Mario druthers: Draghi’s plan for Europe

Hey, Ryan Reynolds here wishing you a very happy half off holiday because right now Mint Mobile is offering you the gift of 50% off unlimited. To be clear, that's half the price, not half the service. Mint is still premium unlimited wireless for a great price. So that means a half day.

Yeah.

Give it a try@mintmobile.com Switch upfront payment.

Of $45 for three month plan equivalent to $15 per month. Required new customer offer for first three months only. Speed slow 135 gigabytes of network busy taxes and fees extra.

See mintmobile.com hey, Ryan Reynolds here for Mint Mobile. You know, one of the perks about having four kids that you know about is actually getting a direct line to the big man up north. And this year he wants you to know the best gift that you can give someone is the gift of Mint Mobile's unlimited wireless for $15 a month.

Now you don't even need to wrap it.

Give it a try@mintmobile.com Switch upfront payment.

Of $45 for a three month plan equivalent to $15 per month. Required new customer offer for first three months only. Speed slow after 35 gigabytes. If network's busy, taxes and fees extra. See mintmobile.com.

The Economist. Hello and welcome to the Intelligence from THE Economist. I'm Jason Palmer.

And I'm Rosie Blore. Every weekday we provide a fresh perspective on the events shaping your world. Most presidents eke out their final days in office, enjoying fancy dinners and making grand speeches to anyone who'll listen. In Mexico, though, the outgoing head of state is trying to make giant changes to the justice system.

And our columnist takes a look back at the film Fight Club, 25 years after it first came out. He finds that at least some of the core ideas and feelings it presents punch just as hard today as they did back then. But first, It's not often that a giant doorstop of a report written by a technocrat actually grabs the attention. But this one, this one really has. Mario Draghi, a former head of the European Central bank and prime minister of Italy, was charged with examining where Europe's economy economy is and where it's going. And he's not shying from uncomfortable truths.

Growth has been slowing down for a long time in Europe, but we've ignored it. We until I would say until two years ago, we would never have such a conversation as the one we're having today because things were sort of going well.

Simply put, they're not going so well now. And Mr. Draghi proposes some big changes to make sure Europe stays competitive. Big changes with a big price tag.

The investment needs that all this entails are massive. The investment share will have to rise by around 5 percentage points of GDP to levels last seen in the 60s and the 70s.

But getting member states to open their wallets or to club their funds together isn't even the trickiest thing that the report recommends.

Mario Drago's report is a statement of urgency because Europe is falling behind. And it is a call to action, not just for the eu, but especially to national leaders who would need to put a lot of differences behind them to push Europe forward.

Christian Odendall is our European Economics editor.

He says clearly in the piece that he wrote for the Economist that the EU has reached a point where without action, it will have to compromise either its welfare or the environment or its freedom, and underlines that Europe's current economic situation is worrying.

So what is it that's changed here? You're giving a sense that something underpinning Europe's view of itself is different now?

Yes. So the geopolitical context has changed. I think America is no longer supporting the same global rules based order that Europe so desperately depends on. And China is becoming a much more muscular geopolitical actor. And Europe discovers that it's quite dependent on both. And EU firms discover on the global market that it's really hard to compete with, for example, state subsidized Chinese companies. And on some crucial supply chains, Europe is dependent on others. And this is very uncomfortable for Europe. And so this report and this whole agenda focuses on how Europe can become less dependent, more innovative, more dynamic to compete with the likes of America and China.

And what's your view on the degree to which Europe has this innovation problem that you mentioned?

So I think Europe has a few sectors in which its innovation works really well. Take pharma, for example, an old sector where Europe has established clusters of research of big firms or smaller firms. But this also holds some lesson for where it doesn't work. If you have a new sector, for example, right, like digital technology, where there's no established cluster, then Europe struggles to build out an industry that can compete on a global scale and be able to innovate at the pace that, for example, the United States can, and this is sort of where increasingly the problem is, because some of these newer technologies are general purpose technologies that also help you innovate in other adjacent sectors. So for example, think of self driving cars. So the car industry needs lots of digital technology these days. So if Europe falls behind on these horizontal general Purpose technologies that are used in many sectors to be innovative, then it risks falling behind. And this is the stage where Europe is at now.

Okay, so that is the scale of the problem. Then what does this report say in terms of prescriptions, how to level this playing field?

