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Transcript: Turkey's President on Monetary Policy, Politics

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Turkish President Recep Tayyip Erdogan spoke to Bloomberg TV’s Guy Johnson in a televised interview at Bloomberg’s London Headquarters. He spoke on a visit to the U.K. during which he’s also meeting Prime Minister Theresa May and Queen Elizabeth II, as well as executives, bankers and investors. Erdogan said he plans to assume a greater role in setting monetary policy as he gears up for landmark June 24 elections that will finalize Turkey’s transition to a full presidential system.

Below is a transcript of the interview, with the president’s remarks translated from Turkish:

GJ: There are so many questions about what’s happening with the Turkish lira. Let me put a a simple one to you first. Are you comfortable with the current level of the Turkish lira against the U.S. dollar? Are you happy with where we are now?

Pres.: When it comes to the subject of the Turkish lira, of course the purpose here is not just the status of the Turkish lira, but to protect the values of the currencies of the countries we trade with on the international arena. Therefore, we want to trade with domestic and national currencies and we do this currently with Russia, Korea, China, Iran and this continues in a successful manner. This is how we are able to remove the currency pressure and protect our own currency. There are steps we will be taking in order to do this with other countries too and we have seen its benefit at the first stage and we are seeing it.

GJ: Mr. President, over the weekend you have indicated that you’re looking to lower interest rates after the election. So my question is, why not do that now before the election? And is that giving the green light to the central bank to raise interest rates when it meets next month on the 7th? I’m curious as to the timing.

Pres.: Above all else, of course, my function in the executive as the head of the republic is not the same as a prime minister’s. In the new term, from the moment we move to a presidential governing system, our effectiveness there will be very different. Therefore, I will take the responsibility as the indisputable head of the executive with respect to the steps to be taken and decisions on these issues. We’re going to do this so we can be held accountable for the responsibility we’ve taken. Up until this moment, this was not the case. However, after now the situation will be like that. Of course, our concern is this: when we came to power 16 years ago, we took very important steps on the issue of diversifying resources. When I took over the office, our interest rate was 63 percent and while we are taking this down to single figure levels, the inflation rate, which was 30 percent, also went down to single digits. When it came to single digit levels, suddenly explosions of investments started in my country. Together with these explosions of investments, the per capita national income went up to $11,000, from $3,500. At the moment we don’t find this sufficient. The target is to be able to raise this up to $25,000. For this to happen, investments should increase. When investment increases, employment will increase, production will increase and together with this, our international competitiveness will increase. This is our only goal.

GJ: I’m very curious Mr. President about your thoughts on interest rates. You have spoken in the past about this idea of real interest rates and the fact that maybe where inflation is should match where interest rates are. I’m curious about whether or not you feel the Islamic faith should review its position on interest rates to reflect the fact that maybe what should be the new orthodoxy should be that there should be a real interest rate of zero, i.e. the interest rate charged by the central bank matches the inflation rate in the country, we end up with zero at the end. I want to hear your thoughts about whether or not when you talk about a change in the interest rates framework for Turkey after the elections that this is what you’re talking about.

Pres.: Now, if you look, especially after your explanation, I would like to make this matter open and clear to you. Let me give examples from some countries. For example in recent times, we have seen a very serious development in Argentina. In Argentina, the central bank’s nominal interest rate is 40 percent, current inflation is 25.6 percent, but if you look at the real interest rate, it is 14.4 percent. We look at Russia, the central bank’s nominal interest rate is 7.3 percent, inflation 2.4 percent, real interest rate 4.9 percent. We look at Brazil. The central bank’s nominal interest rate 6.5 percent. inflation 2.8 percent, real interest 3.7 percent. Alongside this we look at South Africa, in South Africa a 6.5 percent central bank nominal interest rate, 3.8 percent inflation, 2.7 percent real interest rate. Now I come to my own country. 13.5 percent nominal interest rate, 10.9 percent inflation, 2.6 percent real interest rate. Alongside this, the U.S. has 1.75 percent but on the other hand, inflation 2.5 percent, real interest rate is negative 0.75 percent. Of course we are in the UK. In the UK the nominal interest rate is 0.5 percent, inflation 2.5 percent and the real interest rate is negative 2 percent. That means it appears that when the interest rate gets lower, you can see where the real interest rate falls to. Of course, here there will be employment, investment, production and the United Kingdom’s investors will have much higher international competitive power. To put it very clearly, this is our target at the moment. In other words, the examples are there in front of us. There is no need to look left, to look right and to rediscover the world. When there are such open, clear examples, why do we get flung left or right? We need to take our steps accordingly. And our finance sector must balance itself according to this.

