The fight for liberal values: Annual report 2017

Annual report
Charles Grant, Ian Bond, Simon Tilford
06 February 2018

In 2018 the Centre for European Reform celebrates its twentieth birthday. Having been conceived in the mid-1990s at a British-German Königswinter conference, we opened an office in January 1998. The story of the CER reflects that of the UK’s place in Europe and Europe’s place in the wider world, and falls into two halves – the first ten years and the second ten years.

The CER was born into a climate of global optimism, particularly in Western countries. In economic and strategic terms, the world was unipolar. America’s strength ensured that democracy and liberalism were steadily extending across much of the globe. Most of Central and Eastern Europe had become democratic, as had parts of Africa, East Asia and Latin America. A plethora of international treaties and organisations that covered subjects ranging from trade, to climate, to arms control, to war crimes were gradually enmeshing the world in a system of global governance. Western military interventions in places like Bosnia, Kosovo and Sierra Leone succeeded.

Russia was imperfectly democratic but in too much of a mess to threaten its neighbours. China was focused on economic growth rather than challenging the West. Turkey was a friend of the US and the EU, and fairly democratic. There were always transatlantic tensions, especially after the arrival of George W Bush in 2001, but these were usually containable.

Much of this benign climate endured through the first ten years of the CER. Even the 9/11 terrorist attacks led to our publishing an optimistic set of essays on how the common threat of Al-Qaeda would bind the West and the Russians more closely together. In those early years our focus was on the EU’s enlargement, how the EU could help Russia to modernise its political and economic systems, whether the UK would join the euro and how the UK was leading plans for EU defence. A CER report in 1998, ‘Can Britain lead in Europe’, suggested the abolition of the Western European Union and a new role for the EU in defence; a few months later Tony Blair and Jacques Chirac echoed these ideas in their Saint-Malo declaration on European defence. We published a lot on the reform of EU institutions and – especially after the Iraq War of 2003 created a transatlantic rift – ways of bringing Europe and America back together.

In its early years the euro seemed to work well and in 2000 EU leaders promised to make the EU “the most competitive and dynamic knowledge-based economy in the world”, through their ‘Lisbon agenda’ of economic reform. In 2001 we published the first of our ten annual Lisbon scorecards, in which we awarded marks to each EU government for its performance in implementing the promises made on economic reform. Although real progress was made in some countries, in areas like labour market reform and removing the red tape that impeded start-ups, there was insufficient reform, particularly in Southern Europe. 

And that contributed to the euro’s problems. We were prescient in spotting that not all was well in the eurozone. In 2006, shortly after he joined the CER, Simon Tilford wrote a seminal report, ‘Will the eurozone crack?’, arguing that diverging productivity and growth levels between the north and south of Europe made the euro unsustainable in the long term, unless the south embraced radical reform. At the time many eminent economists dismissed this report as eccentric and eurosceptic.

As our first ten years drew to a close, Europe’s problems mounted. The Iraq War had a number of negative consequences that did not become apparent until several years after the event. Crucially, the war weakened and sapped trust in the UK’s liberal, pro-EU establishment. The financial crisis which began in 2007 and 2008, and which evolved into the euro crisis in 2010, undermined the standing of elites across Europe. It also damaged the Western brand in other continents. 

The euro crisis engendered recession, austerity and high unemployment in several EU countries. This fuelled the rise of populist, eurosceptic forces. So did the refugee and migration crises, which became acute in 2015 – provoked in part by the failed Western interventions in Iraq and Libya and by the non-intervention in Syria.

Meanwhile, as China’s economy continued to experience annual growth close to 10 per cent, its geopolitical clout grew. Its success made its overtly undemocratic system seem an appealing model to other regimes. It became bolder in challenging America and its allies in East Asia. The high oil price until 2014 enabled Vladimir Putin to restore Russia’s military strength and entrench his authoritarian, nationalistic regime. The West did little beyond wringing its hands when Russia invaded parts of Georgia in 2008. Its response when Russia invaded Ukraine in 2014 was more robust, but still not enough to prevent the annexation of Crimea and the destabilisation of parts of eastern Ukraine. In Turkey, after several promising years of reform, Recep Tayyip Erdoğan’s regime started to resemble Russia in its authoritarianism and anti-Western nationalism.

