Interel CEO Fredrik Lofthagen Encourages Public Affairs Professionals to Adapt & Find Opportunity in the Unpredictable “New Europe”

Under the shadow of the iconic Acropolis in the city that gave birth to politics, Interel CEO Fredrik Lofthagen delivered a keynote address on the “the New Europe” at the IGP EMEA Summit in Athens, Greece, hosted by IGP Partner Rollerdeck Associates. In his remarks, Fredrik cautioned against three potential threats – the stall of eurozone reform, Brexit, populism on the rise - and what impact they may have on business. But in these risks lies opportunity for public affairs. In an EU fractured by political chasms and a yearning for innovation, public affairs professionals have the opportunity to advance their clients’ interests by navigating the eurozone maze and discerning insight from disruption. Read the full speech below...

Advancing interests in a new Europe

It’s great to be with you in Athens, a city that knows all too well how it feels to be at the centre of the EU’s attention. We meet at a time of huge geo-political change. China and Russia have both caved in to powerful leaders who have effectively given themselves jobs for life. The world holds its breath as President Trump prepares to meet “little rocket man” to avert nuclear confrontation, while at the same time trying to work out what possible interest the US can have in starting a trade war. If anything captures this crazy new world we’re living in, it’s the sight of policemen dressed in hazmat space suits trying to work out how weapons-grade nerve agent could be released in such a blasé fashion in a small English market town.

So how does business cope with this fast-changing scene let alone advance its interests in it? What will this new Europe look like once the dust settles after next year’s institutional reshuffle? Well, on the surface all looks well. We have modest growth, we outperform the US still in areas like investment and we have ambitious reform plans on the table. But I’ll look at three areas which threaten to upset these plans – the growing opposition to reform of the eurozone, the continued fall-out of the Brexit crisis and perhaps most worryingly of all, the continued rise of populism and nationalism as seen in a number of European elections. Each of these will affect the way we operate, how we do business, how we steer clients through the European maze.

Well let’s at least start with the good news. The EU’s existential crisis in 2016 when the double whammy of Brexit and Trump threatened the EU’s very existence gave way to the relative calm of 2017. No President Le Pen or PM Wilders, and in its place a new found unity among the EU27 that has taken everyone by surprise and the longer it lasts, the higher the stakes for breaking it. The realisation that Europe could no longer depend on its US ally forced it to stand on its own two feet on defence, trade and mapping out its own future direction.

This new found sense of optimism was reflected in President Juncker’s State of the Union address last September where he set out an ambitious vision for the future and urged MEPs and EU leaders alike to “catch the wind in our sails.” His vision was backed up by a key speech by President Macron who boldly took on the mantle of Robert Schuman and announced “the time when France proposes is back.” The fabled Franco-German motor suddenly looks more balanced and Macron and Merkel have pledged to take their cooperation to a totally new level, renewing the Elysée Treaty signed by De Gaulle and Adenauer.

Juncker’s in-house think tank have provided some handy statistics to justify his claim that “Europe is back.”

  • The EU27 out performs the US on total investment and is the top destination for FDI.
  • The euro is the world’s 2nd largest currency and catching up on the dollar – over 36% of global payments are concluded in euros, just short of the US dollar which stands at 39%.
  • The EU’s public debt is 25% lower than the US and so the list goes on.
  • The next wave of digital innovation – deep tech, AI and robotics all play to the EU’s strength in science, engineering and industry.

Eurozone reform stalled

So why the long faces? My first cause for concern for the direction this new Europe is taking is that the eurozone reform, so central to kick-starting the EU project, is in danger of stalling. You’ll remember that President Macron came forward with some bold proposals for a more integrated eurozone with its own finance minister, budget and governance. All this to ensure the euro was better placed to deal with the next crisis. His ideas were said to have some support in Berlin, and Europe waited with baited breath for the ideas to translate into official proposals. However the Germans have not proven so forthcoming and although Europe gets 312 mentions in the GroKo coalition document, it’s pretty thin on details. Macron and Merkel were due to present their plans to fellow leaders last week but that’s now been kicked into the long grass, putting into jeopardy the aim of having a blueprint ready for their next gathering in June. All the while the clock is slowly ticking for what can be achieved in the lifetime of this Commission.

On top of this delay comes a timely warning from 8 northern member states, led by the Dutch, that the EU should avoid far-reaching transfers of competence to the European level as it seeks to regain the public’s trust in the wake of the financial crisis. They state that national reforms and fiscal adjustments should have more priority over far-reaching proposals like the ones proposed by Macron.

And then there is la bella Italia, the eurozone’s 3rd largest economy. While we wait to see who can assemble a majority, be it the 5 Star Movement of Luigi Di Maio or the centre-right coalition now headed by the controversial Matteo Salvini, one thing is sure, neither is a great lover of the euro. While an immediate referendum on the euro may be off the agenda for now, both prospective candidates for Prime Minister will ignore the EU’s 3% deficit limit and are totally opposed to any debt rescheduling. Add a hawkish replacement to Mario Draghi as president of the ECB and eurozone reform suddenly faces a harsh reality check.

