Chapter 22

#THISISACOUP

I n the Maidan demonstrations of the winter of 2013–2014 Ukrainians enthusiastically waved the blue banner of the EU. After the grinding battles of the eurozone it was something of a relief for Europe to be celebrated by anyone anywhere. The pro-EU demonstrators in Kiev hailed Europe as the future. To them it offered the promise of democracy, freedom, prosperity, the rule of law, the “good Europe.” It was an image that stemmed from the era of the 1990s and early 2000s, when Europe had celebrated the end of the cold war, economic growth and the prospect of “ever closer union.” For some pundits, in both Europe and the United States, the clash with Putin was an occasion to reaffirm that vision against outside threat. ¹ But the question in the wake of the eurozone crises of 2008–2012 was whether the main threat to the good Europe, in fact, came from without or from within. Anxiously watched by the rest of the world, the 2012 stabilization of the eurozone had been based on a compromise among Germany, Italy, Spain, France and the rest. It was driven by the fear of an escalation that would take down first Spain and then Italy. A year later the acute phase of the crisis had passed. But as the second recession to hit Europe in short succession began to make itself fully felt, the EU entered a new season of discontent.

I

The eurozone’s stabilization in 2012 was conditioned on the expectation of further forward movement. That was the program with which the European Council of June 28–29 had addressed the Spanish crisis. It was the message that Draghi had delivered in London. The fiscal compact, the banking union, the development of the ESM and the ECB’s OMT were major steps toward the consolidation of the eurozone. The question, as ever, was whether they were sufficient and whether the EU had the will to move at the requisite speed. On the banking union everything remained to be done, and Berlin was in no hurry to sign up to a common resolution fund until the full extent of the damage in Southern Europe was uncovered. ² Germany and France were bitterly divided over the banking crisis that exploded in Cyprus in 2013. ³ Meanwhile, Merkel had her own reform agenda. Not satisfied with having transferred the Schuldenbremse to Europe, she wanted to push the German vision of labor market reform to the European level as well. ⁴ In 2013 her mantra was competitiveness and unit labor costs. For this too, as for budget discipline, Germany wanted contracts and rules.

Merkel’s authority in the wake of the eurozone crisis was remarkable and Germany was the most comfortably situated of Europe’s economies. Labor markets were tight and global demand for Germany’s exports was booming. ⁵ Even if exports to the rest of Europe were flat, Germans had little reason to doubt the narrative of their own national success. But even in this cocoon of prosperity, German politics were not immune to stress. The weak link was the FDP, Merkel’s chosen coalition partner since 2009. ⁶ The FDP’s probusiness, tax-cutting agenda had no more than niche appeal in Germany at the best of times. Its national sovereignist position came increasingly under pressure in the course of the eurozone crisis. It would have made a good basis for opposition. Inside a government constantly forced to make compromises to hold the eurozone together, the FDP was playing a losing hand. The indignation aroused in Germany in 2012 by talk of eurobonds, the further round of assistance for Greece and Draghi’s activism heightened the party’s political difficulties. And these became acute in the spring of 2013 with the emergence of the first overtly Eurosceptic party in modern German politics, the Alternative für Deutschland. ⁷ Though in 2015 it would go on to lead the campaign against Merkel’s refugee policy, gathering a nativist electorate around it, the AfD was originally founded by a group of conservative professors opposed to Merkel’s compromising policy on the eurozone. In the German general election of September 2013, to the relief of the mainstream, the AfD failed to break through the 5 percent hurdle required to enter the Bundestag. But it took enough of the FDP’s votes to drop them out of parliament for the first time since 1949. On the back of a much-increased vote for the CDU, Merkel would become chancellor for a third time, once more in coalition with the SPD. Despite coming in second, the SPD drove a hard bargain and claimed a remarkable share of the key cabinet portfolios. But the grand coalition gave Merkel a broad parliamentary base, and the most vital element of continuity was provided by Wolfgang Schäuble, who continued as finance minister. In September 2014 Schäuble announced to the Bundestag the joyous news that for the first time since 1969 he would be budgeting for zero new debt. In a world shaken by the violence in Ukraine, Syria and Iraq and terrified by the Ebola epidemic, he declared, Germany’s robust financial position would send a message of confidence. ⁸ The program of the debt brake on which Germany had embarked in 2009 was being realized ahead of time.

The rest of the eurozone had more immediate worries. In both economic and political terms the pressure was relentless. The crisis fighting of 2012 had stopped the immediate catastrophe. But the shocks to confidence delivered between 2011 and 2012 sucked the eurozone economy down and the straitjacket of fiscal consolidation squeezed tightly. The deep recession did not begin to ease until the second half of 2013. By that point unemployment in Greece and Spain had peaked at 26–27 percent. When it came, recovery was agonizingly slow and was overshadowed by the increasingly worrying news from the emerging markets. In 2014, with prices falling all around the world economy, the EU was stalked by the fear of deflation. Was the EU sliding toward the economic quicksand that had trapped Japan since the 1990s, with bad debts weighing on recovery and inadequate demand feeding on itself? ⁹ How could Europe respond? The fiscal compact constrained government spending even on much-needed investment. In Spain, which was undergoing one of the most severe adjustments, public spending both on infrastructure and education was slashed. ¹⁰ But net of depreciation it was Germany that had some of the lowest levels of public investment in Europe. Would the ECB finally make good on its promise to do “whatever it takes”? Draghi cut rates, but would the ECB go a step further and embark on QE? ¹¹ As inflation slid toward zero and expectations moved into negative territory, the economic case for action by the ECB was serious. But with nationalist resentment on the rise in Germany and the Bundesbank still smarting from its defeat in 2012, so too were the political risks.

While economists and politicians argued over policy options, a large segment of Europe’s population had simply had enough. Across Europe, opinion polls showed a sharp decline in support for the EU even in states that had historically been overwhelmingly favorable. ¹² And then came the EU’s parliamentary elections of May 2014. The results rocked the European political establishment. Eurosceptic nationalist parties made dramatic gains. UKIP won in Britain. More significantly, the National Front (FN) won in France, taking 25 percent of the vote, as compared with the middle-of-the-road conservative UMP with 20 percent and the ruling Parti Socialiste with 14.7 percent. The FN drew on France’s deep strain of nationalism, anti-Semitism and postcolonial racism. But since January 2011 Marine Le Pen had run a campaign to de-demonize the party, refashioning it as a vehicle for popular nationalism pitched against globalization and the EU. To its petit bourgeois base the FN added a large part of what would once have been thought of as the constituency of the Left—blue-collar and unemployed voters. ¹³ When the FN’s voters were asked ahead of the May 2014 election what mattered to them they mentioned three things. For 63 percent immigration was a top priority. A similar number raised economic issues. But hostility to the EU came top of the list: 83 percent of FN voters were persuaded that belonging to the EU had aggravated the effects of the economic crisis on France; 81 percent thought that the economic policy of the current government conforming to the demands of austerity would likely fail. Given the experience of Europe since 2008, one could hardly say that these were unreasonable opinions. Two thirds of FN voters drew the conclusion that France should leave the euro.

The pool of right-wing nationalist resentment on the margin of European politics was not new, though it gained new adherents and far greater credibility in light of the disastrous mishandling of the crisis. What was new was the mobilization on the Left. By contrast with the FN’s furious, lower-class, poorly educated base, the new parties of the Left were updated and energized iterations of the kind of progressive social movement that Europe had repeatedly seen since the late 1960s. In Spain, Podemos was an offspring of M15, an imaginative broad-based social movement, headed by a university teacher, with an electorate that had a larger percentage of university graduates than any other political force in Spain. ¹⁴ Syriza had the most balanced representation of upper-, middle- and lower-class groups of any party in Greece. What drove the surge in support for the Left from 2008 was not fundamentalist opposition so much as the sense that the EU was betraying Europe’s own promise.

The immediate reaction of mainstream media to the May 2014 result was to dismiss both left- and right-wing critics of the status quo as “populist.” ¹⁵ The impatience and irrationality of the parties of protest would undo the good work of fiscal consolidation done since 2010. They were splitting Europe at a moment when it needed to stand united against the new threats on its borders. ¹⁶ There were dark rumors of Russian infiltration. That was alarming, no doubt. But in 2014 a new cold war was among the more reassuring scenarios on offer. What if Europe was marching back not to the 1950s but to the 1930s? Was the script not hauntingly familiar? A financial crisis met with obstinate austerity led to mass unemployment and political radicalization. When melded with fears of Putin’s meddling and terror attacks by radical Islamists, memories of Europe’s dark history could easily be stewed into a terrifying image of a new Dark Continent. In perhaps the most dramatic manifestation of this apocalyptic brand of Euroscepticism, in March 2015 the widely read American monthly Atlantic posed the question: “Is It Time for the Jews to Leave Europe?” ¹⁷ Influential journalist Jeffrey Goldberg constructed for his American audience a narrative in which disaffected unemployed Islamic youth, festering in Europe’s rundown housing projects and inner cities, were entangled with the continent’s deep-rooted anti-Semitic history and the rise of the new Right. When asked in the accompanying video what the last European Jew should do on departing the “Old World,” Leon Wieseltier commented simply: “Spit!” The fear and vitriol this expressed fed off memories that went back to the Holocaust and long before. What is striking is that this alarmist narrative should have gained traction when it did.

After the apparent escape from crisis in 2012, two years later Europe found itself again at an impasse. To secure its functional viability, the eurozone needed to make bold steps toward further integration. But in light of the mounting popular backlash and the ongoing economic uncertainty, where was the political momentum to come from? After the verdict delivered by Europe’s voters in May 2014, who would want to risk a wave of referenda to ratify treaty change? Meanwhile, most of Europe outside the prosperous northern core was struggling to return to something like normal economic growth. Given time, would the German formula of austerity and reform work? Spain and Ireland were crawling their way back. But across much of Southern Europe the unemployment crisis was still acute. In 2014 the questions were getting ever louder. Would the mounting political backlash against the EU outrun Europe’s halting economic recovery? Would that recovery even continue? By 2014 the risk of deflation was undeniable. The emerging markets on which Germany relied for its growth were faltering. If stagnation threatened, the political pressures would further escalate. Would the ECB be forced out of its defensive position into a more activist policy? As ever, the place where the tensions within the eurozone were most acute was Greece.

II

After six years of recession, the social crisis in Greece was manifest. In 2014 unemployment reached close to 27 percent. More than half of Greece’s young people were out of work, and whereas they might once have drawn on their families for support, the main breadwinner all too often had lost his or her source of income too. By 2015 half of the population was relying on the pension income of a senior citizen to get by, an alarming statistic given that half the pensions paid to senior citizens were below the poverty level. According to Eurostat, if the standard of poverty was anchored at the precrisis level, then almost half of the Greek population was at risk by 2015. ¹⁸ The OECD reported that one in six was going hungry on a daily basis. ¹⁹ In Athens the homeless were everywhere. For those lucky enough to keep their jobs, real wages were down by 25 percent. At the same time, taxes had risen steeply. A nation of small-property owners was furious at new land taxes. VAT that bore most heavily on the poorest was up from 13 to 24 percent. Contrary to popular belief, in Northern Europe the Greece welfare safety net was far from luxurious and the health system was collapsing under the pressure of cuts. To escape the labor market crisis, since 2008, 400,000 Greeks had emigrated, out of a population of 10 million. Those who left were predominantly well-educated young people, including tens of thousands of doctors. ²⁰

Not only was Greece experiencing a social crisis but it was doing so at the behest of the troika. Given that the majority of Greeks wanted very much to preserve their standing in Europe, first PASOK and then New Democracy had seen no option but to comply with the demands of the troika creditors. But, not surprisingly, the crisis produced a broad-based mood of protest that was fueled by the desire for social solidarity and national self-assertion. On the Right the beneficiary was the racist Golden Dawn, a true neofascist movement. But by far the more popular response was Syriza, the party of the radical Left, which in the May 2014 European elections easily overtook the governing party, New Democracy.

