Prime Minister Boris Johnson leaves Downing Street for Buckingham Palace where he will seek permission to form the next government during an audience with Queen Elizabeth II at Downing Street on December 13, 2019 in London, England.
Dan Kitwood | Getty Images News | Getty Images
It is just the sort of script one might expect from Boris Johnson, one of the most enigmatically fascinating personalities of our times.
Prime Minister Johnson – who famously craves both public attention and a place in history – won the former and a shot at the latter through a British election victory this week that was the most convincing conservative victory since Margaret Thatcher in 1987. To save the United Kingdom itself, however, he must reverse course, or at least amend direction, on much of what he has said and done to win in the first place.
I opposed Brexit on economic and political grounds yet, at the same time, Johnson might have the political flexibility, the intellectual chops and the Churchillian ambition to confound his critics along the five lines of action he must simultaneously pursue to find his historic place.
- Most importantly, he’ll have to negotiate a “no-tariffs, no-quotas” trade deal by end-2020 with a European Union that he has disparaged, knowing that it by some distance is the U.K.’s major trade partner.
- Second, he will have to rapidly restore external economic confidence in a country that has been suffering disinvestment, an economic slowdown, and doubts about its continued role as a European and global financial hub.
- Third, he should still aspire to get a trade and investment deal with an impeachment-distracted President Trump. At the same time, he should share with voters how unlikely that will be and embrace what might be faster and easier opportunities in Asia, namely negotiating his way into the 11-country Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
- Fourth, he’ll have to abandon much of the populist rhetoric that got him elected and embrace his encouraging “One Nation” message of this week that could heal the country’s divisions – and perhaps also slow a European-wide and global populist trend.
- Finally, he’ll need save the United Kingdom from unraveling by convincing Scotland and Northern Ireland of their future place – while heading off another Scottish independence referendum. A successful EU negotiation will help that.
Media pundits in recent months have compared and associated the rise of Boris Johnson and Donald Trump as populists who have turned their countries’ politics upside down. Yet the comparisons only go so far, given Boris’ bookish, multilingual, multicultural background and intellectual passion.
He was born in Manhattan as Alexander, then raised in Brussels until age 11, before being shipped to British boarding a year after his mother’s breakdown, a life richly chronicled by Tom McTague in The Atlantic last July. Somewhere along the way the quiet child became the boisterous, eccentric British Boris. He developed a comic demeanor, a disheveled mean (and mane), a rapier intellect with a taste for the classics, and an insatiable desire to be liked.
From all of this grew his self-proclaimed ambition to be “world king.”
“I often thought that the idea of being world king,” said his mother of her illness’ impact on Boris, “was a wish to make him unhurtable, invincible somehow, safe from the pains of life, the pains of your mother disappearing for eight months, the pains of your parents splitting up.” The biographer Sonia Purnell says Johnson told girlfriends that his way of coping was to make himself invulnerable “so that he would never experience such pain again.”
The Brexit referendum and— three years later— his election vote are part psychological and part political drama for Boris Johnson, the stuff of a West End musical. His Friday speech on the steps of 10 Downing Street showed how quickly he can change his tune from that of the campaign to one of governance.
Speaking to those voters who opposed him and wished to remain in the EU, he said, “I want you to know that we in this One Nation Conservative government will never ignore your good and positive feelings – of warmth and sympathy toward the other nations of Europe.”
He went further.
“As we work together with the EU as friends and sovereign equals in tackling climate change and terrorism, in building academic and scientific cooperation, redoubling our trading relationship…,” he said, “I urge everyone to find closure and let the healing begin.”
That will be easier said than done as Johnson will now have to decide what kind of U.K. he wishes to build – one more akin to its neighbors in the EU or one more resembling a low-tax, deregulated Singapore-on-Thames.
“Brexit will formally happen next month, to much fanfare,” writes the Economist, “but the hardest arguments, about whether to forgo market access for the ability to deregulate, have not begun. Mr. Johnson will either have to face down his own Brexit ultras or hammer the economy with a minimal EU deal.”
French President Emmanuel Macron, enamored by his colleague’s intellect and linguistic skill, has called Boris Johnson “a leader with genuine strategic vision” who should be taken seriously. This week he extended an olive branch while in Brussels, telling “British friends and allies something very simple: by this general election, you confirmed the choice made more than three years ago, but you are not leaving Europe.”
On the other hand, he has warned, the best way to reach the most ambitious trade agreement with the EU would be if the U.K. essentially says “we don’t want to change very much.”