GJ: Do you think that real interest rates should be zero? Are those your thoughts that there should be no difference between the consumer price inflation and the interest rates? Do you think that would be good for Turkey or you think that it needs to be almost a negative real rate. It’s interesting that you draw that spectrum between those different countries. Do you think and I’d be curious as to know what you think that number should be zero.

Pres.: It would be wrong to assess the matter as a matter of zero. Let us look at the matter from here. First of all when you look at the cause and effect relationship, the interest rate is the cause and inflation is the result. The lower the interest rate is, the lower inflation will be. First of all we need to adjust this well. What is the target in the interest rate? It is the real interest rate. OK, what is the real interest rate? The real interest rate is the difference between the interest rate and inflation. The moment you catch this, what do you do with the real interest rate anyway? You take it down in a substantial sense. The moment we take it down to a low level, what will happen to the cost inputs? That too will go down. Well! As soon as the cost input goes down, you either domestically or in the international markets, you will be able to get the opportunity to sell your products at much lower prices and obtain competitiveness. The matter is as simple as this.

GJ: When the decision is made on interest rates, are you consulted? How does the process work? Do they take your opinion, the central bank, when they are making a decision on interest rates?

Pres.: At the moment of course either that way or this way, you are the head of the executive in the country. Of course our central bank is independent. But the central bank can’t take this independence and set aside the signals given by the president, who’s the head of the executive. It will make its evaluations according to this, take its steps according to this. And I believe this will result in very beneficial steps in the future.

GJ: We saw data on the Turkish current-account earlier and it was a little wider than anticipated. I’m curious as to where you see the countries that are going to fund the current-account deficit will come from. You have in the last few years made close friends in Russia and in Iran. Yet those are the kind of countries, given their external balances, that are unlikely to support Turkey’s current-account deficit. Who are you looking at to fund that deficit, to generate the flows that are going to come in. It’s unlikely to be Russia and it’s unlikely to be Iran.

Pres.: Now, first of all we need to discuss this very sincerely. Of course the number one reason for our current deficit is the fact that we are a country dependent on petroleum, natural gas. In other words petrol and natural gas incites, encourages our current-account deficit. Of course, however much we can lower the natural gas, petrol, our current-account deficit will be lowered by that much. However, alongside this, of course Turkey is becoming much stronger by the day in industrial production and the defense industry. When we get stronger here, we will come to a state where we will cover our current-account deficit through industry. This is the unseen face of Turkey at the moment. The developments in this respect are going quite well.

GJ: One of the areas in defense that you could be potentially getting stronger very shortly is with the arrival of S-400 missiles — the surface to air missile defense system. The indications are that Turkey will face sanctions from the U.S. as soon as those missiles arrive in Turkey. Are you prepared to pay that price for that missile system? Do you anticipate that the U.S. would impose sanctions were those missiles to be imported from Russia? And what do you think those sanctions would look like? Would they affect you, would they affect your team, the Turkish people, the financial system. How would they work?

Pres.: Right now as it is known we are a country which is a member of NATO. However, in NATO at the moment, Greece is an ally and as it is known, Greece bought S-300 missiles from Russia. Well, has anything been said to Greece about S-300s? It hasn’t been. On the other hand, of course the general secretary of NATO Mr. Stoltenberg said about the decision Turkey has taken regards S-400s that "it is our ally’s own choice, they can make such a decision." At the moment we have the freedom, the independence to buy our defense needs from allies, from any country. If we can’t go and get it from the U.S., if the Senate is not allowing this, or Congress is not allowing this, are we not going to find a solution for ourselves? Of course, we will find a solution for ourselves. Right now we have steps we will take and are preparing to take and we will take these steps. In fact, we have held and will have talks with Rolls Royce, we will takes steps with them on this issue and we are continuing to take steps. At the moment they are also included in our talks packages.

GJ: Just to be clear, you’re not anticipating that there will be sanctions as a result of your proposed purchase of S-400? That’s not something that you think will happen?

