least seven different EU member states, creating a new political group would then require support from other political leaders Europe. It will be a significant challenge for Macron as not everyone shares Macron’s vision and ambition for Europe.

A second option would be for Macron to join one of the existing political groups and work towards building a broader alliance.

Next Steps

On the sidelines of his first speech in front of the European Parliament on April 17, President Macron will officially launch the first public consultation citizen process aiming at eliciting views on the European project and breathing new life into Europe. These consultations will be organized on an ongoing basis and up until the 2019 European elections in all EU Member States, except for Hungary, which has refused to take part.

In parallel, the French Parliament will soon adopt a reform of the country’s national electoral law (reducing the electorate from eight regional constituencies to one single national constituency). This will effectively put Macron’s En Marche party in a strengthened position ahead of the 2019 European elections.

If it is today still unclear which political option Macron will choose, it now appears that he is building a step-by-step plan to disrupt the EU political landscape, solidify his claim to leadership of the union, and implement his 10-year reform agenda.

It’s a difficult and audacious bet. Reactions to Macron's upcoming address at the European Parliament on April 17 will provide a new window for scrutiny for what could happen politically in Europe in 15 months.

* The Spitzenkandidat (or "lead"candidate) system, used for the first time in 2014, is a process in which each major political group in the European Parliament appoints its candidate for the position of President of the European Commission prior to the Parliamentary elections. The Spitzenkandidat process is binding for the European Member States. Indeed, the EU Chief of States or Government are forced to automatically appoint to the Presidency of the European Commission the Spitzenkandidate of the largest political group following elections.

March 2018

By Susanna Montrone

This article is a contribution from our UK network partner firm Four Communications based in London.

It seems the new normal in global politics is scepticism of the establishment. This has been demonstrated yet again this weekend as the majority of Italians chose to vote for anti-European parties, in a resounding rejection of both EU control and the ruling moderate Democratic Party, led by Matteo Renzi. While the final results are still to be determined, it’s clear no one party has the majority needed to form a government on its own, which means Italy is in for weeks or even months of protracted negotiations.

The Negotiations

The key players in these talks will be the anti-establishment Five Star Movement, which won the largest primary vote at over 32 percent and the similarly Eurosceptic far right Northern League, which received nearly 18 percent of the vote. The Northern League, together with its other right wing coalition partners, Forza Italia led by former Prime Minister Silvio Berlusconi and the Brothers of Italy, led by former Berlusconi Minister Giorgia Meloni, together hold approximately 37 percent of the vote. It is this coalition which is considered the most likely to try to form government.

However, based on initial results, the right wing coalition is expected to receive only a maximum of 268 seats in parliament, far below the 316 threshold needed for a parliamentary majority. While the Five Star Movement is expected to emerge as the largest single party in the lower house with up to 235 estimated seats, they too won’t have the numbers to form a government on their own, and have thus repeatedly ruled out forming a coalition. Meanwhile, the left moderate Democratic Party failed to win more than a fifth of the votes, which has effectively relegated their moderate politics and pro-EU stance to relative insignificance.

What it Means

These results and the consequent political instability ahead portend significant implications for the European Union. Italy and its financial problems are already seen to be a burden by other EU members, particularly France and Germany. Left out of the inner circle despite being a founding member of the EU, this contempt has trickled down to the general Italian population, which now appears to view the EU with increasing dissatisfaction and the sense that Italy has been left to handle its problems on its own. It is this sentiment which anti-establishment parties such as the Five Star Movement and Northern League have effectively capitalised on.

Five Star Movement leader Luigi Di Maio, whose party dominated in the south of the country, won the support of new young voters in poorer regions angry with institutional corruption which is seen as hindering economic growth and job opportunities. Concerns also exist about the wave of unchecked migration into Italy, with 600,000 people estimated to have crossed the Mediterranean since 2013. Then there is Berlusconi, whose chequered legal history prevents him from holding public office until 2019. He campaigned on a platform of willingness to work with the EU leadership, and chose current President of the European Parliament, Antonio Tajani, as his nominee for Prime Minister. As a consequence of disappointing results for Forza Italia, he now faces the prospect of being downgraded to the position of minor partner in his own coalition.

Italy’s overwhelming choice to support Eurosceptic parties signals a strong rejection of the EU establishment. Following the release of initial results, EU Commission President Jean-Claude Juncker reaffirmed his confidence in current Italian President Sergio Mattarella to facilitate the forming of a stable government. Privately, Juncker is said to have warned of the need to brace for the worst scenario, which is no operational government.

What’s Next

So what can be expected in the coming weeks and months ahead? Amongst the myriad of scenarios suggested by analysts is that the Five Star Movement might back down on its promise of independence and broker a deal with either the Northern League or Democratic Party. Others argue not to underestimate Berlusconi. While some say the disappointing result for his party spells the end for him and his ambitions, the four-time Italian Prime Minister and maverick octogenarian has been successfully dealing in the art of politics since his rapid rise to power in 1994.