Right, so this is a 400 page report, so I can give you only a few highlights here, but I think it's important that this report puts innovation at the center of this, because innovation affects both the ability to grow and increase productivity in Europe and so forth, but also to be able to innovate in important sectors that are important for Europe's security and independence. And the second bit is it looks at how all these kinds of innovations and investments that Europe need, how they can be funded. I think this is one of the examples where again, the old European model, which was very bank focused, banks were funding traditional companies. That doesn't necessarily work well in an environment where you need a lot of disruptive innovation that banks are not likely to fund. And you need capital markets. And this is where Europe is still very fragmented. Capital markets are not very deep and liquid. And this is the second part that this report focuses on. How can we fund all this investment? And the funding challenge is quite severe. And the third bit is it looks at a few strategic sectors. When the single market was first thought up in the 1980s, Italy's economy was as big as India's and China's combined. So this shows you that scale as an issue was not really of a concern when the single market was first thought up. And so sectors like energy, finance, telecoms, defense and so forth, all those that you could consider strategic were left out. And so now the question is, how can we integrate these sectors along the lines of the common European market? And as you can imagine, this is quite complicated because these have sort of entrenched interests and different regulation and so forth, and sort of harmonizing these complicated markets. It's very tedious, it's very complex, but it's important for Europe. And this is why the report spends a lot of time on it.

But how realistic is it? I mean, you're describing a situation that has arisen because basically the way Europe did growth and innovation for quite a long time is no longer really how the world works, even up to the funding part. In your view, can Europe actually follow the plan in this report and come out on top?

I would like to say yes, but the challenge is quite severe. So in terms of the vast amount of investment that Europe needs, the report says between 750 and 800 billion euros in additional investment a year. That would mean jumping to the same investment levels that we've last seen in the 1970s after decades of decline. That's unprecedented. And it's unclear where that money is supposed to come from. Neither the public sector nor the private sector seem to be able to fund that kind of investment. Then the report tackles sectors where national governments are quite jealous over their sovereignty. And it would require quite a bit of a leap of faith from 27 different governments to integrate further. This is usually only possible in sort of severe crises. And we are maybe in a situation where Europe is in trouble, but the urgency of a very severe crisis may not be there to IND governments to do just that. So this is why I'm a bit skeptical. But that being said, there's a new commission coming in. This is supposed to be their economic agenda, and they have five years to convince everyone to go at least part of the way. So in terms of the timing, I think the report comes at the right time. And there is some scope, even given all these difficulties, that some of that will be put into practice.

And even some of that would be enough to get Europe more on the right track anyway to getting the level playing field that notionally this report aims for in completeness.

I guess Europe has to start somewhere and getting some of the way, particularly on sectors like defense. I think there is scope to make some progress there. This is not an issue that you can just throw money at and fix it even if the money were available. This is much more of a structural thing, because Europe, as it was constructed over decades, was not built for the new kind of geopolitical rivalry that we are seeing for the primacy of security and defense and so forth. So Europe really needs to reinvent its structures and how it makes decisions, because on many issues, take economic security, so the extent to which Europe can be blackmailed economically, how firms structure their supply chains and so forth, these are all part of national security and they are not necessarily European competence, as it's called in Europe. So Europe really needs to rethink some of the decision making as well. And one of the things that the Driver report says is if we want to play the innovation game at the highest level, then we will need to have world class European universities and we need to have a competitive process to find them and to fund them. And that could well mean that some countries do not have one of those world class universities. But that needs to be okay. Europe needs to be able to take on this challenge and change its structures. The message from the report is clear that national governments need to take a leap of faith and pull some sovereignty, as they have done with a single market decades ago, to great success. And this will probably be Draghi's biggest task, to now get this report out into the capitals and convince national governments that this is the way to go.

Christian, thank you very much for your time.

Thank you very much, Jason, for having me.

Most presidents would be a lame duck in their last month in office, not Mexico's. The country's outgoing populist president, Andres Manuel Lopez Obrador, widely known as amlo, is pushing through a raft of constitutional changes before his successor takes over in November, chief among them reforming the justice system. The president's plan cleared a major hurdle last week when the lower house passed legislation giving the new laws the go.

Ahead tresientos in quenta nueve votos empro cerro absenciones.

Over the weekend, there were massive protests. The US Ambassador to Mexico warned that this and other constitutional changes threaten the historic commercial relationship between the two countries. But Mexico's president seems undeterred.

