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November 11, 2016

What Trump means for Europe ...

There is a lot we don't know about the Trump presidency, but it will have an important impact on global security, and especially on the EU which is unprepared for any shock that comes its way. We thought the best comment of the day was by Robert Cooper who made the following point about the EU's ability to draw the right conclusions, and to construct a genuine foreign and security policy:

"Instead of asking whether Donald Trump is serious, we should ask when we are going to get serious ourselves, collectively. Here are three difficulties: first our record of getting serious is not good. Second, it would be better to do this with the UK but maybe that’s no longer possible; third the United States itself has been an important element of the glue that keeps the EU together. That is surely over. Now it’s up to us." 

We agree specifically with his point about the UK. The UK, together with France, is the EU's most important security power. The EU will need extensive policy and military cooperation with the UK post-Brexit, and this means that hard-Brexit scenario are not in the security interest of the EU itself. This view was also expressed by an unnamed UK government official, according to Bloomberg, who pointed out that security would become part of the Brexit negotiation. The UK has the second-largest defence budget in Nato, and strong capabilities in anti-terrorism and cyber-security. Coincidentally, after Brexit Jean-Claude Juncker had to replace the Briton Jonathan Hill as commissioner for financial services, and gave Julian King a security portfolio centered on organised crime and counter-terrorism.

Werner Mussler writes in Frankfurter Allgemeine that Donald Trump is a disaster for Germany in particular. There is no way now that Germany can get away with its extremely low rates of defence spending, as even the recently agreed increases are well below to what Germany committed to, but never fulfilled. And, since Germany has healthy public finances, it will not be in a position to deny the request. 

"It would not be without irony if the federal government would have to acceed to the permanent demands by the EU and the IMF for higher fiscal expenditures because of Trump." 

That falls under the category of events intruding. Mussler also makes Trump will mean more global protectionism, which in itself will be a disaster for Germany in particular, given the country's dependency on exports.

One of the countries where Trump's victory was celebrated, other than in Russia, was Turkey. Asli Aydintasbas writes that this is in part to do with Trump's support for Racep Tayyip Erdagan after the coup, coupled with the hope that Trump is far more likely to extradite Gulen. What also matters Trump's promise to not get involved in Syria, which strengthens Turkey's role in the region, as a partner to Russia.

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November 11, 2016

... for the economy ...

The honest answer to the question of the economic consequences of Donald Trump is: we don't know. It is probably not sensible to construct the answer out of everything he said during the campaign. Nor would it be sensible to dismiss everything. He will deliver on some of his promises, but not all.

There is a lot doom and gloom around, including this rather hasty article by the Economist, which predicted a market meltdown that of course, didn't materialise. On the contrary, the markets have greeted the Trump presidency with joy.

Our favourite comment on the economic consequences is by Narayana Kocherlakota, who makes a point that Trump is the only Keynesian around. And that means he is good for the economy. Right now, central banks are struggling to meet their inflation targets because the natural real rate has fallen - and is probably now negative.

"Increasing debt and spending would likely stimulate growth and boost the government's borrowing costs, pushing up on the natural real rate of interest. This would enable central banks to maintain higher rates while still hitting their inflation and employment targets, giving them more ammunition to fight future recessions. In this way, Trump’s economic plans could help reduce a key source of economic uncertainty for the globe."

Martin Wolf make a similar point, but arrives at a different conclusion because the timing is all wrong: 

"...it would be deeply ironic if Mr Trump carried out, with Republican support in Congress, precisely the sort of Keynesian fiscal stimulus congressional Republicans adamantly opposed when reasonably suggested by the administration of Barack Obama in 2009. Unfortunately, the timing would be far worse since the US economy of today is vastly closer to full employment than it was back then."

Jonathan Portes wonders what Trump means for the future of the Fed. It may well be that his policy proves to be inflationary, resulting in a sharp rise in interest rates and a political storm. While Trump cannot sack Janet Yellen, her position might become untenable. If she quits (or when her term expires in 2018), he can replace her with a candidate to his liking, but with a lot less credibility.

Apart from the fiscal and monetary policy consequences of Trump, the other important economic implication will be on trade. There are still some in Europe, who believe that TTIP can be rescued. We think that this is highly unrealistic even if Trump changed his mind. There would be a civil society uprising in the EU if a pact were to pass that would effectively exempt US investors from the rule of law in Europe.

More serious is Trump's threat to veto the already agreed TPP deal. We noted an FT story this morning on China seeking an alternative trans-pacific trade deal, which would constitute a highly relevant geopolitical event in itself.

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November 11, 2016

The new era of chaqu’un pour soi

Donald Trump marks the end of an era of "happy globalisation," writes Francoise Fressoz. Now it is the time of chaqu’un pour soi, every nation for itself. For France, this trend is not new. Since the Maastricht treaty was signed in 1992 they talk about two nations, the France that benefits from globalisation and the other France that suffers from delocalisation and deindustrialisation. Nicolas Sarkozy was the first to ride on this wave in 2007. Marine Le Pen has her whole programme built around this idea. For the Socialists it will reopen the dangerous rifts that first appeared in the campaign for the constitutional treaty referendum in 2005. Candidates like Jean-Luc Mélenchon or Arnaud Montebourg are now likely to return to a protectionist rhetoric, while Manuel Valls now talks about the need for frontiers and immigration control. 

We also noted an Ipsos survey for Le Monde a couple days ago, that looked at French attitudes towards democracy and its alternatives. For the majority of those polled, democracy works less and less well. Only two thirds consider democracy the best of all systems, down from three quarters in 2014. And the more worrying result is that one out of five prefer an authoritarian system. Politicians are seen as out of touch with the people. And Francois Hollande made it worse. There is an enormous responsibility here for the presidential candidates, starting with the ones for the Republican primaries, writes Matthieu Croissandeau for Nouvel Observateur. 

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