We live in the most unpredictable times since the 1930s, so we are all personally in bumpy, uncharted waters. We hope for the best but how much should we plan for the worst? Sit tight, I will end this piece with optimism…
Europe: Brexit is a side show in Brussels compared to the strains being placed on the Union by the increasing lurch to populism of member states, Hungary, Poland, Austria and Italy are the most obvious examples but Germany is also being nudged that way. Populism; mostly it’s a significant move to the right despite what Italian socialists may claim. The flashpoint is immigration but lack of sovereignty is really at the root. The 28 member states signed up to something they increasingly dislike: unaccountable governance from Brussels.
Merkel has been a phenomenon but she is holding on by a thread for now. A new coalition and leader will emerge soon and it will be more focused on German self-interest. Merkel has been Europe’s saint but times have moved past that being desirable for Germans, they are increasingly disillusioned with the conduct of other member states. Expect a more populist leadership within the next few years.
The Euro is the bigger question; can it survive? Logically it should not, it is and will continue to harm the southern member states. The most likely member to bail first is Italy, which cannot (and will not ) stick to the rulebook. Germany has done better than anyone from the Euro but it has not been without cost and frustrations such as with Greece.
The upshot of the turmoil in Europe is that I think the Union is heading for a major re-calibration of its mandate and the retirement of its current leadership may signal the start of the loosening of the Union. It will be messy but a good thing. Remember that one of the major spurs behind the Treaty of Rome was to create a Europe that will not fight itself. The opposite is happening; for the past decade the EU has been more divisive than unifying. Ironically, member states will I think in 10 years time have an affiliation that is closer to that which we will have.
Brexit looks increasingly as though it’s going to be ‘associate membership’ . EU rules without a voice (they never listened to us until we got tough anyway!) and without the most demanding strings attached such as free movement and the rule of the ECJ. Soft Brexit it may be but it’s pragmatic and not disruptive. Almost business as usual.
Trump has moved from being alarming to predictably at odds with common sense and decency. His ignorance will be his undoing and his desire for an ill-conceived trade war may be his Waterloo. It is already starting to hurt the blue-collar workers that he did so well to attract two years ago. The business friendly conservative approach has been helping markets to record levels but the trade war will start to dent that too. There is an equity asset bubble right now; let’s hope that its deflation is slow. Robert Mueller may yet pull a surprise in his investigations but if anything brings Trump down it may be something less world threatening such as tax fraud. It did for Al Capone and maybe it will be something mundane that finishes the most globally reviled leader of the free world of the past 200 years.
The overriding theme of the last two years has been uncertainty. By this time next year the future path for the global economy will be far clearer. So plan for the best in the medium to long term and exploit all opportunities in the short term.