And then came 2016. In Britain, those campaigning to leave the EU latched onto the fact that many Britons did not believe they benefited from trade, migration, globalisation and EU integration. Fifty-two per cent of the British were prepared to give the country’s liberal establishment a good kicking. A few months after the British voted to leave the EU, many Americans voted for Donald Trump for comparable reasons. Both events, but particularly the second, damaged the West. 

Trump shows little interest in the traditional Western and American concepts of rule of law and human rights. His sympathy for regimes – whether in Russia, Saudi Arabia or elsewhere – that reject liberal values and abuse human rights has weakened the Western brand. So has his hostility to the Western-led system of free trade and global governance – as seen in his opposition to NAFTA, the Trans-Pacific Partnership, the World Trade Organisation and the Paris climate change agreement. Sterling efforts by some of Trump’s top officials and foreign allies have limited the damage that Trump has inflicted, for example on NATO, but his own instincts may be harder to restrain in a serious security crisis.

In 2017 the EU coped quite well with this new and much more difficult environment. Brexit turned out to be a one-off problem, with no country preparing to follow the UK out of the club, and support for anti-EU parties waning in many – though not all – parts of the EU. The refugee and migration crises, though still alarming, abated; Turkey stemmed the flows into Greece while the EU’s dealings in Libya led to lower numbers crossing the sea northward. 

Perhaps the most worrying political development in 2017 was the growing rift between Poland and Hungary (and to a lesser extent other Central European countries), on the one hand, and France, Germany and the Brussels institutions on the other; their arguments over quotas of migrants, respect for the rule of law and plans for EU integration appear unresolvable in the short term.

The eurozone grew at over 2 per cent in 2017, its best performance since the euro crisis began. Once Germany has a government, Angela Merkel will work with France’s Emmanuel Macron on reforms for eurozone governance, with the emphasis likely to be on strengthening the banking union, some sort of ‘European Monetary Fund’ and an initially small eurozone budget. The EU has pushed ahead with trade deals with Canada and Japan and has many others in the pipeline. However, it has moved too slowly on its plans for a capital markets union and has done too little to develop policies that encourage innovation. The EU’s new budget cycle, which will start in 2021, offers opportunities for developing more growth-friendly policies – so long as European leaders can avoid becoming bogged down in interminable rows over how to make up the loss of Britain’s contributions. 

The CER in 2017
Brexit has inevitably made an impact on the CER’s work, both in terms of its content, and the demand for our analysis. But the overall mission remains the same – to come up with new ideas and policies that will help to make the EU more open, outward-looking and effective. At least half our work has nothing to do with Brexit. We are busy with subjects such as eurozone reform, innovation, trade, energy, migration, police and judicial co-operation, the EU and China, the EU and Russia, transatlantic relations and EU defence.

And we shall keep working on EU institutions, as we have done for the past 20 years. We tackled institutional and many other themes in a major report published in November 2017, ‘Relaunching the EU’. In this we argued that Emmanuel Macron’s idea of a multi-tier Europe, in which some countries integrate further but others are not obliged to follow, is the best way forward for the EU. Such ‘flexibility’ could make the EU less brittle and in the long run more viable. Taking the idea of tiers a little further, if neighbours were allowed to join some but not all EU policies, further enlargement could become easier for existing members to swallow, and the EU could be a more influential player in its neighbourhood. 

Evidently, however, a large chunk of the CER’s work is about Brexit. We regret that Brexit is likely to happen and hope that our work can help to minimise the likely damage. Some versions of Brexit would be very costly in terms of lost economic output, and others less so. All of them will diminish Britain’s voice in the world, to a greater or lesser extent. Our job is to make the case for the best possible deal, that is to say one which – within the parameters set by the realities of European and British politics – maximises economic ties and other sorts of co-operation, including on foreign policy, defence and security. 

