There is an atmosphere of cautious waiting in the Brussels air. Major elections to come in France, Germany, as well as here in the Netherlands. But already some very worrying first drops start to come down. A very undecided ‘State of the Union’ speech by European Commission President Jean-Claude Juncker succeeded in the goal of not offending anyone, except those looking for guidance. Nicolas Sarkozy (the likely winner in next year’s French Presidential election) is presenting a very minimalist view for Europe. Last week it became clear that the privatizations currently underway are really the last round of concessions the Greek hard left will swallow. But the sky fall that everybody is waiting for is the formal decision to start the Brexit separation process.
My impression is that while they are not public, some strategies are well formed. The first and most important is what I call the European elites strategy, formulated within the European Union (EU) institutions, which can be summarised as “Let them bleed to death”. The EU has succeeded as a peace initiative that everybody understands, but the masses do not understand the economic benefits of Europe. By killing the UK as a developed economy, this will become clear to all. The most dangerous scenario for the elites is that the UK simply stays part of the EU and cannot be easily removed. For now the UK voters do not want this option, but in a year – with many multinational firms moved from London to Dublin – they will.
A second strategy is that of the Southern member states. Brexit means that France and Germany need the support of hose states for a deal with the UK. This opens up to a serious discussion on debt relief. The ‘problem’ with this strategy is that debt relief needs to happen anyway, irrespective of Brexit, so why make it that complex? It is better to simply wait until after the German elections. My guess is the leaders in Southern Europe realise this and have been able to convince their opposition so far. When Brexit talks start after the German elections, then it is time for the ‘big kill’.
This leaves Germany and other (I’m kidding) Central European countries. Basically, they have no strategy and that is their strategy. For economists, dynamic game theory tells us that predictable strategies are really bad if punishment of non-cooperative behavior is not credible. The best way to make the opposition cautious is to adopt the opposite strategy: be perfectly unpredictable. This is the game that German Chancellor Angela Merkel has played so well so far.