Realizing that its support was dwindling, Samaras’s coalition government appealed to the EU and Berlin for concessions. If Greece could emulate Ireland and Portugal in making an early exit from its troika program, it would be a great win for Europe and might give the Eurogroup’s collaborators a chance at the polls. But Berlin waved the suggestion away. They had never trusted Samaras and they were not about to make concessions. Hoping for a new mandate, Samaras called for elections. As was now commonplace, proausterity governments around Europe as well as the IMF chimed in. The Greek voters were left in no doubt that as far as “Europe” was concerned, New Democracy, PASOK and the centrist To Potami party were the acceptable choices. Rajoy, Spain’s conservative prime minister, campaigned for Samaras in Athens. Given the rise of Podemos, Spanish conservatives were desperate to avoid a left-wing victory. But on January 25, 2015, that is what the Greek voters delivered. Syriza, led by the youthful activist Alexis Tsipras, formed a government and, refuting the expectations of moderate social democrats in Berlin and Brussels, picked as its coalition partner not the centrist pro-European To Potami but the ultranationalist ANEL. Their views on religion and cultural values might not mesh, but ANEL could be relied upon to go all the way in a confrontation with the EU. ²¹

The confrontation would be tough. The challenge for Syriza was to force open the painful and unresolved question of Greek solvency. By buying out the private bondholders, the 2012 debt restructuring had removed market pressure from Athens. But given its declining economy, the Greek debt burden was still excessive. And by substituting public loans from the EU and the IMF for private debt, the 2012 deal had, if anything, raised the political stakes. It was one thing to burn private creditors who had gambled on high-yield Greek debt. It was quite another to suggest to conservative Northern Europe taxpayers that they should make further deep concessions to Greece’s rebellious left-wing government. The result in 2015 was a renewed political confrontation, but one in which the fronts were dizzyingly inverted, or at least so they appeared in the rendering of the Greek situation offered by its new finance minister, Yanis Varoufakis. ²²

An unorthodox leftist who had spent much of his career outside Greece in the Anglophone academy, Varoufakis was never a Syriza insider. He had no stake in its old Left politics or in orthodox Marxism. As Greece’s debts were no longer market loans but debts owed to the troika, his tactic was to mobilize the pragmatism of the market against the financial orthodoxy of the eurozone. He courted the support of the City of London, the Financial Times and authorities like Larry Summers, as well as a coterie of American economic advisers that included both confirmed leftists such as Jamie K. Galbraith and Jeffrey Sachs, onetime exponent of “shock therapy” for the post-Communist world. Varoufakis argued that the ideologues on the Greek debt question were not those who insisted that unpayable debts were unpayable. The ideologues were the conservative disciplinarians in the Eurogroup who insisted that debts must be paid as a matter of principle regardless of the cost. The “system” that Varoufakis attacked was not capitalism but Europe’s moribund and dysfunctional austerity fixation and its collaborators in Greece and beyond.

Juxtaposing rational economics against conservative ideology was an effective political argument on Varoufakis’s part. It would win him a considerable international following. But it underestimated his opponents. The project of fiscal consolidation imposed on Europe under German leadership was certainly political. But it was not only that. It was a vision of a long-term reordering of Europe’s society and economy. Merkel was fond of shocking unsuspecting visitors with the remark that unless Europe reformed it would go the way of Inca civilization. ²³ In pursuit of its goal, to be realized over the course of a decade, Berlin did not flinch from imposing heavy short-term costs. That is what reform of a failing social and economic model entailed. That was the lesson of the collapse of communism, the economic project of German unification and the incorporation of Eastern Europe into the EU. In pursuing that project one could make concessions neither to the short-term time horizons of markets nor to Syriza-style protest politics. To ensure that Europe stayed the course, it was essential to contain “political contagion.” It would be disastrous to make concessions to the Far Left government in Greece, concessions that during the crisis had been denied to the governments of Eastern Europe, Ireland, Spain and Portugal. Whatever the misery of the Greek population, it hardly mattered in the wider economic balance of the eurozone. The battle was about the wider questions of political discipline and authority, which, as the conservative globalists in Berlin saw it, were the foundations for long-term economic success.

The fight was all the more bitter because the austerity hawks in the Eurogroup knew that the centrist governments of France and Italy were susceptible. In 2012 Hollande’s government in France had wanted to push a more expansive policy. The growth agenda, which had been so crucial to the political maneuvering following Hollande’s election, had made precious little headway. Now the new government in Rome headed by the popular centrist Matteo Renzi was tempted in a similar direction. ²⁴ That made it all the more important to hold the line against Syriza. Germany was the anchor, but in the most crucial negotiations, Finance Minister Schäuble barely needed to speak. The Dutchman Jeroen Dijsselbloem chaired the Eurogroup session, and the argument against Syriza would be carried by austerian stalwarts like Spain’s Luis de Guindos and Portugal’s Maria Luís Albuquerque. They knew that in stopping Syriza they were fighting for their own political lives and the project they had dedicated their countries to when they signed up to the austerity agenda in 2011.

The irony was that in expressing their preference for the established parties in Greece, the Eurogroup and the IMF were aligning themselves precisely with those political forces and social interests that had created Greece’s deplorable fiscal situation. Nor were these entanglements limited to politics. At the heart of the business oligarchy and its media network were Greek banks. They had been recapitalized in 2012 as part of the restructuring deal at the expense of the Greek taxpayer. But they continued to depend heavily on funding from the Greek central bank and the ECB. Since June 2014 the Greek central bank had been headed by Yannis Stournaras, another of Greece’s persuasive economics professors, one of the architects of Greece’s admission to the original eurozone and finance minister in the outgoing Samaras government. ²⁵ When it became clear in December 2014 that Syriza was ahead in the polls and that it might soon come to power, Stournaras did nothing to staunch a slow-bleeding bank run. Ahead of the election, better-off Greeks had already withdrawn 16 billion euros from the banks. When Tsipras took office, a further 8 billion euros were pulled out in a matter of only three weeks. ²⁶ The effect of this capital flight was to push the banks ever deeper into dependence on the ECB.

If the Syriza government refused to cooperate with the troika, the ECB, as it had done in Ireland and Greece before, could threaten to curtail emergency lending to the banks. It would be a devastating blow. But did the troika really want to risk a renewed crisis in the eurozone? This threat of financial contagion was the major bargaining counter of the Greek government. If Brussels, Frankfurt and Berlin pushed Greece over the edge, it might take others with it. But in this regard, three days before Syriza took office the game was decisively changed. On January 22, 2015, Mario Draghi announced that the ECB was finally adopting full-scale QE. Two and a half years after Draghi’s “whatever it takes,” it was not a move that the ECB undertook with any enthusiasm. Between 2012 and 2014 Draghi had allowed the balance sheet of the ECB to contract. What forced his hand in 2015 was the acute threat of deflation. To counter slumping prices, Draghi had tried every alternative. A new installment of the Long-Term Refinancing operations this time found no takers. The European banks were intent on deleveraging. It was not until September 2014 that Draghi commenced “QE lite” by buying private asset-backed securities. ²⁷ Predictably, there was immediate indignation in Germany. The trigger for bolder action was a preliminary opinion issued on January 14, 2015, by the European Court of Justice, which decided in a case referred to it by the German supreme court that Draghi’s bond-buying scheme of 2012 had not constituted a prima facie breach of the ban on monetary financing. ²⁸ Without waiting for a final ruling, the ECB acted. On January 22, 2015, Draghi announced that until eurozone inflation stabilized safely in the positive range, the ECB would buy sovereign bonds at the rate of 60 billion euros per month. ²⁹

In the coincidence of the ECB’s turn to monetary activism with Syriza’s election victory in January 2015, the economic and political consequences of the eurozone crisis finally caught up with each other. The conjuncture would have fateful consequences. Ironically, it was the ECB’s bond-buying program, long opposed by Europe’s conservatives, that freed them to fight the battle for political containment by any means necessary. With the ECB in the market there was no risk that the Greek drama would spill over into financial contagion. As the ECB’s purchases kicked in and drained sovereign bonds from the markets, yields on Spanish, Portuguese and Italian debt fell. In 2010 the IMF had advocated precisely this course so as to allow the Irish banking crisis to be resolved in an equitable fashion—through PSI and not entirely at the expense of taxpayers. Then, Trichet had blocked the way. Now Draghi’s deployment of QE enabled the conservative majority of the Eurogroup to lay siege to Greece’s left-wing government without fear of precipitating a general crisis.

Did this mean that the outcome was foreordained? Did Syriza even comprehend the depth of the predicament it was in? From contemporary sources and publicly available information it was unclear. But Varoufakis’s memoirs reveal that at least some within Tsipras’s cabinet understood the scale of the challenge. As an economic theorist, Varoufakis’s specialty was game theory. He knew that Draghi’s turn to QE boxed Athens in. If the Syriza government wanted to gain purchase on the debt negotiations, it needed a threat of its own that would restore the risk of financial contagion. Varoufakis believed that a wrinkle in the bailout agreement of 2012 combined with the mounting wave of nationalist resentment in Germany gave Greece the leverage it needed. ³⁰ On the books of the ECB were 30 billion euros in bonds purchased under Trichet’s SMP program. These were left untouched by the 2012 restructuring and they were under Greek law. If Greece unilaterally defaulted on those bonds, it would inflict severe losses on the ECB, highlighting the dangers involved in bond buying and more or less forcing the German right wing to reopen the question of the legality of QE. With QE’s legal foundation in question, confidence would crumble. The firewall would be down. The entire eurozone periphery would be in peril once more and the Eurogroup would have to take Greece’s demands seriously for fear of panic spreading through the markets.

Given Greece’s weakness, it is melodramatic to describe this as the nuclear option. But what Varoufakis was preparing was certainly a dirty bomb. To force the Eurogroup to negotiate in earnest, Greece would threaten to unhinge the fragile political balance on which Draghi’s stabilization of the entire eurozone depended. It would deliberately unleash civil war in the eurozone. Due to legal technicalities, it was in fact unclear whether a Greek default would hit the ECB directly or simply Greece’s own central bank. But the threat certainly caused alarm in Frankfurt and Brussels. Varoufakis had the legal order for a default drafted and kept on hand in his ministry. The question was whether the Tsipras government would have the nerve to deploy its deterrent at the crucial moment.

III

The first round of meetings between Greece’s new government and its creditors in Brussels went so badly that they came close to precipitating an immediate “rupture.” Merkel, her foreign minister, Frank-Walter Steinmeier, and their French counterparts jetted into Brussels on February 12, 2015, for a European Council meeting fresh from grueling negotiations with Putin over the Minsk II ceasefire in Donbass. Ukraine, not Greece, was top of the agenda, and the new Greek foreign minister did not endear himself to his colleagues by threatening to veto further sanctions against Putin. ³¹ In his first Eurogroup meeting on February 11, Varoufakis struck a more conciliatory tone, insisting on Syriza’s European credentials and its commitment to work in good faith. He insisted that they were not “populists, promising all things to all people.” But Schäuble’s response was blunt. Syriza had not been part of the 2012 deal with the Greek political parties. But Varoufakis needed to understand, as far as the fundamentals of the eurozone were concerned, that “elections cannot be allowed to change economic policy.” ³² It was an astonishing statement on its face, but one that encapsulated the dilemma in which the eurozone found itself. As a result of the crisis, national economic policy was increasingly a matter of international agreements. As far as the Eurogroup was concerned, the Greek debt memorandum was the road map. Whatever the complexion of its national government, Greece was expected to stick to it. Though form was preserved, tempers frayed and there were rumors that Varoufakis and Dijsselbloem had almost come to blows. ³³ Schäuble would no doubt have been happy to see Greece thrown out there and then. But a personal intervention by Merkel on February 20 secured a stay of execution, allowing the new Greek government, with the approval of the creditors, to offer its own list of reform proposals to replace the memorandum. ³⁴ The release of the outstanding 7.2 billion euros was postponed until agreement was reached and the reforms were implemented.

What followed were months of agonizing back-and-forth over achingly familiar ground. Would Athens be able to satisfy the creditors with its austerity proposals? Would the creditors be willing to discuss Syriza’s demand for a second round of debt restructuring? It was attritional. As the negotiations dragged on, Greece’s banks drained reserves, becoming ever more dependent on the ECB, while the Syriza government lost steam. For many on the left wing of Syriza, the February 20 compromise that kept Greece in the euro would come to seem a mistake. Tsipras’s government had wasted the political momentum of its victory, missed its chance to carry out a popular rupture with Brussels and henceforth negotiated from a weakening position. But Tsipras did not want to provoke a break before negotiations had even begun. Varoufakis wanted to see whether leverage would work. He knew that every time he mentioned the possibility of default on the SMP bonds, it made the ECB blanch. ³⁵

Was there any possibility that a compromise would be worked out? As far as the debt was concerned, Greece’s insolvency was manifest. But there was no evidence that the creditors were ever willing to budge. Pursuing an Atlanticist strategy, the group around Varoufakis hoped that the swing factor in the negotiations might be the IMF. Most analysts at the Fund regretted that Dominique Strauss-Kahn had enrolled the IMF in the first iteration of extend-and-pretend. Five years on from 2010, Greece’s debts were still unsustainable. Restructuring was essential. But Lagarde was loath to break with her European partners. Given her own political background, she had little sympathy for Syriza. And the IMF team on the ground was embedded with the troika and committed to implementing its tough program. As if to reinforce the Fund’s commitment, the former head of its delegation to Greece, Poul Thomsen, was promoted to head the IMF’s entire European operation. ³⁶ Off the record Thomsen agreed with the majority of his IMF colleagues that the Greek debt was unsustainable. But as Athens would discover, harping on the issue of sustainability was a double-edged sword. Sustainability depended not just on the debt level but on the future course of Greek growth. Though on issues like the fiscal multiplier the IMF had come around to a more “liberal” view, when it came to long-run economic growth the Fund cleaved to the old religion. To raise its growth rate Greece must undo labor market regulation and free restrictive business licensing. This required detailed and highly intrusive “supply side reform.” ³⁷ Furthermore, the Greek government could always raise money through privatization sales. To implement such measures was painful for any government. For a Left coalition like Syriza it was political suicide.

