Jose brito

THE SLEEPING GIANT OF WESTERN POLITICS José Maria Brandão de Brito

Global Interdependence Center Conference Fundación Rafael del Pino, Madrid, 3rd October

Introduction: Sleeping Giant “(…) the pro-anti EU orientation, despite its apparent irrelevance for political behavior, constitutes something of a ‘sleeping giant’ that has the potential, if awakened, to impel voters to political behavior that (because of its orthogonality with left-right orientations) undercuts the bases for contemporary party mobilization in many, if not most, European

polities” Cees van der Eijk and Mark Franklin, The sleeping Giant: Potential for Contestation on European Matters at National Elections in Europe, 2001

The crux of national politics in Western countries has been shifting from the left-right binomial to a debate centered on supranational issues, such as diplomatic and military activism, trade agreements, financial regulation, migration and terrorism.

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The Giant Has Awakened

Source: The Telegraph, (online edition) 29 September 2016.

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Why Now? A Supply-Side Issue OLD MOTIVATIONS • Migration, terrorism? Yes, sure, but there was a lot of that before!

• Effects of the economic crisis? Yes, sure, but the hollowing out of the middle class has started long before in Europe and in the US!

MARKET FAILURE

• In Europe, the political establishment snubbed the outcome of national referenda; • The European Parliament is toothless; • In the US there used to be a bipartisan consensus on international affairs, geopolitical or economic.

• Matter of time until the supply side of the market for political ideas filled the void.

• Like’em or not, people like Farage or Trump sniffed the opportunity that the incumbents failed (or didn’t want) to identify.

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What Awoke the Giant... In Europe?

EVEN HOPING HAS BECOME HARD 26

26

24

24

22

22

20

20

18

18

16

16

14 Jan-00

14 Jan-03

Jan-06

Jan-09

Jan-12

Jan-15

Youth unemployment rate - euro area (%)

Source: Datastream; Millennium bcp

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What Awoke the Giant... In Europe?

WHAT DO YOU THINK ARE THE TWO

MOST IMPORTANT ISSUES FACING THE

EU AT THE

60

MOMENT?

60 54

50

48

48 38

40

39

32 30

34

5

19

17

6

7 2013

2014 Terrorism

40 30

15

Immigration

Source: Eurobarometer; Millennium bcp

24

10

9

0 2012

39

27

21

20 10

38

50

20 10 0

2015 Economic Situation

2016 Unemployment

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What Awoke the Giant... In Europe?

DO YOU

TRUST THE

EUROPEAN UNION?

65

65 57

60

60

55

55

47

50

41

45 40

50 45

44

40

35

31

32

33

35

30

30

25 2005

25 2007

2009

2011

2013

2015

Tend to trust EU (%)

Source: Eurobarometer; Millennium bcp

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What Awoke the Giant... In Europe?

INTEREST

RATES TOO LOW FOR SAVERS, TOO HIGH FOR DEBTORS

4,5

4,5

4,0

4,0

3,5

3,5

3,0

3,0

2,5

2,5

2,0

2,0

1,5

1,5

1,0

1,0

0,5

0,5

0,0

0,0

-0,5 Jan-15

-0,5 Mai-15

Set-15

Jan-16

Mai-16

Set-16

German 10-year government bonds yield Portuguese 10-year government bonds yield

Source: Datastream; Millennium bcp

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What Awoke the Giant... In the US?

UNSUSTAINABLE

IN DEMOCRACY

Source: Murray, Charles; Coming Apart: the State of White America, 1960-2010; Kindle edition, 2013; page 49

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What Awoke the Giant... In the US?

WHITE

MEN NOT MAKING A LIVING

Upper class Lower class

Source: Murray, Charles; Coming Apart: the State of White America, 1960-2010; Kindle edition , 2013; page 227

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What Awoke the Giant... In the US?

TWO

WORLDS APART

Upper class Lower class

Source: Murray, Charles; Coming Apart: the State of White America, 1960-2010; Kindle edition, 2013; page 167

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What Awoke the Giant... In the US?

DANGEROUS

TRENDS

Upper class Lower class

Source: Murray, Charles; Coming Apart: the State of White America, 1960-2010; Kindle edition, 2013; page 191

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What Now? Centrifugal Forces • The anti-establishment sentiment is spinning ever faster in Europe & US.

• The Brexit campaign shows that elites have lost their clout with public opinion in the West.

• Anti-EU sentiment is already shaping European matters at national level (e.g. Merkel v Renzi on banks).

The Litmus test will be the next recession for which there’ll be no economic policy cushion.

SOME

PEOPLE HAVE SOME GREAT SENSE OF HUMOR

(SATYAJIT DAS)

• Grexit • Departugal • Italeave • Czechout • Oustria • Finish

• Slovaknockout •Latervia • Bygium • Looks like only Remainia will stay!

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Should We Worry?

“Things fall apart; the centre cannot hold; (…)

The best lack all conviction, while the worst Are full of passionate intensity”

William Butler Yeats, The Second Coming

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Life After Brexit in the UK: It Could Be Worse...

RE-PRICING,

NOT COLLAPSE

4.000

1,50

3.800

1,46 1,42

3.600

1,38 3.400

1,34

3.200

1,30

3.000 Jan-16

1,26 Mar-16

Mai-16

Footsie 350 Stock Index

Source: Datastream; Bloomberg; Millennium bcp

Jul-16

Set-16 USD/GBP

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Life After Brexit in the UK: It Could Be Worse...

NO

PANIC FOR NOW

56

56

54

54

52

52

50

50

48

48

46

46

44 Jan-16

44 Mar-16 PMI Manufacturing PMI Construction

Source: Datastream; Bloomberg; Millennium bcp

Mai-16

Jul-16 PMI Services

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Life After Brexit in the UK: It Could Be Worse...

NEWS

OF THE DEATH OF

UK’S

HOUSING MARKET A BIT EXAGGERATED

705

5

700

0

695

690

-5

685

-10 -15 Jan-16

680

675 Mar-16

Mai-16

Jul-16

Consumer Confidence (GFK) House prices index (Halifax) Source: Datastream; Bloomberg; Millennium bcp

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Architect’s Hand?

THE

PROBLEM IS LACK OF GROWTH

=

SLOW PRODUCTIVITY

6

4

5

3

4 2 3

its limits, that’s why productivity is slowing…

• … despite the internet • We’re on the verge of the 4th industrial revolution based on advanced robots and 3D printing

1

2 1 1960

• We’ve stretched the current industrial model to

0 1968

1976

1984

1992

2000

2008

2016

• Labor costs will be replaced by proximity and flexibility as the main location drivers • Globalism will give way to Localism

US Real GDP (yoy, 10yma) US Productivity - nonfarm business (yoy, 10yma)

The unraveling of the globalist super-structure will (perhaps) fit like a glove on the new

industrial paradigm. That would be just perfect!

The revival of local manufacturing in the Western world will generate many jobs, albeit requiring totally different skills, which in itself requires another revolution Source: Datastream; Millennium bcp

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Thus, its accuracy and timing must absolutely be confirmed before its usage. Any alteration in the market conditions shall imply the introduction of changes in this report. This information / these opinions may be altered without prior notice and may differ or be contrary to opinions expressed by other business areas of BCP group as a result of using different assumptions and criteria. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results.

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