Britain: A cold day in July
Also: Russia, the European right, Serbia, Kosovo, and Peru.
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BRITAIN. A cold day in July
Sunak calls an election he's almost certain to lose.
A rain-soaked Prime Minister Rishi Sunak called a snap election Wednesday, to take place on 4 July. Speaking indoors, opposition leader Keir Starmer welcomed the news. Labour currently leads the government by an average of 20 points.
INTELLIGENCE. The Conservatives have little chance of staying in power after 14 years and five prime ministers. A strong majority looks probable for Labour. Yet the schisms in British society won't necessarily mean an end to the bitter politics of compromise. After 2019, the Tories also received a strong majority – the biggest since 1979 – but this didn't stop the spread of backbench revolts, the retention of incompetent ministers, or the sacking of two leaders.
FOR BUSINESS.Starmer has promised steady government with a business-friendly approach, more in keeping with Tony Blair than Jeremy Corbyn. And he will personally want to deliver this. But beneath him sits a party not completely purged of its Corbynista radicals, many of whom have been reinvigorated by the culture wars of Gaza and identity. Their foil on the right is the Reform UK Party, which has little chance of winning seats, but will eat into Tory margins.
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RUSSIA. Weapons of mass distraction
Armed satellites, nukes, and Chinese tech aren’t the real battle.
Russia had "likely" launched a satellite weapon, the Pentagon said Wednesday, amid a UN debate on the militarisation of space. China was working to send Russia "lethal aid", the UK said. Russia began tactical nuclear drills near Ukraine.
INTELLIGENCE. High-tech weapons are useful, whether against insurgents or “peer” competitors. US hegemony rests on world-class air and sea power as much as economic weight, and both come at a cost. Yet a focus on quality over quantity has left it with little of the basics to spare in theatres like Ukraine, and forced the use of $2 million missiles to shoot down $2,000 drones in the Red Sea. Planning for star wars is necessary, but there’s still plenty to on earth.
FOR BUSINESS. The US defence industry has been revitalised since the war in Ukraine but a commercial focus on lucrative IP, rather than unprofitable staples, like 155mm shells, may be the sector’s long-term undoing, if it pushes Congress to commandeer parts of the sector as has happened in previous crises. Russia and China, with clear state control of the industrial base, have no such problem. Production of the basics and the cutting edge continue at pace.
EUROPE. Fight for the right
Scandal and rebranding divide European populists.
Alternative for Germany (AfD) dumped its top candidate for the European Parliament Wednesday after he said the Nazi SS were "not all criminals". France's National Rally broke ties with the AfD in the EU's Identity and Democracy (ID) group.
INTELLIGENCE. National Rally, which is now France’s most popular party, has been tacking to the centre for some time and has long been thought to want membership of the EU Parliament’s European Conservatives and Reformists group, which includes softer Eurosceptics like Giorgia Meloni’s Brothers of Italy, and Poland’s Law and Justice Party. With National Rally, the ECR could emerge as Strasbourg’s main far-right bloc, as opposed to the more eclectic ID.
FOR BUSINESS. As the far-right is mainstreamed, it is breaking into far and far-far-right factions. More traditional conservatives, like Germany’s Christian Democrats, and represented by the European People's Party Group, are meanwhile leaning right to take advantage of the confusion. But whatever the final makeup of the EU Parliament at next month’s election, it is becoming more populist, which will ultimately force big changes to Brussels policymaking.
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SERBIA. KOSOVO. Dog’s dinar
With accession plans hobbled, the nit-picking resumes.
The EU condemned Kosovo Tuesday after it closed Serbian bank branches following a ban on the dinar. Belgrade hit back Wednesday on a UN vote to call the Srebrenica massacre a genocide. Bosnian Serbs reiterated a threat to secede.
INTELLIGENCE. Serbia's EU talks have largely stalled. The Council of Europe has squibbed on a membership vote for Kosovo (probably at Serbia's insistence). The two Balkan nations had Brussels' carrot to keep them progressing toward European standards. But when carrot turns to stick the incentives disappear. Serbia is instead being courted by Russia and China – the latter offering a trade deal to begin in July. Kosovo has Turkey and Qatar, among others.
FOR BUSINESS. Ethno-nationalist escalation at the heart of Europe would normally be at the top of Brussels’ agenda but conflicts in Ukraine and Gaza have put paid to that. And while a return to the Balkan wars is unlikely, the conditions are being fostered for extremists, on all sides, to gain the upper hand. The region’s economy is booming, by EU standards, but much of this is thanks to external efforts, notably China’s. That, in time, will weaken Western leverage.
PERU. Copper-bottomed
Political chaos won’t stall an economic boom, for now.
Industry said Tuesday that Lima's 3-million-ton copper target was realistic, as analysts forecast stronger growth in 2024 after last year's recession. London prices hit $11,000 a ton. Peru will exit the IMF's flexible credit program this month.
INTELLIGENCE. After Poland in 2017, Peru will be just the second country to exit the IMF's Flexible Credit Line scheme, which was created in 2009. Despite polarised politics and spillover violence from Ecuador and Colombia, Peru's fundamentals are strong. But the country’s luck could run out with the potential for a far-left revolt in Congress. The current conservative president, whose approval sits around 10%, saw off three impeachment attempts last week.
FOR BUSINESS. President Dina Boluarte is liked by investors, who are expanding in Peru, but hated on the street. Allegations of graft, which recently saw her brother’s brief jailing, haunt her. Many in the centre fear the hand of ex-dictator Alberto Fujimori, released from prison last year. There's no clear alternative who would be both popular and good for the economy. A return to growth may help Boluarte at the margins but polarisation is structural, not cyclical.