If the IMF was of two minds, would its key shareholder, the United States, swing the balance? Five years earlier, when the crisis began, Papandreou’s embattled PASOK government had found comfort in Washington. In the immediate aftermath of Syriza’s victory Obama again sounded encouraging. ³⁸ Too much should not be asked of a people that were already on their knees, the president opined. “You cannot keep on squeezing countries that are in the midst of depression.” ³⁹ Meanwhile, America’s celebrity economists of the center-left, headed by Paul Krugman and Joseph Stiglitz, threw their weight behind Varoufakis’s call for a “rational” debt program for Greece. But none of this went down well in Berlin. Nor did Athens get much sympathy from Obama’s new Treasury secretary, Jack Lew. A lawyer, hedge fund manager and Citigroup alumnus, Lew came from the hawkish side of the Obama administration. A new Greek crisis “would not be a good thing in a world economy just recovering from a deep recession,” Lew pointed out. It was up to the Greek government to do its best to win its creditors’ trust. ⁴⁰ As tension escalated in April, Jason Furman, the latest chairman of Barack Obama’s Council of Economic Advisers, weighed in to comment that a Greek crisis was not “an experiment we want to run.” But when he was asked to rank a disorderly Greek exit on a “scale of one to 10, where the collapse of Lehman is a 10,” Furman opined that “a Greek default would likely register as a six; that is down from eight in 2012.” ⁴¹ When the stakes had been high, Washington had not hesitated to meddle in the politics of the euro area. For a crisis that registered only 6 out of 10, Washington was not about to jeopardize its relationship with Berlin. As one American official told Varoufakis: “For us you belong to the sphere of influence of Berlin, which we will not question.” ⁴²

If no help could be expected from Washington, what about China, the new power in the global economy? Beijing saw the Eastern Mediterranean as a natural extension of its Eurasian One Belt, One Road logistical network. China had already taken a high-profile and controversial stake in Piraeus port. ⁴³ Varoufakis eagerly explored the possibility of attracting additional Chinese capital and even Chinese intervention in the market for Greek Treasury debt. Beijing seemed interested. But the bond buying Beijing promised never materialized. When Varoufakis inquired why, the answer he received from Beijing was stark. Beijing had pulled back because Berlin had let the Chinese know that it did not welcome their intervention in the Greek crisis. ⁴⁴

China and America as partners appealed to those Greeks like Varoufakis who thought of themselves as “modernizers” and did not have deep roots in the Greek Communist milieu. For the Old Guard of Syriza, Russia was the obvious option. ⁴⁵ In 2015 Merkel and Hollande were still struggling to contain the Ukraine crisis. Putin was making increasingly interventionist moves in Syria. Could Greece exploit its strategic location in the Eastern Mediterranean to gain leverage? On April 8 Tsipras traveled to Moscow to meet with Putin. But in the Kremlin he heard the same thing that the Greeks were hearing from Washington and Beijing. Putin’s message was simple: “You must strike a deal with the Germans.” ⁴⁶

But who in Germany was Greece to deal with? The authority in financial policy was held by Finance Minister Schäuble, but, as he made increasingly clear, he did not believe that Greece had a future in the euro area. ⁴⁷ Did Merkel share the same view? She was a more pragmatic politician than Schäuble; surely she would not want to see the breakup of the euro. Tsipras thought he could prevail upon her through personal diplomacy. Varoufakis, on the other hand, thought that what Merkel needed to understand was the threat that Greece could pose to Draghi’s stabilization efforts. Merkel exploited the gap between them. Seeking to split the Greek prime minister from his more left-wing cabinet members, she favored him with a series of personal meetings that convinced Tsipras that she would eventually deliver a compromise. The question was when and on what terms. The longer Merkel waited, the more desperate Greece became.

In April, amid talk of Greek default, the yield on the few outstanding Greek bonds still traded on open markets soared to 26.2 percent. ⁴⁸ Back in 2012 this might have triggered anxiety in Rome, Madrid and Lisbon. But now there was no contagion. The ECB was unfazed. As Draghi remarked: “We have enough instruments at this point in time...which although they have been designed for other purposes would certainly be used at a crisis time if needed. . . . We are better equipped than we were in 2012, 2011 and 2010.” ⁴⁹ With the ECB’s bond purchasing not only soaking up all newly issued government debt in the eurozone but reducing the total stock of sovereign debt available for private investors by 265 billion euros, there was little reason to fear bond vigilantes. The deliberate default on the ECB’s bond holdings planned by Varoufakis was supposed to puncture this complacency. But, as was becoming clear, Tsipras shrank from using the threat.

If no compromise could be reached and if Tsipras was unwilling to use Greece’s only real weapon, was there any way out of the impasse? For the creditors, it would have been easiest if Tsipras and his eccentric crew simply disappeared from the scene. But so soon after their handsome electoral victory that was too much to hope for. The EU was haunted by the ghosts of 2011. As the Financial Times noted, Brussels was “sensitive to accusations” that “the EU was complicit in ending the tenure of George Papandreou, Greece’s prime minister . . . and Silvio Berlusconi.” ⁵⁰ But the Eurogroup made no secret of the fact that they wanted Tsipras to ditch Varoufakis and the left wing of his party. ⁵¹ Historical precedents were readily to hand. Europe had a track record of curbing radical left-wing governments. After a few “wild months” in the autumn of 1998, Germany’s Red-Green government under Gerhard Schroeder had jettisoned Oskar Lafontaine as finance minister. ⁵² In 1983 Mitterrand’s turn to a hard currency policy had presaged the ouster of the Communists from his coalition government. Looking further back, the Financial Times helpfully suggested as a precedent “Britain’s 1931 National Government.” ⁵³ Would Tsipras be Greece’s Ramsay MacDonald? After another round of bullying by the Eurogroup at the Riga summit on April 25, with Merkel’s active encouragement, Tsipras moved Varoufakis aside. He remained as finance minister, but Euclid Tsakalotos, the minister for international economic relations, would be the lead debt negotiator. Another opportunity to deploy the Greek deterrent went begging.

Impact of ECB Bond Purchases, 2015

Source: Morgan Stanley Research, National Treasuries.

Athens was bending. But months of siege warfare were taking their toll on both sides. Merkel and Schäuble might sleep easily, but Brussels had more invested in the idea of the good Europe. In May it seemed that the troika might be wavering. The commission was warming to the plucky Tsipras. The French government did not want to see Greece humiliated. The IMF was skeptical about the sustainability of the creditors’ demands. It took a meeting on June 1 in Berlin to harden the resolve of the troika and to force Syriza finally into the corner. ⁵⁴ The IMF and the eurozone “bridged their differences.” The Fund’s worries about sustainability were soothed by requiring Athens to force through tough reforms of its labor markets and business regulations. That would allow the creditors to make optimistic assumptions about future growth and relieve them of the need to make any immediate commitment to future debt forgiveness. ⁵⁵ As far as Athens was concerned, it was the worst possible outcome. ⁵⁶ Economists in the City of London estimated that under the creditors’ plan, the Greek economy would plunge by a further 12.6 percent by 2019 and the Greek debt ratio would soar to a staggering 200 percent. As Wolfgang Munchau put it in the Financial Times , Greece had nothing to lose by saying no. “[A]cceptance of the troika’s programme would constitute a dual suicide—for the Greek economy, and for the political career of the Greek prime minister.” ⁵⁷

Was it suicide or assassination? When Athens refused to yield, European efforts to delegitimize the Syriza government in the eyes of its own population were overt. Jean-Claude Juncker and Slovak finance minister Peter Kažimír publicly declared that their disagreements were only with Mr. Tsipras’s government and not with the Greek people. ⁵⁸ Taking the hint, on June 18 a rally of pro-Euro anti-Syriza Greeks was called on Facebook. The riot police were pulled back; the government avoided any public confrontation with the pro-EU crowd. But Syriza’s confidence was rattled. The demonstration made clear that the Left were not the only ones who could mobilize extraparliamentary forces. After the demoralizing slog of Syriza’s first months in office, it was no longer obvious which side could count on more active popular support. ⁵⁹ In early June Tsipras and Tsakalotos once more sought a compromise. Athens would meet the creditors’ austerity target by a combination of increased retirement age and heavy increases in tax and social security contributions. For forty-eight hours this raised hopes of a deal. But there were sticking points. While agreeing to run a huge primary budget surplus, Syriza was still insisting on “political essentials,” weighting the adjustment less toward welfare cuts and more toward tax increases on wealthy Greeks. This satisfied the demand for social equity, but creditors insisted that it “could end up strangling the economy.” ⁶⁰ Furthermore, what Syriza wanted in return was a precommitment to debt restructuring. On that Germany would not budge.

Without access to the last tranche of the 2012 program, Athens was days away from defaulting. In a desperate bid to rally support, Tsipras sprang a new surprise. ⁶¹ At one a.m. on the morning of June 27 he went on television to announce that he was calling a referendum. It would be up to the Greek people to decide either to accept or to reject the creditors’ memorandum. Tsipras, for his part, declared that he would campaign against acceptance, calling on the Greek population to reject the “blackmail ultimatum.” ⁶² The Eurogroup was horrified. As Merkel made clear, with the Athens government campaigning against agreement there could be no further compromise. ⁶³ The following day, Sunday, June 28, the ECB pulled the trigger. It froze its emergency liquidity support for Greece’s banks at its current level. The next day this would unleash a disastrous bank run. The ECB could have gone further. It could have terminated emergency liquidity assistance altogether and demanded repayment. At the crisis meeting of the ECB’s board, there were certainly votes to be had for such a drastic course of action. But the ECB’s overwhelming power put Draghi in a delicate position. ⁶⁴ As a member of the troika and chief provider of financial life support to the Greek banking system, the ECB was “judge, jury and executioner.” ⁶⁵ Draghi did not want to appear as though he were further escalating the tension or “deliberately worsening Greece’s financial plight.” ⁶⁶ Capping Greek access to liquidity assistance was drastic enough. To avoid an immediate collapse, the Greek banks were preemptively closed, cash withdrawals were limited to 60 euros per day and capital controls limited capital flight. Middle-class depositors formed impatient queues to withdraw their cash. Greece’s privately owned media were in an uproar. The irresponsible radicals of Syriza, they told their audience, had taken the country over the edge.

With the creditors refusing either to negotiate or to make concessions until the results of the referendum were known, on June 30 Athens announced that it was delaying payment on money owed to the IMF. This was no mere administrative matter. The IMF is acknowledged as the super-senior creditor in international lending. Being in arrears to the IMF put Greece on a short list that included Sudan, Somalia, Zimbabwe, Afghanistan and Cambodia under the Khmer Rouge. ⁶⁷ And the size of its debts was unprecedented. Greece owed repayment on $26 billion to the IMF over the next ten years.

But at this crucial moment the IMF did not respond as one might have expected. In the summer of 2015, the dissatisfaction inside the Fund over the European approach to the Greek debt crisis finally broke into the open. Between a first blog post by its chief economist, Olivier Blanchard, in mid-June and the formal issuance of a paper on Greek debt sustainability in mid-July, the world’s leading financial authority declared the policy of extend-and-pretend practiced since 2010 both economically and politically unsustainable. Greece would have to make further tough decisions, no doubt, but the troika and the Eurogroup needed to stop pretending that that would be enough. Debt restructuring had to be on the table. ⁶⁸ With the backing of the US board members, overriding resistance from the European representatives, on July 2 the IMF published a preliminary report outlining the full absurdity of the programs so far. Instead of the 50 billion euros in privatization receipts scheduled in 2012, Greece had received 3.2 billion. The current program and all the variants haggled over since Syriza took office were unrealistic. No one who was serious would proceed on the basis that primary surpluses of 4 percent, massive structural changes and 2 percent GDP growth per annum were a realistic scenario. ⁶⁹ After what their country had been through since 2010, no political party in Greece could be expected to “own” such a drastic policy mix. Without ownership, one could not expect fulfillment. The IMF now called for at least 50 billion euros in debt relief, a doubling of repayment times and 36 billion euros in short-term financing to allow Greece to survive until 2018. ⁷⁰

It was a nasty surprise to the Europeans that the Americans would have let this happen. As late as early June, at the convivial G7 meeting in Bavaria, Obama had acted the part of a loyal ally. But it was a measure of the stability that Europe had now attained that the clash should have come out into the open. The only consideration that had justified the IMF’s involvement in the Greek bailout in May 2010 was the risk of systemic contagion. Thanks to Mario Draghi’s bond-buying, there was no longer any risk of that. The IMF could afford to voice principled opposition without fear of practical consequences. It would make no new commitments to the eurozone’s exercise in self-delusion. But it did not do the one thing that would have placed Berlin under serious pressure: It did not withdraw from the troika.