The roadblock to Berlusconi’s path to power is Matteo Salvini, leader of the Northern League. Under a gentleman’s agreement, whoever emerges as the winner between the two will be able to pick the coalition’s nominee for Prime Minister. Salvini has since confirmed this, saying if his party wins just one more vote than Berlusconi’s, then it will be his choice. Add to this the quirk of the Italian constitution, which allows President Mattarella the power to give the mandate to any party, regardless of who has won the most votes, and you have yourself an interesting test of wills.

To form government, the right wing coalition will also need the support of approximately 40 additional parliamentarians and 20 senators. There is a viable scenario where this could happen. An informal defection of Democratic Party parliamentarians could provide the right wing coalition with confidence and supply, falling just short of a formal coalition agreement. These votes could come squarely from the Renzi faction of the Democratic Party.

Renzi and Berlusconi are said to have a strong yet adversarial relationship, and ultimately a shared goal: the return of Italy to establishment control. Even with Renzi’s resignation, Renzi influence remains. Once the numbers are settled, it is entirely possible that the Berlusconi and Renzi factions could combine forces to secure Berlusconi his pick of Antonio Tajani as Prime Minister. This could be even more fortified by Democratic Party parliamentarians elected to represent overseas constituencies in the U.S., South America, and Australia, who tend to be more conservative in their approach.

But before this can happen, Italy would need to be brought to the brink of crisis; only then would this solution be palatable to the populist public. Ultimately high-risk manoeuvring of this kind is something Berlusconi is well-skilled in.

For those who think members of the Democratic Party would never countenance such an alliance, it is important to remember a line made immortal by former Italian Prime Minister Giulio Andreotti – “Il potere logora chi non ce l’ha.” Power wears out those who don’t have it.

February 2018

By Mathilde Defarges

Mathilde Defarges is Co-Founder and President of Blue Star Strategies SAS, serving clients in Paris, France and Brussels, Belgium.

This January in the Palace of Versailles, French President Emmanuel Macron hosted 140 global business leaders at the “Choose France” Summit, a government-led initiative designed to attract €3 billion in foreign investment over the next five years. The next day at the World Economic Forum in Davos, Switzerland, Mr. Macron told world leaders that “France is back.”

The #ChooseFrance initiative has already drawn major international investors such as Toyota, SAP, Facebook, Google, Novartis, Manpower, and General Mills to announce new investment projects.

What can we make of Choose France? Is it merely a PR exercise, as some have protested? To answer that question, one needs to look at Mr. Macron’s larger vision.

At Davos, President Macron spoke of “Globalization…undergoing a major crisis” and the corresponding need to promote a new “global contract” based on three commitments: “the duty to invest, the duty to share and the duty to protect.” This concept echoes Mr. Macron’s domestic slogan: “Libérer et Protéger” (“to liberate, and to protect”), conceived and framed as a safeguard against populism. At the French American Foundation in Paris last week, CNN’s Richard Quest summed up Davos 2018 in three words: “optimism on steroids.”

Mr. Macron isn’t the first French leader to claim the mantel for attracting foreign investment. Former President François Hollande created an “Attractiveness Council” to foster foreign investment. The Council met once a year, with one day of “speed dating” between Ministers and top-level global CEOs, including a lunch with the President. But if these CEOs felt honored with such high-level access and attention, very few external communications were announced and the gatherings were kept private.

President Macron has instead taken the idea and put it “on steroids.” The Attractiveness Council is a public showcase, hosted in no less than the Versailles Palace and leveraged as a fixed turning point in the agenda en route to Davos. No longer private, the Choose France summit is the talk of practically every company in France, foreign as well as domestic.

Still, it cannot be denied that #ChooseFrance is not only an economic program, but also a political calculation by Mr. Macron. In the midst of Brexit negotiations and in advance of the 2019 European elections (a crucial test for his political party), Macron is bent on using all levers at his disposal to put France on the first page in the news cycle.

Moreover, with his now famous use of the phrases, “at the same time” and “we have the right to agree to disagree”, Mr. Macron is undoubtedly maneuvering in his own unique way to promote France’s global influence. Take these examples from his dealings with the UK: in one week alone, he loaned them back the Bayeux Tapestry, refused their “cherry picking” on the terms of an EU exit, renegotiated the Calais border agreement, and paved the way for a post-Brexit bilateral relationship between the two countries.

So too with the United States. President Macron invited President Trump to join him at Bastille Day, which caused an uproar of protest from the French public. In return, Mr. Macron has been invited to Washington in April by President Trump for the first official state visit of his presidency. After President Trump announced his intention to withdraw from the Paris Agreement on climate change, President Macron responded with #MakeOurPlanetGreatAgain, a nod to Mr. Trump’s campaign slogan “Make America Great Again” and at the United Nations publicly expressed his willingness to convince President Trump to remain in the Paris Agreement.

According to CNN’s Richard Quest, “Macron has succeeded where all others have failed, managing to criticize U.S. policies without becoming the latest Twitter target. In Trump’s eyes, Emmanuel seems to do no wrong.” The point is well-taken: the new European leader holding the ear of the U.S. president is no longer the British prime minister.

From this perspective, is the #ChooseFrance initiative only about communication? To what extent is President Macron truly pro-business?

