abraham accords

The Abraham Accords: is economics the answer to peace in the Middle East?

The Middle East has proved a consistent source of challenge for the most able diplomats and the greatest statesmen. The recent signing of the Abraham Accords marks the normalization of relations between Israel and the two Gulf states of the United Arab Emirates and Bahrain. On the back of these agreements, President Trump has been nominated for a Nobel Peace Prize. However critics claim that they do little to address the Palestinian question. Neither do they tackle the very real issue of rising sectarianism and its threats to a broader peace in the region. Will the economic ties that such agreements foster and the expectation that other Middle Eastern states may follow suit, prove stronger than entrenched ideological divisions?

The Abraham Accords puts a formal seal on pre-existing relations between Israel and the Arab states of Bahrain and the UAE. They include a formal abolishment by the UAE of its forty year boycott of Israel and pave the way for stronger economic, political and cultural ties between countries. They also include the establishment of embassies and direct flights between signatories. Assistant Secretary of State for the Middle East, David Schenker, foresees cooperation on trade, healthcare, education and even security. ‘We believe the agreement puts the region on a truly transformative path’ says Schenker. Without naming further potential signatories, the Assistant Secretary of State draws attention to America’s ‘outstanding’ relations with other Gulf states like Kuwait where 40 000 US troops are stationed. Other possible candidates include Oman and Morocco.  

Will the Abraham Accords lead to further widening of sectarian divisions?

The deal marks the beginning of full diplomatic relations between Israel and the two Gulf States since its declaration of independence in 1948. But perhaps it is the largest, most influential Gulf State, Saudi Arabia’s, tacit approval of this normalization of relations that is of most significance. Many agree that it is unlikely that Bahrain would have signed the deal without the explicit consent of the Saudi royal family. It is no secret that America, particularly under Trump, and Saudi Arabia are close allies. Senior Advisor to the President and Trump’s son-in-law, Jared Kushner, is in direct contact with Saudi Crown Prince, Mohammed bin Salman. Although the Saudis are unlikely to follow suit any time soon, the signing of these Accords may be seen as a strengthening of relations between Israel and the Sunni Arab states of the Persian Gulf against Shiite Iran and its allies.

Asked if the Abraham Accords circumvent the Arab Peace Initiative, which holds that peace between Israel and the Arab States should come before normalization of relations, David Schenker is quick to deny this. He insists that the new deal is an acknowledgment of the need by some Arab states to ‘put their own interests ahead of a particular cause’. This shift from idealism to pragmatism is better understood in a world where the price of oil is now at $40 a barrel and a global pandemic demands attention.

Is economic necessity promoting pragmatism over idealism in the Middle East?

These new economic constraints have put pressure on reform programmes started in a number of Gulf States as a result of dwindling oil reserves and increasingly modest oil prices. An average oil price of $60 a barrel is needed to fund the ‘cradle to the grave’ programmes run by many Gulf states, Schenker tells us. He suggests that it is economic necessity that has encouraged a greater willingness to take a more pragmatic approach to relations with Israel and the West.

But there is another side to this story. As many recently marked the 19th anniversary of 9/11, the issue of terrorism, specifically, Jihadism and Saudi Arabia’s long established role in funding it, cannot be ignored. As Senior Fellow at the Center for 21st Century Security and Intelligence, Center for Middle East Policy, Bruce Riedel, points out, Saudi Arabia plays a central role in the development of the modern Islamic Jihadi movement. 

King Salman is ‘the most sectarian leader we’ve seen in modern history’ – Bruce Riedel

Prince Salman, now King Salman, has been the leading figure in the private raising of funds for the Jihadi movement since the 1960s. In the 1980s, Salman raised significant amounts of money for the Mujahidin in Afghanistan and he did the same for those in Bosnia. It was only in 2003, Riedel explains, when Osama Bin Laden declared war on Saudi Arabia that the Jihadi movement became a problem for the Saudi elite and successful action was taken to curtail the threat from Al Qaeda.

To this day, Riedel says, private Saudi funding for Jihadi groups continues and Jihadism still infiltrates the highest institutions of the Saudi state. King Salman and his son, Crown Prince Mohammed bin Salman, are ‘the most sectarian leaders we’ve seen in modern history’ maintains Riedel. The Director of the Intelligence Project cites the war in Yemen as evidence of this and suggests that a new US administration ‘needs to take a very hard look at this’. He also advocates the re-opening of discussions with Iran.

Saudis are eager to help end the war in Yemen – Assistant Secretary of State, David Schenker.

However, Assistant Secretary of State, David Schenker points to two recent attempts by the Saudis to end the conflict in Yemen. He says the Iranian-backed Houthis have ‘not been particularly productive partners’ in peace negotiations and ‘do not seem to be interested in a unified Yemeni government’. ‘We are all hoping that the Houthis prove themselves to be Yemeni patriots and not a tool of Iran’ says Schenker, ‘but the jury is still out on that’.

Sectarian divisions also promise to flare up in Lebanon, particularly in Beirut, where recent devastating explosions coupled with corona and years of corruption, have brought the nation to its knees.  Schenker points out that Lebanon currently has a 200% debt to GDP ratio and 50% of the population lives below the poverty line. The government recently resigned leaving a power vacuum that many fear will be filled by Hezbollah. This group is currently the strongest in terms of weapons and military force.

‘We believe you have to choose between the bullet and the ballot’- David Schenker.

The US do not want to include Hezbollah in the negotiations for a future Lebanese government. ‘We believe you have to choose between the bullet and the ballot’, says Schenker, admitting that the US and France, ‘seem to have very different ideas’ regarding Hezbollah. Nevertheless, the US has supported the recent French initiative for Lebanon. Describing it as has having ‘a lot of merit’, the Assistant Secretary of State says the US is in agreement with the need for concrete reforms before the release of international funding.   

The Abraham Accords provide concrete evidence of a shift toward more pragmatic, economically-based approach to tensions in the Middle East. Broader changes in both regional and global conditions have helped prepare the ground for such a shift. David Schenker mentions a deal they are currently working on between Lebanon and Israel. It involves the development of three of the most profitable natural gas deposits that straddle the Lebanese/ Israeli border. The money from such a development could help a nation in deep financial crisis. Schenker is hopeful that the passing of a sovereign wealth fund law would follow, in order to ensure the Lebanese people properly benefit from this windfall. Will initiatives like these, based on economics and fueled by pragmatism, successfully circumvent years of ideological stalemate in one of the most troubled regions of the world?

