Magazine Issues » July-August 2019

Opinion: Federalism ahoy

Fiona_RintoulI imagine German film director Florian Henckel von Donnersmarck is even now working on a script that will immortalise the life of Ursula von der Leyen, president designate of the European Commission. Having just released a three-hour melodrama based on the life of the German painter Gerhard Richter, he can hardly fail to see that, just as Richter’s biography provides a whistlestop tour of his generation’s principal traumas, so von der Leyen’s encapsulates those of her generation.

Born in Dresden in 1932, Richter had a schizophrenic aunt who was euthanised by the Nazis and fled to West Germany two months before the Berlin Wall was built, there to join artists such as Sigmar Polke in the Düsseldorf avant garde. Von der Leyen’s biography, while not quite so dramatic, is marked by all the key moments in late 20th-century European history.

Von der Leyen was born in 1958 in Brussels, where her father was one of the first civil servants at the European Commission. In 1978, she went into hiding in London to avoid kidnap by the Red Army Faction. She has served in Angela Merkel’s cabinet since 2005 and would be the first woman to hold the office of Commission president, serving alongside Christine Lagarde, first female president of the European Central Bank (ECB). “This is a unique moment in the history of Europe, with female candidates at the head of the ECB and the Commission,” says Sébastien Galy, senior macro strategist at Nordea Asset Management.

This is true. But the women’s candidature is a marker in the sand for other reasons. It shows federalism in the eurozone is inscribed on the agenda; it is, as Andrew Bosomworth, head of portfolio management, Germany, Pimco, puts it, “a nod towards completing the eurozone’s unfinished institutional architecture”.

And how could it be otherwise? The euro’s flaw has always been the slightly make-believe nature of convergence within the zone. The ECB is the only central bank that must work with fiscal policies fragmented at the member-state level, as Bosomworth notes. “History teaches us that no large monetary union ever endured without evolving into a federal structure,” he says.

As the US and China slug it out, with the European Union - whose businesses rely so heavily on revenues from Asia-Pacific, particularly China - acting as bystander, that integration could well extend to the military. “Geopolitical changes afoot around the world also suggest Europe could, and some of its important leaders advocate that it should, unify member states’ military forces,” says Bosomworth. Von der Leyen’s federalist credentials raise the likelihood of this happening, he adds. Which, naturally, will go down like a bag of cold sick in Brexit Britain.

“This looks like a closing of ranks,” says Michael Browne, co-manager of the Legg Mason Martin Currie European Equity Long/Short strategy. “I expect the UK to be the first country to struggle with this, as it attempts to renegotiate Brexit.”

As Brexit grinds into its fourth year, there is a feeling that EU leaders’ response may be a Gallic shrug. Perhaps the next marker in von der Leyen’s life will be the bifurcation of Europe into those who are up for the federal project and those who are not.

Meanwhile the French Asset Management Association has just released a paper on boosting the competitiveness of the Paris Financial Centre. It was presented at a special session on ‘French Competitiveness, Paris, the Place to Be!’ at the Paris Europlace International Financial Forum. It might just as well have been called ‘London, the Place Not to Be!’

Fiona Rintoul is editor-at-large at Funds Europe

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