Pres.: Right now whether the U.S. would enter in to such sanctions or not, I don’t know. But there’s only one thing I know. We’re buying the products that I consider to be strategic such as natural gas and petroleum from Russia. We can’t cut off our ties with Russia in that respect. If we’re allies with the U.S., we need solidarity, not sanctions. Are we not together in NATO at the moment? We are together. In that case, the U.S. should not impose sanctions on us, but should lend support in solidarity. You will give support to terrorist organizations, but impose sanctions on Turkey. Can such a thing happen? You see unfortunately, in Northern Syria 5,000 truck loads of weapons and ammunition arrived. 2,000 cargo planes full of weapons and ammunition arrived. Who brought these? The U.S. And I said this to them openly and clear and they said "we are taking down the serial numbers of all of these. After the war is over we will collect them." We have seen these in Iraq before. You could not take them in Iraq, you did not. And they were left in the hands of the PKK. Later in the struggle there we collected these, took them from the PKK. How are we going to reconcile these realities with our alliance? How could we be allies as such? We want sincerity at this point. When there’s sincerity, there’s no issue.

GJ: Would you say you have a productive relationship with President Trump?

Pres.: We haven’t had a problem up to now. But that doesn’t mean there aren’t areas where our thoughts don’t align, there are.

GJ: Can I talk about Halkbank for just a moment? There has been a conviction in the U.S. for that institution which is for helping defeating sanctions when it comes to Iran. I would like to ask whether or not there are negotiations currently underway regarding a fine for Halkbank and were there to be a fine whether or not that fine would be paid?

Pres.: Of course, right now a great injustice is being done against Halkbank. Especially Hakan Atilla is in no way a criminal. Hakan Atilla is a friend of ours who has been regularly visiting the U.S. and has been detained in his last, or his sixth visit, without any crime existing. There should be no such injustice. At the moment, unfortunately, he is there in detention. He remains in custody, waiting for his fate. The courts are continuing in a different way and I don’t know what result will come out of this. There is a judicial procedure and the lawyers of Halkbank especially are following this judicial process. I hope it doesn’t yield a result that will completely destroy Turkish-U.S. relations.

GJ: You talk about it being an injustice. If it is an injustice, would you as a country be prepared to pay a fine around it? You talk about it being an injustice. If you believe that, will you pay a fine? I’m curious as to whether or not that fine gets paid ultimately.

Pres.: Of course at the moment it would be wrong to say something before the result comes out. Let’s see the result first. But, Hakan Atilla is definitely innocent. So we want his acquittal, because there is no crime. There is no crime they are able to allege. It’s not something acceptable to accuse such a person with crimes. Also, If Hakan Atilla is going to be declared a criminal, that would be almost equivalent to declaring the Turkish Republic a criminal.

GJ: Sorry to dwell on the point, but if that is your point and the Turkish state were to be declared a criminal, would the Turkish state be prepared to pay the fine?

Pres.: Of course, it’s not possible to say anything before seeing the result that will come out. Let the result appear first. After the result, of course our bank will do what the laws require them to do.

GJ: Can I ask a little bit about what the economic team is going to look like after the election? There are some suggestions in financial markets that your colleague Mehmet Simsek is going to be departing. I’m wondering whether or not there will be somebody who the financial markets know and trust who will be taking his place? I’m also wondering whether you are going to be playing a greater role in economic policy going forward and a greater role in setting monetary policy going forward as well?

Pres.: Above all else, it will be wrong to talk about these issues at the moment. The whole question is to see beyond the 24th of June. Because after the 24th of June, the scene within and outside of parliament will be different. If you look at the U.S., as is known, you can see that those in parliament do not take part in the cabinet. Is it not the case? Therefore, we too may form a cabinet with those not from within the parliament but from outside the parliament. But it also has to do with the balances within parliament and outside parliament. Let’s see the picture and we will of course take our steps according to that.

GJ: But I think we’re all curious to know what role in particular you’ll be playing. We have talked about earlier on in the day. Do you see yourself playing a greater role in setting monetary policy? Is this something that — you talked about this big change that is coming when it comes to monetary policy. Is part of that big change the president playing a greater role in setting monetary policy?