For the Greek population the choices were starker. Did they dare to challenge the creditors? Would a no vote mean the end of Greek membership in the euro or even the EU? Despite overt and massive intimidation, on July 5 a remarkable 61.31 percent voted against accepting the troika proposal. Given that the plan had by that point been repudiated as unsustainable by the IMF, the vote was not so much a wild act of political desperation as a brave and much-needed assertion of common sense. But the response from the creditor side was unyielding. Athens had until July 12 to come up with an even more austere and even less sustainable proposal or face expulsion from the eurozone. On July 9, with help from the French Treasury, the Syriza government cobbled together a new scheme, taking up a compromise on welfare cuts and tax increases proposed by the commission and coupling it to an appeal for modest debt write-offs and new credits of 53 billion euros. For the left wing of Syriza it was shameful surrender. Varoufakis, who resigned following the referendum, joined the internal party opposition. Meanwhile, Tsipras set off to Strasbourg in the hope of rallying support across Europe. On July 10 he made an appearance in the European Parliament, where he was greeted by a storm of approving whistles not only from the Left but also from the Far Right. Boos and catcalls came from the center. ⁷¹ European politics were dividing between upholders of the status quo and a motley crew denouncing the eurozone as a German prison.

On Saturday, July 11, with the principals scheduled to meet the following day, the finance ministers of Europe gathered in Brussels for a premeeting. It soon became clear that, far from softening, Berlin’s position had hardened. If Greece wanted to stay in the eurozone, Schäuble insisted that it must demonstrate its credibility by agreeing to a 50-billion-euro collateral fund made up of Greek national assets placed under direct creditor control. With that in place there could be further loans and another effort to make a go of extend-and-pretend. Alternatively, if Greece preferred the path of sovereignty, Schäuble offered a five-year “time-out” from the eurozone, which might be accompanied by debt restructuring and “humanitarian” relief. ⁷² There was talk of emergency supplies of medicines to Greek hospitals. What was not on the table was a repeat of 2012, deep debt restructuring with Greece remaining in the eurozone. Haircutting banks was one thing, haircutting the German taxpayer quite another. Greece would have to exit. But what if it did? What if Greece took the time-out option? It would mean that eurozone membership was reduced to a conditional status. How long would it be before Schäuble was offering a time-out to Italy or Spain? For the French it was unacceptable. ⁷³ The Germans posed as the paymasters of Europe, but France too would bear a heavy burden in the event of any Greek rupture. The French had worked closely with Athens to draft its latest compromise proposal. Schäuble had simply swept it aside.

To clear the air, Michel Sapin, the French finance minister, proposed that they just “get it all out and tell one another the truth to blow off steam.” ⁷⁴ The group therapy didn’t go well. The ensuing conversation was described by one participant as “extremely hard, violent even.” Significantly, the battle went beyond national interest. In the words of France’s youthful economy minister, Emmanuel Macron, Greece was provoking a veritable European civil war, a “war of religion,” with the Nordics, the East Europeans, Germany and the Netherlands in one camp, and France, Italy, Spain and the rest in the other. ⁷⁵ A painful climax was reached when Schäuble and Draghi locked horns and the German finance minister ended up fuming that he was “not an idiot.” At that point Dijsselbloem thought it best to call a halt to proceedings. The deal would have to be done by the heads of government the following day.

When the climactic summit began on the afternoon of Sunday, July 12, 2015, despite the presence of the entire union, the negotiations involved only four actors: Merkel; Tsipras, who was advised by his new finance minister; Donald Tusk, as president of the European Council; and Hollande, effectively representing the wider interests of the other member states. The negotiations were laborious and painful. Merkel abandoned Schäuble’s alarming time-out proposal but clung to the guarantee fund. Tsipras conceded the fund, but could not accept that it should be run out of Brussels or Luxembourg. It would control Greek assets. It must be headquartered in Athens. As Hollande insisted, “[I]t was a question of ‘sovereignty.’” ⁷⁶ Merkel conceded. The fund would be sited in Greece and could be used, if necessary, to recapitalize Greece’s banks and for other domestic investment purposes. But even with that compromise agreed, by early in the morning of Monday, July 13, there was still no deal. At seven a.m., after a full night of talks, Merkel and Tsipras were 2.5 billion euros apart. Both, it seemed, wanted to walk away in exhausted frustration. At this fateful moment Tusk intervened. The two parties could abandon the talks, but if they did, he would not hesitate to tell the world that they had allowed “Europe to fail” over what was in the final analysis a trivial amount of money. It wasn’t the prospect of economic disaster that brought Merkel to her senses, but the likely political fallout from letting Greece go. When it came to the moment of decision she did not feel bound by financial logic. She did not want to be the chancellor who “broke Europe.” That was more important than finally resolving the question of Greek debt. She split the difference. Germany would agree to yet another bailout. Greece would receive new loans from Europe totaling 86 billion euros. In exchange, Athens accepted severe intrusions on its sovereignty. It was required to whip through yet more cuts within forty-eight hours. Parliamentary sovereignty was reduced to a rubber stamp.

There was no rupture. Greece was still in the eurozone. Europe had regained its capacity for a rather brutal form of collective action. The ECB had demonstrated the pacifying power of central bank intervention. Greece was held on the path of “reform” demanded by the troika. But as the IMF’s démarche had made clear, this was a matter of politics as much as financial crisis management. The European creditors had doggedly refused to discuss the only issue that mattered—debt restructuring. What was at stake was not macroeconomic performance but the imposition of discipline on a wayward eurozone member. Shielded from financial contagion, a conservative financial settlement had been demonstratively imposed on a left-wing government with a strong democratic mandate. The perverse effect of the ECB’s “liberating” move to QE was that it allowed extend-and-pretend and its concomitant, relentless austerity, to continue.

IV

Launched by Syriza sympathizers in Barcelona on the night of July 12–13, #Thisisacoup went viral on Twitter, being taken up by 377,000 users worldwide in a matter of hours and generating a billion impressions in a matter of days. ⁷⁷ Closer to home, in Athens, members of the Left Platform, led by Panagiotis Lafazanis, the former energy and environment minister, met at the Oscar Hotel on the night of July 14 to discuss how they might go through with the Grexit that Schäuble had offered, but Merkel, Tusk, Hollande and Tsipras had done everything to avoid. It had been a mistake not to make the break with Brussels already in February. Now, before the prison door closed once more, they should effect a rupture, if necessary by radical means. Their target was the national mint, where they believed 22 billion euros were held in reserves, enough to cover pensions and other essential government bills until they had rolled out a new national currency. If the central bank governor, Yannis Stournaras, resisted, as they expected he would, they would have him arrested. The meeting was far from clandestine. There were journalists swarming outside the hotel. It is hard to know how seriously to take such talk. But as one participant recalled: “Obviously it was a moment of high tension. . . . [Y]ou were . . . aware of a real revolutionary spirit in the room.” ⁷⁸ It didn’t come to that. Tsipras and the mainstream of Syriza whipped the necessary measures through parliament. The left wing split from Syriza, only to be humiliated in the September general election, which vindicated Tsipras’s leadership, returning him with a virtually unchanged majority and the new loan deal in place. A majority of Greeks, it turned out, wanted eurozone membership, even at the price of continued troika oversight.

Across Europe, what shocked centrists was the violence of the July clashes. Donald Tusk, who had seen the final round of negotiations up close, agreed with the Greek radicals. There was a real mood of revolutionary impatience in the air. As far as Tusk, a cold war liberal and veteran of Solidarność, was concerned, it was all very alarming. “[T]oo much Rousseau not enough Montesquieu,” he told a bemused audience of financial journalists. ⁷⁹ Jürgen Habermas, the closest equivalent to those Enlightenment thinkers twenty-first-century Europe has to offer, was aghast. Merkel had “carried out an act of punishment” against Greece’s left-wing government, he told the Guardian . “I fear that the German government, including its social democratic faction, have gambled away in one night all the political capital that a better Germany had accumulated in half a century.” Germany had “unashamedly revealed itself as Europe’s chief disciplinarian and for the first time openly made a claim for German hegemony in Europe.” ⁸⁰

There was no doubt, of course, that Merkel and Schäuble had played a strong hand. But what exactly did they have to show for it? What upset German right-wingers was not the bruising nature of the encounters with Greece but how little Germany had gained. Who, after all, was the victor in the decisive encounters of July 12–13, 2015? Certainly not Schäuble, who had been cut loose by his own chancellor. What had prevailed was the determination to “preserve Europe” at the price of another unsustainable bailout deal. For the German Right, Merkel’s sellout in the Greek crisis was a fitting prelude to her disastrous betrayal of the German nation in the Syrian refugee crisis that autumn. The beneficiary was the AfD—the right-wing, promarket party that had first come into existence in April 2013 to protest against Berlin’s endless concessions in the eurozone crisis. As Schäuble would snark, the AfD’s rise was 50 percent down to Draghi; the other half, presumably, was down to his boss and her liberal posturing over the Syrians. ⁸¹ Schäuble was no xenophobe. The historic stakes were high. What Merkel was jeopardizing with her dithering concessions was the historic mission of the CDU: to tame German nationalism and to bind it to Europe.

The German right wing saw some things clearly. They understood that, as powerful as it was, Germany’s dominance was incomplete at best. What had stabilized the eurozone in 2012 was a halfhearted lurch toward deeper integration covered by the markets’ perception that Draghi was finally “Americanizing” the ECB. In 2015 once more, it was not simply German conservatism that triumphed. The necessary complement to the containment of Syriza was QE. As it had been in the United States, it was a perversely complementary package. Austerity without QE would have been paralyzing in economic terms. QE without austerity would have been impossible politically for conservatives to bear. ⁸² How tightly the two were coupled would become clear in the second half of 2015 as the tensions left by the eurozone crisis continued to rack European politics. The anti-Syriza front in the Eurogroup had reason to worry. First in Portugal in October 2015, and then in Spain in December 2015, elections delivered serious blows to the conservative and centrist parties that had toed the line of austerity since 2010.

In the Spanish general election of December 2015, the two-party system based on the conservatives and the Socialists that had shaped the transition to democracy since General Franco’s death in 1975 imploded. With the conservatives crashing to 28 percent and the Socialists to 22 percent, they commanded the loyalty of only half the electorate. ⁸³ The majority of the rest was shared between two entirely new parties, Podemos and the Citizens party. Podemos scored 20.7 percent, which was disappointing only when compared with the 30 percent plus it had commanded in the polls shortly after its formation in 2014. It lost support in 2015 in part because of the beating being dealt out to Syriza, but also because of the rise of the even newer Citizens party, which described itself as a “progressive” party espousing a program of social, cultural and economic liberalism. Both Podemos and the Citizens party promised a new set of clean hands to overcome corruption. Both did remarkably well. But the outcome of the election was inconclusive. No side had a clear majority to govern. The divide between the Socialists and Podemos was too deep to enable a left-wing government. In 2016, after a second round of voting, the dogged conservative prime minster, Rajoy, clung on. With its economy limping back from the dead, Spain, like Ireland, would be celebrated as the poster child for austerity adjustment policies.

