Europe Could See Another Brexit-Like Rupture—Beyond Spain

 Rumblings in Catalonia may only be the beginning. Tensions are growing in Eastern Europe.
From left: Hungary’s Viktor Orban; Poland’s Jaroslaw Kaczynski; and the Czech Republic’s Andrej Babis.

Some of the great moments of history sneak up on businesspeople. Two years ago, Britain looked to be Europe’s most economically rational country; now its companies seem to be rolling from one economic earthquake to another, with Brexit looking increasingly likely to be followed by the election of a near-Marxist prime minister, Jeremy Corbyn.

Looking back, two things stand out. First, there were some deep underlying “irrational” causes that business ignored, such as the pent-up anger against immigration and globalization. Second, there was a string of short-term political decisions that proved to be miscalculations. For decades, for example, attacking the European Union was a “free hit” for British politicians. If David Cameron had it to do over again, would he really have made the referendum on whether to stay in it a simple majority vote (or indeed called a vote at all)? Does Angela Merkel now regret giving Cameron so few concessions before the Brexit vote? Would the moderate Labour members of Parliament who helped Corbyn get on their party’s leadership ballot in the name of political diversity really do that again?

Now, another rupture may be sneaking up on Europe, driven by a similar mixture of pent-up anger and short-term political maneuvering. This one is between the old West European democratic core of the EU, led by Merkel and increasingly by Emmanuel Macron, who are keen to integrate the euro zone, and the populist authoritarians of Eastern Europe, who dislike Brussels. This time the arguments are ones about political freedom and national sovereignty.

Later this month it looks likely the Czechs will have a new Trumpian prime minister—Andrej Babis, a populist billionaire who wants to send Arab immigrants back home and promises to make the government work as well as his businesses do. To be fair to Babis, he’s a rather more subtle figure than the American president (not to mention a more successful businessman). He is, for instance, careful to emphasize his respect for the judiciary and, on immigration, he welcomes newcomers from Ukraine, pointing out that he himself comes from Slovakia. His main appeal is efficiency (he fumes about his former coalition partners playing with their phones in cabinet meetings).

However, Babis is plainly opposed to increased European integration of the sort that Macron wants and is also against Brussels meddling in Eastern Europe. That means that, whatever the subtleties of Babis’s relatively centrist brand of populism, he is likely to be bundled in with Viktor Orban of Hungary and Jaroslaw Kaczynski of Poland as part of Europe’s authoritarian fringe.

Kaczynski is not the formal leader of Poland, but he runs the right-wing Law & Justice Party that holds both the presidency and the premiership (which he’s delegated to others). A fierce critic of Merkel, especially on immigration, he’s at almost permanent war with the EU, with his battles ranging from institutional—after Brexit, he called for powers to be returned from Brussels—to the personal—he tried (unsuccessfully) to stop his more conciliatory fellow Pole, Donald Tusk, from becoming president of the European Council. For the EU’s part, Frans Timmermans, a European Commission vice president, is formally investigating Law & Justice’s judicial “reforms,” which look like an attempt to clear out any unsympathetic judges, and its interference in the press. At its worst, this could mean triggering Article 7, which would suspend Poland’s voting rights on the European Council.

Kaczynski once boasted that he would make Warsaw into Budapest. That reflects how Hungary’s Orban has led the way. A far more diplomatic figure than Kaczynski, Orban, who once was an anti-Soviet firebrand, also stands accused of reining in the judiciary and besmirching his opponents (including the EU): His government is currently circulating a publicly funded “national consultation,” a piece of cartoon propaganda about what it calls the “Soros plan,” whereby the EU would implement a dastardly scheme of Hungarian-born financier George Soros to dismantle Hungary’s anti-migrant border fences and pay migrants to come to Europe. But Orban has generally been smarter than his Polish disciple about retreating before the EU takes any action. Despite opposition posters depicting him and his business friends as gangsters, Orban is expected to easily win Hungary’s elections next year.

This brings home the basic fact about all three populists: They’re popular. Businesspeople in the region tend to shrug off the chances of schism with the EU. Their economies are doing well, they point out. Yes, few Eastern Europeans are keen to have Syrian refugees as neighbors, but that is also true in France and Germany (revealingly, in September’s German election, it was the eastern regions that voted most fervently for the anti-EU party, the AfD). Businesspeople tend to stress that Orban and Babis are pragmatists, that they will stop before they go too far. Business is also confident that Germany in particular will not want to sever relations with an area that is now so completely integrated with its own economy.

Babis, the most businesslike of the three leaders, backs this view. He fears that if there were a referendum tomorrow, Czechs would vote to leave, but that is precisely why he would not consider holding one. It would be mad for a country of the Czech Republic’s size to even think of leaving the union.

The business view seems logical enough. But it’s also a little like the pre-Brexit presumption of British business: In the end, the common man (and woman) would listen to the voices of economic reason and choose to remain. The problem was that British voters didn’t think that way. After decades of being told how useless the EU was—especially on migration—millions of angry Britons voted to leave. Meanwhile, many of the EU’s leaders, having put up with British opposition for a long time, said good riddance.

In Eastern Europe, one reason the odds are still against a schism is that the Poles, Czechs, and Hungarians have the ever more disastrous case study of Brexit to look at. Meanwhile, Western Europe’s leaders are not in a rush to lose more members. But there is also the chance of short-term politicking getting in the way—of action creating reaction.

In this case, two personalities are likely to play outsize roles. One is the new French president. On the campaign trail, Macron complained about people turning a blind eye to Poland and Hungary—and said he would seek sanctions on Poland for infringing EU rules and values while benefiting economically from membership. There is principle behind this: The EU was supposed to usher countries toward democracy and, especially in the Trumpian world, sees itself as a defender of human rights. But politics also plays a role: Few French voters would shed tears if less money went to Hungary and it was harder for Polish plumbers to get jobs in Paris. And now Macron wants to push ahead with efforts to integrate the EU, centering on the euro zone, which will enrage the eastern countries that are outside the currency union.

The other personality is Kaczynski. Volatile, paranoid (he recently accused his “scumbag” political opponents of “murdering” his brother), and obsessed by his country’s tragic history, the Polish leader makes Boris Johnson seem rather predictable and easy to handle. Like Orban and Babis, he’s fiercely opposed to any idea of increasing powers in Brussels or increasing the gap that separates the inner core of euro-currency countries. But he’s much worse at cutting deals with Europe.

What would happen if the EU imposed more punishments? If a Macron-inspired plan for greater integration was torpedoed by the Poles? The chances are that Europe won’t undergo another great division. But that was also the probability when Cameron called his referendum. In Europe at the moment it is foolish for businesspeople to ignore the possibilities—and in this case, they’re frightening.

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