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Perch’s Perspective: 8 May 2020 Week in Review

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Perch’s Perspective: 8 May 2020 Week in Review

Unbent. Unbowed. Undeterred. But maybe broken. On Tuesday, Germany’s Federal Constitutional Court (FCC) determined that the European Central Bank’s (ECB) Public Sector Purchase Programme (PSPP) exceeded the ECB’s legal authority. That’s a lot of acronyms to keep in mind, but the key point is fairly simple: for the first time in the European Union’s history, Germany’s highest court overruled a European Union Court of Justice (ECJ) ruling. The FCC’s objection is largely “procedural” and explicitly does not concern “financial assistant measures taken by the ECB in the context of the current coronavirus crisis.”

What it means: As a short-term practical matter, very little. As regards the future stability and viability of the European Union, potentially a great deal. 

A little background: The ECB began purchasing government bonds of EU member states on secondary markets on March 4, 2015, as part of the PSPP to ward off “an economic crisis entailing a risk of deflation.”  The PSPP was initially supposed to end in September 2016 but was extended numerous times. In December 2018, responding to an FCC legal challenge, the ECJ ruled that the PSPP did not “exceed the ECB’s mandate.” Aside from the potential EU-wide political ramifications of Germany defying the ECJ, the FCC’s ruling challenges the principles of supremacy of EU laws in its member states.

In response, a spokesperson for the European Commission (EC) said that the EC reaffirmed “the primacy of the EU law, and the fact that the rulings of the European Court of Justice are binding on all national courts.” The ECB’s official position was slightly more subtle: it “took note of the judgment” while declaring in the next sentence that it remained “fully committed” to doing all the things the FCC doesn’t think the ECB is allowed to do. ECB President Christine Lagarde was defiant in her own remarks: “We are an independent institution, answerable to the European Parliament, and driven by our mandate. We will continue to do whatever is needed, whatever is necessary, to deliver on that mandate. Undeterred.” 

German media tried to find a silver lining to the ruling: Handelsblatt, for instance, said the decision was “face-saving for all sides.” Perhaps so, but in saving face, Germany undermined the legal power and political legitimacy of the ECB. There is nothing to stop other EU member states from emulating the FCC’s actions in the future — and nothing to stop legal challenges to the ECB’s new 750 billion euro Pandemic Emergency Purchase Programme (PEPP). Two things are clear: the EU will fade into irrelevance unless it is reformed and Brussels should really stop using acronyms.

New kids on the block. Speaking of bad names and tedious acronyms, the Open RAN Policy Coalition, a group of 31 telecom operators and network and software vendors, announced its existence on Tuesday. Meanwhile, the U.S. Department of Commerce is reportedly close to issuing a new rule that would allow U.S. companies to work with Huawei on setting 5G network standards and Huawei-owned Chinese fabless semiconductor company HiSilicon displaced Qualcomm as the top player in China’s System-on-a-Chip (SoC) market.

What it means: The Open RAN Policy Coalition is made up of mostly American companies, though Japan, South Korea, Spain, and the UK are also represented. Conspicuously absent: China, the global leader in 5G patents on the strength of Huawei and to a lesser extent ZTE. We will spend a little more time going more in-depth on the geopolitics of open RAN in next Tuesday’s newsletter, but suffice to say that the US views it as a potential way to limit not just China’s relative 5G advantage but the overall dominance of the telecom hardware space by Huawei, Ericcsson, and Nokia. Even so, Huawei is too big a player to keep on the sidelines without crippling 5G rollout — even, apparently, in the US, hence the Commerce Department’s imminent new rule. In addition, Chinese companies are being given precedence in the Chinese market to make up for loss of market share in other countries due to American geopolitical pressure. This is what technological decoupling could look like.