So, the drama will continue. If the U.K.’s economy emerges as robust and healthy, other European countries might wonder about the value of staying in. If Johnson defines his country as too close to the European Union, irrespective of economic logic, his base may well ask what the past three years’ drama has achieved other than serving Johnson’s own political ambitions.
It’s time to raise the curtain on the next act.
Frederick Kempe is a best-selling author, prize-winning journalist and president & CEO of the Atlantic Council, one of the United States’ most influential think tanks on global affairs. He worked at The Wall Street Journal for more than 25 years as a foreign correspondent, assistant managing editor and as the longest-serving editor of the paper’s European edition. His latest book – “Berlin 1961: Kennedy, Khrushchev, and the Most Dangerous Place on Earth” – was a New York Times best-seller and has been published in more than a dozen languages. Follow him on Twitter @FredKempe and subscribe here to Inflection Points, his look each Saturday at the past week’s top stories and trends.
For more insight from CNBC contributors, follow @CNBCopinion on Twitter.
A digital yuan could help countries evade US sanctions, experts say
China’s central bank is working on a digital yuan.
Luis Diaz Devesa | Getty Images
A digital yuan could allow some countries to avoid U.S. sanctions and increase the Chinese government’s influence, experts told CNBC.
The People’s Bank of China is working on a digital yuan but has released very few details about the technology behind it or the timeline of its release.
But experts are concerned about the potential power this could give the Chinese government.
Neha Narula, director of the Digital Currency Initiative at the Massachusetts Institute of Technology (MIT), described a simulation that took part in November involving a number of people including Larry Summers and former U.S. Secretary of Defense Ash Carter. It was organized by Harvard Kennedy School’s Belfer Center. Narula was part of the simulation.
The participants simulated a White House National Security Council meeting in response to a major security crisis.
One of the situations involved North Korea developing a missile that had the capability to reach the U.S. It was funded by the digital yuan which allowed North Korea to bypass the global banking system and U.S. sanctions.
“It made it really clear that this (development of digital yuan) is a national security concern,” Narula said at the World Economic Forum in Davos.
“Financial sanctions are a very important tool to the United States and though it might not happen immediately, one must consider the risk of a digital currency issued by another country gaining market share and affecting the U.S.’s ability to engage in financial sanctions and use them as tool.”
Concerns about China’s digital currency have increased. In November, Harvard University professor and economist Kenneth Rogoff warned about the risk of a digital yuan being used for “underground” activities.
“A US-regulated digital currency could in principle be required to be traceable by U.S. authorities, so that if North Korea were to use it to hire Russian nuclear scientists, or Iran were to use it to finance terrorist activity, they would run a high risk of being caught, and potentially even blocked,” Rogoff wrote in the U.K.’s Guardian newspaper.
“If, however, the digital currency were run out of China, the U.S. would have far fewer levers to pull. Western regulators could ultimately ban the use of China’s digital currency, but that wouldn’t stop it from being used in large parts of Africa, Latin America, and Asia, which in turn could engender some underground demand even in the U.S. and Europe.”
Rogoff noted that the U.S. has sanctions against 12 countries including Russia. A digital yuan could hurt the U.S.’s ability to use sanctions, Rogoff noted in an argument similar to Narula’s.
“Just as technology has disrupted media, politics, and business, it is on the verge of disrupting America’s ability to leverage faith in its currency to pursue its broader national interests.”
There have been rising calls for a digital U.S. dollar. Christopher Giancarlo, former chairman of the Commodity Futures Trading Commission (CFTC) spoke on the sidelines of Davos about the need for the U.S. to issue a digital currency.
Experts have also raised other concerns about the digital yuan including the lack of privacy it is likely to have.
“Having a fully digital currency gives the person in charge of the digital currency a lot more power,” Jeff Schumacher, CEO of 55 Foundry, a company incubator and investor, told CNBC at Davos.
“China needs this power to continue its control over its people. Privacy will be weak and the government will have the ability to know about every transaction. It also could be a preparatory step to let its currency float. There are multiple currencies in China (a trade currency and a mainland currency). China cannot sustain this multi currency approach.”
ECB policy review an opportunity to ‘reconnect with citizens’
Christine Lagarde, President of the European Central Bank (ECB), addresses the media during a news conference following the meeting of the governing council of the ECB in Frankfurt am Main, western Germany, on December 12, 2019.
Daniel Roland | AFP | Getty Images
A new policy review launched Thursday will help the European Central Bank (ECB) to reconnect with the public, according to ECB Governing Council member and Dutch central bank President Klaas Knot.
At its first policy meeting of 2020, the central bank left interest rates unchanged but kickstarted its first monetary policy review since 2003, in a bid to greater understand why inflation remains consistently below its target of close to 2%.
