On March 14, 2017 the Bretton Woods Committee hosted the virtual conference, Regional Spotlight: Populism Shaking EU Foundations? This event explored European populist political movements and the potential impacts on the future of the European Union, Eurozone, multilateral institutions, and the global economy. Featured speakers included Dr. Gerard Lyons, Chief Economic Strategist at Netwealth and former Economic Advisor to Boris Johnson, Mayor of London, as well as Dr. Beatrice Weder di Mauro, Distinguished Fellow in residence at INSEAD Singapore and Chair of International Macroeconomics at the University of Mainz. Tony Fratto, Partner at Hamilton Place Strategies, moderated the dynamic conversation.
Dr. Weder di Mauro opened the session by stating that resilience of the UK’s economy post-referendum has reinforced populist movements in several European countries but the costly impacts of increasingly difficult Brexit negotiations have yet to be realized. In addressing growing movements in Germany, Italy and France, she legitimized populist discontent with “ultra-low” interest rates, high levels of inequality, and unsuccessful social inclusion policies. While European institutions such as the EU and the ECB are often the scapegoat for these challenges, their policy implications can be misunderstood. She noted that Germany benefits from a relatively undervalued real exchange rate, and the realities of a massive depreciation of the exchange rate would dampen the prospect of an Italian or French exit. In her view, Italy has already experienced an “ineffective” populist government under Silvio Berlusconi, and France would experience an immediate run on banks in the aftermath of a “Frexit”. In conclusion, she thought that while the foundations of European integration may be shaking, a collapse is unlikely.
In his opening remarks, Gerard Lyons took care to distinguish the many brands of populism, saying that “one size does not fit all.” He defined the movement as a response to global economic policy groupthink that has not delivered for all, citing high youth unemployment and wage stagnation across the EU. According to Dr. Lyons, the “ordinary people” of the United Kingdom’s populist movement who voted for Brexit did so for three main reasons: 1) to return sovereignty to Parliament, 2) to halt unlimited immigration, and 3) to improve the long-term economic outlook despite short-term shocks. Dr. Lyons also noted that while the UK wants a positive relationship with the EU post-Brexit, they are positioning themselves away from the customs union to engage in global trade deals. In his opinion, Brexit will allow the UK to shift from the “inward looking” European Union toward the rising innovative Indo-Pacific region. He expressed hope that Brexit might act as a trigger for major EU reform and that Germany should lead the way on this.
Mr. Fratto asked the speakers to address the future of multilateral institutions and the EU-UK relationship in light of rising populist sentiments, including that of the American election of President Donald Trump. Dr. Lyons reiterated again that the UK was looking to act and compete globally through the Brexit vote, and stressed a positive future relationship with the EU economically but also in terms of military and defense coordination. He suggested a “multi-speed euro” is necessary to address the adjustment imbalances between debtor countries such as Greece and Spain and surplus countries such as Germany and the Netherlands. Dr. Weder di Mauro noted that “the G20 was clearly in trouble” and that a number of multilateral institutions will be “weakened going forward,” predicting an increased reliance on bilateral agreements. She expressed concerns of a costly break for the UK in terms of trade and a strain on the EU relationship but hopes for compromise, and reiterated her view that France, Italy, and Germany would ultimately remain.