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Italy, Migrants, and the European Union Control the Fate of the Inevitable Next Financial Crisis
A year ago, it seemed that Europe managed to avert a financial crisis that threatened a repeat of September 2008.
However, “surprising” economic data and Emmanuel Macron’s win over “populist” Marine Le Pen in the French presidential election produced a bullish rebound effect.
Political risk dropped and equity markets around the world had air to breathe another day—even another year.
A financial crisis was averted.
Yet, that effect has waned. Political risk from Europe (not to mention other areas) now has grown far beyond what it was in 2017.
China Isn’t Helping
Adding to this is evident—if undeclared—bear market in China, where investors fear the effects of a brewing trade war with the United States. Meanwhile, the U.S. stock market is about eight percent off its January record.
Back to Europe, North American banks are downgrading European equities from “market weight” to “overweight.” And stocks, like airplanes, perform better when they’re not carrying too much baggage.
Europe has long passed the “overweight” moment, in risk terms.
Economic performance has worsened, even before the most pessimistic expectations. Yet, thanks in no small way to President Donald Trump’s trade wars, nobody has the brakes to stop the financial crisis from ending the current—limited though it has been—phase of economic growth.
Trump (or his advisors) has shaped his policies with a view toward isolationism. But the rest of the world, for well over two decades, has adapted to the realities of free trade.
Adapting to Tariffs Will Cause Turmoil
For better or worse, a return to tariffs and barriers needs time to work and to allow the various players to adapt.
There are no assurances that the adaptation will work. Nevertheless, you can rest assured that unemployment will increase globally.
In the post-Cold War era, developing countries (most of the world, even when you exclude China and India from this group) have built their economies following prescriptions from economists in the West.