It is undeniable that pro-business reforms are underway to pave the ground for the increased ease and facilitation of foreign investment. Among those reforms, the budget bill voted on last summer provides for a flat tax on financial income at 30% and decreases the corporate tax from 33.33% to 25% in 2020. Labor law reform was launched in the summer of 2017, designed to give more flexibility to companies, but which has been highly criticized, domestically, for being enacted by the equivalent of “executive order” (versus the legislative process). The French Minister for Economy, Bruno Le Maire, has launched PACTE, an action plan for the growth and transformation of French businesses. The consultation process is ongoing and the bill is tabled at the French Parliament until Spring 2018.

So, will President Macron succeed in advancing his vision of a new global contract while at the same time introducing more liberalism and dynamism to the French economic system? Can he sustain his delicate balancing act dealing with world leaders?

No one knows for sure, but President Macron seems bent on delivering on his vision—and, just as important, his opponents have yet to find a way to check his drive.

Stay tuned for more insights on #ChooseFrance.

The Agony, Ecstasy, and Complexity of Joining the “Rich Nations Club”

February 2018

By Daniel P. Erikson and Gabriella Ippolito

Mexico and Chile are in. Colombia is on the brink. Costa Rica is jumping through the hoops. Argentina and Peru are waiting their turn. Brazil wants its bid fast-tracked. Some countries in Latin America wonder if membership is worth the price of admission. Others prefer to follow the guidance of Groucho Marx, who famously said that he would refuse to join any club that would accept him as a member.

The prize in question is membership in the Organisation for Economic Co-operation and Development (OECD).

This influential Paris-based intergovernmental economic body was founded in December 1960 to stimulate economic progress and world trade. The twenty founding members included most of Western Europe plus the United States and Canada. Since then, fifteen additional states have joined, most recently Latvia in July 2016. Many developing states view joining the OECD (nicknamed the “rich nations club”), as essential to demonstrating that they are highly developed nations and a safe destination for foreign investment. The accession process itself is fundamentally a transparency exercise for countries that provides governments with the leverage to push for needed legislative changes in sectors like education and public finance. However, the accession process can also be characterized by frustration, lethargy, and drift.

Mexico was the first Latin American country to join in 1994, followed by Chile in 2010. Now Colombia, Costa Rica, Argentina, Brazil, and Peru are all engaged in a shadow competition to be the next in line.

Of these Latin American countries, Colombia and Costa Rica are the closest to membership and have been granted coveted “accession road maps,” otherwise known as the terms, conditions, and process for accession that are set by the OECD Governing Body. These roadmaps guide the discussions and delineate what the prospective members need to do to become members. Roadmaps are granted by the OECD governing body which comprises all the members of the organization. Any member can block a country's request to accede. Traditionally centered in Europe, in recent years the OECD has increasingly accepted new members from Europe coupled with those from other regions, including Latin America.

To become a member of the OECD, countries must fulfill all of the steps in their roadmaps which include being accepted by 23 different OECD committees. The Committees, of which there are 250 including working groups, set and review standards for specific policy areas, such as economics, trade, science, employment, education, and financial markets. 

Colombia and Costa Rica

Colombia was granted its accession roadmap in September 2013 and Costa Rica was granted its roadmap in July 2015. Colombia has accomplished many of the goals set out in its roadmap and could join within the next year. In October 2017 the nation was accepted into the OECD’s Committee on Public Governance. It now needs to be accepted by the Trade and Labor Committees and therefore is two committees away from becoming a member. In comparison, Costa Rica has only been accepted by 10 out of 23 committees.

Colombia and Costa Rica’s paths to OECD ascension may be slowed this year by their upcoming elections and by changes in their respective governments. Costa Rica’s second round of presidential elections will take place on April 1. Colombia will hold parliamentary elections on March 11 and the presidential election on May 27, with a likely second round on June 17. Both countries are expected to continue pursuing OECD membership even if the governments change, due to the perception that membership will increase investment and create jobs.

When Colombia was invited to join the OECD in May 2013, President Juan Manuel Santos hailed the decision: “We will increasingly improve the quality of our public policies, and now we’re going to be measured to the highest standards. It means that it will further increase the confidence of investors in our country, which translates into more jobs, more competitiveness, better living conditions for all Colombians.”

Similarly, upon receiving the OECD’s invitation to Costa Rica, President Luis Guillermo Solis declared that, “the accession process to the OECD is a commitment to the best standards in public administration and market efficiency under the greatest transparency, which will contribute to the business climate and investment to bring better living conditions to Costa Ricans.”

Argentina

Argentina formally requested accession in June 2016, but has yet to be issued an accession roadmap. The nation has a relationship with the OECD dating back to the early 1990s, is engaging with the OECD via an Action Plan, and participates in many OECD committees. The Action Plan consists of 16 policy areas that support Argentina’s key reform priorities: economic policy, statistics, competition, investment, public management and modernization of the state, federalism, regional development and multi-level governance, fight against corruption, education and skills, and digital economy.

The Macri administration has stated on numerous occasions that it is committed to Argentina’s OECD ascension and the President has tasked his Ministers with engaging with relevant OECD committees. The OECD agenda is also aligned closely with the G20 agenda and Argentina is the president of the G20 in 2018, consequently the nation's OECD engagement in 2018 has taken on an even greater sense of urgency.

