Unprecedented challenges… But can we solve them?

In Europe and the developing markets economic and financial problems are outweighed by political problems. The current atmosphere favours to the spread of nationalism, which only deepens economic and financial problems. In a way, Europe entered a vicious circle.
This is Bill Emmott’s opinion, who used to be the editor of The Economist, now an advisor at fund management companies.
According to Emmott, David Cameron (Prime Minister of the United Kingdom) will look for allies among countries of Eastern Europe too in his crusade for a profound reform of the EU, and sees the referendum whether Britain should remain in the EU as a milestone. The interviewee also elaborates on that the real front line is between countries led by autocrats and liberal democrats. Meanwhile, America improves its world economic positions, and Fed is likely to start raising interest-rate in December, as Bill Emmot expects.

Péter Zentai: Do you think that Europe and the whole world are struck by the deepest crisis of the last decades?
Bill Emmott
: I would rather say it is a unique situation, since at the end of the 1980s and the early 1990s challenges were piled up greatly: it seemed Japan would take over America’s leading role, the economy of the United States was stagnating, there was a high risk for chaos after the fall of the Soviet Union, tensions were high in China after the events at Tiananmen Square, then Saddam Hussein invaded Kuwait…

However, the German reunification and the transition of Eastern European countries had fantastic opportunities. There was a reason for being optimistic. What about now?
The situation is alarming now in Europe. Though it is not as dangerous as when it was divided between the two blocks, but at least that was a stable opposition. Now, the European Union has to face numerous problems – the refugee crisis, stagnating economies, uncertainty around the euro, debt crisis, nationalism gaining ground, the possible exit of the UK, the unsolved Ukrainian crisis – that would be difficult to deal with even one by one.
The way things are going is dangerous; this complex situation can be the hotbed of nationalism in more and more countries. This is what we see happening in France, in your country, and even in mine…

Do you think Great Britain will leave the EU? What is your opinion about Prime Minister Cameron’s plan to seek allies among us and other Central European countries in the migration crisis and for his intention to fundamentally change the Union?
David Cameron and his government need the referendum on deciding whether to leave or not for domestic political reasons. It is his fundamental interest to prove to voters that he has clear ideas for the radical reform of the Union. For this, he needs allies. Actually, it does not really matter to him who they are going to be; however, it is quite likely that he would look for allies amongst the more democratic and market friendly rather than those with autocratic tendencies. Though, remember that we have already seen unpleasant allies of the British when Jean-Claude Juncker was elected.

The most recent publication that I know of (Great Emerging Market Bubble) you ponder whether liberal democracies or governments led by firm hands are more efficient dealing with the current situation. My question is do you think there is an autocracy-liberal democracy frontline developing?
Absolutely. Indeed, it is an existing frontline which separates member states from each other. However, an entirely different issue that autocrats ‘disguise’ themselves and function within a democratic framework, like Marine Le Pen and her party in France. I am afraid that such an expansion of populist nationalism may eventually lead to totalitarianism.
In other countries, including Hungary, clear and decisive actions have been made to strengthen the government. While the power of the government is being fortified within a nominal democratic institutional framework, the opposition is kept weakening.  Nevertheless, there is an autocratic tendency in many countries of the European Union.

Obviously, the reason behind this is that the leaders of those countries believe that only by increased government role and supreme power can be the many challenges efficiently dealt with…
In my article you mentioned, I tried to point out that behind the recent uncertainties in the markets and the stock exchange, there is the problem of autocracy.
The matter is that the slowing down of emerging markets – like in China – or the peaking of debt and corruption issues – like in Malaysia and Brazil – or the fall of raw material prices all contributed to the current elevated state of market tensions, and this is why stock market exchange rates are dropping. And this is only the surface…

What is under the surface?
Politics.  That in these countries democratic institutions and popular control only works formally. There is no relevant control over their political decision-makers. Due to the crises resulted from the changes in world economy they cannot and do not want to respond flexibly to challenges: they refuse carrying out required reforms and changes. They believe modifying their policies, communication with the opposition and others with different opinions are signs of weakness. However, the essence of their nature is to look strong, otherwise they could lose their power. This is the reason why they in times of crisis they only strengthen state bureaucracy instead of adapting to the situation. Though to ease economic problems they should do the exact opposite. In Turkey, Brazil, Indonesia, and South America, the economic emergency called for flexibility from decision-makers to calm social tension. However, they turned towards a more autocratic solution instead – using the crisis as an excuse – and blamed others for the problems.
Objectively, they decrease their economic position by doing so, and add to the uncertainty of the world market.

Neither can Western European countries deal with these problems. Their market uncertainties have increased too. Even though, the democratic institution does work in these countries…
Indeed. However, history shows us that in the end, such open economies can answer to challenges due to their adaptability – even if the process is slow and exhausting. Moreover, they do not try to make other people responsible for the problems.  The majority of European countries and the United States have proved that they can learn from their mistakes and are able to deal with economic financial problems arising again and again.

However, there has been no relevant economic growth yet…
Concerning this, I think only now will we see how sever the crisis was seven years ago to national and global economies. Compared to how much time has passed since 2008, growth in the Western world has been slow and modest.
Meanwhile, the number of unemployed is over twenty million in the EU, while in the United States, this has dropped to eight million in the last seven years. There, the economy starts to grow. I think, this tendency will spread over to Europe too – as usual…

When will the interest-rate raise cycle begin as a response to this?
Even before the outbreak of the Chinese problem I always said that Fed would begin in December – and I still think the same. Fed will only be concerned about the state of the American economy, and ignore the European and Chinese.

Original date of Hungarian publication: September 11, 2015