Pres.: Now first of all, you are the head of the state; When the people fall into difficulties because of monetary policies, who are they going to hold accountable? They’ll hold the president accountable. Since they’ll ask the president about it, we have to give off the image of a president who’s influential on monetary policies.

GJ: So you will play a role in monetary policy going forward. Is that the big change?

Pres.: Yes! This may make some uncomfortable. But we have to do it. Because it’s those who rule the state who are accountable to the citizens.

GJ: You hold very, let’s call them unorthodox from an outsider’s point of view, view of monetary policy. Turkey’s monetary policy, if you are to play that greater role, is going to be run on a very different basis from the rest of the world. Is that something that you’re comfortable with?

Pres.: While doing all of these of course we are not doing them to disturb some circles on an international level. But, we take these steps in order to protect my country’s interests, we will do whatever my country’s interests require.

GJ: I’m curious as to how you think it will work. How your relationship with the governor of the central bank will change? How will that relationship operate?

Pres.: At the moment, however the central bank’s relations are continuing at the moment, they will continue in the same way. We aren’t new to running the country, we have not taken over the government recently. We have been running this country for 16 years without interruption.

GJ: You said earlier in the interview that Turkey has an independent central bank. And you talked about the fact that it will carry on and that things will be the same. Will Turkey, with your greater role in monetary policy, still have an independent central bank?

Pres.: Above all else, not just Turkey, we will apply the same governance in Turkey in the same way as it’s applied globally. Today whatever the governance approach in the U.S., or Europe, we will apply the same in Turkey as well. What is legitimate for them cannot be illegitimate for us. Everyone should know this. And we will take our steps accordingly. But we will never let our country lose.

GJ: The comparison with the U.S. — is your assessment that President Trump and Jay Powell, who’s the chair of the Federal Reserve, does the president speak to Jay Powell about interest rates, do you think? Is that something that happens elsewhere? Because you’re implying that you’ll be taking a much greater role. Is there another example of where you can see a model working for Turkey? Is there a country that stands out?

Pres.: No, there is no need to argue. The U.S. interest rate policy is known. We don’t need to reinvent it because we know that we have all the information to hand. In other words, we know what the interest rate policies are and are not in all the countries in the world. We are not just discovering them now. Therefore, of course we will take our steps accordingly. We will make our assessments according to this. I mean, we assess what it is in the US, what it’s like in Argentina, Mexico, Brazil, Germany and Britain. We always make this assessment and we will continue doing so. And we will make our own decision accordingly.

GJ: I’d like to talk a little bit about politics and what’s going to happen in the upcoming elections. We have a presidential election, we have a parliamentary election. If you were to find yourself in a situation where you won the presidential election but we end up with a more mixed picture when it comes to the parliamentary election, as it did in 2015, would you call another round of elections to make sure you secure a parliamentary mandate that the system is almost designed to be set up with?

Pres.: Of course now we have a saying: you do not fold your hems before seeing the stream. We have such a saying. Now there is no point at all to folding the hems before seeing the stream. Let us see the results first. Of course we will certainly have preparations for a result in the way you described. But for the matters to develop exactly in the way we planned, I mean Plan A, Plan B, Plan C, of course all of these will happen. But it looks at the moment like we are doing well, 40 days later, a plan as we wished will emerge and 40 days later Turkey will wake up to a much more different era.

GJ: Is the system you have established — does it only work when the AK Party wins both elections? The presidential election and the parliamentary election. The system you designed, does it only work at that point and one part doesn’t fit into that and the system as a whole doesn’t work?

Pres.: At the moment we have done our homework well, we are working well and we would not allow a development which will not let the system work. In any case, there were some people who clogged the system after June 7. As the head of the republic I opened the blockage of the system and immediately, November elections were called. In November, our people said this can’t happen and brought the AK party back to power again on its own. The system started functioning again.

GJ: Just to stay with politics a moment longer, what do you think the result will be in the region of the re-imposition of sanctions on Iran by the U.S.?