In early 2018 it seemed plausible that Britain was heading for ‘Canada Plus’, a free trade agreement modelled on that between the EU and Canada, but with a wider scope, notably on security co-operation and services. We think it likely that such a deal will be much more damaging to the British economy than many Britons expect, though we hope that this prediction turns out to be too pessimistic. If economic weakness in 2018 starts to push public opinion towards regretting Brexit, and if the Labour Party becomes bolder, there is a chance of achieving a softer Brexit than currently seems likely. For example, the UK could end up in a customs union with the EU and might stay in several of its regulatory agencies.

The CER has a particular role to play in helping each side of the Brexit negotiation understand what the other thinks, and why. We do this through publications, seminars and, especially, our informal contacts with officials and politicians in London and many other European capitals. We can only play this role by remaining scrupulously independent of all parties, governments and institutions. We think that our educational efforts are sometimes fruitful, though many influential and powerful figures in the UK remain woefully ignorant of the EU and how it works.

Throughout our 20 years, about half the CER’s researchers have been non-British. To reinforce the fact that we are a European think-tank rather than a British institute looking at the EU, we opened a Brussels office in January 2017. This has made the CER more visible in the EU’s capital and helped us to host more events there than ever before (20 in 2017). We have also had our chief economist, Christian Odendahl, based in Berlin since the autumn of 2016. That two of our researchers are German – Christian plus Sophia Besch, our defence analyst – enabled us to publish some first-class analyses of German-specific issues in 2017. Similarly, the nationalities of Agata Gostyńska-Jakubowksa, Camino Mortera-Martinez and Luigi Scazzieri have strengthened our coverage of Poland, Spain and Italy, respectively. The strength of our research team was recognised by Prospect magazine, which awarded the CER its prize for the best UK-based international affairs think-tank. 

At the end of the year we were sad to bid farewell to Simon Tilford, our deputy director, who has led our work on economics for more than a dozen years. We wish him luck in his new role at Tony Blair’s Institute for Global Change. In his place John Springford, who has driven much of our work on the economics of Brexit, becomes deputy director, while we have hired a new economist and trade expert, Sam Lowe. Earlier in the year we were sad to lose Rem Korteweg, who had worked on foreign policy and trade for four years, to the Clingendael Institute in The Hague. Nick Winning, an experienced journalist, joined the CER as our first ever full-time media officer. Luigi Scazzieri, the 2016-17 Clara Marina O’Donnell fellow, stayed on to work on the Middle East and other issues. His successor as the Clara Marina O’Donnell fellow is Noah Gordon. Beth Oppenheim joined the CER to research the Brexit negotiations. In the admin team, we said farewell to Daniel Crewes and Anna Yorke while welcoming Bea Dunscombe and Lucy Slade.

We were very sad that Stephen Tindale, the eminent environmentalist, died in July. Stephen worked at the CER from 2010-15 and wrote memorably on issues such as climate and energy. 

The CER’s advisory board continued to give us much good counsel. Alex Stubb had to resign because of his new appointment at the European Investment Bank. Susan Hitch retired from the board after many years of service. The new members were Jonathan Faull, who was the most senior Briton in the European Commission; David Claydon, the co-CEO and co-founder of Macro Advisory Partners; and Paul Adamson, the editor of E!Sharp and chairman of Forum Europe.

As we have done for 20 years, in 2017 we continued to host memorable events, most of them small and intimate but some of them large and spectacular. The majority took place in London and Brussels but we also held seminars in Washington, Moscow, Paris, Berlin, Warsaw, Dublin and Levi (in the Finnish Arctic). Our dinners and breakfasts featured Commissioners Anders Ansip, Jyrki Katainen, Julian King, Johannes Hahn, Cecilia Malmström and Carlos Moedas, as well as British politicians such as Keir Starmer, Labour’s Brexit spokesman, and Damian Green, then the Conservative deputy prime minister. Our Labour party conference fringe event had all all-star line-up of Keir Starmer, Yvette Cooper, Hilary Benn and Chuka Umunna. So did our Tory party conference fringe, which featured a wide range of Conservative opinion on Europe: Andrea Leadsom, Vicky Ford and Dominic Grieve.