Germany: on board for a United States of Europe?

Covid 19 has brought hardship and suffering to many. But, at the risk of sounding cliched; it’s an ill wind that blows no man any good. If a recent discussion with German Finance Minister, Olaf Scholz, is anything to go by, there are strong signs that the pandemic will prove a catalyst to the kinds of fundamental changes in the EU project that were previously unthinkable. Not only has corona provided strong impetus for further EU integration, it has apparently provided the excuse Germany was looking for to truly embrace the European project. With the issuance of mutualized debt, Germany has finally put its money where its mouth is, showing Europe and the rest of the world, it’s in it for the long haul. Now, the man touted to take over from Angela Merkel, is making it clear that fiscal union is his goal.

Olaf Scholz spoke last week at the Bruegel Institute’s Annual Meeting. As Vice-Chancellor under Merkel and the Social Democrats’ candidate for Chancellor, Scholz has been described as ‘the head fireman in the coronavirus inferno’. In Germany his approval ratings are high and have been that way for months. If, as Scholz claims, ‘Europe has shown a strong response to the crisis’,  Germany has played a key part in that response. However he admits that Europe’s initial response was not so convincing. He cites the relative speed and strength with which countries like Italy and Spain were hit by the virus, as reasons for this and acknowledges what he terms, ‘some nationalistic reflexes’ to the pandemic when borders were closed. Perhaps more significantly, Scholz points out that the pandemic raised questions about the ability of open, liberal, democratic societies to deal with a crisis such as this one.  

‘Solidarity is the cornerstone of the EU’ – Scholz

But Scholz states firmly, more than once, ‘Solidarity is the cornerstone of the EU.’ In order for recovery to be truly successful, ‘we must recover together and use it to reform our economy.’ The German Finance Minister, sees investment as key to recovery but insists that it be the right kind, namely ecological and digital. He also sees Germany’s current Council presidency as an opportunity to drive the Recovery Fund and the EU’s Next Generation programme forward. The mutualized debt that anchors the EU’s recovery programme, elevates Europe’s financial policy to ‘a whole new level’ Scholz insists and ‘moves us closer to fiscal union’. Fiscal union is something that fell on deaf ears during the financial crisis of 2007/8. For members of the Frugal Four (Netherlands, Denmark, Austria and Sweden) it is still a cause for concern.

But Herr Scholz is unwavering in his commitment to this newly accepted goal. ‘Achieving fiscal union will complete the economic and monetary union, and in this way we can ensure the financial independence of the world’s largest trading block, putting us at a similar level to the US.’ To this end, Scholz envisages the need for a minimum corporate and digital tax.  After the Euro, the issue of taxation is one of the last bulwarks of national sovereignty. Previous German finance ministers would no doubt have shuddered at the idea of tackling it at EU level. But this one is calmly resolute as he explains that current debates within the OECD on minimum taxation should be concluded by year end. He is hopeful that agreement at an international level will help provide the necessary impetus for agreement at EU level. A similar process is expected with digital taxes.

‘The recovery fund is a remarkable instrument that is pushing European integration in a whole new way’ – Scholz

Corona has provided not just a strong impetus for further European integration, it also comes with a sell-by date. Although Scholz agrees on the importance of maintaining the no bail-out clause, he is equally firm on the need for speed when it comes to releasing the recovery funds by the beginning of next year. He acknowledges that the debates that will take place in order to reach agreement on this, will not be easy. Specifically, those regarding the role of the European Parliament, with which discussions have just started.

The somewhat uninspiring pragmatism of which Scholz has previously been accused, now appears to be standing him in good stead. He points out that with the acceptance of mutualized debt, further EU integration has gained a momentum of its own. Describing the recovery fund as ‘a remarkable instrument that is pushing European integration in a whole new way’, Scholz appears almost sanguine at times. The inevitability of the structural changes set  in motion, will make his task significantly easier.

There is nothing like shared debts to bring people and nations together. Europe’s shared responsibility for the debt generated by corona recovery, is providing impetus for important projects that have hitherto lacked the necessary political will for completion. The Capital Markets Union (CMU) and the Banking Union are vital to a vibrant yet stable, European economy. The finance minister agrees that a willingness to reform is key to real progress on the CMU project. It’s completion is essential for the growth that is needed to refinance debt and ensure future  prosperity. To this end, he is working hard on a variety of blueprints for successful integration of Europe’s capital markets. When asked about the issue of governance and supervisory powers at national or European level, he is expansive – ‘let’s do both!’

‘For me, a strong united Europe is Germany’s primary national interest’ – Scholz

For Olaf Scholz then, this is a decisive moment both for Germany and for Europe. ‘For me, a strong united Europe is Germany’s primary national interest’. Looking ahead to 2050 and beyond, Scholz sees a strong, more fully integrated Europe as the only way to ensuring its sovereignty. He is also unconvinced by narratives of a bi-polar future in which China and the US dominate. He points to the rising fortunes of a number of Asian countries including India and mentions countries like Nigeria and Brazil too. A far more fragmented global landscape is Scholz’s vision for the future. In such a landscape, a unified Europe will stand strong and enjoy continued prosperity. Let’s hope he’s right.    

Digital authoritarianism vs democracy – what’s at stake in a tech Cold War?

A Cold War between China and the US will be fought in the virtual world, via digital means. Not with nuclear warheads and border controls like the last one. But like the last Cold War, there is a growing sense of ‘them’ vs ‘us’. The stark difference between democracies and authoritarian regimes has been highlighted by the pandemic.  The sharp increase in disinformation campaigns and the fight for control of critical digital infrastructure has made it clear that the next Cold War will be digital. As China rapidly expands its tech ambitions, democracies find themselves caught between digital authoritarianism and the surveillance capitalism models offered by tech giants like Facebook and Google. Neither are attractive. But what are the alternatives and can one be found before liberal democratic values are seriously undermined?  

