Germany: All carrot, no stick.
Also: Europe, China, the US, Israel, Palestine, Mali and the Sahel.
GERMANY. All carrot, no stick.
Berlin rolls out the red carpet.
Chancellor Olaf Scholz hosted China's premier for dinner on Monday ahead of bilateral talks. The same day, Scholz heralded a €30 billion outlay by Intel in two chipmaking plants as the biggest foreign investment in German history.
INTELLIGENCE. In its national security strategy, released last week, Berlin prioritised secure technology supply chains and stable relations with China. Scholz is delivering on both, but at a cost. His industrial strategy is eating into funds that could be spent elsewhere in an economy in recession. Germany’s military is also underfunded. Der Spiegel claimed on Monday the army has only 20,000 high-explosive shells left, having sent the bulk of its stocks to Ukraine.
FOR BUSINESS. Berlin is estimated to be subsidising Intel’s plants in the eastern state of Saxony-Anhalt by around €10 billion, which, assuming a gain of 10,000 jobs (7,000 in construction), equates to €1 million per worker. Amid creaking infrastructure and slowing growth, Scholz has been forced to defend the deal. Saxony-Anhalt has Germany's second-lowest per capita GDP. The far-right Alternative for Germany came second in the state's 2021 election.
EUROPE. The fruits of unambition.
The EU settles for low-hanging outcomes.
The European Commission prepared to launch its economic security strategy on Tuesday, outlining measures to boost its resilience. Sources told Reuters on Monday Ukraine had met two of seven conditions to begin EU accession talks..
INTELLIGENCE. The EU is good at strategies, but implementation needs the cooperation of 27 member states. Europe has similarly been long on rhetoric around Ukrainian membership, but progress won’t be short. Even if Kyiv can hasten its readiness, accession is as much a political process as a technical one. Turkey has been waiting since 1987. Members cannot even agree on the EU’s budget. Brussels is expected to request further funding on Tuesday.
FOR BUSINESS. As with Russia before the war, Europe won’t be able to boost its resilience apropos China if members want to court it. Olaf Scholz on Monday said Berlin would not put exports to China under further supervision as Brussels recommends. Ambitious plans with difficult trade-offs are thus making way for easy wins. The EU signed a free trade deal with Kenya on Monday. Kenya is growing fast, but its economy is smaller than County Cork’s.
CHINA. UNITED STATES. Small talk.
Jaw-jaw is better than war-war, but only if it can prevent it.
Xi Jinping said on Monday he was satisfied with the progress made on “specific issues” between the US and China, following a visit by US Secretary of State Antony Blinken. Blinken said Beijing was still refusing to hold military talks.
INTELLIGENCE. Blinken’s visit didn’t produce any breakthroughs other than it being the first such trip by a US Secretary of State since 2018. The US and China are still locked in intense strategic competition. On the day of the talks, Beijing announced the first night-time “Taiwan island encirclement flights” by Xian H-6 nuclear-capable bomber aircraft. The US is also rattling the sabre. Last week, it deployed four B-52 bombers from North Dakota to Guam.
FOR BUSINESS.While the aim of Blinken’s dialogue was not achieved, the mere fact of the talks will nonetheless mollify tensions. Amid a slowing economy, Washington and Beijing are incentivised to keep talking and keep trading, despite sensitivities on technology and claims of corporate espionage on both sides. They also want to retain the option of Xi participating in November’s APEC leaders meeting, which the US will host in San Francisco.
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CHINA. ECONOMY. Small easing.
As investors eye stimulus, Beijing plays a longer game.
The People's Bank of China cut its one-year loan prime rate by 10 points on Tuesday to 3.55%. It was the first cut to the lending benchmark in 10 months. Beijing pledged more fiscal support on Friday amid slowing economic indicators.
INTELLIGENCE. China’s economy is softening, with implications for foreign policy, but alongside strained ties with the West, it is focused on emerging markets. The China-led BRICS group has received a membership request from Bangladesh, according to media on Monday. Indonesia is thought to be seeking the same. Trade with Russia could reach $200 billion by the year’s end. Moscow is reportedly paying dividends in yuan for its Sakhalin energy project.
FOR BUSINESS. Asian markets fell on the cut – analysts had forecast 15 basis points – but the greater expectations are reserved for fiscal policy, where rumours have been circulating of a new infrastructure push since Xi Jinping visited the Xiong'an New Area in May. A mooted city of 2-3 million outside Beijing, Xiong'an is among a raft of mega projects that could rescue China’s declining growth rate, just as previous schemes did during the 2008 financial crisis.
ISRAEL. PALESTINIAN TERRITORIES. Playing with fire.
War in the West Bank costs a greater peace.
Five Palestinians were killed and at least 91 wounded on Monday during an Israeli raid in the West Bank, the fiercest fighting in two decades. Israeli media reported on Sunday that Israel would support Riyadh's bid to host Expo 2030.
INTELLIGENCE. Amid a summer of détente, Israel has been working to formalise relations with Saudi Arabia. In the wake of Riyadh’s resumption of ties with Tehran, rumours of US-Iran talks, Syria’s rehabilitation, and news on Monday that Qatar and the UAE will reopen embassies with each other, Israel’s backchanneling will, however, be disrupted by the latest violence. Israel will blame Iran, but the Arab public will blame hardliners in Benjamin Netanyahu’s coalition.
FOR BUSINESS. Finance Minister Bezalel Smotrich, of the far-right Religious Zionism party, called for major military operations on Monday. The UN Secretary-General's office said the same day it was “deeply troubled” Smotrich had been given control of West Bank planning procedures. Netanyahu needs to placate Smotrich and allies to pass legislation, but internal politics are endangering Israel’s long-term security, and economy, in increasingly visible ways.
MALI. THE SAHEL. Axis of instability.
Conflict stalks a region of 100 million to Europe’s south.
The US State Department called on Monday for an “orderly and responsible” drawdown of the UN's 13,000-strong mission in Mali, after the country's foreign minister unexpectedly demanded its immediate departure on Friday.
INTELLIGENCE. A chaotic departure would be a pyrrhic victory for the Malian junta’s Russian backers. Following the recent departure of Western troops from Burkina Faso and the Central African Republic – two other countries in the Sahel with close ties to the Wagner paramilitary group – Islamic State and other jihadist militants have enjoyed an increasingly free rein. Crisis is spreading across the region from Senegal in the west to Somalia in the east.
FOR BUSINESS. The Sahel’s problems are known to the firms that operate there – mainly in resources – but the crisis could be more broadly felt should the region’s refugees join the mostly North African and South Asian migrants on boats to Europe. The UN estimates 2 million have been displaced in Sudan this year, plus another million in Ethiopia. Islamic State is meanwhile reaching south. Forty Ugandan schoolchildren were killed by an affiliated group on Friday.
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