In Portugal the economic recovery was slower. Unlike Spain, it had borne the brunt of a full-blown troika program. In 2015 its youth unemployment rate was just shy of 60 percent and long-term unemployment hovered around 40 percent. The PàF center-right coalition headed by Pedro Passos Coelho, who had taken office in June 2011, had fought the long fight for eurozone stabilization. When the election campaign began it had seemed as though PàF would be roundly defeated. But the turmoil in Greece and the protection offered by the ECB’s QE contributed to swinging the result. On October 4, 2015, Coelho and the PàF saw their vote plunge relative to their 2011 result by 12 percent. But at 38.6 percent they still came in far ahead of the Socialists at 32.3 percent. With relief, President Cavaco Silva, a conservative financial economist, turned to Coelho to make the first attempt to form a new government. But though PàF had won a plurality, it was a long way short of a viable majority. The Socialists, though their electoral performance had been disappointing, had other options. If they were willing to form an alliance with the radical Left Bloc, Portugal’s equivalent of Syriza, and the ex-Communist Unitary Democratic Coalition, they had a majority. Pulling off this alignment would require a break with the taboos of the cold war and the conventions of Portuguese democracy since the end of dictatorship in the 1970s. As was true in Germany for the SPD and Die Linke, the Portuguese Socialists had hitherto refused to deal with the ex-Communists. But after years of austerity, PS leader António Costa took the plunge and entered talks to form a three-party left-wing government. ⁸⁴

How would President Silva respond? It was for him a profound dilemma. As he stated with remarkable frankness: “In 40 years of democracy,” the Portuguese governments had never depended on the radical Left parties, which questioned the Lisbon Treaty, the EU’s budgetary treaty, the banking union, the Stability and Growth Pact, the euro and NATO membership. ⁸⁵ As the president made clear, as far as he was concerned, the right to govern in Portugal depended on a commitment to those institutions and the values they embodied. And in 2015 there was a further correlate. Portugal must qualify for inclusion in the ECB’s quantitative easing program. It was Draghi’s bond buying that had given Portugal shelter from the Greek storm. Eligibility for inclusion in the ECB program, in turn, depended, by fiat of the ECB, on the rating of the international credit agencies. The best-known ratings agencies—Fitch, Moody’s and Standard & Poor’s—had all downgraded Portugal to junk in 2011. The only exception was DBRS, the least well known of the international ratings agencies. It was on DBRS’s bond rating that Portugal’s membership in the “respectable club” of Europe depended. ⁸⁶ If it were to drop out of the ECB program, the financial consequences would be catastrophic, and as far as President Silva was concerned, that had clear implications. “This,” Silva opined, “is the worst moment for a radical change to the foundations of our democracy. . . . After we carried out an onerous programme of financial assistance, entailing heavy sacrifices, it is my duty, within my constitutional powers, to do everything possible to prevent false signals being sent to financial institutions, investors and markets.” ⁸⁷ To allow the left-wing majority to take power would be a false signal.

Unsurprisingly after the events in Greece, Angela Merkel was not shy about letting it be known that she agreed. The prospect of a left-wing anti-austerity coalition in Lisbon was “very negative.” ⁸⁸ But what option did President Silva have? He couldn’t very well call new elections with an alternative government ready and waiting. On November 24, Silva faced the inevitable and named Costa as Portuguese prime minister. But he did not simply allow the majority principle to prevail either. Instead, in a constitutionally dubious arrangement, Silva made Costa’s appointment conditional on promises. ⁸⁹ The government must respect Portugal’s commitments to the European Union’s stability pact, whereby all eurozone members were required to reduce budget deficits to below 3 percent of GDP. It must remain committed to NATO. It must continue with the restructuring of Portugal’s ailing banking system as previously planned. It must limit the role of trade unions in deciding government policy and respect the existing balance between employers and labor. Schäuble had announced that elections should not change economic policy. Portugal’s president clearly agreed. Watched over by the president, the creditor governments of the EU, the ECB, the bond-rating agencies and the bond markets, the Left coalition took office. What it could do with political power, whether Portuguese democracy within the frame of the eurozone was more than a matter of extend-and-pretend, would depend on its ability to bend the constraints imposed upon it. At least, unlike Greece, the arithmetic of Portugal’s debts did not condemn it from the start.

V

Against left-wing governments, in weak and dependent members of the eurozone, the tactics of financial pressure worked. The Eurogroup’s project of political and economic discipline prevailed. For all their bravado and the genuine excitement they awakened both at home and abroad, the governments of Tsipras and Costa did not promise revolution. They promised national autonomy and self-respect, and, above all, social improvement. This made them vulnerable to the threat of immediate economic suffocation. After all, what good was a small increment to your pension or shorter waiting lists for social housing if a cap on ECB liquidity assistance left you unable to get cash out of the bank?

But the challenge to the status quo in the EU did not come only from the Left. Overshadowed by the struggles with Greece, the nationalist wave that had made itself felt in the European parliamentary election of May 2014 was gathering force. In 2014 it was the FN, UKIP and the Danish People’s Party that made the headlines. The following year, the British Conservative Party unexpectedly won an outright majority in the May 2015 general election. The British Conservatives were a broad church. David Cameron had led the party out of the wilderness of Opposition along the path of cultural modernization. But the right wing of the party belonged squarely in the nationalist camp—preoccupied with sovereignty, immigration and flag-waving traditionalism. ⁹⁰ Further to the right lurked the mavericks of the anti-EU UKIP, excluded from Westminster, but the winners of the European elections in 2014. A few weeks after the British Conservatives’ victory, the Law and Justice party won the Polish presidency on a ticket of overt nationalism and cultural conservatism. ⁹¹ They too were nationalists hostile to the intrusions of Brussels and the threat of German “domination.” Over the summer and autumn of 2015, the drama of the Syrian refugee crisis and Angela Merkel’s well-intentioned but cack-handed response fed the nationalist flames. Germany was not just imperious. It was opening the doors of an alien invasion. It was a double gift for nationalist demagogues. By the autumn of 2015, Law and Justice had captured the Polish parliament and government as well as the presidency.

Together, Poland and the UK accounted for 100 million citizens of the EU, 20 percent of the total, with governments pandering to the most skeptical Europhobic elements. It was unsettling to Brussels, but it had wider ramifications too. Historically, the UK was America’s preeminent ally in Europe, both in NATO and as the anchor of the transatlantic eurodollar system. Since the early 2000s Poland had been in the van of Donald Rumsfeld’s “new Europe.” It was the East European state most closely aligned with America’s geopolitical project. Earlier in the year, Syriza had tried in vain to gain leverage in Europe by interesting global actors in its predicament. The United States, China and Russia had all declined. They would not meddle in Germany’s sphere of interest. Poland and the UK posed challenges to the EU status quo that were far harder to contain.

Chapter 23

THE FEAR PROJECTS

T he year 2016 began with the nationalist government in Warsaw picking fights with Brussels over the freedom of the press, the independence of the judiciary and abortion rights. In their challenge to the EU they could count on applause from Viktor Orbán’s self-proclaimed “illiberal democracy” in Hungary. Meanwhile, the British government was demanding negotiations over opt-outs from the European future. The British prime minister let Brussels know that he would be happy to take a pro-European position. But from the outset, Cameron’s approach was disconcertingly transactional. If he did not get the concessions he demanded, his threat was that he would lead the campaign against EU membership in a referendum scheduled for the summer of 2016.

Nationalism and xenophobia were the common denominators of the challengers from the Right. But, unlike the leadership of Law and Justice, Cameron was in an awkward position. He was struggling to square a groundswell of popular sentiment fanned by the propagandists of his own party with a broader agenda of business-driven globalism. Since the 1970s EU membership had shaped the competitive modernization of the UK economy. The Tories, as much as any party, had participated in that drive. The City of London in its twenty-first-century form had emerged as one of the most important strands of the UK-EU relationship. Its offshore relationship to the eurozone had defined both Britain’s and Europe’s places in the networks of financial globalization and their relationship to the United States. Now, in an extraordinarily high-risk bid to channel and manage the politics of popular nationalism, the Tory government was putting London’s position as a crucial node in the network of the global economy in play.

I

Less than ten years earlier, the City of London had been riding high. It was the prized jewel in New Labour’s economic crown. It was Britain’s ticket to global significance. It was the standard the deregulators of Wall Street aspired to, the location of choice for fast-moving, high-end global finance. All the more shattering was the shock of 2008. The City became a site of crisis and failure. ¹ Tens of thousands lost their jobs. The two most resilient UK banks—Barclays and HSBC—sidestepped Brown’s ballyhooed program of recapitalization. This left the government to nationalize not just Northern Rock but Lloyds-HBOS and RBS as well. In the wake of the crisis “rebalancing” was an agenda shared by both Labour and the coalition government that replaced it. ² British banking legislation went well beyond Dodd-Frank. The once widely touted FSA was abolished. Banking supervision was reincorporated into the Bank of England. The new conception of macroprudentialism did not allow for a neat distinction between regulation and economic policy functions. The Banking Reform Act of 2013 would divide up bank functions and ring-fence retail activity. Financial services were no longer part of Britain’s narrative of national success.

But unlike in the case of Wall Street, tightening the regulation of British banks is not the same as curbing the City of London. The City is not first and foremost a national financial center. Its main business is global. The conference in London on July 26, 2012, at which Draghi made his famous speech was an event for global investors designed to showcase the City. Ahead of the Olympic Games, Bank of England governor Mervyn King had sport on his mind. The City of London, he remarked, was like the All England Lawn Tennis and Croquet Club, the hosts of Wimbledon. ³ The setting is quintessentially English. But it is a global tournament. Though King didn’t elaborate, the further implication of his remarks was that Britain’s banks stood to the City as Britain’s eternally struggling national tennis program stood to Wimbledon. They were a national preoccupation. They might produce the occasional champion, but neither they nor the rest of the British economy were the main attraction.

The modern City of London had been built on the eurodollar system. Thanks to the Fed, that had survived the crisis. But the American regulators understood London’s role as the platform for some of the most extreme risks that the American banks had built up. As it was put to a congressional committee in 2012 by a senior US regulator, the United States had allowed its risks to migrate to London only for them to “come right back here, crashing to our shores.” ⁴ Within the capacious framework of Dodd-Frank, US regulators were now sharply tightening the regulations of foreign banks in the United States and of US bank operations overseas. ⁵ The European banks that had epitomized the connection between the City of London and Wall Street, the likes of Barclays and Deutsche, UBS and Credit Suisse, were under huge pressure. By 2015, of all the European banks that had once challenged for top rankings on Wall Street, only Deutsche Bank was still competing for a top spot in global investment banking, and that was widely seen as a sign of its desperation. ⁶ Deutsche had no other secure business line to fall back on. The traffic on the whole was from the United States to Europe. All the big American banks still maintained a major presence in London. But it was a sign of the times that in 2014, Wall Street was for the first time ranked above the City as a global banking location in Z/Yen Group’s widely watched report. ⁷

How could London regain its edge? In the wake of the crisis, the major competitors of America’s global banks were not European but Asian. The “British” bank that had done best out of the crisis was HSBC. Driven by competitive pressure, London embarked on a remarkable twenty-first-century gamble. As it had done for the United States, the City of London would remake itself as China’s financial gateway to the world. ⁸ Side-stepping the geopolitics of Sino-American competition, a special relationship to China would restore London’s competitive edge. In the spring of 2012, the City of London Corporation initiated a project to make the City into a key center for renminbi trading. The result was a series of spectacular firsts. Already in 2012, HSBC had issued the first RMB-denominated bond and London claimed 62 percent of all RMB payments business outside China. In June 2013, to backstop the expanding RMB business, the Bank of England entered into a swap arrangement with the PBoC. Beijing conferred on London-based asset managers the privilege of being the first Western firms to be allowed to invest directly in RMB-denominated shares. In October 2014 the UK Treasury itself issued a RMB 3 billion bond. ⁹ The United States had long borrowed from China. Now the UK would borrow in the Chinese currency.

In making these moves the Bank of England explicitly cited the model of the eurodollar markets of the 1970s. The difference, of course, was that in facilitating the emergence of the eurodollar market, London had enabled global finance to escape government regulation. By contrast, in facilitating the internationalization of the renminbi, the City of London and the UK government were working hand in glove with the authorities in Beijing. London insisted on normalizing this relationship. China was a crucial emerging market. Liberalization would follow internationalization. What this turned a blind eye to was the fact that both the United States and China were playing for geoeconomic position. China’s proposal for the Asian Infrastructure Investment Bank brought this out into the open. Washington’s furious reaction to London’s eagerness to join the Chinese-led bank was telling.

The boldness of London’s move becomes even more remarkable when we consider the wider field it had to be situated in. In the 1980s Britain had positioned itself similarly as an entrepôt for Japanese investment—by both Japanese banks and manufacturers. Britain as a gateway for global FDI was a voice for market liberalization inside the EU. In the twenty-first century, playing off the Americans and the Chinese in financial services might be thought of as analogous to Germany’s position as a global exporter of high-tech manufactures. On his visit to Beijing in 2013 this seemed to be Cameron’s vision. He offered Britain as a partner “uniquely placed to make the case for deepening the EU’s trade and investment relationship with China” and held out the vision of an “ambitious and comprehensive EU-China Free Trade Agreement.” ¹⁰ But that made the question all the more pressing. How secure was the UK’s place in the EU?