‘What does a democratic technological universe look like?’ asks Director of Alliance for Securing Democracy, Laura Rosenberger. This is a discussion that has not been given enough input she argues. She highlights the need to ‘think much more robustly about data’. How can one ensure that data is available to be used in critical technologies like AI where it is essential, without compromising individual privacy? She advocates for a much closer alliance between the US and the EU on data governance in order to counter the ‘digital authoritarianism’ promoted by China.

Alice Ekman, of the European Union Institute for Security Studies agrees that the West must face it’s fear of data surveillance. ‘If we don’t invest in the dark dimension of tech, it will be left to  countries that do’ she warns. By grappling with the thorny issue of data safety and regulation, democracies like Europe and America will have a greater say in the norms and values that underpin these technologies. A competitive, ethical model may also be exported abroad to countries who do not necessarily share these values, Ekman points out.

China has invested in the creation of conglomerates of tech companies. They work together to develop comprehensive packages of infrastructure technologies that are fully compatible, Alice Ekman explains. SMART city packages like Alibaba’s ‘City Brain’, are sold to provincial governments in China and further abroad. Rosenberger warns that Chinese companies often send officials along with these products to third countries. They help with installation, training and even, in some cases, with the drafting of legislation related to the introduction of the new systems. Clearly the values that underpin such legislation are in keeping with the digital authoritarianism of the Communist regime in China. It is important therefore, that both the US and Europe are present in developing countries, maintains Rosenburger.

‘The US is at risk of losing the technology competition against China’- Eric Schmidt, former CEO of Google.

Many Western tech companies have traditionally focused on producing separate components for sale, consistent with a market-based model. The lack of strong state involvement, especially in the United States, means that the West now needs to focus on creating ‘ecosystems of technology’. Such ecosystems should be compatible with one another and with our democratic values. They would then be ready for export, says Ekman.

Former CEO of Google, Eric Schmidt, puts it more bluntly, ‘The US is at risk of losing the technology competition against China’. He points out that China has a national strategy with regards to technology development and global positioning. ‘What is the American response?’ he asks. Schmidt suggests that the secret of China’s success is an initial stage of ‘enormously brutal competition’ in their private sector. From this, a winner is selected who is then promoted relentlessly with the full power of the State. ‘Can you imagine if America did that?’ he asks.

Centralised control, when done well, can, in certain situations, produce better outcomes in a world involving large amounts of data and data control. Digital authoritarianism has its attractions. ‘We need a response’ says Schmidt. For the former Google CEO, it should begin with a renewed focus on investing in the development of talent and research in the sciences. He expresses concern that America is currently in danger of denying its top companies and universities, top talent because of visa restrictions.

Focus on innovation not regulation

Schmidt also points to the fact that national funding for basic scientific research is just 0.7% of GDP,  and has fallen consistently since the 1950’s. He is concerned that these trends will affect ‘the great things about the West’. And admits that he is primarily concerned about making sure that ‘our innovation, our creativity and our democracy are not crushed by a well-funded autocracy.’ ‘It’s important to understand that it’s a competition and we should win it!’ he states.

Growing concerns regarding the ability of technologies like social media and AI to undermine privacy and individual rights, has caused many Western governments to focus on regulation rather than innovation. Schmidt would rather focus on ‘unleashing the creativity of the next generation’ and then regulating ‘as bad things happen’. Before we ‘fixate on regulation’ why don’t we focus on how to make the West’s technology stronger and better. Then, ‘when we compete with the Chinese model, we win as many times as we can.’

In keeping with this philosophy, he would rather not ban companies like  Huawei. ‘I would like to compete with them and win.’  This may be easier said than done. Rosenberger points out that China is in the process of developing a new IP that would essentially allow Beijing to control internet traffic. Its SMART city products like Safe City by Huawei have found their way into a number of European cities. Not to mention the 5G network debates currently raging in Europe and America.

Digital authoritarianism spreads to Hong Kong

The core role played by technology in the battle between democracies and autocracies is on full display in Hong Kong, Rosenburger points out. Big tech companies like Google and Facebook have stopped handing over data to the Hong Kong government in wake of the introduction of the National Security Law. Situations such as these further highlight the problem at hand: how should liberal democracies use technology in a way that advances individual liberties?

Schmidt mentions initiatives like ORAN (open radio access networks) that are founded on the principle of decentralised control rather than the integrated systems epitomised by Huawei. Others have suggested the creation of a sort of digital Schengen zone. An internet freedom league where data flows freely without borders, underpinned by specific values and principles. There are of course many possible solutions. But the challenge is finding the right ones, in a digital world that is compressing time in a manner hitherto unseen.  

EU NATO

Will hard truths of corona rekindle EU/NATO relations?

‘The era of a somewhat naïve Europe has come to an end’, says Josep Borrell, Vice-President of the European Commission and High Representative of the Union for Foreign Affairs and Security Policy. He spoke at the recent EU Defence Washington Forum hosted by the Brookings Institute. Covid 19 has highlighted areas of vulnerability in a manner both timely and sobering. The fight for narrative hegemony via disinformation campaigns, the dangers of unchecked foreign direct investment and supply chain dependencies are all major areas of concern.  In a post-Covid world, 70 year old EU/NATO relations are regaining something of their Cold War closeness. Indeed as China and the US appear headed toward another Cold War, the Trans-Atlantic relationship may well find increasing impetus for rapprochement via NATO.   

The North Atlantic Treaty was signed in April, 1949 by 12 Western nations. These included the United States, France, the UK and Canada. Germany would join in 1955. Designed to counter the growing expansionism of the Soviet Union, it was also seen as a way to discourage the revival of nationalist militarism in Europe while furthering its political integration. Article 5 of NATO’s constitution makes clear that an armed attack against one of its members is considered an attack against them all.  Today, 22  of its 28 members are also EU Member States. But as James Appathurai, Deputy Ass. Sec. Gen. for Political Affairs and Security Policy at NATO, points out, non-EU NATO members including countries like Turkey, Norway and Iceland, make up for 58% of the NATO population and involves 582 million citizens.

Who’s paying and how much?

The EU has relied on NATO for its defence to a large degree for the past 70 years. There have long been calls from successive White House administrations for EU members to make larger contributions to the NATO budget and increase their own defence spending. Perhaps unsurprisingly, these calls have become even louder since the arrival of the Trump administration. Currently, both Germany and the US equally contribute 16% to NATO’s central budget. It is a fairly modest $2.5 billion per year. It was also agreed in 2014 that each member state will increase its own defence spending to 2% of GDP by 2024. Few have yet reached this goal although NATO Secretary-General Jens Stoltenberg said that defence spending by European allies and Canada increased in real terms by 4.6% in 2019.