Brazil

Like Argentina, Brazil formally requested to join the OECD in May 2017, and is awaiting its accession roadmap. Alone among the Latin American countries, Brazil was named a “key partner” of the OECD in 2007, joining other major emerging economies like China, India, Indonesia, and South Africa.

In addition, Brazil has been participating on a number of OECD committees over the past 20 years and signed a cooperation agreement with the OECD in 2015. This agreement created a Work Program to strengthen cooperation between Brazil and the OECD on a number of core issues related to economic, industrial, trade, and financial issues: public governance and the fight against corruption; science, technology, environment, agriculture and energy; labor, pension and social issues, and development cooperation. As with Colombia and Costa Rica, Brazil also has elections this year for president, parliament, and governors on October 7, with a second round for the presidential election scheduled for October 28.

Peru

Meanwhile, Peru requested accession in October 2016 and has yet to be granted an accession roadmap. The country has been engaging with the OECD since 2014 via a Country Program focused on five key areas: economic growth; public governance, anti-corruption and transparency; human capital and productivity; and the environment. Peruvian President Pedro Pablo Kuczynski’s administration made OECD membership a central plank of its Peru2021 plan. During his visit to Peru this week, U.S. Secretary of State Rex Tillerson signaled U.S. support by praising the “important steps that Peru has taken to position itself well for an invitation to the OECD.”

Upon Chile’s accession to membership in 2010, OECD Secretary General Angel Gurria, himself a former Mexican finance minister, said that engaging with Latin America, “fills me with joy because I know that this partnership is going to be highly beneficial for these countries; and likewise for the OECD, because Latin America is clearly becoming more important all the time, and its countries have much to contribute.” Eight years later, a half-dozen Latin American countries are still jostling to join the club.

Will 2018 be the year that the OECD finally admits a new member from the Americas? If so, it will be sign that the OECD’s relationship with the region has finally come of age.

Tools for watching politics and public policy

February 2018

By Jeff Gedmin

Some people get stuck on a painting they like. I got stuck several years ago on a method used by Harvard art historian Jennifer Roberts for absorbing a work of art. I’m convinced her approach teaches us something about how to watch politics and public policy, too.

Roberts has her students visit a museum to sit with a painting — for three full hours. Students resist mightily at first. Yet slowly they get the point. Only with time do certain things become clear: depth, texture, relationships, order, priorities; meaning and purpose.

In today’s ferocious and frenetic pace, it becomes arguably harder to see what's actually happening, and what’s most important. Not that this was ever easy. “We live so fast ... there’s no time to think.” That’s what American literary critic Irving Babbitt said — in 1908. Big change was afoot: assembly line production, electric washing machines, windshield wipers, hair dryers, and Swedish engineer Gideon Sundback’s “Hookless No. 2,” debuted in 1914, which soon became known as the zipper. This was also the eve of a great coming apart known as World War I.

How to sort, and see clearly today? Some people meditate, take a walk around the block, or listen to music in order to clear the head. It doesn’t matter how you get there. I do yoga an hour a day. Deep cleansing breaths help.

Here are three broad tips, which I’m convinced help one better grasp the ideas and trends most important in today’s dizzying churn and burn politics.

First, be self-aware. We all make assumptions, haven our own biases, and blind spots. Do we check ourselves? I once asked a CEO coach if there were any one failing common to the executives he mentors. His immediate reply? “Lack of self-awareness; most of my people,” he told me, “think they always have to be the smartest in the room.” Is it any wonder that, with all the IQ points in the world, hubris in business and politics leads time and time again to the downfall of otherwise effective leaders?

Which leads to the second idea: be conscious of what you know — and what you don’t know. We all get stuck in our respective silos. Work with a “full data set.” Re-read Nate Silver’s 2012 book, The Signal and the Noise: Why Most Predictions Fail – but Some Don’t. Read Tyler Cowen's blog, Marginal Revolution. The George Mason academic is a manic reader, commenting and summarizing what’s out there in politics, economics, history, psychology, music, food, you name it. I’ve always thought training for work in foreign policy ought to include the study of geography and anthropology. We tend to think of many of the world's problems as engineering problems. It’s just that time and again inconvenient matters intrude in our rational problem solving, things like religion, nationalism, tribalism, sectarianism, and narratives of grievance.

Which finally brings us to humility. Humility has nothing to do with being meek or indecisive. It's in essence the art of avoiding the disease of hubris, which blurs and blinds. Which makes one think of narcissism, too. Narcissism combines an exaggerated sense of one’s own abilities and achievements with a constant need for attention, affirmation, and praise. Narcissists never get the big picture.

But I digress. Or, perhaps not at all.

Like a painting well understood, space and perspective in politics allow us to see lines that connect. It’s the power of patience that gets us started.

November 2017

By Daniel P. Erikson and Gabriella Ippolito

October 2017 was a busy election month across the world, with more than two dozen presidential, parliamentary, and local elections held in countries as diverse as Austria, Japan, Kenya, Slovenia, the Czech Republic, Venezuela, and Argentina.