Here comes climate politics. The airline industry in Europe is getting bailed out. Italy will inject 3 billion euros into Alitalia, in effect nationalizing the carrier. Lufthansa is in negotiations with the German government on a bailout package of as much as 9 billion euros. But it is in France and the Netherlands where things are getting interesting. AirFrance and KLM are also getting bailed out by the French and Dutch governments too — France is contributing 7 billion euros while the Dutch are contributing between 2 to 4 billion — but those bailouts will be contingent on environmental considerations. According to France’s Minister of Economy, AirFrance must become “the most environmentally friendly airline on the planet,” which in practical terms means halving carbon dioxide emissions for domestic flights and eliminating all domestic flights less than 2.5 hours if there is a rail alternative. The Dutch have not made their conditions public yet but environmental sustainability is on their mind as well.

What it means: France and the Netherlands are attempting to become leaders of climate politics in both the EU and the world. The two sides, which are of polar opposite views on common EU debt instruments to respond to COVID-19, also issued a joint call earlier this week for enforcing environmental and labor standards in EU trade deals, potentially including tariffs on countries that do not meet sustainability commitments. These concerns could pose a potential risk to the EU-Mercosur trade deal we discussed a few weeks ago, not to mention current EU deals or even relations between EU member states. 

The Bay of Caracas. Venezuela claimed that it thwarted an armed incursion into its territory on Sunday. According to President Nicolas Maduro, Venezuela killed 8 of the assailants and arrested at least 13 more “terrorists” on Monday. Among the detained are two U.S. citizens, who were reportedly working with an American military veteran named Jordan Gourdreau and his Florida-based security company, Silvercorp USA, to overthrow the Maduro government. U.S. President Donald Trump said the failed coup-attempt  had “nothing to do with [the U.S.] government.” U.S. Secretary of State Mike Pompeo volunteered that if the U.S. had been involved “it would have gone differently” and that the US would be using “every tool available” to make sure the detained Americans got back home. On Wednesday, Maduro produced a video of one of the Americans detailing his plans to train Venezuelans to overthrow Maduro’s government and said more proof to substantiate a U.S. government role would be forthcoming.

What it means: This is an exceedingly strange story. It also raises some uncomfortable questions. Just how far is the United States willing to go to secure the return of its citizens? What are the implications of a U.S. Secretary of State failing to condemn a vigilante attempt to invade the sovereign territory of another country and boasting that U.S. forces would have essentially gotten the job done if they had been involved, both for Venezuela-US relations and for U.S. foreign policy in the region at large? It is not as if Venezuela-US relations can get much worse, but U.S. political legitimacy in this part of the world is already tenuous and episodes like these don’t help.

Honorable Mention

Last week we noted a potential degradation in U.S.-Saudi relations; this week brought potential confirmation in the form of the US reportedly deciding to remove four Patriot anti missile systems from the Kingdom.

China launched a trial version of its new generation manned-spaceship earlier this week; the ship is due to return to China today.

Even as the Food and Agriculture Organization of the United Nations indicated that international food prices dipped for a third consecutive month in April, there are anecdotal reports of increased food prices in countries like India and Russia

Brazilian President Jair Bolsonaro continues to come under domestic political pressure over accusations that he attempted to use his political influence to install a loyalist as federal police chief.

Indian military forces killed a leader of Hizb ul-Mujahideen, a separatist militant group in Kashmir which is designated a terrorist group by India, the EU, and the US.

The daughter of Kazakhstan’s former president (and current-ruler-behind-the scenes) Nursultan Nazarbayev was perfunctorily removed from her position as chair of the Senate without any apparent reason. 

Due to COVID-19, Poland postponed presidential elections previously set for May 10 until at least June or July; the election will likely be conducted by mail-in ballot.

The Indian government reportedly reached out to over 1,000 U.S. companies in April to encourage them to relocate their operations from China to India. 

Israel may finally have a new government, with Benjamin Netanyahu set to remain as Prime Minister for at least the next 18 months.

Australia is reportedly worried that US statements about COVID-19 being the result of Chinese laboratory experiments on bats in Wuhan are obstructing its call for an independent inquiry into the origin of the virus.