The European Union has recently (since 2016) shown increased interest in beefing up security and defence autonomy. The EU global strategy presented in June 2016 signalled a desire for the EU to play a more global role in security and defence. The European Defence Fund was launched in the same year in order to foster ‘an innovative and competitive defence industrial base’. The revival of PESCO (permanent structured cooperation) in 2019, designed to deepen defence cooperation among capable and willing EU member states, is further evidence of this trend.

However the departure of the UK from the Union and the arrival of COVID 19 have seriously undermined these intentions. In a recent interview with German Minister of Defence, Constanze Stelzenmüller (Senior Fellow at the Center  on the United States and Europe), described European defence policy as ‘on life support with a ventilator’. The comment was made as the EU budget (2021 – 2027) reduces defence spending to a maximum of €13,185 billion over 7 years. While Germany has relegated security to the last chapter of its EU presidency plan.

‘NATO is and will remain the cornerstone of our defence.’ – Josep Borrell, EU Commission Vice-President

It is in this context that EU Commission Vice-President, Josep Borrell, stated earlier this month, ‘NATO is and will remain the cornerstone of our defence. There is no alternative to it.’ Deputy Sec. Gen for Common Security and Defence Policy at the European External Action Service, Charles Fries, agrees that the EU would like to have a dedicated EU/US security and defence dialogue. But also maintains that Europe would like to take more responsibility for its own security and defence. ‘Covid 19 is a wake-up call for the EU.’

Borrell also acknowledges that ‘our partners around the world expect us to play a bigger role as a provider of global security and we are ready to do this’. Nevertheless, the European Union’s vision of global security provider has traditionally struggled with a lack of interest from individual Member States. National governments would rather spend on more voter-friendly projects. But the pandemic might help to change this.

EU ‘lacks a common strategic compass’ – German Minister of Defence.

Research shows that the pandemic has caused European citizens to become more aware of the need for a united Europe when facing large external threats, like Covid. Dependencies and vulnerabilities  in the health  and digital sectors are of particular concern. Nevertheless, as Kelly Magsamen, at the Center for American Progress, points out, Europe continues to lack a common view of what strategic EU autonomy looks like. Or, as German Minister of Defence, Annegret Kramp-Karrenbauer, puts it, ‘we lack a common strategic compass’.

To this end, Germany will use its 6 month presidency to establish a common threat analysis. This will form the basis for further agreement on security and defence. EU leaders like Borrell, acknowledge the need for both hard and soft power in a post-Covid world. The reality however is that a lack of shared vision and reluctance to invest strongly in defence, makes the hard power part of the equation difficult to achieve without NATO.

Strong EU/NATO relations ‘not a zero sum choice‘ – Kelly Magasamen, Centre for American Progress.

The downward pressure on defence spending post-Covid is acknowledged by leaders in both NATO and the EU. Timo Pesonen, Director General for Defence and Space at the European Commission, points to a drop of 10-20% of turnover in the defence sector as a result of the pandemic. He warns that ‘we cannot again afford to take a decade to recover our defence industry’, referring to the effects of the 2007/8 financial crisis. One solution is to co-ordinate and share resources. This has however, proved problematic in the past.

Washington, particularly under Trump, has viewed EU defence ambitions with suspicion and NATO has raised concerns about duplication. However as Kelly Magsamen points out, the  US needs to be thinking very differently about EU initiatives like PESCO. She claims that strong EU/NATO relations ‘are not a zero sum choice’ but rather sees it as ‘mutually reinforcing’. More creative thinking around common defence would certainly seem to be the way forward.

Covid has provided a modest reminder of what a war-time Europe might look like.

EU/NATO cooperation on mobility, specifically military mobility may provide a blueprint for cooperation on other, more thorny issues. These include critical infrastructure, cybersecurity and even 5G. An EU action plan on military mobility was launched in March, 2018 to address physical, legal and regulatory barriers. The pandemic has highlighted the need for quick, efficient transport of medical and other essential supplies that are typically associated with war-time conditions.

In this sense, Covid 19 has provided a modest reminder of what a war-time Europe might look like. The picture is not pretty. EU leaders and leaders of the Eastern European and Balkan states appear to have taken this on board. There is real interest in strengthening NATO ties and agreement on the need for qualified 3rd party access to things like the EU Defense Fund. The two outliers are France and Germany who, for different reasons, have shown less enthusiasm for rekindling EU/NATO relations. But as President of the Brookings Institute, John R. Allen, insists, ‘We are at our best when we work together closely as allies’. History suggests he may be right.

EU recovery

EU Recovery: How green should it be?

As Europe slowly pulls out of the worst of the pandemic, there is increased focus on the road to recovery. Particularly, an EU Green recovery. The EU has long championed the cause of a greener, more sustainable future. Many now see Europe’s post-corona recovery package as an opportunity to push for the kinds of structural changes in finance, industry and policy-making that will pave the way for this. But such changes are made neither quickly nor easily. They take time and involve significant shifts in mindset from businesses, employees and politicians. This week, a variety of policy, industry and think-tank leaders shared their hopes and hesitations for a Green EU recovery in two EURACTIV webinars.

The Covid 19 pandemic has affected the attitudes of Europeans toward the EU. Although recent research by the European Council on Foreign Relations shows that citizens have been disappointed in the EU response to the pandemic. It has, paradoxically, raised awareness of just how important a European response to such a crisis is and will be in future crises. Add to this the fact that new EU Commission president, Ursula van der Leyen, has made the EU Green Deal her priority.

The stage is now set for wide spread buy-in for a green EU recovery. Chief Economist for DG GROW of the European Commission, Kamil Kiljanski, is hopeful that ‘at the end of this recovery, we will successfully nudge citizens to rally around the EU flag rather than only their national flags.’ He also speaks of the need for a green recovery, one that is ‘transparent but also speedy.’

