A
demonstrator urges action against climate change in Madrid on December 6, 2019
during the COP25 summit. Climate change will continue to be a contentious topic
in Europe in 2020 | Oscar Del Pozo/AFP via Getty Images
Europe’s
big problems in 2020
POLITICO’s
predictions for the year ahead.
By POLITICO
12/31/19, 4:59 PM CET Updated 1/3/20, 4:56 PM CET
2019 was
the year that multiple European governments collapsed, Boris Johnson crushed
his opponents with a promise to “Get Brexit done” and a 16-year-old from Sweden
rallied environmental protests across the Continent.
As the
calendar clicks over into January 2020, POLITICO’s editors predict the major
tensions that will shape the coming year. Spoiler: The outlook isn’t rosy — and
Brexit isn’t done yet.
Europe goes
Chinese
If you
can’t beat ’em, join ’em. Protectionism will no longer be a dirty word in EU
policymaking. After free-trading Britain leaves the EU, France and Germany will
quickly shunt Brussels toward an industrial policy based on state support,
central planning and European champions.
That will
include vetoes on big Chinese buyouts in Europe and European governments
excluding Asian companies from public contracts, as the EU picks its next
generation of home-grown corporate winners in sectors such as electric
vehicles, hydrogen and health care. Expect attempted mega mergers in telecoms
and other stone-age industries.
Liberal
nations (the Swedes and Dutch) and big recipients of Chinese investment (Greece
and Portugal) will lambast the Franco-German industrial juggernaut for
hypocrisy. But Paris and Berlin will be deaf to their complaints. It’ll be a
much-trumpeted leap back to the supposed glory days of post-World War II
reconstruction — and the results will be underwhelming.
Finance officials and economists look with wary eyes
to China’s shadow banking system.
A new
financial crisis
The
tectonic plates of the world’s financial system are building up tension and are
overdue for a slip. More than a decade — a typical interval between panics —
since the last crisis, protections are more or less in place against a
recurrence of those events. But the next crisis is always different, as
financiers like to say.
Finance
officials and economists look with wary eyes to China’s shadow banking system.
Alternative sources of credit, away from conventional banks, have boomed along
with the economy. Officials have not taken the measure of the phenomenon with
any degree of confidence. As China’s economy wobbles, that credit looks shaky.
Even a small uptick in losses can wipe out lenders with thin financial
cushions.
The truce
in Trump’s trade offensives has been a taken with a sigh of relief. But the
peace, and China’s economy, is fragile. Any political misstep could set off
fresh hostilities that would dim growth prospects.
This comes
while warning lights are flashing red on the control panels of market watchdogs
and analysts. Several classes of stocks and bonds are trading at high prices.
Those two forces together are ready to shake the financial world in 2020.
Brexit gets
(even) dirtier
Post-Brexit
trade talks between the U.K. and the EU will turn ugly in 2020 as Prime
Minister Boris Johnson pushes for the freedom to diverge from EU rules.
With the
U.K. now all but certain to leave the EU on January 31, that leaves the really
hard question — what kind of relationship the U.K. wants to have with the EU —
to be solved in a punishingly tight timetable by the end of December.
Anyone
expecting Johnson to ditch his hard Brexiteers and go for a trade deal with
close alignment with the single market and EU customs union should think again.
He and his closest aides are serious about wanting to diverge from EU rules —
particularly in areas like financial services and artificial intelligence. And
he is banking on France and Germany blinking over trade in food and cars to
give him a better deal than they’re offering now.
One factor
is whether he will tear up his pledge not to extend the transition period
beyond December 31, 2020. If Johnson wants to avoid the political embarrassment
of breaking his word on an exit date again (remember that “die in a ditch”
promise), he will have to take a hit on the terms he accepts — or face the economic
shock of leaving without a trade deal.
Expect the
U.K.-EU trade talks, like every European crisis, to go down to the wire in
December 2020 as everybody plays a colossal game of diplomatic chicken.