Pres.: Naturally, we are fed up of hearing about these sanctions continually. The U.S. sanctions on Iran are not new, of course. As you know, they imposed a sanction previously too. But we do not find this to be right for the sake of the peace of the region. Because, as the International Atomic Energy Agency’s statement says in respect of the nuclear issue "Iran is a country which fulfilled its obligations." In that case, on what basis do you punish Iran now? These are not right. And also, there has been a procedure that was in place during Mr. Obama’s term. And in that process, everything was normal. But when Obama leaves office, then Iran is punished through a new practice. Now these are not right. And all of these result in tensions in the region. Not contributing to the region’s peace and we do not want this region to go into tensions. Also this region is now tired. At once, let’s establish peace in the region and contribute to a peaceful world altogether. You see, the step of declaring Jerusalem as Israel’s capital is a very serious step towards tensions in the region. We’re looking at the number of people who were killed in the Gaza Strip. It’s a disaster. 37 people, in fact I believe more, died and hundreds of people are wounded and these people were wounded by real bullets. How could this happen? 700 people are now wounded in Gaza. This can’t happen. There are two people responsible: Mr. Trump and Netanyahu.

GJ: Russia and Israel: Is there a geopolitical shift that’s taking place in the region?

To be honest, I have not yet understood what the shaking of hands between Mr. Putin and Mr. Netanyahu will bring or will take away.

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    The Atlantic Politics & Policy Daily: Zero Summit Game

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    -Written by Elaine Godfrey (@elainejgodfrey)


    Today in 5 Lines

    • President Trump seemed to suggest the United States’ historic summit with North Korea is back on the table, telling reporters that the White House is “talking to them now.” Trump cancelled the meeting in a letter to Kim Jong Un on Thursday.

    • During his commencement address at the U.S. Naval Academy, Trump praised efforts to boost defense spending and told graduates that “we are not going to apologize for America.”

    • Hollywood producer Harvey Weinstein surrendered himself to authorities in New York City, where he was arraigned on charges of rape and committing a criminal sexual act. Weinstein was later released after paying $1 million bail.

    • District Court Judge T.S. Ellis III pushed the trial date for Paul Manafort, Trump’s former campaign chairman, from July 10 to July 24.

    • Subtropical Storm Alberto is expected to bring rainfall and flash flooding to parts of the eastern U.S. Gulf Coast over the Memorial Day weekend.


    Today on The Atlantic

    • Triaging College Applicants: There’s a merit crisis at some of America’s most selective schools. Now, officials are asking: What metrics should be used in the admissions process when students have both outstanding test scores and grade-point averages? (Jeffrey Selingo)

    • A Historic—and Secular?—Vote: In a referendum on Friday, Irish citizens are voting on whether to repeal the country’s strict abortion laws. But in this largely Catholic country, faith doesn’t seem to be playing a major role. (Yasmeen Serhan)

    • When History Rhymes: George Perkovich describes how the current standoff between the U.S. and North Korea is reminiscent of the months before the Cuban Missile Crisis in 1962.

    • A Chilling Effect: Trump’s attacks on the U.S. intelligence community will likely cause lasting damage, reports Natasha Bertrand. “There are definitely fewer protected zones in our government,” one former Justice Department official told her. “Intelligence used to be one of them, but we’ve lost something there.”


    Snapshot

    Film producer Harvey Weinstein leaves the 1st Precinct in Manhattan on Friday. Mike Segar / Reuters

    What We’re Reading

    It’s an Art: From the Iran nuclear agreement to the Paris climate accords, it’s becoming clear that Trump is much better at breaking deals than making them, writes Susan Glasser. (The New Yorker)

    The Year of the Woman?: A trend has emerged from the primary elections held so far in 2018: Democratic voters seem to want to nominate women. (David Wasserman, The Cook Political Report)

    Problems Ahead for the GOP?: Republicans are hoping their recently passed tax-cut bill will help their chances in the midterm elections. Rising gas prices could do the opposite. (Ben White, Politico)

    How the Press Fell in Love With McCain: The senator’s media-friendly strategy during his 2000 presidential campaign has buoyed his political career ever since, writes Graham Vyse. (The New Republic)


    Visualized

    Country Mice, City Mice: A new survey shows that urban and rural Americans both believe the other group doesn’t share their values or understand their problems. (Emily Badger, The New York Times)

    Note: We won’t be sending a newsletter on Monday, May 28, because of the Memorial Day holiday. We’ll be back on Tuesday, May 29.

