STATE OF THE UNION

WHERE WERE WE IN 2007?

+ Relative political stability in Europe. Realise that only in hindsight. Growth

Average CEE 6.3% (Poland, Baltic States, Romania, Bulgaria 7%; Slovakia 10%,
Lithuania 11%) As compared to Germany 3.4%, world 4.32%, U.S. 1.7%.

Eurozone: Slovenia joined on Jan 1, 2007. (Cyprus and Malta in 2008)

Lisbon Strategy: "make Europe, by 2010, the most competitive and

the most dynamic knowledge-based economy in the world".

Mainstream parties doing well grand coalition in Germany, Labour in Britain

third term, Tony Blair about to pass baton to Gordon Brown, Sarkozy
defeates Sgolene Royal (no 2002 scenario); in Poland center-right Civic
Platform replaced PiS. Became the first government to be re-elected in office.

EU smarting from the defeat of the Constitutional Treaty in

France/Netherlands; Treaty of Lisbon signed. President/ High Representative
for foreign Policy backed by External Action Service

EU and NATO expansion. Georgia and Ukraine prospects for membership in

the Alliance. Western Balkans integrated more closely. Turkey weathers
internal crisis. Unfinished business Kosovo status talks and Ahtisaari Plan.

Relations with Russia uneasy under Putin 2 (Munich Security Conference

speech) but no prospect of military showdown. Even the Georgia war in
August 2008 wasnt a gamechanger. Speedy return to business as usual in
Europe. Dovish Medvedev in charge partnership for modernisation.
Germany and Poland converging.

TEN YEARS AGO EUROPE WAS NOT IN A PERFECT

WHERE ARE WE NOW?

European politics in flux multiple crises. Starting with eurocrisis common

currency, who adjusts?, common institutions? Monetary vs. fiscal. Longer-
term cost of adjustment.
 Outside the Eurozone in CEE. -- Growth slump exacerbated by the
developments in eurozone (sneezes, catch cold) modest recovery since the
slump in 2009. On the back of strong demand in Germany. But unequal.
3.6%.

Shrinkage the British Question. Short history of UK membership (the

awkward partner). Brexit referendum what next?

Migration crisis and the rise of anti-EU populism in core countries. Elections
in The Netherlands (March), presidentials in France (April-May) and Germany
federal polls (October?)

-- Populism is mainstream. Viktor Orbn coming to power in 2010 with a 2/3

constitutional majority. PiS in Poland. Andrej Babis ANO 2011 in Czech R.
Peasants and Greens Union in Lithuania. Western Balkans Serbia and Croatia are
run by the same parties who were in charge in the 1990s. Democratic backslide
most rapid in Turkey.

EU struggles as anchor institutional reforms. Policies are questioned e.g. the

migration quotas. Paradox financial transfers keep populist governments afloat.
Positive image (Ireland (55%), Poland (51%), Romania (50%), Bulgaria (49%),

-- BREXIT effect on institutions -- 40/60% GDP before; 84-16% GDP after

-- The collapse scenario, not excluded (Monte dei Paschi bailout) but not as likely as
in 2012 when we were staring at the abyss. Introspection.

-- CEE will limp on. But heightened sense of insecurity Russia, refugee crisis

RUSSIA

-- Change in the Kremlin. Putin return reshaped the internal balance. Demonstrations
in Bolotnaya Sq. Sense of danger, disintegration or decay. Conflict and confrontation
legitimacy strategy. Patriotism, conservative values.

-- Ukraine crisis triggered change. From Customs Union to geopolitical standoff?

Crimea low hanging fruit, political boost to Putin. But Donbas quagmire. Ukraine
army is dug in, effective defence. Separatists dont control the entire Donetsk Oblast
even. War everyone wishes to forget. No settlement but low intensity after Spring
2015.

-- Sanctions not causing huge amounts of harm per se but in combination with a
slump in oil prices. Crude has rallied to $52 barrel from less than $30 earlier this
year. However $100 is a thing of the past.
-- Revival of NATO. Summit in Wales (2014) rapid reaction force. Contingency
plans. Structures overseeing them. Warsaw Summit (2016) deployments in Baltic
Countries, Poland. Not tipping the balance but creating tripwires. Finland and
Sweden moved closer to NATO. Black Sea naval balance an issue. E.g. A2/AD
capabilities Crimea. Only south-westernmost section is out of range. (Q&A
Montreux Convention 1936).

-- Russia disruptive tactics. Parties and media. But less co-optative power
compared to the pre-economic crisis days when money wasnt an issue. South
Stream. CEE Hungary, Czechs (Zeman), Slovaks, Bulgaria. Unhappy about
sanctions but unlikely to