This month, Mexico's lower chamber passed an overhaul to the judicial system.

Sarah Burke is our Mexico bureau chief.

The main crux of the reform is that federal judges are going to be elected, including those on the Supreme Court and on the electoral court. And, and this has the potential to open up Mexico's judiciary further to political influence and to undermine democracy in the country. And the impacts can be so far reaching, I mean, detrimental to everything from security to economy as well as democracy.

Before we get into the details of the legislation, tell me how Mexico's justice system operates.

At the moment, everyone in Mexico agrees that the system needs an overhaul. It doesn't work. And this is in a country with huge security problems. So to give a few examples, 90% of crimes that happen in Mexico are estimated to go unreported. And those that do get reported often go nowhere, really. There's a failure at the investigation and prosecution stage, but this reform doesn't touch most of those areas. It's focusing on the judiciary, which really isn't the worst part of the system.

So what would these new measures actually do?

So it's going to see all federal judges fired and replaced by popular votes. And this might then extend also to state and local judges at some point in the future. And it also creates a new disciplinary tribunal that can punish judges. Now, few countries, very few countries, elect federal judges, and only Bolivia elects the ones to its Supreme Court, as Mexico's legislation would have it do. And there We've seen that it's really been disastrous. It's undermined judicial independence and made the judiciary work to the benefit of the ruling party. And that's what people fear is going to happen in Mexico.

And do you think that is what the ruling party is trying to do in Mexico?

This is a suspicion about this reform and various other ones that the President is trying to pass. One of the sort of hallmarks of some of them, not all of them, is this concentration of power in the dominant party, which at the moment is Morena.

This isn't a bolt from the blue, is it? When we spoke just after the election, you were talking then about how the President has done a lot to undercut democracy in Mexico.

That's right, Rosie, we did. And that's what we're seeing happen now. At the time, we talked about how the ruling coalition had won a 2/3 majority, a supermajority in the lower house and in the upper house, they were just at that point, three seats short, and now they're only one seat short of a super majority. And we also discussed how in September, there's this strange month where the new Congress takes its seats, but the new President hasn't yet. So that gives Amlo a month to try and pass these constitutional reforms that require that supermajority.

So are we likely to see the President try and pass other things in the remainder of this month?

Yeah, I mean, obviously it's only a month, so it's a short period of time, but we are. In February, he introduced a packet of 18 constitutional amendments and two pieces of legislation. And not all of them are concerning, but many are. Some of them alter institutions or eliminate regulatory agencies or bodies, and some affect the economy and may well breach usmca, the third free trade deal with the US and Canada. And it looks like he's going to try and pass as many of these as possible. The next priority is to give the National Guard, which is a sort of federal police force, in theory, in Mexico, to the Defense Ministry. That's something he tried to do already, and the Supreme Court said, no, this is unconstitutional. It would militarize Mexico's response to crime more so than it already is. It would reduce transparency and might hamstring security cooperation with the United States.

So what's been the response to this centralisation of power beyond the Morena party?

Lopez Obrador, we have to remind people, is extremely popular. His approval rating at the moment is 71%. But there is lots of pushback beyond the party. Lawmakers were blocked by Protesters from entering Congress. I mean, they had to go and vote in a nearby gymnasium to pass this measure. The judiciary and lots of judicial workers have gone on strike. The American ambassador has spoken out about this. Business associations have spoken out about this. The peso has plummeted. Various banks have downgraded Mexican shares. So, you know, really, we've never seen such an outcry as we're seeing about this judicial reform.

And do we know any more at this point of what we can expect from AMLO's successor?

First of all, the reform has passed the lower chamber, and then it will go to the Senate where it's almost certain to pass. And then it all goes to the state congresses where a majority of them have to say yes, which seems almost certain to happen. And then come October 1st, the person who's going to have to deal with all of this is Claudia Shanebaum. The new president, Lopez Obrador really hand picked her as a successor and helped get her elected. And she so far has supported these reforms. She celebrated the judicial reforms, passing of the lower chamber by tweeting, more democracy, more justice, more freedom. But she's also technocratic and pragmatic, and some believe there are some signs that she's uneasy about some of these changes. So what we're looking at is two things. At the reforms that don't get passed in September, what does she do with them? Does she pass them? Does she try to delay them? What does she do with those? And then on the ones that he does manage to pass this month, you need secondary legislation to implement them. And she has some, and we're talking limited, but she has some wiggle room there, too. It's really important to remember, Rosie, that Mexico has only been a democracy since the late 90s, 20, 25 years. And 2000 was the first year in which presidential power changed hands. And this coming months, and indeed the months that follow, a really high stakes test of whether Mexico is going to continue to be a democracy or go back to something that it had before 2000.