The question of course, is are these two requirements compatible? Business owner and President of the Mechanical Engineering Industry Association (VDMA), Carl Martin Welcker, sees the machinery industry as the key driver of recovery. He points out that a full re-structuring of their industry will take time – anything between 3 and 10 years, he estimates. But if one simply wants to kick-start the industry, this can be done far more quickly, in about 6 months.

‘We must not replace market forces with political forces’ – Carl Welcker, VDMA .

MEP, Tom Berendsen, who is also Shadow Rapporteur for Europe’s long-term industrial strategy, agrees that the priority for recovery should be a focus on those investments that create jobs.  Welcker therefore argues against the idea that recovery money is invested in some industries and not others. Instead he calls for EU recovery investment to be driven by the markets. ‘We must not replace market forces with political forces’ he insists. Berendsen also agrees that any realistic, affordable green transition will in fact require all available technologies.

Director of Policy Coordination at DG CLIMA in the European Commission, Yvon Slingenberg, agrees that an ‘orderly Green transition’ is important. To this end, the Commission is preparing an enabling framework. This includes a taxonomy of investment options for companies keen to support the Green transition. In keeping with the focus on sustainable finance, the taxonomy will come with information about the risks for companies who wish to invest.

Nevertheless, General Manager of Europe’s largest insurance firm, Generali,  Frédéric de Courtois, points out that a Green EU recovery is not assured. ‘The status quo is always powerful’ he notes and although, ‘having good will is good, it is not enough’. Even ‘sincere companies need incentives, pressures and opportunities’ to make the green transition, he says.  

Not enough Green investment options available in Europe – Frédéric de Courtois, Generali.

The role of SMEs is crucial to post-corona recovery. Business owners and economists on both sides of the Atlantic have highlighted this. As Carl Welcker points out, SMEs are more flexible than larger firms and are ‘very close to the markets’. In this way, ‘we have a lot of potential but need the freedom to use it’ adds Welcker. He accuses EU industrial policy of being ‘too theoretical’ and not practical enough. De Courtois draws attention to the fact that large investors like Generali, do not have enough Green long-term investments in Europe.

He admits that, in general, they ‘struggle to invest in SMEs’ as it is difficult to select them. More platforms and instruments are need to help companies like Generali do this, he suggests. The Capital Markets Union project would certainly speed up this process. It would stimulate the role of market forces in boosting investment and reallocating capital. Slingenberg points out that the InvestEU programme, to be launched in 2021, is designed to make EU funding simpler to access and more effective. It will trigger at least €650 billion in additional investment.  

This is the EU’s chance to ‘seize the moment and lead the world in green transition’ – Nicolae Ştefănuță, MEP.

Nevertheless, there are pitfalls of which one needs to be aware. MEP and member of the Renew Europe Group, Nicolae Ştefănuță, agrees that the pandemic has provided Europe with an opportunity to ‘seize the moment and lead the world in green transition’. But it is a long term plan. ‘We need to stick to it for the next 30 years’ he insists. Ştefănuță cautions about an increase in ‘low probability, high impact events’ in the future. A transition to greener, more sustainable societies is therefore essential.  

Ştefănuță is particularly concerned about the so-called corona generation – the youth, whose future the Next Generation recovery plan is designed to ensure. But as the MEP points out, this funding is designed to be accessible only until 2024. For member states whose administrative infrastructure is less developed, gaining access to such funds may well prove more difficult. Ştefănuță therefore suggests keeping the distribution process simple. For example, municipalities should be able to apply directly to the EU for relevant funding.

Can the EU work with China for a global Green transition?

There is broad agreement that Europe has an opportunity to provide a model for Green transition for the rest of the world. Clearly climate change is a global concern. Europe emits only 9% of the world’s green house gases. So it can provide leadership on this issue but will need to secure support from other large countries. Carl Welcker calls for ‘going global fast’ in this respect and ‘picking the low hanging fruits first’. Director of the European Climate Foundation, Astrid Manroth, and Frédéric de Courtois are both hopeful that the EU and China can work together for a Green recovery.

But as de Courtois points out, a Green EU recovery will also have to be a just recovery. One that is able to tackle issues of inequality. He recalls the Gilles Jaunes movement in his native France. This is an example of the kind of push back received on policies that leave some behind. These are problems that the developing world faces, but on a much broader scale. Green transition is complex and relatively expensive in the short term, yet vital for EU recovery in the long run.

satellite imaging for oceans

Can satellite imaging save the coral reefs?

Photo by Ray Aucott on Unsplash

Next time you look up at the night sky, look out for a satellite. There are thousands of them orbiting the earth. The first satellite images appeared in the 1970’s. Today satellite imaging is used to measure, identify and track human activity on an increasingly large scale. Satellite images of the ocean are being used to help tackle some of the biggest environment threats to our seas. Coraladies, a team of scientists, based in the Netherlands, took up the Coral Reef SOS challenge. Winners of the Big Blue Mission, organised by the Mothership programme in partnership with the EU’s Earth Observation and Monitoring Programme, Copernicus, this all-female team spoke with me about the challenges they faced and their plans for this project going forward.  

Coral reefs are highly sensitive ecosystems that occupy very limited areas of the ocean. Yet they’re home to a third of the world’s fish species. Millions of people ultimately depend on them for food. Raising Coral Costa Rica are dedicated to the re-creation of coral reefs. This NGO cultivates coral nurseries in order to plant them out in the ocean when ready. But baby coral is sensitive to changes in water conditions and replanting is expensive and labour intensive. This is where satellite imaging can help. Numerous images taken over time provide a picture of the changing water conditions. This in turn helps scientists make decisions about where and when coral might be optimally replanted. It also helps them better understand how to help prevent further erosion and degradation of existing coral reefs.

Coraladies to the rescue!

A four women team, calling themselves the Coraladies, set about building a prototype, the Coral Reef Rescue Portal. This product analyses satellite data in order to track ocean sedimentation. They used open source data provided by Copernicus and the European Space Agency Network of Resources to help them. Describing themselves as a passionate team consisting of a computer scientist ( Angela Sindic), a data scientist (Aileen Jiang), a GIS/ Remote sensing expert (Samantha Krawczyk) and Project Manager (Parya Pasha), these four women spoke with me about the project. Samantha admits that her passion for the ocean was what originally drew her to this challenge. She was joined by colleague, Parya who describes herself as a realist, interested in exploring both the environmental and the commercial aspects of such a prototype. 

