What will Trump’s effect be on the EU?

Published on Open Europe's blog and Reaction.life. Also translated to Chinese by Wallstreetcn.com 

Unsurprisingly, in Brussels, people are not thrilled with Donald Trump’s election as new American President. Here’s an overview of what it means for the EU:

TTIP

The EU-US trade deal TTIP, which is still formally under negotiation, is already facing many hurdles in Europe. Now it is also facing a possible US veto, given Donald Trump’s scepticism towards trade deals. Current EU Trade Commissioner Cecilia Malmström has said that “we frankly don’t know” if Trump wants to continue negotiations, while former EU Trade Commissioner Karel De Gucht thinks “TTIP is now dead”. European Commission President Juncker has urged Trump to provide some clarity on the issue, adding, “I do not view that as something that would happen in the next two years.”

Trump has a history of wavering and U-turning but it’s hard to see how he would get away with breaking his protectionist promises, although of course the Congress and his own Republican Party are likely to serve as an obstruction.

Defence and Foreign Policy

US complaints about European NATO member states relying too heavily on US defence support are not new, but never before have they featured so prominently as with Trump, who has warned that “the countries we are defending must pay for the cost of this defence. And if not, the US must be prepared to let these countries defend themselves.” He even made US defence of the Baltics dependent on this, saying that if Russia attacked them, he would decide whether to come to their aid only after reviewing whether these countries “have fulfilled their obligations to us”.

Predictably, the usual suspects in Europe have used Trump’s elections to further the integrationist cause. Juncker has stated that the US “won’t look after Europe’s security for ever… We need a new approach to building a European security union with the end goal of establishing a European army.”

However, Juncker conveniently ignores the real reason why there is no EU army. This has little to do with America providing resources for Europe’s defence, and everything to do with the strong opposition within Europe itself against the idea.

If countries are already reluctant to pay for financial transfers or accept that the EU can tell them how many refugees they need to take, they naturally don’t enjoy the idea of being forced to send their young people fighting abroad if their own government is outvoted by foreign leaders. True, a lot of lip service has been paid over the years to the need for closer defence cooperation among EU member states, and we have “Eurocorps” and all kinds of other forms of voluntary cooperation, but none of this goes beyond what NATO already does. NATO itself consistently stays clear from the supranationalism pushed for by the European Commission. A number of EU member states, including the Netherlands, have already rejected the plans, so if Trump is serious (which is unclear, given that his running mate Mike Pence is more of a hawk towards Russia), EU member states will strengthen their own defence capacity first.

President-elect Trump hasn’t disclosed yet how he plans fight IS, as he thinks this needs to be a “surprise”. But Vice-President elect Mike Pence has already said that “Turkey is US’s most important ally in the region”, and that the US will be renewing good relations with Turkey. One of the first people Trump called after his victory was Turkish President Erdogan, so it doesn’t look like the EU has gained more leverage versus Turkey as a result of the election.

Monetary and fiscal policy

The Eurozone should be well aware that its fate is strongly linked to how Trump intervenes in monetary policy, because he’s said he won’t shy away from doing so.

Trump has been saying he’d print money to finance government spending, calling himself “the king of debt”. But there’s some confusion. While he has attacked the Fed for “keeping the rates down so that everything else doesn’t go down”, saying it “should have raised the rates”, back in May he warned that “if interest rates went up, our economy is not doing well at all. And it’s going to hurt the economy very badly. If interest rates went up, it would be a disaster”, specifying “I am a low interest-rate person”.

At least the markets seem to believe that Trump means higher interest rates. In the week after his election, for whatever reason, interest rates, which are not entirely driven by the Fed, but also by the market – are rising.