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    Political worries weigh on Spanish and Italian assets

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    Friday 21.00 BST

    What you need to know

    • Italian 10-year bond yield briefly climbs above 2.5%
    • Spanish stocks and bonds hit by prospect of early elections
    • Euro dips to six-month low versus dollar
    • S&P 500 falls 0.2%, Nasdaq inches higher
    • Energy stocks and oil drop as Opec and Russia look to raise output

    Overview

    Mounting concerns about political developments in Spain and Italy drove equity and bond prices sharply lower in both countries and helped push the euro below $1.17 to its lowest level against the dollar in six months.

    The nervous mood fuelled demand for “core” government debt in the US, UK and Germany — with the yield on the 10-year Treasury stuck below 3 per cent — while participants also kept a wary eye on communications between President Donald Trump and North Korea as well as watching a renewed slide for oil prices.

    Madrid grabbed the headlines after the main opposition party called a motion of no confidence in the government following the convictions of high-level officials in a corruption case — heightening expectations for early elections.

    The developments came as the markets continued to get to grips with the potential implications of a populist coalition government in Italy.

    Peter Chatwell, head of rates strategy at Mizuho, said markets were right to continue to focus on Italian politics.

    “We think there will be a positive story for the Italian economy stemming from the core economic components of what the government is likely to implement but for the time being it is probably still too early for the market to consider such an outcome,” he said.

    He added that a potential breakdown of the Spanish government and a period of political uncertainty would not wreak economic damage “but will likely mean that investors are likely to wait before ‘buying the dip’. We think the set of ‘investable’ European government bonds just got smaller.”

    The Spanish 10-year government bond yield rose as high as 1.52 per cent before easing back to 1.45 per cent, still up 6 basis points on the day.

    The equivalent yield in Rome climbed a further 5bp to 2.45 per cent, after earlier hitting 2.55 per cent.

    Yield spreads between German Bunds and Spanish and Italian bonds, watched as a gauge of political tensions within the eurozone, widened sharply.

    Banking stocks were hit hard in both countries as the FTSE MIB index in Milan shed 1.5 per cent and Spain’s Ibex 35 fell 1.8 per cent — compared with a 0.7 per cent rise for the Xetra Dax in Frankfurt.

    Some in the markets pointed to the euro’s renewed weakness as a factor behind the German market’s outperformance. The single currency fell as low as $1.1647 against the dollar — the lowest since November — taking its decline over the week to more than 1 per cent.

    Meanwhile, energy was the worst-performing sector in the S&P 500 equity index as Brent oil tumbled below $77 a barrel to its lowest level for almost three weeks.

    The drop came in response to an expected move by Opec and Russia to increase oil output — reversing a decision made at the start of last year by the oil cartel and its allies to reduce supply.

    Mr Trump last month attacked Opec for “artificially” boosting oil prices.

    The US president was in focus again on Friday as he appeared to soften his stance on meeting North Korea’s leader, saying a historic summit with Kim Jong Un could still take place next month

    Equities

    In New York, the S&P 500 ended 0.2 per cent lower at 2,721 — with energy stocks down 2.7 per cent but the defensive utilities sector up 0.5 per cent — leaving it up 0.3 per cent for the week.

    Techs outperformed, helping the Nasdaq Composite edge 0.1 per cent higher for a five-day gain of 1.1 per cent.

    Across the Atlantic, the Euro Stoxx 600 edged up 0.1 per cent as German stocks outperformed and the FTSE 100 in London added 0.2 per cent, even as BP and Royal Dutch Shell fell sharply.

    Forex and fixed income

    The euro was down 0.5 per cent against the dollar at $1.1660 but was steady against sterling at £0.8758, while the pound also retreated 0.5 per cent versus the US currency to $1.3312. The dollar was up 0.2 per cent against the yen at ¥109.45.

    In the “core” government bond arena, the yield on the 10-year US Treasury fell 5bp to 2.93 per cent — the lowest for three weeks — while that on the equivalent-maturity German Bund fell 6bp to 0.41 per cent. The 10-year UK gilt shed 8bp to 1.32 per cent.

    Commodities

    Crude oil prices fell sharply as participants focused on the prospect of increased output from Opec and Russia, which would replace lost supply from Venezuela and Iran once sanctions are imposed

    Brent crude, the international benchmark, settled at $76.44 a barrel, down 3 per cent on the session — just days after it traded above the $80 mark. US West Texas Intermediate was 4.2 per cent weaker in late trade at $67.71.