Aileen, who previously worked as an AI engineer in Rome, was eager to use her AI skills in this project. Inspired by a European Space Agency project designed to use satellite imaging to tackle pollution, Aileen admits however, that for their own project, more physically-based models using remote sensing were finally used instead. However she sees opportunities to use AI in the further development of their product as it is capable of handling much larger amounts of data. Angela, who was responsible for data acquisition and preparation, tells me how much she enjoyed the experience. In particular, the opportunity to work with real, live data to solve a real world problem like this one, was very rewarding.

Satellite imaging produces huge amounts of data.

Satellite images are part of the big data revolution. But the processing of these images is computationally intensive. Angela describes it as ‘taking a picture of the earth from far away’ using a variety of bandwidths, including infra-red, in order to gain a more detailed picture of the earth’s surface. Different bandwidths reveal different aspects of the earth’s surface, many of which can not be seen with the naked eye. For example, images of soil that is either barren or harbours germinating seeds. The images used for the development of the Coral Reef Rescue Portal, were relatively high resolution, 10x10m. Although the focus was largely on the remote sensing. This provides a bird’s eye view of the earth’s surface as the satellite crosses the earth, day-by-day. This process generates huge amounts of data which make  the skills of software engineers and data scientists so vital.

These images need to be further prepared or cleaned before they can be used. Samantha explains that the processing of satellite images for ocean applications such as this one is quite different from that required for land applications. Oceans images tend to be more hazy as a result of the interaction of light and water. Less research has been done on ocean imaging and this is one of the things that attracted Samantha to the project. ‘The amount of learning we did through this project was incredible. I would love to work more in the future with ocean imagery’ she tells me. Looking ahead, Parya, is hopeful that their prototype will have application across a range of coral reefs, not just the one in Costa Rica.

Science is outstripping markets in this area.

There is an increasing push to monetize satellite imaging and data products. Aileen explains that more widespread access to satellite imaging and open source libraries, together with data pipelines which enable efficient processing, have given rise to a range of start-ups. They are using the data to develop products across various domains of earth observation. In the ocean, satellite imaging is being used to identify plastic waste, particularly submerged micro-plastics particles.

This technology, Parya explains, can help scientists divert clean-up efforts to the right places, given the effects of winds and currents on the movement of the plastic. Satellite imaging can also be used to help identify large vessels that may be leaking oil, in far flung corners of the ocean, Aileen tells me. The science and technology associated with satellite imaging and its processing have advanced more rapidly than the markets for it. But projects such as these are helping to narrow this gap and in so doing, actively helping to save our planet!

Capital Markets Union

Boosting Capital Markets Union to fund EU’s post-corona recovery?

Covid 19 is expected to result in the worst economic recession since the European Union began. Capital Markets Union (CMU), begun in wake of the last economic crisis, could help to significantly counter some of the worst long term effects of this recession. But harmonizing the capital markets of 27 separate member states, is no simple task. The loss of London’s more developed markets, post-Brexit doesn’t help. A recent report from high-level working group led by Thomas Wieser at the request of the European Commission has been well-received by experts. But the American Austrian economist warns of watering down by the EU Council and the Parliament. .  

Capital markets provide deep pools of liquidity that act as a spare tyre for the economy in times of crisis. They also help nurture innovation and economic growth by facilitating optimal distribution of savings to investment-hungry businesses. The world’s first stock market developed in Amsterdam. But today, Europe is highly dependent on bank lending, which is almost twice as high as in the US and amplified the scale of the 2008 crisis. This is partly because European capital markets are underdeveloped compared to the US. What this means in real terms is that European SMEs receive five times less funding from capital markets compared to their US counterparts It also means that innovation and growth of small to medium size enterprises in Europe are stifled.

The advantages of Capital Markets Union are many.

In Europe, there are dozens of small, relatively undeveloped capital markets. It is difficult, for example, for a young tech entrepreneur in Slovenia to find financing at home. Yet there may well be investors in the Netherlands or France who would be eager to risk some of their spare cash in his start up.  Although riskier, such investment options provide better returns than simply leaving your money in the bank, particularly when interest rates are low. They also provide investors, large and small, with a wider range of investment options, for example small green start-ups. Portfolios can thus be diversified, lowering risk levels.   

Although some progress on Capital Markets Union has been made in the last 5 years, Wieser agrees that Europe still has 27 capital markets rather than just one. With Brexit, the more liquid capital markets of London can no longer be used as a hub around which to work. However, it also means that the field is now open for what Wieser terms a more ‘polycentric’ financial landscape. The former Eurogroup Working Group President predicts that if all of their 17 clusters of suggestions were implemented, Europe would see ‘a significant increase in capital market supply and demand’ within 5 years. European citizens wouldn’t be confined to the small national markets but would have a wide range of options spanning the Union. This in turn, would stimulate additional demand as will the recent move toward mutualized debt post-corona.

What are the major obstacles to Capital Markets Union?

These fall into three major categories – technical, of which there are many requirements, cultural and political. The first forms the central focus of the high-level group’s report although many of the technical adjustments needed will require political input. Wieser highlights the need for improvements in national solvency laws, including the process of refunding withholding taxes. He also highlighted the need to improve access to information on both listed and unlisted companies. This would also help reduce listing costs for SMEs, currently very high in Europe.

There is also the issue of regulation. Some countries have weak audit quality, overly complex procedures and unduly high tax rates. Both Wieser and member of the Board of Appeal of the European Supervisory Authorities, Professor Niamh Moloney, agree that smart supervision at both national and pan-European level is crucial. A balance between adherence to the law and nimble, flexible supervision is key. As is the need to ensure the independence and increased authority of the European Securities Market Authority (ESMA). At present, ‘the governance of ESMA is not conducive to hard-nosed European supervision’ states Wieser, citing a lack of independence and supervisory powers.  

Europe must aim for ‘new digital age Capital Market’ – Thomas Wieser.

Bringing about convergence of national legislation is no easy task. Apart from the obvious political obstacles, there is the problem of varying levels of implementation.  A single European law can result in several different versions in practice at Member State level. Wieser explains that, for this reason, a move away from directives to regulation, which are more binding, would be beneficial. Although the latter run the risk of becoming more politicized.