In Austria, the right-leaning Austrian People’s Party won a parliamentary plurality that brought to power Sebastian Kurz, who is set to become one of the youngest world leaders at the age of 31. In Japan, Prime Minister Shinzo Abe emerged strengthened after winning a landslide victory in a snap election. Kenya completed a do-over election after the initial presidential election in August was annulled, and President Uhuru Kenyatta was declared the victor with 98 percent of the vote, while the opposition candidate, Raila Odinga, denounced the run-off election a “sham.”  

Below, we delve more deeply into three elections that mattered to the futures of the Czech Republic, Venezuela, and Argentina.

The Czech Republic: Parliamentary Election

The Results:

• Andrej Babiš, a billionaire former Finance Minister and founder of the new party ANO (“Yes” in Czech), won the Czech elections with nearly 30 percent of the vote. Babiš is now forming a minority government with a Cabinet comprised entirely of ANO party members because no other party was willing to join a coalition government. ANO ran on a platform of traditional issues such as increases in the minimum wage, state pensions and salaries for public sector workers, and anti-corruption combined with a populist anti-immigration message.

Why it matters:

• Babiš said that his focus will be on fighting corruption and enabling the Czech Republic’s economic growth. Before winning power, Babiš was fired from his post of Finance Minister in May because of the “Stork Nest” scandal, named after a resort outside of Prague owned by Babiš family members that received a €2 million EU subsidy. The ongoing investigation could lead to difficulties for the new leader.

Next thing to watch for:

• The election of ANO could have implications for the European Union. Babiš has said that the Czech Republic needs to become more active in the EU so as to halt illegal migration. He is against deeper EU integration and the adoption of the euro in the Czech Republic.

Venezuela’s Gubernatorial Elections

The Results:

• Against the backdrop of increasing political and economic turmoil, the Venezuelan government gained a major reprieve when the ruling United Socialist Party of Venezuela (PSUV) won 18 out of 23 governorships, including in the states of Bolivar, Miranda, and Barinas. The opposition has denounced the ballot as rigged. Despite the fraud allegations, four of the five opposition governors who were elected were sworn in by the Constituent Assembly on October 24. The remaining governor-elect, Juan Pablo Guanipa of Zulia, refused to be sworn in, saying that he would not kneel before the “fraudulent Constituent Assembly;” the Governor-elect has yet to be sworn in and Delcy Rodriguez, the President of the Constituent Assembly has said there will be consequences for him.

Why it matters:

• Venezuela is on the verge of defaulting on its bond payments, the annual inflation rate over the past year has been 817 percent, and the country is suffering from insecurity and extreme shortages of medicine. Despite these crises, President Maduro’s Socialist Party (PSUV) had a strong electoral showing and dealt another setback to the opposition, deepening internal debates in the opposition about how best to oppose the government.
• Current President Nicolás Maduro claims that the election legitimized the government and showed the strength of the Bolivarian revolution. The opposition and international observers view it as another step in Maduro’s efforts to consolidate authoritarian rule. In a message released after the election results were announced, the Secretary General of the Organization of American States declared, “the OAS rejects all of these illegitimate acts carried out by illegitimate governments, and condemns in particular, once more, the abuses of the civil and political rights of the Venezuelan people by the regime.”

Next thing to watch for:

• Venezuela made major bond payments of USD $842 million on October 27 and USD $1.1 billion on November 2. After the November 2payment, the Maduro administration announced that it will now seek “talks with creditors” to “renegotiate” its outstanding debts in talks on November 13. This announcement sent Venezuelan bonds plummeting on Friday November 3 and a default is now expected, which would throw the government’s stability into doubt.
• The most recent attempt at a dialogue between the Maduro government and the Venezuelan opposition mediated by Dominican Republic President Danilo Medina and former Spanish President Jose Rodriguez Zapatero fell apart in late September after the opposition pulled out. In the meantime, the U.S. and Canada imposed further sanctions on the Maduro regime; the U.S. sanctions in particular were a popular talking point for the PSUV in the lead up to the elections.
• The gubernatorial results raise major questions about whether the opposition will be able to coalesce around a winning strategy before the presidential elections due in the fall of 2018 or whether President Maduro will be able to maintain enough control over the system to have an unassailable advantage heading into elections. The answers to these questions could have a deep impact on a country which appears to be falling apart.

Argentina: Legislative Elections

The Results:

President Mauricio Macri’s center-right Cambiemos Party scored major victories in the country’s mid-term legislative elections and took the governorships of 13 out of 23 provinces. While Cambiemos did not win a majority of seats in either the Chamber of Deputies or the Senate, it exceeded expectations and gained seats. Cambiemos will hold 110 (they gained 21) out of 257 seats in the Chamber of Deputies and 25 (they gained 8) out of 72 seats in the Senate. One of the most important electoral victories took place in the Province of Buenos Aires, Argentina’s most populous province, where the Cambiemos candidates, Esteban Bullrich and Gladys Gonzalez, took two Senate seats as compared with former President Cristina Fernandez de Kirchner, who will join the Senate with one seat. Martín Lousteau, Argentina’s former ambassador to the United States, also won a seat in the Chamber, even though he finished third in the City of Buenos Aires.