This matters in a crucial way for the Eurozone, where the ECB also only has a limited impact on interest rates, which are subject to the global environment that is partly controlled by the Fed. If the current trend of increasing interest rates continues, cash-strained Eurozone governments may face a problem, ultimately having to appeal to Eurozone “solidarity” again. We all know what that means: weeks and months of crisis meetings which ultimately culminate in bailout packages that mostly serve to kick the can down the road without fundamentally addressing the issue, while at the same time poisoning relations between European countries and propelling Trump-style anti-establishment parties to power.

Climate change

It’s no big secret that Trump thinks “global warming was created by and for the Chinese in order to make US manufacturing non-competitive.” There are some question marks about whether he has the legal power to withdraw from the Paris Agreement on climate change, but he’ll probably try to do so, with a number of lawsuits from Democratic-run states likely. If that takes too long, he’s able to withdraw unilaterally from the 1992 UN Framework Convention on Climate Change itself within one year. Either way, he may just ignore international climate commitments. This would increase the opposition in Europe against respecting those, as it would put Europe’s industry at a disadvantage, despite the fact that EU Climate and Energy Commissioner Miguel Arias Cañete has reacted to Trump’s victory by promising that “the world can count on the EU to continue to lead on climate”.

Trump has also pledged to cancel billions in payments to UN climate change programs, again likely to increase doubts in Europe about whether it should pay the rest of that bill. With Open Europe, we’ve made clear how any advantages from EU climate change rules are closely dependent on what the rest of the world does, which could be another reason for EU climate policies to be put into question.

Brexit

Trump and his allies have raised doubts about US protection of the Baltics. This in turn boosts the UK’s value as a military power in Europe, and that’s something Britain can use in Brexit negotiations. On the other hand, of course, the US election result may fuel the concerns among EU leaders about the prospect of having their own difficult domestic elections, and therefore prompt a more intransigent stance with regard to Brexit. Either way, a positive UK-EU relationship in a post-Brexit world will be needed, and Trump may upset that.

Nonetheless, the fact that the new President of the United States is an open supporter of Brexit will only further boost the case for it and also strengthen the argument that the EU has gone the wrong way and is in dire need of reform.

Populism

Trump’s victory is a great boost for the so-called “populist” forces who’re haunting Europe’s mainstream politicians and were among the first to congratulate Trump. On Sunday 4 December, Austria may well elect a far right President, while Italy could vote no against a constitutional reform – which could lead to the resignation of Italian PM Renzi, with the anti-establishment (and anti-euro) Five-Star Movement standing a fair chance of getting into power at the next general election.

In March 2017, the Netherlands is electing a new Parliament. While the far-right populist PVV formation of Geert Wilders was for a long time polling as the largest party, he has been recently losing ground a bit. But the situation is unstable, as Wilders is currently being tried for inciting hatred and as a result of the Dutch government’s refusal to respect a referendum vote against the EU-Ukraine Treaty. Then there’s also Marine Le Pen in France, who doesn’t stand a great chance to be elected but currently looks likely to at least make it to the final round.

Conclusion

Europe’s mainstream politicians should maybe look in the mirror and acknowledge that, at least when it comes to the prevailing anger against the EU, they bear part of the responsibility.

Instead of considering euro exits and government defaults as a solution, Eurozone politicians decided to organise transfers between countries that weren’t popular in countries paying for it nor in countries that had to respect the condition to allow intervention in domestic spending.

During the refugee crisis, mainstream politicians dragged their feet, resulting in chaos. It took until spring 2016 for EU governments to take strong action, which has resulted in refugee drownings ending between Greece and Turkey, but until then the EU’s focus was to harmonise asylum rules and try to impose refugee quotas that are pointless, given that we’re speaking of countries sharing a passport free zone.

The chaos and the EU’s eagerness not to waste a good crisis served as a boost for populism in the countries of the Schengen zone, which almost collapsed. It also may have helped to make the British even more hostile to the EU than they already were, even though the UK isn’t even in Schengen. In the same way, Trump’s anti-establishment victory may now have much more of an effect outside of the US than mainstream politicians assume.