This is where digitization can play a useful role. Thomas Wieser proposes the creation of ‘a new digital age capital market’. ‘If we do it all together, we can make Europe the leading jurisdiction for all of these future initiatives’, he emphasises. Digitization can significantly help reduce the cost of information sharing and streamline many of the technical procedures that are vital to the smooth running of efficient capital markets.

Europeans need to be less risk averse and invest in capital markets rather than leaving it in the bank.

Equally important are the political and cultural aspects of this initiative. Thomas Wieser points out that in order for Capital Markets in the EU to grow, the public has to become more interested in investment. At present, most Europeans opt for the safer bank deposit option or low risk funds recommended by investment advisors. A culture that is more open to risk taking needs to be nurtured. At the same time, a wider range of cross-border financial products need to be monitored for quality and the public educated as to their risks.

Back in Brussels, Wieser is hopeful that the Commission will be supportive of his recommendations. But he is less optimistic about the Council and the EU Parliament. Drawing on 25 years of EU working experience, the economist  sagely describes the progress of many such reports. They move from the Council, where ideas are often ‘sliced away like pieces of salami’ across the road to the Parliament where ‘it might finish looking like a great cheese!’ He laughs, but it is a working reality. Finding consensus among 27 Member Sates is never easy but when time is of the essence, it becomes imperative.

China EU

The Emperor’s new clothes – Corona reveals fundamental flaws in EU China relations.

Europe is China’s largest trading partner. But in recent months, relations between the two  have taken a definite downward turn. Corona has significantly turned the tide of public opinion in Europe. On top of this comes the worsening situation in Hong Kong and a growing awareness of aggressive Chinese disinformation campaigns aimed at Europe in wake of the pandemic. The meeting this week between EU chiefs, President Xi Jinping and Premier Li Keqiang brought little progress on stalled trade talks. It did show a growing firmness of approach from the EU however. Ambassador Zhang Ming, Head of the Chinese Mission to the EU, repeatedly highlighted the importance of multilateralism in EU/China relations at an online event last week. But his comments also came with warnings of Chinese capital ‘voting with its feet’ if there was ‘backsliding’ from Europe on its commitments to China.  

As Ambassador Zhang Ming pointed out, the relationship between China and Europe has been over 40 years in the making. During this time China has worked on reforming and opening up its economy. Indeed the Ambassador went so far as to say that China ‘had learned a lot from our EU friends on the value of the market economy’. To the extent that ‘we often see the EU as our Professor’ in this regard. However the pandemic has caused many in Europe to re-examine the Sino-European relationship. The EU wonders whether the student has not long surpassed the teacher in economic growth, geopolitical strategy and military strength.  

Ambassador Ming warns of ‘active consequences’ from Beijing in response to tougher line from the EU.

In a post-corona world, containment by the EU has involved a focus on foreign direct investment. A White Paper, released in June this year is designed to deal with ‘the distortive effects caused by foreign subsidies in the Single Market’. No direct reference to China is made. But the initiative has developed out of a growing concern by the EU at aggressive take-over strategies of vulnerable European companies by China, post-corona.  The EU is increasingly mindful of the influence of state-sponsored enterprises from China, like Huawei, and the need for foreign direct investment screening. When asked about China’s response to such measures, Ambassador Ming spoke of discussions he had had with Chinese investors in Europe. He commented that he could ‘feel their anxiety at these changes’ and warned of ‘active consequences’ for the EU.

‘We have to realise that we do not share the same values’ – EU Chiefs on China.

European Council President Charles Michel and European Commission head Ursula von der Leyen’s press release after this week’s EU-China virtual summit suggests that Europe is divesting itself of previously held illusions regarding Sino European relations. ‘We have to recognise that we do not share the same values’ and that the EU will engage with China in ‘a clear-eyed’ manner, ‘robustly defending EU interests and standing firm on our values’. Strong words indeed.

Dr Dennis Sammut, Director of LINKS Europe, recently pointed out that corona has put a spotlight on China in a manner that is unprecedented. ‘People have woken up to the fact that China is not merely an economic power, but a very strong geopolitical power in its own right’.’ The Sino European relationship has been categorized by both competition and cooperation but lately the word ‘containment’ has come up more frequently, he notes.  

‘There is no fundamental conflict of interest between China and the EU’ – Ambassador Ming

President Michel and President von der Leyen also accused China of leading a disinformation campaign around the coronavirus epidemic. Von der Leyen said at Monday’s meeting: “We’ve seen cyberattacks on computing systems, on hospitals, and we know the origin of the cyber attacks.” ‘Some noises of the battle of narratives’ were  acknowledged by Ambassador Zhang Ming but insists that ‘there is no fundamental conflict of interest between China and the EU’. Although the EU and China have different political systems and ideologies, ‘we should not see each other as systemic rivals’. Instead he suggests interaction be based on ‘a vision of mutual success’ rather than ‘a knock-out match that allows only one winner’. He reiterated the need for Sino European co-operation on the green economy and the digital economy. ‘China remains firmly committed to opening up.’

‘What the Chinese are able to do in Europe, the Europeans are unable to do in China’ – Dr. Dennis Sammut.

But China’s lack of openness when it comes not only to its political system but also its markets, is precisely what the EU is concerned about. As Dr. Sammut states very clearly, ‘what the Chinese are  able to do in Europe, the Europeans are unable to do in China’.  Over time, this lack of reciprocity has ‘poisoned trade relations’. China’s standard response to requests for greater market access has hinged on its increasingly dubious categorization as a developing economy. As Director of CEPS, Daniel Gros, asked Ambassador Ming, ‘If China is so strong, why does it not open up more quickly?’ He also pointed out the need for concrete implementation of agreements already reached, for example, in the World Trade Organisation, rather than more declarations of general principals. Unfortunately, sweeping statements regarding the direction of China’s development, rather than its speed, defined Ambassador Ming’s response.

His frequent references to multilateralism and the need to ‘dispel external influences’ suggests a desire to draw distinctions between the EU/China relationship and that of the US under Trump. Ambassador Ming made it clear that Beijing is ‘looking for China and the EU to jointly uphold multilateralism in order to counter unilateralism’. Cooperation on fighting the pandemic is clearly part of such an approach. But it is also designed to create further distance and decoupling from the US which works to China’s advantage.