Sarah, it's lovely to talk to you. Thank you so much.

You too, Rosie. Thanks for having me.

Even if you've never seen it, I bet you know the first rule of Fight Club, a film which had its premiere 25 years ago today.

Andrew Miller writes Backstory, our column on culture.

But actually in posterity, the first rule of the cult film has been that people have never stopped talking about it, whether they consider it profound, offensive, pretentious, or just plain silly. David Fincher's film, like all good Cult movies should had a limp run in cinemas, but became a sensation on dvd, spawning copycat incidents, endless parodies, enduring controversy. It was even labeled fascist for what some people saw as its fascination with violence. Now, the plot of Fight Club is that the unnamed narrator, who's played by Edward Norton, meets a guy called Tyler Durden on a plane. Durden, who's played by Brad Pitt, is soon explaining to the narrator how to make napalm. The narrator, by contrast, is a wage slave at the ultra cynical end of capital capitalism. Is his job to calculate whether recalling faulty cars will cost or save money for the manufacturer. The film has a mega twist, which is either genius or ridiculous, depending on your point of view. But suffice it to say that the narrator moves into Durden's crumbling mansion and they fight for kicks outside a bar. And other men pick up their taste for blood and bare knuckles, and they're soon running an underground, literally underground, because it happens in a dank basement fight club. And all these guys find that brawling is a kind of ecstasy that dispels the anesthesia of modern life.

You can fight any celebrity. Who would you fight, alive or dead?

Doesn't matter.

Who'd be tough?

Hemingway.

Particularly among men of a certain age, which I guess includes me. Fight Club is a cultural monument of its era. It came out in the late 1990s, which for many people in the west were a kind of political nirvana. The Cold War was won, liberal democracy seemed to be rampant. History was ending, or so some people believe. But a quarter of a century on, I think the film has lost none of its punch. Actually, I think the reality reverse is true, because in today's more troubled era, I think it resonates more than it did in the relatively tame late 1990s, on the eve of the millennium. The film is pugnaciously political, but I have to say its politics, or the politics of its characters, are a bit confused. It begins by taking a swing at the false promises and deadening satisfactions of consumerism. But later on, Tyler Durden is bemoaning the plight of the downtrodden proletariat, and the problem seems to be not too much affluence, but too little. I guess, if you had to sum it up, the ideology on show is a kind of hazy anarcho nihilism with odd environmental flourish. There's a line in Jacques Palahniuk's book on which the film is based, which says your life comes down to nothing, and not even nothing, oblivion. And that just about sums it up. But I think that now especially, there's a kind of wisdom in this incoherence. Indeed, I think the incoherence itself is a valuable insight. First of all, consider the way the radicalization process works in the film. More and more men join the club, and as they do so, its aims and activities escalate. It moves on from bare knuckle brawls to vandalism and assault, and onwards to large scale mayhem and towards revolution. Fans have always debated whether the film sympathizes with the aggrieved version of masculinity it depicts or sends it up. I think in the latter stage, it's clearly tipping into satire. But at the same time, the process of this radicalisation is authentic. The club's got its official rules. The first rule is. Never mind. More than that, I think the film illuminates an overlooked motive for some of the ills of today's more troubled age. In the film, Oedon describes his generation as the middle children of history, people who have no great war or cause to call their own. And that gripe reflected the ennui of some people in Generation X, who in the 90s, grew up in a pale, complacent world. But it also, I think, captures one reason why today some citizens of prosperous, more or less peaceful countries become convinced that their lives are bereft and they turn to warped ideas and embrace fiery leaders. This is where that incoherence I mentioned comes in. The characters in Fight Club are groping through a political grievance to justify their rage. But its real wellspring isn't really politics. It's a kind of gnawing feeling, less radical and ideological than banal. In the end, at bottom, like some people today, they're just plain bored.

That's all for this episode of the Intelligence. We'll see you back here tomorrow.

Sam.