The 2008 crisis marked a break in Britain’s relations with the EU. As the UK economy went into recession, the popular mood toward Europe soured. Nor did the Tories in Opposition do anything to dampen that resentment. The huge surge in Eastern European migration welcomed by the Blair and Brown governments made an excellent stick to beat Labour with. Once the Tory-led coalition began to force through its austerity agenda, the strain that immigration allegedly imposed on the NHS and social services provided a lightning rod. Britain’s lopsided growth added further to the sense of frustration. Whereas the production sectors of the UK economy—manufacturing, construction, etc.—stagnated, between 2010 and 2014 financial services surged ahead by 12.4 percent. ¹¹ Driven by the wealth of the City, in London and its environs, house prices rocketed by 50 percent between 2013 and 2016, spectacularly outstripping growth in the rest of the country. London was the cosmopolitan global city par excellence, the preferred home of oligarchs. In economic terms “rebalancing” was a myth. In political terms it was not. Across much of the UK, London’s cosmopolitan affluence aroused a deep antipathy. For conservative commentators friendly to UKIP, “‘London’ has become shorthand for faraway people with no grasp of the nation’s problems.” ¹² London was one capital of this elite, Brussels another. The populist tabloid Daily Express began campaigning for Brexit in November 2010 and became the first newspaper to align itself with UKIP. ¹³ In October 2011, as the eurozone crisis reached its height, eighty Tory backbench MPs broke with government demanding a referendum on the Lisbon Treaty and further EU constitutional change. ¹⁴ Polls in the fall of 2011 showed barely one-third of the British electorate approving of continued EU membership, with over 50 percent against. ¹⁵

If the modernizing, big-business wing of the Tory party wanted to maintain its grip, it clearly needed to resolve the European issue once and for all. And the pressure came from two sides—from outside as well as inside Britain. ¹⁶ The reaction to the crisis visible in Europe was ominous for London. As usual the French were the enemy. Sarkozy and Trichet seemed bent on displacing the City of London, which they regarded as a source of financial instability, from the center of euro-denominated finance. With the governments of Europe struggling to contain the eurozone crisis, it could not help but seem anomalous that most trading in euros and most transactions in euro-denominated derivatives took place in London. Many member states liked the idea of a financial transactions tax. From the opposition benches, both the French Socialists and the German SPD were pushing the idea. Given the political weakness of her coalition partners, Merkel could not afford to ignore them. A study by the commission came to the inevitable conclusion that any such tax would generate 62 percent or more of its revenue in the City of London.

It was these tensions that unloaded in December 2011 in the disastrous clash between the UK and the rest of the EU over the fiscal compact. Tellingly, Cameron came to the do-or-die eurozone talks in Brussels with one key agenda item, to protect the City of London. ¹⁷ The plans being touted by Van Rompuy for deep integration, up to and including eurobonds, were unacceptable to both Berlin and London. So Cameron believed that he had the basis for a deal. In exchange for his support in blocking the federalist agenda, Merkel would promise Cameron to exempt the City from any onerous regulations. That proved to be a misunderstanding. To navigate the eurozone crisis, Merkel needed Sarkozy and the SPD in the Bundestag far more than she needed Cameron. Feeling betrayed, Cameron vetoed the deal, leaving him looking like a narrow-minded lobbyist for the City of London. ¹⁸ Meanwhile, Merkel and Sarkozy’s grand fiscal compact was reduced to an intergovernmental bargain.

The clash was appallingly badly handled by Cameron, but it was not without logic. To get a grip on the eurozone crisis, Berlin and Paris clearly did need to move toward deeper fiscal and financial integration. At every meeting of the European Council, at the G20, at the G8, in public and in private, the British government urged this logic on the eurozone. ¹⁹ To Anglophone economists, the functional necessity was simply inescapable. Draghi’s “whatever it takes” came as a profound relief. But though eurozone consolidation was a necessity, for the leaders of the Tory party it had serious political implications. The banking union and a fiscal union were unacceptable to a broad swath of opinion in Britain, not just the Europhobes. If deeper eurozone integration was a matter not of whether but of when, London would have to force Brussels to openly embrace the model of a multispeed and multitiered Europe.

It is easy to forget in retrospect, but the Brexit referendum was not conceived as an in-out choice on UK membership in the EU “as is.” Nor was it merely a means to extract minor concessions. London operated from the hubristic assumption that Britain could change the EU’s course. While the euro countries continued on their path toward deeper integration, Britain would force Brussels to formally recognize not just a multispeed but a multidirectional model. The UK was not heading more slowly to ever closer union. If the Tories had their way, it was not heading there at all. Brussels needed to be brought to accept that fact as well as its implications for the political economy of Europe. The “offshore” status of the City of London as an inside-outside financial hub had to be permanently recognized. Not only was this confrontation inescapable, but now was the moment for London to force the issue. To move forward from the crisis of 2010–2012, to consolidate the institutional structures of the eurozone, its members would have to face the difficult business of treaty change. Those complex negotiations would have to start in 2013 once the eurozone had stabilized. They would culminate in 2016 at the latest. It was during those delicate negotiations that Britain would have maximum leverage. The eurozone’s agonizing efforts at consolidation would open the window of strategic opportunity for Cameron to negotiate a new dispensation.

It was this triple calculation—the effort by the metropolitan leadership of the Tory party to assert control over its party base; the hubristic assumption that London had enough clout to force the structural questions on the EU; and the judgment that now was the time to do it—that culminated in Cameron’s fateful speech at the new headquarters of the Bloomberg news corporation in the City of London on January 23, 2013. ²⁰ It was not an overtly anti-European speech, but Cameron insisted on the need to redefine the purpose of the EU beyond the eurozone. He had promised that he would curb immigration to the UK. To do so he wanted to limit the rights of EU citizens to claim benefits in the UK. He wanted safeguards for the noneurozone members of the EU against further decisions on integration by the Eurogroup core. He wanted, at least as far as the UK was concerned, to draw a line under the basic European promise of ever closer union. He called for negotiations and on that basis promised that there would be a referendum by 2017 at the latest.

It was a coherent strategy but a risky one. As spring turned to summer in 2013, it became obvious that the British were overoptimistic in imagining that the eurozone would move from the crisis of 2010–2012 to full-scale renegotiation of the treaties. That might make sense from the point of view of economic governance, but Berlin, Paris and Brussels understood all too well how vulnerable treaty talks would make them. After the shocking result delivered by the May 2014 European elections, treaty renegotiation was postponed for the foreseeable future. Cameron’s window of opportunity never opened. The idea of a grand bargain between Britain, the Dutch and the Germans to negotiate a new liberal vision of the common market was stillborn. ²¹ In the summer of 2014 the choice of Juncker as the new commission president, in the face of a bitter campaign of British opposition, was a sign that London’s leverage was dwindling fast. ²² In 2014–2015, Europe was struck by the Ukraine crisis, the struggle over Greece and the refugee crisis, all of which made the EU look bad, the UK look grossly uncooperative and Cameron’s reform agenda look trivial. Cameron spoke grandly of his new vision of the European future. But didn’t it all come down to irresponsible xenophobic pandering and the selfish interests of the City of London? ²³

But Cameron could not pull back, all the less when in May 2015 the Tories unexpectedly won an outright majority. The countdown to the promised referendum was ticking. Even without treaty talks, could Cameron negotiate any significant concessions from Brussels? Berlin wanted to help. Merkel was keen to avoid the lurching upset to the balance of power in Europe that would result from Brexit. But after the December 2011 debacle and London’s tasteless campaign against Juncker, Britain’s brand was toxic. ²⁴ Even the nationalists in Warsaw were hard to win over to the demand to limit the freedom of movement. It was, after all, directed against Poles. There wasn’t very much that Tusk, as president of the European Council, could offer Cameron. The EU couldn’t allow the UK to dictate the future course of integration. Freedom of movement and the equal treatment of EU citizens were nonnegotiable. Desperate to be able to present the British voters with some sort of deal, on February 20, 2016, Cameron settled for an “emergency brake” that would allow the UK to limit benefit payments to migrants for a “one-off” seven-year period. ²⁵ In addition, Tusk agreed that the EU should recognize “that the United Kingdom . . . is not committed to further political integration in the European Union. . . . References to ever-closer union do not apply to the United Kingdom.” As one experienced British member of the European Parliament commented: “Left as they are, the words mean little of substance. Indeed, nothing might change. All Treaty articles could just continue to apply to the UK.” ²⁶ It would be up to London to assert itself. It was a far cry from Cameron’s promise of January 2013 that Britain could initiate a fundamental rethink of the EU’s purpose. It was much less than the British prime minister needed to hold the Tory party together. Immediately, two Tory heavyweights—mayor of London Boris Johnson and education minister Michael Gove—broke away to launch the “mainstream” Tory wing of the Brexit campaign in the referendum that was now set for June 23, 2016.

II

When confronting Syriza the year before, German finance minister Schäuble had declared that as far as he was concerned, elections could not be allowed to interfere with the fundamentals of economic policy. Greece’s economy accounted for 1 percent of the EU’s GDP. In the Brexit referendum a simple majority would decide over the future of a country whose economy accounted for 17 percent of the whole. For the UK the stakes were enormous. Half of Britain’s trade, or c. $200 billion, went to the EU. Of Britain’s stock of $1.2 trillion in FDI, half was from the EU. Both European and non-European investors favored Britain because of its membership in the union. The Japanese car industry had made the UK into its main base for exports to the rest of Europe. By 2015, 3.2 million EU citizens were living in the UK, of whom 2.3 million had jobs, 7 percent of the workforce; 1.2 million UK citizens lived permanently in the EU. Of course trade, investment and migration would have happened between the UK and Europe whether or not the UK was a member of the EU. But how much? According to the best guesses of the economists, trade with other EU members was 55 percent greater than one would have expected without EU membership. ²⁷ For the City the questions were even more acute. Tens of thousands of jobs and billions of pounds in business depended on the so-called passporting arrangements, which allowed banks in London to operate as though they were inside the eurozone. It was a convenient fiction for European, British, American and Asian financial firms. It was not a concession that London could hope to maintain if it was no longer even a member of the EU.

Popular support for the EU was uncertain. Brussels was a red rag to the nationalist Right. The bankers and the London “elite” were unpopular. The answer of the Remain campaign was to double down. It set up its base camp in the City. Its strategy was never to win voters to the EU. The EU, the strategists decided, was unsellable. Europe’s politicians were asked not to make appearances in Britain. They would only make matters worse. Headed by the top PR team of the conservative party, backed up by Liberals and Labour, the Remain campaign had one message: “British voters will never love the European Union. But maybe they can be terrified into voting not to leave it.” ²⁸ It was a strategy aptly dubbed “Project Fear”—a term first coined in the context of the Scottish independence referendum in 2014. Its architects were the Australian PR guru Lynton Crosby and Jim Messina, who had been hired from Obama’s White House. Messina made clear what he thought the stakes were: “Given these challenging economic times, the very last thing we should do is risk the U.K. and EU economies with this risky [Brexit] move.” ²⁹ What Messina and his cohorts meant by “the economy” was business. So their campaign set itself to winning a popular majority for the simple and unapologetic proposition that if the EU was good for UK business, then Remain was good for Britain.