The review will assess how the ECB looks at price stability, along with its monetary policy toolkit, economic and monetary analyses and communication practices. Financial stability, employment and environmental sustainability will also be in the spotlight.
Euro zone inflation was confirmed at 1.3% year-on-year in December, but Knot told CNBC at the World Economic Forum in Davos on Friday that the Dutch public estimated that it sat at 9% in a recent domestic poll. He suggested that there was a gap in perception due to the ECB’s inflation measure omitting owner-occupied housing costs.
While southern European central bankers have tended to deviate in their monetary policy tone from their northern counterparts, Knot denied a rift among the Governing Council.
“We all agree that inflation has been below our aim, and we want to know why this has been the case, why controllability of inflation has fallen short of our expectations, why there is so much fundamental uncertainty, and also of course a question like ‘do we measure inflation correctly?'” he said.
“In and of itself, that is a technocratic question. That is not a question of east versus west or north versus south, I think we just want to get the right answer, and perception of our citizens is important.”
Knot added that while the central bank has worked to perfect its communication with the markets, it had “underestimated” the importance of the 330 million citizens impacted by its policy decisions. He suggested that the review is “an opportunity to reconnect with our citizens.”
Fiscal spending role
In a press conference following the ECB’s decision, President Christine Lagarde reiterated her call for “other policy areas” to “contribute more decisively” in order for the euro zone economy to capitalize on the central bank’s accommodative monetary measures.
Calls for governments to be more amenable to fiscal spending echo those of her predecessor Mario Draghi, and Lagarde added that the “implementation of structural policies in euro area countries needs to be substantially stepped up” to boost productivity and growth potential.
Speaking to CNBC on Friday, Portuguese Finance Minister and Eurogroup President Mario Centeno said European governments were already launching public investment programs in order to respond both to regional challenges such as the manufacturing slowdown, and global issues like climate change.
He also dismissed concerns that a potential change to how the ECB calculates or measures inflation could have a destabilizing effect on the euro zone economy.
“It is quite important to make all strands of policy action in Europe coherent. This means fiscal, this means monetary policy, this means competition, climate action,” Centeno told CNBC’s Karen Tso.
He added that he expects the review process to look to “optimize the extent to which monetary policy can have a positive impact in our economies.”
Lagarde and Mnuchin clash over energy transition plan
From left to right, Zhu Min, deputy managing director of the International Monetary Fund (IMF), Haruhiko Kuroda, governor of the Bank of Japan (BOJ), Christine Lagarde, president of the European Central Bank (ECB), Steven Mnuchin, U.S. Treasury secretary, Olaf Scholz, Germany’s finance minister, and Kristalina Georgieva, managing director of the International Monetary Fund (IMF), attend a panel session on the closing day of the World Economic Forum (WEF) in Davos, Switzerland, on Friday, Jan. 24, 2020.
The president of the European Central Bank, Christine Lagarde, and the U.S. Treasury Secretary Steven Mnuchin laid bare their stark differences over how the world should transition to cleaner energy sources.
The corporate world’s role in protecting the environment has been a central theme of this year’s World Economic Forum in Davos, Switzerland.
Speaking on a panel Friday as the event drew to a close, Lagarde told the audience that central banks needed to lead the economic modeling of how changes to the environment should be costed and mitigated.
Lagarde said banks, accountants, companies and ratings agencies would need to move away from quarterly and medium-term forecasts and start thinking in terms of thirty years out.
Responding to the new ECB president directly, Mnuchin said he didn’t think forecasting the cost of protecting the environment was possible.
“Christine, I think you can have a lot of people and model it, but I just don’t want to kid ourselves. I think there is no way we can possibly model what these risks are over the next 30 years with a level of certainty, given what I think is the changes in technology along the way,” he said.
Lagarde responded directly, suggesting that long-term modeling would help press firms to understand the cost and process of switching to new, and less carbon-intensive, energy sources.
“If we can push companies into the direction of actually anticipating the transition, pricing it, and making sure that they move to cleaner and cleaner energy uses, then it helps,” she said.
Interpreting that as a direct cost to a business, Mnuchin responded sharply.
“I don’t think we know how to price these things,” he said, adding that the current pricing of future greener energy sources was being inflated.
“So, I think we are overestimating the cost. So, if you want to put a tax on people, go ahead and put a carbon tax. That is a tax on hard working people. I personally think the costs are going to be much lower 10 years from now — because of technology — than we think they are today,” he said.
Earlier, Mnuchin argued that the U.S. had become much more efficient through carbon technology and the use of energy, but named China and India as countries which needed to offer “significant improvement in terms of environmental issues.”
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