To mention just five events from the autumn that stick in the memory: a breakfast in Brussels in September with Martin Selmayr, President Juncker’s chief of staff, on the future of the EU; our annual Bodrum conference in October, which included a dinner speech by Mehmet Şimşek, Turkey’s deputy prime minister; our annual economics conference at Ditchley Park in November, on whether populism is driven mainly by economics, which included Marco Buti, Barry Eichengreen, Jean Pisani-Ferry, Norbert Röttgen, Ludger Schuknecht, Poul Thomsen, Adair Turner, Constanze Steltzenmüller and Jeromin Zettelmeyer; in the same month our Brussels conference on the future of the EU, which featured a keynote speech by the Commission’s Brexit negotiator, Michel Barnier, as well as contributions by John Bruton, Hélène Rey, Monique Ebell, Peter Mandelson, George Robertson and Sophie Magennis; and our Daimler Forum in Washington in December that we run with the Brookings Institution and the Stiftung Wissenschaft und Politik, which included a dinner speech by National Security Adviser HR McMaster that was extremely tough on Russia and North Korea, and contributions from three other senior administration officials (Wess Mitchell, Brian Hook and Matthew Pottinger).

The 18 longer reports and policy briefs that we published in 2017 covered a wide range of topics, including the relationship between the EU, the Eurasian Economic Union and China’s ‘One Belt, One Road’; whether the EU could use its structural funds to promote the rule of law within member-states; the role of the Trump administration and the EU in the Middle East peace process; how the EU could work with third countries to manage migration; and the institutional governance of the eurozone. Inevitably, several policy briefs covered aspects of Brexit, such as the possible utility of the ‘Swiss model’ for the UK, the impact of Brexit on European energy markets, Germany’s priorities in the Brexit talks, the role of EU institutions in these negotiations and the conundrum of the border on the island of Ireland.

One policy brief deserves particular mention. In February we published ‘The €60 billion Brexit bill: How to disentangle Britain from the EU budget’, by the Financial Times’ Alex Barker. Downloaded 22,000 times, this predicted that the 27 would unite around the Commission’s calculation that the UK would have to pay about €60 billion in order to leave the EU, and that the UK would pay. The conclusion to ‘phase one’ of the Brexit talks in December showed that Barker’s predictions had been broadly correct.

Ten ingredients of success
Over 20 years we have moved with the times – for example by publishing fewer longer reports and more short pieces, and becoming active on social media. But we believe that the fundamental ingredients of our success have endured. Our first annual report, for 2002, looked back on our first five years. In that report I set down the ten factors which I thought had helped the CER to thrive.

They are still pertinent today and will I hope continue to guide us for the next 20 years. The first five of those factors were teamwork – everybody helps their colleagues with publications; presentation – everything we publish is rigorously edited so that it is readable; proximity to the media – all researchers know that a big part of their job is to help journalists from across the globe, thanks to which we are often quoted; the high level of debate in our seminars – most of which are small and invitation-only (I have long believed that there is an inverse correlation between the number of people in a seminar and the quality of the conversation); and the multinational character of the CER's research team.

The next five were the contribution of our advisory board, whose distinguished members advise us on our work programme and strategy; the strength of our website, with its clear and unflashy style; our proximity to governments and EU institutions – we often talk to politicians and officials, across the continent, which helps to make our proposals well-informed and ensures that the right people listen to our ideas; our proximity to the private sector – we spend a lot of time talking to business people, which enables us to stay abreast of trends in the corporate world and to advocate a pro-market agenda; and the nature of our proposals, which as I wrote in 2002 “are sometimes radical, but … usually down-to-earth and practical, which increases their chances of being adopted”.

As I also wrote in that first annual report, “we do not want to grow larger, lest we lose the virtues of teamwork, focus and quality control.” Whatever the state of the EU and of the UK’s relationship with it, we believe there will be a demand for the serious, sober, practical and original work that is the CER’s hallmark.

Charles Grant