THE SLEEPING GIANT OF WESTERN POLITICS

José Maria Brandão de Brito

Global Interdependence Center ConferenceFundación Rafael del Pino, Madrid, 3rd October

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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

• 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!

• 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.

OLD MOTIVATIONS

MARKET FAILURE

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What Awoke the Giant... In Europe?

Source: Datastream; Millennium bcp

14

16

18

20

22

24

26

14

16

18

20

22

24

26

Jan-00 Jan-03 Jan-06 Jan-09 Jan-12 Jan-15

Youth unemployment rate - euro area (%)

EVEN HOPING HAS BECOME HARD

•6

What Awoke the Giant... In Europe?

Source: Eurobarometer; Millennium bcp

910

21

38

48

5 7 6

17

39

54

48

39

27

19

32

38

34

24

15

0

10

20

30

40

50

60

0

10

20

30

40

50

60

2012 2013 2014 2015 2016

Immigration Terrorism Economic Situation Unemployment

WHAT DO YOU THINK ARE THE TWO MOST IMPORTANT ISSUES FACING THE EU AT THE MOMENT?

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What Awoke the Giant... In Europe?

Source: Eurobarometer; Millennium bcp

44

57

47

41

31 32 33

25

30

35

40

45

50

55

60

65

25

30

35

40

45

50

55

60

65

2005 2007 2009 2011 2013 2015

Tend to trust EU (%)

DO YOU TRUST THE EUROPEAN UNION?

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What Awoke the Giant... In Europe?

Source: Datastream; Millennium bcp

-0,5

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

-0,5

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

Jan-15 Mai-15 Set-15 Jan-16 Mai-16 Set-16

German 10-year government bonds yieldPortuguese 10-year government bonds yield

INTEREST RATES TOO LOW FOR SAVERS, TOO HIGH FOR DEBTORS

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What Awoke the Giant... In the US?

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

UNSUSTAINABLE IN DEMOCRACY

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What Awoke the Giant... In the US?

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

Upper class

Lower class

WHITE MEN NOT MAKING A LIVING

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What Awoke the Giant... In the US?

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

Upper class

Lower class

TWO WORLDS APART

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What Awoke the Giant... In the US?

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

Upper class

Lower class

DANGEROUS TRENDS

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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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1,26

1,30

1,34

1,38

1,42

1,46

1,50

3.000

3.200

3.400

3.600

3.800

4.000

Jan-16 Mar-16 Mai-16 Jul-16 Set-16

Footsie 350 Stock Index USD/GBP

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

Source: Datastream; Bloomberg; Millennium bcp

RE-PRICING, NOT COLLAPSE

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44

46

48

50

52

54

56

44

46

48

50

52

54

56

Jan-16 Mar-16 Mai-16 Jul-16

PMI Manufacturing PMI ServicesPMI Construction

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

Source: Datastream; Bloomberg; Millennium bcp

NO PANIC FOR NOW

•17

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

Source: Datastream; Bloomberg; Millennium bcp

675

680

685

690

695

700

705

-15

-10

-5

0

5

Jan-16 Mar-16 Mai-16 Jul-16

Consumer Confidence (GFK)

House prices index (Halifax)

NEWS OF THE DEATH OF UK’S HOUSING MARKET A BIT EXAGGERATED

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Architect’s Hand?

• We’ve stretched the current industrial model to

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

• Labor costs will be replaced by proximity and

flexibility as the main location drivers

• Globalism will give way to Localism

The revival of local manufacturing in the Western world will generate many jobs, albeit requiring totally

different skills, which in itself requires another revolution

THE PROBLEM IS LACK OF GROWTH = SLOW PRODUCTIVITY

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

industrial paradigm. That would be just perfect!

0

1

2

3

4

1

2

3

4

5

6

1960 1968 1976 1984 1992 2000 2008 2016

US Real GDP (yoy, 10yma)

US Productivity - nonfarm business (yoy, 10yma)

Source: Datastream; Millennium bcp

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