Why it matters:

• President Macri’s hand is now strengthened as he seeks to advance more sweeping reforms, including market deregulation and removal of trade barriers, labor reform, education reform, and infrastructure development.
• Even though her Peronist coalition is weakened, former President Cristina Fernandez de Kirchner won a Senate seat in the election. This protects her from arrest unless the Senate lifts her immunity. She has been indicted on corruption charges and the judicial proceedings will continue once she takes her seat. In addition, she is under investigation for the alleged cover up of the 1994 bombing of a Jewish community center in Buenos Aires in which 85 people were killed. Fernandez de Kirchner says the investigations are politically motivated.

Next thing to watch for:

• The Macri administration will face the challenge of pushing through its reform agenda while taming the country’s 17.6 percent inflation rate. Success in these areas will either strengthen or diminish President Macri’s chances of being reelected in 2019.

November 2017

By Pero Jolevski

“Brexit,” the June 2016 public referendum by the UK electorate to leave the European Union, has raised serious questions about the future of the country’s economic relationship with the EU. As a member of the EU, the UK currently enjoys free trade with, and open access to, the markets of its fellow EU member states—as well as non-EU member states that have established free trade agreements with the union.

Amid mounting concerns about this uncertain future, the UK Parliament recently passed a motion ordering Prime Minister Theresa May to release 58 “secret studies” that were conducted to assess the economic damage that could occur as a result of Brexit. Already, UK suppliers of industrial goods for export are struggling to secure contracts past March 2019 with their EU trading partner companies, causing supply chain issues. According to a study by the Chartered Institute of Procurement and Supply, 63 percent of EU supply chain managers who work with UK suppliers said they expect to move some of their supply chain out of the UK as a result of Brexit, while 40 percent of UK companies said they are looking to replace their EU suppliers.

The question now is, how will the UK choose to structure its economic and trade relationship with the EU, post-Brexit?

One scenario would see the UK join what is known as the European Economic Area (“EEA”), an agreement which provides for the free movement of persons, goods, services, and capital within the “European Single Market” (the 28 EU member states, plus Iceland, Liechtenstein, and Norway), including the personal freedom to choose residence in any country within the area. An EEA would ensure continued regulatory harmony between the UK and the EU, including tariff-free trade.

While this scenario is seen as offering a less disruptive transition for the UK, joining the EEA would also cede significant control over the UK’s affairs to Brussels, a prospect that is deeply opposed by Brexit’s original proponents. A more restrictively structured EEA would exclude financial services from the agreement, which would result in UK financial institutions having to establish subsidiaries outside of the UK in order to continue to conduct business with the EU, and vice versa for EU banks without subsidiaries in the UK.

Another, albeit more complicated, trade deal scenario would see the UK leave the EU but remain in the what is known as the European Union Customs Union (“EUCU”), similar to Turkey’s status as a non-EU member. While the EUCU sets the tariff rates for imports to the EU from other countries, the UK’s financial services sector, which accounts for over 7 percent of the country’s GDP, would find itself in a disadvantageous position because the EUCU excludes the services industry.

The UK could also negotiate a stand-alone trade deal with the EU, similar to the European Free Trade Association (“EFTA”), a regional trade association and free trade area between Iceland, Lichtenstein, Norway, and Switzerland. EFTA operates with the EU and its members are part of the European Single Market, in which the free movement of goods, capital, services, and labor—the “four freedoms”—are protected. However, EFTA members are not part of the EU Customs Union.

Nevertheless, a stand-alone free trade deal the likes of EFTA would give more negotiating power and flexibility to the UK. With such a deal, the UK would not have to be part of the EEA and, as an alternative, could negotiate a series of bilateral agreements with the EU enabling it access to the internal market. Doing so would also enable the UK to maintain its “invisible” boarder (no checkpoints or immigration controls) between Northern Ireland and EU member state Ireland.

In the event that no formal, structured economic relationship between the UK and the EU is becomes feasible, the World Trade Organization’s rules for cross border trade would take jurisdictional relevance. However, such a scenario would seriously damage British exporters, given the complex tariff and tax rules that would ensue.

There continues to be significant uncertainty regarding the future of the UK’s trade and economic relationship with the EU. Remaining in the European Single Market until a potential comprehensive trade deal with the EU can be hammered out would be among the most efficient and least detrimental of options to the UK economy.

At the present juncture, the next step is for the UK government to propose an option on how to move forward.

November 2017

By James Le Grice

This article is a contribution from our UK network partner firm Four Communications based in London.

As the bombs fade and the dust settles in Syria and Iraq, one clear winner emerges: the Islamic Republic of Iran. Over the past six years of conflict, Iran has moved from isolated pariah to Middle East power broker. It has made dependents out of allies and turned proxy militias into powerful armies. Most importantly for the regime, it is now in its strongest position yet to fulfil the Ayatollah Khomeini’s dream of exporting the Iranian revolution. The Saudi-led attempt to counter this may unwittingly give Iran the help it needs.