‘Multilateralism is the common language of China and the EU’ – Ambassador Zhang Ming.

‘Multilateralism is the common language of China and the EU’ says Ambassador Ming. However, China’s own initial handling of the pandemic remains shrouded in mystery in spite of calls from various governments for more information. As China rings the praises of multilateralism, its own approach in Europe has focused on building bi-lateral relations with individual EU member states. This includes the involvement of countries like Italy and Hungary in China’s Belt and Road Initiative, its ’17 + 1’ grouping with central and Eastern European nations as well as extensive trade agreements with the Eurozone’s largest economy, Germany.

Corona has played an important role in revealing the uncomfortable truth regarding China’s long awaited new clothes. Increased openness, transparency and respect for human rights appear to be illusions that both the US and now Europe have waited for in vain. As Mark Leonard recently pointed out, under President Xi Jinping, China has become more authoritarian. Xi’s signature policies like Made in China 2025 and China Standards 2035, have not only forced European companies out of the Chinese market, but have also exported China’s model abroad. The EU will have to be increasingly assertive of its own model in the decades ahead.  

transatlantic relations

Transatlantic relations: Where to from here?

Crises can help put things in perspective. They often highlight weaknesses and problem areas with alarming clarity. The Transatlantic relationship is no different. A key feature of the post-war world, it has remained relatively unchanged for over half a century. Yet the Trump presidency has created divisions that few imagined possible a decade ago. The pandemic has further widened and spot-lighted the cracks in this fundamental alliance. I recently attended an event hosted by the  Brookings Institute. A variety of experts from both sides of the pond were invited to speak on how and where Transatlantic relations may be rebuilt.  

As with all struggling relationships, both parties have erred. Trump’s devil-may-care approach sits poorly with a union that is built on the need for constant compromise between 27 member states. However, America’s concerns regarding defense spending, the digital economy and most of all China, are real issues on which cooperation would benefit both sides. More than one expert at this event agreed that a win for Joe Biden in the upcoming US presidential elections would clearly impact Transatlantic relations. However, Fiona Hill, senior fellow at Brookings, points out that no matter who is sitting in the White House come January next year, it will be impossible to put the clock back to the old Cold War framework that defined Transatlantic relations for over half a century. ‘We are in a whole new era, that is different even from the 1990s or even the 2010s’ she says.  

What happened?

The issue of defense spending has been a sore point for decades. The US accounts for nearly 70% of total NATO defense spending. In terms of GDP, the US spent approximately 3.4% on defense while the average for European NATO countries was 1.55%. Germany, France and Italy all spend less than 2% of their GDP on defense spending. Last week, Germany received formal notification from the US that it would withdraw 9500 American troops stationed there. The news was greeted with mixed responses. Trump pointed out that there would still be 35 000 American troops stationed in Germany, the highest number in Europe. But it is the manner in which the decision was reached and relayed to German officials that highlights once more, the damage caused by a consistent lack of diplomacy from the current US administration.

Ivan Krastev, founding member of the European Council  on Foreign Relations and chairman of the Centre for Liberal Strategies in Sofia, notes sagely that Transatlantic relations are complex. Some European leaders, like Hungary’s Victor Orban are betting on Trump’s re-election. While for a country like Germany, the election of Democrat, Joe Biden, could put them in an awkward position with regards to China.

Germany is China’s biggest trading partner in Europe and has been reluctant to criticize the superpower for human rights violations. This includes issues like the Uighur Muslim detention camps and the ongoing pro-democracy protests in Hong Kong. Amanda Sloat, Robert Bosch senior fellow at Brookings, points out that China is going to remain a difficult issue for Transatlantic relations, irrespective of who is in the White House. The Democrat’s are not expected to significantly alter the US position on China, although they might change their rhetoric.

Greater commitment to the multilateral order is important for Europe.

From the European side, Célia Belin, visiting fellow in the Center on the United States and Europe at Brookings and previously an advisor on US affairs in the French foreign ministry, highlights the need for a coordinated global approach to the pandemic, particularly in the development and distribution of a vaccine. This raises the issue of American funding of the World Health Organisation (WHO) and other multilateral institutions such as the World Trade Organisation (WTO) and the International Criminal Court (ICC). The latter has recently come under some pressure from the US. Belin argues that for Europe, continued US support for these long-standing, if imperfect institutions, is fundamental. A commitment to uphold the world order that Europe and the US set up at the end of World War II, one that outlasts a single administration, is missing from the Trump administration.

These concerns are real. Fiona Hill notes that US withdrawal from such international institutions often results in their decline. No other power has shown the same willingness to step in and fill the gap. Nevertheless, Molly Montgomery, non-resident fellow at Brookings Institution, points out that this European Commission shows more geopolitical ambition than previous ones have done. This can be seen most clearly in its stance on regulation of the digital economy. Tax issues in particular pose a problem for Transatlantic relations as the EU prepares to take on the likes of Facebook and Amazon. Montgomery warns of ‘a real fight between US tech giants and the EU’ in the future.

‘Stop China from eating free nations from the inside’ – Victoria Nuland

Former Assistant Secretary of State for European and Eurasian Affairs at the US Department of State, Victoria Nuland, suggests that the US and the EU work together to protect a digital economy that supports free nations. She also highlights the need for cooperation, to stop China from ‘eating free nations from the inside’. Here she references aggressive Chinese take overs that are then used to leverage political influence. Montgomery agrees that Transatlantic relations are at their best when the focus is on common values and a shared goal. Both agree that the shared goal should be China. Montgomery suggests that a common approach to this overarching issue could provide an umbrella that will incentivize the US and the EU to find solutions on a range of other thorny issues including tax, the digital economy and even the environment.

‘Europeans have been on an extended vacation from geopolitics’ – Mark Leonard

Celia Belin also agrees that climate change, trade, health security and China all provide areas of cooperation for these two global powers. Mark Leonard, Co-founder and Director of the European Council on Foreign Relations, argues that Europe has been ‘on an extended vacation from geopolitics for many years.’ This has made them bad partners for the US, during the good times. Now in the bad times, Europe has been forced to take more responsibility for its own affairs. This might, in turn, make the United States a more willing partner. A joint recognition that the world is a much less benign place for liberal values should and could help improve Transatlantic relations going forward.