The climate
agenda boils over
Atmospheric
levels of carbon dioxide will hit yet another record in 2020. There will be no
sign that the global increase in temperatures is being brought under control.
The effort to clean up is exposing deep fissures
between the greener West of the Continent and the coal-dependent East.
Against
that backdrop, Commission President Ursula von der Leyen’s promise to face the
climate challenge will dominate the EU calendar — affecting everything from
financial regulations to chemicals rules, airplane taxes, pollution standards
for cars and the bloc's trading relationships with the rest of the world.
The
political muscle behind her so-called Green Deal program means that big chunks
of it will get passed — but it’s going to cause some serious fights this year.
One is
likely to be within the European Commission. Frans Timmermans, the Dutch
Socialist Commission executive vice president in charge of the Green Deal,
bears the political responsibility for pushing through the program, but the
purse strings are controlled by a rival executive vice president — Valdis
Dombrovskis from the European People's Party.
The other
is within the bloc itself. The effort to clean up is exposing deep fissures
between the greener West of the Continent and the coal-dependent East. Poland
says it can’t meet a goal to become carbon neutral by 2050, and that’s going to
force the EU to cough up lots of cash to try and get the Poles and their allies
on side. But there is no sign that Warsaw plans any kind of a radical (and very
expensive) transformation of its economy.
Technology
takes control
2020 will
be the year that Europe ditches its precautionary approach to new technologies.
As the bloc
eyes an industrial policy worthy of outperforming global rivals, it will be
forced to confront the reality that a softly-softly approach to artificial
intelligence, driverless vehicles and other futuristic technologies is no
longer compatible with economic ambitions.
Experts say
a host of artificial intelligence systems are already in use across health
care, education, employment and criminal justice without appropriate safeguards
or accountability structures. Driverless trucks are already operating across
the bloc’s public roads, albeit under limited controlled trials. Aerospace
giants like Airbus and Boeing, tech companies like Uber and even McDonald’s are
betting big on drone deliveries and air taxis.
Even
European governments are already embracing facial recognition technology —
disregarding major privacy and civil liberty concerns.
Brussels
will be forced to wake up to Iran’s bloodshed
Tehran’s
leadership and the Revolutionary Guards will become even more desperate to
cling on to power through 2020 as they lose the last vestiges of popular
support. The massive welfare and subsidy schemes that held the Islamic Republic
together will unravel as American sanctions bite harder. Without a dramatic
(and unlikely) recovery in oil revenue, Iran’s leaders know they are facing the
battle of their lives and will resort to repressive fear tactics.
Brussels
will have to stop its love-in with Tehran and should worry about what might
come next. Like the fall of Communism in eastern Europe, we will see big cracks
in the Iranian elite. Sensing the threat to Supreme Leader Ayatollah Ali
Khamenei, many oligarchs within Iran’s highly corrupt upper echelons will fear
the collapse of the whole edifice that keeps them rich, and will be studying
the mechanics of an internal coup and a deal with the West.
Warsaw-Brussels
relations at breaking point
Poland’s
ruling Law and Justice (PiS) party will push ahead with its deep reforms to the
country’s judicial system — sparking yet more tension in the fraught
relationship with Brussels.
Incumbent President Andrzej Duda, a PiS ally, is ahead
in opinion polls, but presidential races have surprised in the past.
Despite
winning the 2019 parliamentary election, PiS is fighting for its political life
in this year’s presidential vote. Incumbent President Andrzej Duda, a PiS ally,
is ahead in opinion polls, but presidential races have surprised in the past.
If he loses, then the radical changes brought about by PiS leader Jarosław
Kaczyński would be blocked — killing his revolutionary effort to remake the
country.
That's
prompting the government to undertake a final push to bring the judiciary more
firmly under political control. Brussels is warning that such steps could
violate EU treaties by undermining judicial independence. But Warsaw
isn’t listening.
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