    The firm dollar helped push gold down $3 to $1,301 an ounce.

    Additional reporting by Miles Johnson in London and Hudson Lockett in Hong Kong

    For market updates and comment follow us on Twitter @FTMarkets

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    Offensive liberalism: Emmanuel Macron and the New European Politics

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    US President Donald Trump speaks with French President Emmanuel Macron during a meeting at White House, Washington DC on April 25, 2018. Blondet Eliot/Press Association. All rights reserved.Michael Sandel puts his finger on the key problem of recent liberal politics – that liberals, enamoured of technocracy and tolerance have lost their “capacity to inspire” and their power to persuade. He compellingly argues that Barack Obama was initially inspiring in word but less so in deed, falling back too easily on technocratic and neoliberal policies and, like other liberals of recent vintage, avoiding engaging in substantive moral arguments.  

    Sandel is not alone in having reached the conclusion that this brand of liberalism has run its course and that if liberal politics is to again inspire and wield influence then it needs fresh “identity, meaning and purpose”. A new approach is needed. French President Emmanuel Macron has already gone far beyond “liberal neutrality” and has taken liberalism on the offensive. In doing so he addresses the concerns of Sandel and others by providing an inspiring and positive vision, and fosters patriotism and community – but at the European rather than the national level.

    Some have dismissed Macron as just another centrist, too moderate to make the changes needed to address Europe’s structural problems or as a typical neoliberal, a former investment banker looking after the interests of his ‘own class’. In short, another Obama waiting to happen.

    But Macron may be a different kind of liberal, an Offensive Liberal. He may not be the ‘leader
    of the free world’
    , but he’s currently its best hope – and the one who has opened a Pandora’s box in Europe. The award of the Charlemagne
    prize
    recognises the hope vested in him as the saviour of the EU, but his brand of politics could break rather than make Europe’s liberal future.

    The term ‘offensive liberal’,
    which may also appeal to Macron critics on both left and right, has been used before
    of course, to describe those such as Tony Blair or Anne-Marie Slaughter who
    have sought to promote democracy by force. But Macron’s offensive liberalism is
    different as his recent speeches to the US
    Congress
    , the European
    Parliament
    and, earlier, at the Sorbonne
    have shown. This new breed of offensive liberalism amounts to a deliberate
    re-politicisation of European politics, one that is aimed at saving the EU as a
    legitimate liberal institution – but which also has the potential to destroy
    it.

    En Garde!

    Macron has staked out a moderate
    liberal position on a number of issues. He has emphasised the importance of
    multilateralism in foreign policy and has shown a willingness to engage
    militarily in Syria, but has been reluctant to lecture non-western states. He
    combines progressive positions on climate change with calls for economic
    dynamism and the promotion of business and trade, while seeking to ameliorate
    Chinese influence in Europe and curb social dumping. He has carved out a niche,
    as Jurgen
    Habermas
    put it, “between the self-satisfied
    anti-capitalism of the left-wing nationalists and the stale identitarian
    ideology of the right wing populists.”

    So far, so
    centrist – even ‘radical
    centrist’
    , perhaps – but Macron’s brand of liberalism is
    also ‘offensive’ in two key ways that set it apart from other recent liberal
    politics. First, Macron has called for a revival of ‘political
    heroism’ and ‘grand narratives’
    , as well as
    outlining his own positive vision for a liberal Europe that combines
    sovereignty, unity and democracy in a ‘European Dream’. This positive approach
    sharply contrasts with the hesitant, sometimes apologetic, ‘defensive’ liberal
    positions of the ‘Remain’ and Clinton campaigns in the 2016 Brexit Referendum
    and US Presidential election.

    Rather than
    outline their own positive visions, these defensive liberals generally focused
    on what could be lost if their opponents won, while acknowledging (some of)
    their own flaws and the need for reform. This hesitant, negative approach,
    reliant on the politics of fear rather than hope, stasis rather than change, was
    never likely to inspire. The ‘Leave’ and Trump campaigns came across as more
    assertive, more able to understand widespread discontent but also, crucially,
    to narrate a clear vision of what should be done about it. Defensive liberals
    were left nervously clinging to past gains, which many people felt they had not
    sufficiently shared in, rather than offering a positive vision for the future.
    As The Economist and others, including Sandel, have
    noted, liberalism without hope, without the promise of a positive future,
    is liberalism in trouble
    . As The Economist and
    others have noted, liberalism without hope, without the promise of a positive
    future, is liberalism in trouble.