Iraq and Syria are witnessing a repeat of 1980s Lebanon, when Iran’s Islamic Revolutionary Guards Corps (IRGC) created Hezbollah as a militia to fight Israeli occupation forces. Hezbollah long out-served its initial purpose, going on to become both an armed and political faction operating its own welfare state within a state, and eventually became the kingmaker in Lebanese politics.

Militias created by the IRGC in Iraq, notably the Badr Organisation, Asa’ib Ahl al-Haq and Kataib Hezbollah, were legitimised as part of a coalition to reclaim territory from ISIS. This vastly increased the political power of their leaders, giving them free reign over whole territories. It also entitled the militias to public funding and, according to some eyewitnesses, sophisticated American weapons intended for the Iraqi army. Most recently, the IRGC and affiliated militias played a lead role in seizing the oil rich Kirkuk region from Kurdish forces following the Kurdistan Regional Government’s failed bid for independence. 

Now that the fighting is drawing down, militia leaders have made clear they’re not going anywhere, and are looking towards the 2018 Iraqi Parliament elections to consolidate their military power with firm political authority – much like Hezbollah.

In Syria, the Assad regime may have been saved by Russia in the air, but it was Iranian-linked militias that saved it on the ground. Hezbollah was swift to Assad’s aid, significantly expanding its missile capabilities in the process, and the IRGC organised thousands of Shia Islamists from across the Arab world and South Asia to come to Syria and fight the various rebel factions. These militias have been accused of instigating demographic change in Syria to shore up a pro-Iranian support base.

The question now is how will Iran use its expanded influence in the region?

The Ayatollah Khomeini, founder of the Islamic Republic, had lofty visions of exporting his revolution and creating a new Islamic order with Iran at its core. This was never something he was able to achieve on a wide scale in his own lifetime, and the regime has always been restricted in some way since. However, lack of ability does not mean lack of ambition. Iran’s Supreme Leader, President and IRGC commanders are all Khomeini’s protégés and co-revolutionaries. They’ve devoted their lives to upholding the 1979 revolution and their commitment to Khomeini’s ideals shouldn’t be underestimated.

Iran’s tactical gains in Iraq and Syria certainly give it a firmer foundation to deliver its ideological ambitions. As a first step this could mean pressuring the Iraqi government into taking an anti-American position – driving out its military and economic presence. It could also mean pressuring the Syrian regime away from its secular outlook, and using military bases in Syria and Iraq to train other Iran-linked paramilitary groups active in Bahrain, Yemen and Palestine.

But fully exporting the revolution requires winning hearts and minds on a level that Iran still struggles with. Its ideology is rejected by the majority of Shia Muslims let alone Sunnis, and most Arabs wound not take kindly to being subjugated by Persians.

Indeed, there are signs that Iran’s gains in the Arab world are heralding a new era of Arab nationalism. In the Lebanese Prime Minister Saad Hariri’s resignation speech last Saturday, he ominously warned Iran that the Arab world ‘will rise again and the hands that you have wickedly extended into it will be cut off’.

Ironically, a new wave of Arab nationalism may actually help Iran’s ambitions, not least because of the way it is being led by Saudi Arabia. The Saudi Crown Prince and heir apparent Mohammed bin Salman (MBS) has sought to cow Iran through projection of military and economic power in the Arab World. MBS masterminded Saudi Arabia’s escalation of the war against the Iran-allied Houthis in Yemen, and pushed a hard line against Qatar – accused of supporting Iran.

Under MBS’ direction, Saudi Arabia has made overtures within Iran’s traditional spheres of influence, launching a joint trade council with Iraq this year and even reaching out to the populist Shia cleric Muqtada al Sadr.

On the home front, MBS has made absolutely clear who’s in charge. This includes taking on the powerful religious establishment, and in the latest move, purging the Government of his rivals within the royal family – arresting some of the world’s wealthiest and most influential men.

These power projections may be intended to tell the Arab world that MBS can be the strongman against Iran, but they play conveniently into the paradigm Iran seeks to create. The essence of Iran’s revolutionary ideology is the story of Hussein ibn Ali, grandson of the Prophet Mohammed. As the tale goes, Hussein was a pious and humble man who led an uprising against that the powerful Caliph Yazid. Hussein believed Yazid a tyrant who had abandoned Islamic morals for worldly abundance. Hussein and his followers, though vastly outmatched by Yazid’s army, fought to overthrow the caliph and restore what they believed to be true Islam, but were martyred at the battle of Karbala.

To the Ayatollah Khomeini, Hussein was the ultimate source of emulation, and was what he aspired for Iran to be – the pious yet humble leader of resistance against the powerful and morally corrupt. To him, every day was Karbala and the role of Yazid was interchangeable between the Shah, Saddam Hussein, the US and Israel amongst others.

In Saudi Arabia, Iran has a much more convincing Yazid to its Hussein. Yazid after all claimed Islamic leadership, which the Saudi monarchy also does as ‘Custodian of the Two Holy Mosques’. This claim merely invites criticism of their religious credentials. Every image of a Saudi missile decimating a market filled with Yemeni civilians, every display of wealth by Saudi royals, and every Instagram post of a Saudi prince partying in a London club is fuel for Iran’s propaganda machine and helps it fulfill the image it desperately seeks for itself.