Fifty of Britain’s leading firms were persuaded to sign a statement that Britain will be “stronger, safer and better off” in a “reformed EU.” ³⁰ Behind the scenes there was an effort by the Confederation of British Industry to persuade its leading members to put warnings about Brexit in their annual reports. ³¹ The City of London Corporation overrode objections from Brexit voices to openly support Remain. ³² Some business leaders worried, somewhat squeamishly, that to spell out the job losses and the cancellation of investment projects that would likely follow on Brexit might have the air of blackmail. At least as far as the trade unions were concerned, they need not have worried. Labour MP Pat McFadden, a former government minister and cochair of the Labour Party’s Remain campaign, insisted, “I think business has a legitimate voice in the debate and if they want to make their views known they have every right to do so.” ³³ Unite, Britain’s biggest trade union and principal donor to the Labour party, with around 500,000 members, sent a clear message: “The message to our members in BMW, Airbus, etc., is very straightforward—it’s jobs, rights, remain.” ³⁴

The same message was echoed from around the world. On April 12 the IMF announced that “severe regional and global damage” might follow if Britain voted to leave. According to the IMF, the mere fact of holding the referendum was so damaging to investor confidence that the Fund was forced to lower its forecast for UK growth by 15 percent, from 2.2 to 1.9 percent. The consequences of an actual Brexit, Lagarde warned, ranged from “pretty bad to very, very bad.” ³⁵ The G7 meeting in Tokyo let it be known that a “UK exit from the EU would reverse the trend towards greater global trade and investment, and the jobs they create and is a further serious risk to growth.” As Angela Merkel put it, the G7 intended to send “the signal that all who sat here want Britain to stay part of the EU.” ³⁶ Back in Britain the UK Treasury came out with a lengthy report claiming that the damage would be between £2,600 and £5,200 per annum per household. By 2030 GDP might be lower by as much as 6 percent, costing the government between £20 billion and £45 billion in tax revenue, doing severe damage to public services, or forcing a substantial increase in tax rates. ³⁷

The Remain campaign was the legendary Clinton-era slogan “It’s the economy, stupid” transposed in the most literal and massive form. It echoed the determinism of Thatcher and Merkel’s “There Is No Alternative.” The total alignment of interests and expertise that it presented could not but appear uncanny. Characteristically, Chancellor Osborne gave voice to the unease that many felt but most did not openly express. The total unanimity of authoritative opinion behind Remain, he told journalists, was “not a conspiracy. It’s called a consensus. . . . [T]he economic argument is beyond doubt.” ³⁸

It was never, however, quite as monolithic so the Remain campaign would have liked. Given that the outcome was uncertain and a large part of the population clearly preferred Brexit, there were risks for companies identifying too openly with Remain. ³⁹ The City of London was not unanimous. A libertarian wing was attracted to the idea of breaking with Brussels. All the more telling was the stance of the major foreign investors in the City. The loudest of all and the most committed to the Remain cause were America’s investment banks. Given their role in the City of London, they had a huge stake in Britain’s position in the EU and they were not afraid to say so. London was their gateway to the European economy and to eurozone business. As economists from Goldman Sachs pointed out, BIS statistics showed that US banks held $424 billion in claims (assets) on UK borrowers at the end of 2015, including $46 billion in loans to UK banks. Derivatives, guarantees and credit commitments brought the total to $919 billion. UK bank exposure to the United States was even larger, at $1.4 trillion of financial claims. ⁴⁰ Given these investments, it was hardly surprising that Goldman Sachs, J.P. Morgan and Morgan Stanley all made substantial and early donations to the Remain campaign. ⁴¹ Jamie Dimon of J.P. Morgan campaigned openly alongside Osborne in favor of Remain. ⁴²

That the United States was not indifferent to Britain’s position in Europe was the message that President Obama came to London to deliver in person on April 22, 2016. He made his visit at Cameron’s personal request. Obama was hugely popular with the UK public and he did not hold back. In the BBC’s words, the American president delivered a “full on, no-holds-barred effort to persuade Britain to stay in the EU.” The special relationship, World War II and the challenges of the present all demanded that the UK remain an integral part of Europe. ⁴³ Obama understood that it might be sensitive for an outsider to address Britain at such a delicate moment, but “I will say, with the candor of a friend, that the outcome of your decision is a matter of deep interest to the United States.” Furthermore, the British public needed to know that the Brexit campaign’s hope that it would be able, rapidly, to strike a new trade treaty between an “independent” Britain and the United States was based on false premises. America’s focus in trade negotiations was on the big blocs. The Transatlantic Trade and Investment Partnership between the United States and the EU—the Atlantic counterpart to the TPP in Asia—was the key to the future. “Maybe some point down the line there might be a U.K.-U.S. trade agreement,” but “it’s not going to happen any time soon. . . . The U.K. is going to be in the back of the queue.” ⁴⁴

American power and money were clearly signaling where it wanted Britain to line up. The extension of Wall Street to Europe by way of the City of London, which had defined international finance since the 1970s, was on the line. Little wonder that the leading intellectual journal of the Left put the choice as follows: “[A] vote to remain, whatever its motivation, will function in this context as a vote for a British establishment that has long channeled Washington’s demands into the Brussels negotiating chambers, scotching hopes for a ‘social Europe’ since the Single European Act of 1986.” ⁴⁵

III

The monolithic focus of the Remain campaign aimed not only to “own the economy, own business, and own the fact that you’ll be better off [by voting to stay]”; in so doing they set out to draw a line between reasonable and unreasonable politics. Without economic arguments, the Brexiteers would be driven onto more marginal terrain, above all immigration and “isolating Britain from the world.” ⁴⁶ This, the Remain team hoped, would bring the more eccentric and troubling elements of the Brexit camp to the fore, notably Nigel Farage and the UKIP. Their inflammatory rhetoric would drive away undecided middle-of-the-road voters. As a tactic it had the intended effect. The Brexit campaign did indeed bring immigration to the fore. What the Remainers underestimated was the risk they were running. They did not appreciate that along with the desire to put two fingers up to the establishment, immigration and xenophobia were, in fact, winning cards.

The racial politics did not stop even at the person of the president of the United States. What right, Boris Johnson demanded to know, did Obama have to suggest to Britain concessions of sovereignty that the United States would never accept? Why should Britain trust a president who had removed the bust of Churchill from the Oval Office? “Some said it was a snub to Britain. Some said it was a symbol of the part-Kenyan President’s ancestral dislike of the British empire—of which Churchill had been such a fervent defender. Some said that perhaps Churchill was seen as less important than he once was. Perhaps his ideas were old-fashioned and out of date.” Johnson’s artfully placed dog whistle about the “part-Kenyan President” did the job. Johnson whistled and Farage came. Where Johnson prevaricated, Farage’s racist growl was unambiguous. As far as the leader of the UKIP was concerned, it was obvious that “Obama, because of his grandfather and Kenya and colonialization, bears a grudge against this country.” ⁴⁷

In May, as the Brexit campaign gathered pace, it was immigration that came ever more to the fore. Cameron himself had given hostages to fortune. Five years earlier he had promised that the figure would be cut to “tens of thousands.” ⁴⁸ In late May 2016 the Office for National Statistics reported that net migration in the previous year had, in fact, reached 333,000, the second highest figure on record. On June 16 the Farage wing of the Brexit campaign unveiled its most dramatic poster. Entitled “Breaking Point,” it featured a bedraggled column of Syrian refugees marching toward what was, in fact, the Slovenian border. It had little to do with Brexit as such, but it gave new meaning to the slogan of taking back control. European disorder was what Britain must be defended against. ⁴⁹ Later that same day a crazed neo-Nazi advocate of Brexit murdered the popular Remain MP Jo Cox in broad daylight. Remain’s Project Fear had met its match.

Referendum day began with Remain in a relatively confident mood. By the early hours of June 24 it was clear that Brexit had won a narrow victory. In retrospect, the polls had been indicating the likely outcome for some time. Brexit won in the same areas that the UKIP had triumphed in in 2014. And it won with the same kind of people. Core Tory voters, the elderly, provincial middle class, voted en masse for Brexit. They probably always would have. But they were joined by a large cohort of lower-income, less-well-educated voters who had been drifting to the right since the 1990s. According to one polling group, 60 percent of people in the upper-middle- and middle-class socioeconomic groups—those in professional and managerial jobs—backed Britain’s EU membership, whereas among the unemployed and unskilled workers the percentage was reversed. ⁵⁰ Sixty percent of Labour voters turned out for Remain. But that went only to show that in much of the country, the Labour Party was largely divorced from poorer and less-well-educated voters. Apart from education, the other socioeconomic variable that weighed heavily in the balance was the pain inflicted by austerity since 2010, and that hurt worst where decline was a long-term phenomenon. ⁵¹ But even more than low education and low income, Brexit voting was correlated with authoritarianism. On the kind of cultural maps drawn by marketing experts, Brexit voting sat in close proximity to values like security, support for the death penalty and a preference for the public flogging of sex offenders. ⁵²

A Brexit vote, whatever its motivation, added fuel to the nationalist fire. What is far less clear is that a Brexit vote was a vote against globalization. That was the assumption of commentators around the world. ⁵³ And it was a reasonable thing to imagine on the basis of a conventional understanding of Brexit’s likely impact. But it was to misunderstand the mind-set of the Brexiteers. They, in fact, imagined that leaving Europe was a way to restore Britain’s greatness and freedom. As a nationalist vote against Europe, Brexit was not a vote for Britain to play a smaller role in the world. Rather on the contrary, it was a demand that Britain should play a role in the world independent of Europe, not submerged within it. As Tory party Home secretary and future prime minister Theresa May would put it, what Britain had voted for on June 23 was “to leave the European Union and embrace the world. . . . It was the moment we chose to build a truly Global Britain.” ⁵⁴ Brexit was a vote for autonomy. Or to put it less politely and more truly in the spirit of the vote, it was a vote for national adventurism. And an adventure is certainly what the UK got.

IV

As the referendum result was announced, sterling suffered its biggest one-day loss in history. ⁵⁵ There was a brief moment of panic in real estate investment funds. Would a collapsing pound unravel international investments in London? On Friday, June 24, global stock markets saw $2 trillion wiped off share values. ⁵⁶ By the following Monday losses had risen to $3 trillion. Whereas investors had been expecting interest rates to keep edging up as the Fed moved away from quantitative easing and were thus rebalancing their portfolios away from fixed-income bonds, funds now flooded into safe assets like Treasurys, driving yields down. ⁵⁷ Was this a prelude to another 2008?

Diagnosing the economic data was itself a political issue. Remain had predicted that Brexit would be a disaster. They had laid out an apocalyptic scenario. And in the aftermath, governor of the Bank of England Mark Carney stuck to the script. The economy was suffering, he told journalists in July, from “economic post-traumatic stress disorder amongst households and businesses, as well as in financial markets.” ⁵⁸ The swap lines were readied for reactivation. Despite sterling’s plunge there would be no shortage of dollar liquidity. On August 4 Carney ramrodded an emergency stimulus package of bond buying through the Bank of England board. Viewed from the bleak perspective of a defeated advocate of Remain, this made perfect sense. Carney was doing his best to forestall the worst. But it was the advocates of Brexit who now set the terms and Carney’s actions infuriated them. For the Bank of England to be activating swap lines and lurching into another round of QE was to signal a crisis, of which the most die-hard Brexiteers denied the reality. In their view, far from calming the markets, the Bank of England’s overreaction was feeding uncertainty, inducing the panic that Remain had predicted but which had failed to arrive. ⁵⁹ For Ashoka Mody, a nonconformist ex-IMF economist who had seen the Irish crisis in 2010 close up, the drill was all too familiar. Though Carney’s instruments were different—implementing QE rather than refusing it—it was a strategy of tension like that pursued by the ECB during the eurozone crisis. If the Bank of England kept its cool, allowing the pound to slide and the British economy to rebalance, there was no reason to expect a crisis. Ruth Lea, a pro-Brexit economist, declared, “The BOE’s package on Aug. 4 was premature and may well turn out to be, if not unnecessary, actually counterproductive. . . . I’d have much preferred if he had kept quiet and just waited until he had some hard data.” ⁶⁰ Once the initial shock had worn off, far from collapsing, consumer demand surged on a wave of cheap credit as households sought to get ahead of whatever price increases might be coming their way. ⁶¹ The handful of economists who had supported Brexit demanded that their Remain colleagues apologize for misleading the public about the likely fallout. ⁶²

It was true. There had been no implosion. But there had not been any Brexit either. Brexit, it turned out, was a process, not a single moment of decision. It was an unfathomably complex and protracted process. The Brexiteers had promised freedom and control. They had promised regime change. And as Adam Posen, president of the influential think tank the Peterson Institute in DC, and formerly of the Bank of England Monetary Policy Committee, put it: “Regime changes are not neutral. Constitutions reflect the interests of those dominant at the time.” ⁶³ But who was dominant in post-Brexit Britain? That precisely was the question.

It is hard to think of any moment in Britain’s recent history in which the locus of power was less obvious than in the aftermath of Brexit. The Remain coalition had included the leadership of both main political parties and what most people think of as the establishment. They lost a crucial referendum by a slender margin and surrendered authority to their opponents, who revealed themselves to be utterly unprepared for their own victory. How often had the Left fantasized about such a moment of disempowerment? But this was no new dawn. After a few weeks of chaos in the conservative camp, Theresa May emerged as the new prime minister. It was a logical fit. May had made her reputation as a stern Home secretary pushing a protective agenda of immigration restriction. ⁶⁴ Though she had cautiously campaigned for Remain, she was well suited to represent the insular majority. And she put a brave face on things. The population had voted for Brexit and that is what she would deliver.