Container ships are choosing to take the Cape of Good Hope route rather than transiting the Suez Canal due to cheap energy prices, leading to millions in losses for the Suez Canal Authority.

Liberty Global and Telefonica agreed to combine their UK operations in a deal valued at almost $40 billion. 

END

 

 

Week of May 8 

 

Nazarbayev’s daughter intrigue: https://eurasianet.org/kazakhstan-nazarbayeva-often-eyed-as-successor-removed-as-senate-speaker

 

Supply chains China

https://www.skynews.com.au/details/_6153754614001

https://www.reuters.com/article/us-health-coronavirus-usa-china/trump-administration-pushing-to-rip-global-supply-chains-from-china-officials-idUSKBN22G0BZ

 

US-China: https://www.reuters.com/article/us-health-coronavirus-china-sentiment-ex/exclusive-internal-chinese-report-warns-beijing-faces-tiananmen-like-global-backlash-over-virus-idUSKBN22G19C

 

*France: 

https://t.co/dVDzKJcWaw?amp=1

Italy: Nationalized alitalia https://www.reuters.com/article/us-italy-alitalia-minister/italy-to-inject-3-billion-euros-in-new-alitalia-industry-minister-idUSKBN22J19P

 

Brazil

 

*VZ https://www.reuters.com/article/us-venezuela-security/venezuelan-authorities-detain-u-s-citizens-allegedly-involved-in-incursion-idUSKBN22G2O0

https://en.mercopress.com/2020/05/07/us-will-use-all-options-to-free-two-americans-detained-in-venezuela-in-an-alleged-failed-mercenary-attack

https://www.state.gov/secretary-michael-r-pompeo-at-a-press-availability-5/

https://en.mercopress.com/2020/05/06/trump-denies-any-us-involvement-in-an-alleged-failed-armed-incursion-in-venezuela

 

South Africa 5G

https://www.totaltele.com//505808/Africas-first-5G-network-goes-live-in-South-Africa

 

*ECB: https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200505~00a09107a9.en.html

https://uk.reuters.com/article/uk-ecb-policy-germany-text/text-germans-top-court-rules-against-ecbs-bond-purchase-scheme-idUKKBN22H11E

https://www.ft.com/content/d93008c5-2b3c-4b2e-9499-5eabaaa959db

 

Open RAN https://www.rcrwireless.com/20200505/policy/open-ran-policy-coalition-launches

 

Germany needs Huawei https://news.cgtn.com/news/2020-05-03/German-telecom-carrier-We-need-Huawei-in-5G-network-construction-QcnBZw3ZgA/index.html

 

Telegraph: US reviewing UK security cooperation (Evernote)

 

Huawei….supply chain independence

https://micky.com.au/huawei-analysts-predict-setbacks-position-it-for-long-term-leadership/

https://www.gizchina.com/2020/05/03/huawei-beats-qualcomm-and-becomes-chinas-largest-semiconductor-manufacturer/

 

Telefonica, liberty global: https://www.wsj.com/articles/liberty-global-telefonica-to-combine-u-k-units-creating-39-billion-giant-11588838863?mod=lead_feature_below_a_pos1

 

Huawei dept of commerce

https://www.google.com/search?q=us+department+of+commerce+huawei&oq=us+department+of+commerce+huawei&aqs=chrome..69i57j0l3.2572j0j9&sourceid=chrome&ie=UTF-8

 

China space: http://www.asahi.com/ajw/articles/13355972

 

Kashmir: https://www.washingtonpost.com/world/asia_pacific/top-militant-commander-killed-by-indian-forces-in-kashmir/2020/05/06/f751fbac-8f9c-11ea-9322-a29e75effc93_story.html

 

Poland postpones presidential elections: 

https://www.polskieradio.pl/395/7784/Artykul/2505619,UPDATE-Poland%E2%80%99s-presidential-elections-deferred-amid-epidemic