However, the bigger reason that Saudi-led Arab nationalism could backfire is that for the first time ever, Arab nationalists will find themselves on the same side as Israel. If violence broke out between Israel and Hamas or Hezbollah, which Iran could easily instigate, Arab public opinion would be conflicted and would likely swing to the side of whoever is fighting Israel.

This has worked in Iran’s favour before. When Hezbollah went to war with Israel in 2006, it achieved heroic status amongst Shia, Sunnis and Christians alike throughout the Arab world. Only one year previously, there had been mass protests in Lebanon demanding Hezbollah’s disarmament.

Iran has been laying the propaganda groundwork for this scenario since the beginning of the Syrian civil war. The consistent line coming out of Iran has been that the Syrian conflict was caused by a Zionist/American plot to break the Islamic resistance against Israel and enable an Israeli takeover of the Middle East. ISIS, Iranian propaganda claims, was created by Mossad, funded by Saudi Arabia and used as a pretext for the US to reoccupy Iraq. The message to Shia militia fighters has also been clear: ‘next stop is Jerusalem’. If conflict breaks out with Israel, Iran is well prepared to sway perceptions in the propaganda war.

Rather than turning to Arab nationalism to counter Iran’s revolutionary ambitions, there may be more luck in encouraging Persian nationalism. Iran is an ancient civilization, and its people have much pride in its long heritage, of which the current revolutionary regime forms only a very brief episode. In many ways Khomeini’s Islamic revolution hijacked a more deep-seated democratic nationalist uprising.

These elements have bubbled to the surface again in recent years and with the right encouragement could return with vigour to finish Iran’s original revolution.

November 2017

By Daniel P. Erikson and Gabriella Ippolito

As part of our renewed focus on the Western Hemisphere, the Blue Star Brief is pleased to introduce “Spotlight on NAFTA,” a feature that will track what is occurring behind the headlines as the United States, Canada, and Mexico try to complete negotiations by the end of 2017.

The North American Free Trade Agreement (NAFTA) was in the cross-hairs throughout the 2016 U.S. presidential campaign. In the first nine months of the Trump administration, the three countries have grappled with whether to amend, renegotiate, or terminate the world’s largest free trade area linking 444 million people producing $17 trillion in goods and services.

What is happening?

A fourth round of negotiations recently took place in Washington, DC, wrapping up on October 17, 2017. The next negotiating session will take place in Mexico City from November 17-21. This fourth round was extended by two days and the fifth round was pushed back by two weeks so as to give negotiators time to consider the existing proposals. The countries have officially stated that negotiations will be scheduled into the first quarter of 2018 but that they still intend to complete them before the Mexican presidential election in July 2018. However, the extended deadline already signals the failure of one of the principal goals of the aggressive original timeline, which was to ensure that the NAFTA negotiations did not become ensnared in Mexico’s contentious election. Instead, the slippage dramatically increases the likelihood that the parties will fail to reach agreement.

After the fourth round was completed, negotiators said that the three countries had completed the chapter on competition and made progress on other sections such as customs and trade facilitation, digital trade, and good regulatory practices. New formal proposals by the United States, such as the five-year sunset clause, were non-starters for Mexico and Canada.

What are people saying?

• On October 11 in his Oval Office meeting with Canadian Prime Minister Justin Trudeau, President Trump said in reference to the trilateral relations with Canada and Mexico: “Absolutely it’s possible we won’t be able to reach a deal with one or the other, but in the meantime we’ll make a deal with one. I think it’s going to work out well for both countries and Mexico.”
• On October 17, U.S. Trade Representative Robert Lighthizer said in closing remarks at the fourth round of talks: “NAFTA has resulted in a huge trade deficit for the United States and has cost us tens of thousands of manufacturing jobs. The agreement has become very lopsided and needs to be rebalanced...so for us, trade deficits do matter. And we intend to reduce them.” He added: “Frankly, I am surprised and disappointed by the resistance to change from our negotiating partners.”
• On October 18, Mexican Foreign Minister Luis Videgaray told the Financial Times: “All three countries want to continue the talks, but we have important differences. Are these differences impossible to resolve? We don’t know.”
• On October 22, Canadian Foreign Minister Chrystia Freeland told CNN: “Canada is kind of like the girl next door. It’s easy to take us for granted. These negotiations are really important not just for Canadians but for Americans.”

What are the sticking points?

• The U.S. proposed a requirement that 85 percent of the value of an automobile be manufactured in North America to benefit from NAFTA’s zero tariffs, up from 62.5 percent currently. This proposal were criticized by both Mexico and Canada.
• The U.S. stance on the dispute settlement mechanism, Chapter 19, is deeply opposed by Mexico and Canada.
• The proposal of the five-year “sunset” clause by the U.S., whereby after five years the agreement would expire automatically unless each party agrees to extend it, is a non-starter.

What’s next?

The next negotiating session will take place in Mexico City November 17-21, 2017. The contentious U.S. proposals are expected to be discussed in greater depth with considerable opposition from Canada and Mexico. NAFTA-watchers will need to buckle their seatbelts, because it will be a bumpy ride ahead.