    Macron has also shown
    himself to be offensive liberal in another way – by carrying the fight directly
    to the opposition and actively seeking confrontation, conflict and controversy.
    This puts him at odds with the dominant neoliberal approach of recent years –
    ‘there is no alternative’ (or at least not any worth countenancing as a serious
    political contender) – that Habermas has characterised “day-to-day” centrism –
    and others have seen as showing that neoliberalism
    has run out of intellectual steam
    . Hence the approach
    that often sought to impose neoliberalising measures by stealth or in the wake
    of what some have seen as manufactured crises. This may have been offensive and
    humiliating for many people in effect but it was not offensive in its method,
    seeking to delegitimise opponents through non-engagement, letting the kids have
    their political tantrums and protest politics, while the ‘adults’ got on with
    the serious business of business as usual.

    Macron is
    different. He has outlined three ways of dealing with extremist parties: to ignore
    them, act like they don’t exist but don’t risk any provocative initiatives; to
    imitate them; or to “say these people are my true enemies and engage them
    directly in battle.” Battle
    is a term that Macron is fond of
    – whether
    referring to the decision to enter the French election, taking on the Front
    Nationale, reforming French or EU institutions or facing down European
    populists and illiberal forces. In discussing the latter in the European
    Parliament he went one step further and likened Europe’s divisions to a “civil
    war
    .” In the European
    Parliament he went one step further and likened Europe’s divisions to a “civil
    war.”

    War by other means

    Macron’s offensive
    liberalism is confrontational and conflictual but, despite the rhetoric, it is
    not warlike. With reference to Clausewitz’ famous dictum (and Foucault’s
    inversion of it) it is firmly within the realm and takes the means of politics,
    even if it remains comparable. And that’s the point: offensive liberalism is,
    in effect, the re-politicisation of liberalism in Europe and at the European
    level. If followed through, this will have potentially seismic consequences for
    the EU.

    Re-politicizing
    liberalism means breaking out of the paradigm that has held sway in European
    politics for most of the last three decades – the historicist liberalism that
    came dressed as the ‘end of history’. Many have repudiated Fukuyama and he
    himself has rowed back from the claims made in the heady days of the early 90s
    about the inevitability of liberalism’s ultimate triumph.

    In practice,
    however, much of the West and particularly the EU and its member states, acted
    to cement liberalism’s place at the heart of the their institutions. The EU came
    to be styled as ‘fundamentally’ liberal, with legally enshrined (liberal)
    ‘European values’ and ‘fundamental rights’. Making these things fundamental or
    constitutional effectively put them beyond contestation, off limits for
    discussion, to depoliticise them. This depoliticization has, in part, provoked
    the ‘illiberal’ challenge posed to the EU most obviously, but not exclusively,
    by the approach of the current Hungarian and Polish governments and by the
    Brexit vote.

    Treaty change is no longer taboo

    By and large the
    challenge has been met with intransigence, with EU officials and member states
    led by Merkel’s Germany, dogmatically repeating the mantra that the EU is a
    liberal club and refusing to sanction any potential treaty change or serous
    discussion of the ‘fundamental’ nature of certain rights and values, lest it
    give the illiberal camp an institutional foothold. Macron has recognised that
    this further – and potentially fatally – delegitimises the EU as democratic
    institution, as well as contradicting its own liberal values.

    So Macron has
    taken the third of his three options outlined above and gone on the attack,
    offending many to his left and right in the process, but also explicitly
    stating that treaty
    change is no longer a taboo
    . He has picked
    the fight for Europe’s liberal future, which carries with it the risk of
    creating an illiberal EU, or even the collapse of the Union. Macron and the offensive liberals must now win the fight they
    have picked.

    But if the
    offensive liberals win, it also carries the promise of a more legitimate, and
    lastingly liberal Europe. This is a prize worth having but, having gone on the
    attack, Macron and the offensive liberals must now win the fight they have
    picked. They will have to show that as well as reviving hope, and articulating a positive vision, they can also address the substantive problems identified by Sandel: income inequality, meritocratic hubris and destructive understandings of patriotism and community – and do so without compromising their liberal values.

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