Brexit

My next cause for concern on this new Europe we’re moving towards is the fall-out from Brexit. The Belgian deputy PM Alexander de Croo put it very nicely at a speech in Davos:  “For the U.K. this is topic number one. For Europe today this is topic number five or six. So it is less important for us than it is for the Brits. That is one imbalance. Second element is that if you look at all the red lines that the United Kingdom has put forward … at some point on the British side they will understand that you cannot have all those red lines and then still say we will be the trading hub of this globalized world but have very limited relation with the biggest trading bloc in the world.” He’s right – the EU is not obsessed with the Brexit process and it hardly gets a mention in any of the election campaigns or in leading European newspapers. It gets one brief mention in the 177 page German coalition document – and even that’s to do with maintaining sustainable fisheries!

The EU has rightly congratulated itself on the unity between the 27 that has characterised the EU’s position on the negotiations. However, no one is deluded that as the talks enter the next phase, where sector will be pitted against sector and national interests are fought over, that this unity will come under pressure. President Juncker acknowledged that “economic circles, multinationals, will try to convince their respective governments to accept different UK propositions.  In the end, we’ll have an amalgamation of extras, with the result that Europe will come out unrecognisable.”

One of the EU’s red lines throughout the process has been no cherry-picking and that life outside the EU must be less attractive than inside it. This was initially to stop any domino effect as predicted by Nigel Farage who saw a whole host of member states following the UK’s lead. While this nightmare scenario was avoided with pro-European results in the French and Dutch elections, there remains the concern that at the end of this long process we’ll have a new British model to sit alongside the Norwegian, Swiss and Canadian ones we’ve all got used to hearing about. The risk, in the EU’s eyes, is that this could become attractive to countries like my own Sweden who find themselves outside the Eurozone core and perfectly happy with a looser arrangement. The likelihood is that the next country to trigger the infamous article 50 will not do so out of a fit of pique with Brussels but based on cold calculation of the cost/benefit of other forms of association. There have already been noises from Norway and Switzerland who want to ensure the UK does not get access on easier terms than they do.

Business has been active throughout the Brexit process calling for clarity and predictability, which it has got more from one side of the negotiating table than the other. The transition agreement agreed just last week is aimed at avoiding the cliff edge – although it remains to be seen if the cliff has just been moved 20 months down the line. Reassuring clients what the UK/EU relationship will look like on 1 January 2021 still requires a certain leap of faith.

Populism on the rise

Perhaps the greatest challenge that lies ahead and the one that will most shape this new Europe is the political upheaval taking place across the continent. Davos focused on growing inequality and the failure of traditional parties to better distribute economic gains which has led to the rise of anti-establishment parties and attacks against the elite, including many leading companies we count as clients. We now have a far-right party as part of the government in Austria and the strong possibility of a far-right Prime Minister in Italy if Matteo Salvini can muster a majority. While Europe sighed with relief at the emergence of another Grand Coalition in Germany, it suddenly looks rather tired, uninspiring, conventional compared to the 31 year old Sebastian Kurz in Austria or the 32 year old Luigi di Maio in Italy.  I’m told that “Wake me up before you GroKo” to the tune of Wham is trending across Germany! A generation that has taken unity and consensus for granted is now looking for something different and business is having a hard time keeping up with the change.

The problem for Europe is that the factors that have led to the rise of these populist, nationalist parties (and the corresponding demise of the traditional parties) have still to be adequately addressed. Issues of identity, fears over migration, the sense the system is rigged against them are all factors that are likely to play out in next years European Parliament elections. The 2014 intake of MEPs already had over 30% in the Eurosceptic camp and this figure is likely to mushroom next May. A more unpredictable, unruly parliament will be difficult for business to navigate, as majorities become harder to achieve and the reform agenda becomes hostage to forces from the far left and right. This in turn will have an influence on the Commission’s next 5 year work programme and priorities, and both the Commission and European Council may have more disruptive members. Imagine the next Italian Commissioner coming from the 5 Star Movement or Lega.

Business is also having to deal with the emergence of a different value system than the one that has characterised the EU to date. Concerns over rule of law and judicial reforms in Poland and Hungary may have western liberals wringing their hands but these regimes remain popular at home and gain in support as they are seen to take on what are seen as the centralising, homogenising forces of Brussels. And we have seen that these issues are not particular to just right wing regimes, with the Socialist governments in Malta and Romania now both in the dock. I’m not given to quoting Tony Blair very much but he recently warned that “for the first time; not just our power but our value system is going to be contested”.

Business wants a structure it can understand and a system it can navigate. What we can see form the direction this new Europe is taking is that this unpredictability looks like the new norm rather than some cyclical development. If so, then we are going to need to adjust. For business that means adapting – and fast. For public affairs, this offers us great opportunities to help steer clients through this turbulence to ensure they emerge unscathed at the other side. Whatever the outcome, it’s going to be a fascinating ride and I want to see our network at the very heart of it.

Efkaristo and kali orexi ( thank you and bon appetit in Greek)

2018 Interel Global Public Affairs EMEA Summit | Athens, Greece
Keynote Address by Interel CEO, Fredrik Lofthagen: Advancing Interests in a New Europe
March 26, 2018