For the City of London and British big business, the vote was a breathtaking shock. And for some commentators it was precisely this body blow that offered the prospect of a grand rebalancing. Was this a moment at which the structures of power and money that had consolidated around the City of London since the 1970s might be cracked open? Mody hailed the result because it shattered the “nexus between an ever larger financial sector and a strong pound. . . . The only people who truly lose from the pound’s depreciation are those who borrowed short-term dollars to invest in long-term property assets. This ‘elite’ group continues to hold the microphones of policymaking and its words reverberate through the financial press.” ⁶⁵ London’s wealth had long crowded out the rest of the British economy; perhaps now, with a devalued pound, UK manufacturing might recover its competitiveness. ⁶⁶ In fact, of course, Britain’s largest manufacturing exporters had thrown their weight solidly behind the Remain campaign and with good reason. Given the ferocity of global competition, the last thing they needed was years of uncertainty about market access. Industries like the large motor vehicle industry were foreign owned—mainly German and Japanese. Those investors might well see Brexit as a signal to withdraw. The devaluation benefited them only marginally because most exports from the UK have low price elasticity and the gains in competitiveness were substantially offset by the increase in the cost of imported materials. ⁶⁷

That the status quo had suffered a blow was undeniable. Whether it would give way to something better balanced and more prosperous in the foreseeable future was a different question. The groundswell of anti-EU sentiment had been building for decades. But it was a politics of resentment and protest. It had not formulated a positive alternative vision. Now May and her personal advisers had to come up with an agenda. To the astonishment of many, it seemed that they were determined to carry out a radical pivot. Overnight they would replace David Cameron’s agenda of upper-class modernization with national welfarism with an admixture of soft authoritarianism. ⁶⁸ As May put it in a defining speech to the Tory party conference in October 2016: “Today, too many people in positions of power behave as though they have more in common with international elites than with the people down the road. . . . But if you believe you are a citizen of the world, you are a citizen of nowhere. You don’t understand what citizenship means.” ⁶⁹ Skipping over the Tory party’s own policies since 2010, May returned to the crisis of 2008. “It wasn’t the wealthy who made the biggest sacrifices after the financial crash, but ordinary, working-class families. And if you’re one of those people who lost their job, who stayed in work but on reduced hours, took a pay cut as household bills rocketed, or someone who finds themselves out of work or on lower wages because of low-skilled immigration, life simply doesn’t seem fair.” Though May spoke about the victims of 2008 and Tory austerity in the third person, the Lehman moment served as retrospective justification for a fundamental reorientation. Henceforth she would put “the power of government squarely at the service of ordinary working-class people.” She pilloried uncaring bosses, tax-avoiding international companies, Internet companies that refused to cooperate in the fight against terrorism and corporate directors who took out “massive dividends while knowing the company pension is about to go bust.” Using language more to be expected from Putin or a Latin American demagogue, she warned: “I’m putting you on warning: this can’t go on any more.” ⁷⁰

Control, restricting immigration and equity would have priority over absolute growth. It was not a liberal vision. It implied an entirely new apparatus of regulation and control. As one critic noted, May’s effort to exclude foreigners from the workforce would require putting “in place a degree of government interference in the labour market that would make even the most die-hard socialist blush. Margaret Thatcher must be turning in her grave.” ⁷¹ It was a small price to pay for someone with May’s background in the Home Office—what might politely be described as the “protective branch” of government. But it begged the following question: How far was May really willing to go in curbing the excesses of big business? It was one thing to erect barriers against foreign workers and unwanted refugees, quite another to deal with a major foreign investor. When Nissan threatened to rethink its investment in Sunderland, the “muscular state” was quick to invite the car company to Downing Street for talks. ⁷² The government would later deny that it had promised to indemnify Nissan for the costs of a bad Brexit deal. But Nissan was an early sign that “taking back control” might not turn out to be the bold act of autonomy that some imagined. It might very well turn out to be a rather expensive and humiliating process of negotiation.

And what about the City of London? After Brexit, could it continue to function as the hub between global finance and the eurozone? Could it continue as the main center for euro clearing and euro derivatives? The bankers were not about to give up without a fight. The City lobbied hard for the government to prioritize the existing passporting agreements, under which banks operating in London were de facto recognized as operating inside the eurozone. ⁷³ If no such deal was forthcoming, research commissioned by the City threatened that the collapse in business with the euro area might result in losses as large as £32 billion to £38 billion in revenues, 65,000 to 75,000 jobs and perhaps as much as £10 billion in tax receipts per annum. ⁷⁴ These, of course, were precisely the kinds of estimates mobilized by the Remain campaign, to little effect. What influence would they have now?

In the immediate aftermath of the referendum it seemed that Downing Street might be amenable to a compromise deal. But by January 2017 the mood had hardened. The UK would insist on the right to restrict the freedom of movement and judicial sovereignty, and this meant that London could expect no concessions from Brussels. Not only did Brexit mean Brexit, but Brexit meant “hard Brexit.” This was the message that May delivered in speech after speech and also in direct talks with leading finance bosses. When asked by Lloyd Blankfein of Goldman Sachs, one of the largest corporate donors to the Remain campaign, to rank the City of London in her list of priorities, May dodged the question. ⁷⁵ The bankers realized with incredulity that they were no longer top of the list. The City’s passporting arrangements were less important than regaining “control” over Polish plumbers. ⁷⁶

But who, in fact, would determine the outcome of Brexit? Over the winter of 2016–2017 the realization began to dawn that the freedom and control one claimed for oneself also applied to those one detached oneself from. What freedom the UK gained at what price would depend on the kind of bargain that the EU was willing to offer now that it was free of the troublesome British. The advocates of Brexit insisted that Germany and others would be forced to offer Britain a good deal on account of their export interests. Britain’s gaping trade deficit would be its chief bargaining card. But this simplistic logic was a poor guide to the functioning of a complex organization like the EU, in which an entire mesh of interests and concerns would be brought to bear on the Brexit question. ⁷⁷

With remarkable speed and with clear leadership from Berlin, the other states of the EU agreed on a tough bargaining position, which insisted that there would be no trade talks before the terms of the divorce were settled. Britain would have to agree to meet its financial obligations to the EU, running into the tens of billions of euros. There could be no access to the common market without freedom of movement. The writ of the European Court of Justice would continue to run as far as citizens of the EU were concerned. Once Britain triggered Article 50, setting Brexit in motion, there would be a two-year clock. No deal would mean that Britain would crash out of the EU into limbo. It would even have to renegotiate its position in the World Trade Organization. As Juncker explained to May over dinner in London in May 2017, the British were kidding themselves if they imagined there was a “good outcome” to Brexit. ⁷⁸

Characteristically, as the true complexity and difficulty of the situation began to dawn on London, May’s government reacted with drastic, crude and contradictory threats. In her October 2016 speech to the Tory party conference, May had linked the demand for sovereignty to a vision of national solidarity. But as the negotiating positions hardened, it became clear that there was also another option. As May put it to the EU’s ambassadors in mid-January at a set-piece meeting in Lancaster House: If Britain could not get an acceptable trade deal from the EU, it would walk away without agreement. If the EU took a “punitive” stance, Britain would respond by abandoning the “European model” and setting “the competitive tax rates and the policies that would attract the world’s best companies and biggest investors.” Britain would reconfigure itself, journalists reported, as a “low-tax Singapore of the west.” ⁷⁹ Days later Chancellor Philip Hammond repeated the threat. He personally hoped that the UK would be “able to remain in the mainstream of European economic and social thinking. But if we are forced to be something different, then we will have to become something different.” To regain competitiveness Britain might be forced to reconsider its “economic model. . . . And you can be sure we will do whatever we have to do.” ⁸⁰ The Remain campaign had always insisted that the Brexit decision put the entire economy in play. With the threats they made as they approached negotiations with the EU in January 2017, Hammond and May effectively acknowledged the force of the Remain position. Far from taming British capitalism, the muscular state would turn the City of London and Britain’s offshore position into a battering ram.

This kind of bravado might help to warm the hearts of Brexiteers. But it left serious players in global business nonplussed. The City of London had not asked for Britain to abandon the “mainstream of European economic and social thinking.” The European mainstream suited the bankers just fine. They had had a large hand in defining it. The proposals that had worried the Tories in 2011, notably the financial transactions tax, had evaporated. There might well be challenges from the ECB or the French over euro-denominated business. But that was not a reason for leaving. It was a reason to fight one’s corner. The transnational business community in London was networked in the EU at the highest level. The president of the ECB was one of their own. ⁸¹ In the summer of 2016, when former commission president Barroso looked around for a new job, it turned out that his idea of the “European model” was to join Goldman Sachs’s London operation. ⁸² The idea that Europe was in some way inimical to the operation of British-based global business belonged to the realm of late-Thatcherite fantasy. On the other hand, the “freedom” of Brexit meant radical uncertainty. None of the leading American banks wanted to be preparing contingency plans to move their euro business out of London, but what was the alternative? Though London had huge attractions, its national politics had become unresponsive. The subordinate nodes in the transatlantic financial network—Paris, Dublin, Frankfurt—beckoned. And if not, perhaps the days of the transatlantic, offshore dollar were numbered. The City had sensed the way the wind was blowing. Asia was the new frontier.

V

Faced with the Brexit vote, the EU concerted its position with daunting speed. Negotiating complex treaties was what Brussels was good at. But there was no denying the shock. The EU had suffered many crises in its history. “Europe advances in disguise,” Jacques Delors, the legendary father of the single market and the euro, was fond of saying. But Brexit capped a prolonged succession of setbacks that challenged this optimistic teleology. Was this, Alex Stubb, finance minister of Finland, wondered, Europe’s “Lehman Brothers moment”? ⁸³ In containing Syriza, the chief worry of the conservatives in the Eurogroup had been political contagion. Brexit revived that fear. As a spokeswoman for Moody’s commented: “The downside risks to global growth stem not from the possibility of a recession in the UK, but from the possibility that developments in the UK may give rise to increased political risk elsewhere in the EU.” ⁸⁴ Marine Le Pen hailed the Brexit referendum as a “dazzling lesson in democracy.” ⁸⁵ The right-wing nationalist Geert Wilders in the Netherlands called for a “Nexit” vote. Would a nationalist, Europhobic wave spread from Britain, Poland and Hungary to the rest of Europe? For almost a year after Brexit, that risk seemed all too real. And the stakes were high. Europe’s economic stabilization depended on calm in the bond markets. As one analyst commented: “There is no guarantee that investors’ emotions will not turn wild again if signs of political contagion from the UK into mainland Europe become more visible.” ⁸⁶

The elections came thick and fast. In December 2016 a constitutional amendment in Italy was voted down, leading to the resignation of left-of-center prime minister Renzi. In Austria the presidential election was bitterly contested by the Far Right. In the Netherlands Geert Wilders and his right-wing party were on the march. Theresa May announced an election in Britain with a view to securing a large Brexit majority. But the real question surrounded France. Given the electoral base she had accumulated and the Front’s performance in the May 2014 European elections, there was little doubt that in the upcoming presidential election in May 2017 Marine Le Pen would make it into the final runoff. The question was who would run against her: a traditional conservative, a centrist modernizer in the form of Emmanuel Macron or the real terror of the establishment, the left-wing Mélenchon? A Le Pen versus Mélenchon runoff was the nightmare of the markets. ⁸⁷ Whatever else divided these two, they had in common their antipathy toward Germany.

In the spring of 2017 the world held its breath. The euro gyrated. European political uncertainty was the key “tail risk” for fund managers. The ECB’s bond buying was the one major source of stability. However unlikely the scenario, if Le Pen were to break through in France, it was hard to see how even the ECB’s largest program could have avoided another sovereign debt crisis. As it turned out, the center held. In every case the electorate opted against the populist right wing. In France, the charismatic former minister in Hollande’s government Emmanuel Macron, taking votes from both the center-right and the center-left, won first the presidency and then the National Assembly elections. This put a cap on the populist spook. ⁸⁸ To their council meeting in June 2017, Europe’s leaders showed up in a bullish mood. The EU had survived. It had tamed the Left in Greece and Portugal. It had seen off the right-wing surge. The negotiations with Britain would be painful but one-sided. Europe was back. But by the summer of 2017 it faced a new challenge to its identity and to its role in world affairs, a challenge that came not from inside but from without. The challenge had announced itself a year earlier, from a golf course in Scotland on the day after the Brexit referendum.

That sunny Friday morning outside the clubhouse in Turnberry Ayrshire, the cameras were trained on an American businessman holding forth enthusiastically about the referendum result ⁸⁹ : “Basically they took back their country,” he declared to the skeptical Scottish audience. Obama should never have meddled. “It’s not his country, it’s not his part of the world, he shouldn’t have done it, and I actually think that his recommendation perhaps caused it to fail.” The speaker identified unreservedly with Brexit. “People want to take their country back, they want to have independence in a sense, and you see it with Europe, all over Europe. . . . You’re going to have many other cases where people want to take their borders back, they want to take their monetary [sic] back, they want to take a lot of things back, they want to be able to have a country again. . . . People are angry, all over the world people, they’re angry. . . . They’re angry over borders, they’re angry over people coming into the country and taking over, nobody even knows who they are. They’re angry about many, many things.”

The speaker was inarticulate. He was not well informed. He did not seem to appreciate that his Scottish audience had voted overwhelmingly to remain. The day after the shock result, the EU certainly had other things to worry about. But what demanded attention, what made the sound bites newsworthy, was the fact that the man in question was the presumptive nominee of the Republican Party to replace Barack Obama as president of the United States.