Trump's slogan is to make America great again and his administration starts with huge ambitions. The United Kingdom is for the moment withdrawn into itself and in search of a new identity, but with Trump in the White House, Brexit today appears to be a much less risky and perhaps even prescient choice. Xi's China exudes political strength and will to power. Asia and Africa are the terrain on which the future of its economy is projected, now organized in supply chains that have their center in Shanghai or in the Pearl River delta and the factories that are preparing to move to Vietnam, Burma and Pakistan.
Russia plays its non-excellent cards with great skill, sends an image of military strength and with Putinism exercises a global ideological appeal not seen since the Soviet Union of the XNUMXs. Japan manages its decadence neatly, maintains its monocultural identity tooth and nail and guarantees full employment to the entire population, which reciprocates the Abe government with broad approval. India, with its reckless decision to abandon cash by surprise, however confirms that it thinks big and wants to modernize in forced stages. As for Erdogan's Turkey or the theocratic Iran, everything can be said but it's not that they don't have great ambitions.
Latin America, in its centuries-old commuting journey between populism and realism, is resolutely abandoning the former in favor of the latter. Brazil and Argentina have already embarked on the road to recovery, Mexico is equipped to survive Trump and the last pockets of populism are running out of time. Sub-Saharan Africa has passed the very difficult test of collapsing commodity prices without widespread debt crises, holding together the complex structure of its societies and largely maintaining a democratic framework. The political tension, evident in Congo and South Africa, could already have a positive outcome in the coming months. Australia and Canada continue to be oases of stability and the recovery of raw materials ensures that this condition will continue for the next few years.
The soft underbelly of the world, at this point, is confined to Europe and at its southern border, the southern shore of the Mediterranean, a powder keg that offers only the alternative between chaos, very weak democracies and authoritarian regimes.
It is well known that Europe is in an identity crisis and in a state of political paralysis. It is evident that the European idea no longer even warms the hearts of its proponents. That immigration is managed in the worst way and generates more xenophobia than growth is there for all to see. And that stagnation has left deep wounds is confirmed by the fact that the recovery that has been underway for the past two years (paid for in gold with the devaluation of the euro from 1.60 in 2008 to 1.05 today) has not yet stopped the populist tide. If the low quality of full American employment has not stopped Trump in America, the still large European unemployment will hardly restore consensus to our leadership.
The aspect that is less highlighted is that of the complete isolation of Europe, never so evident since the end of the Second World War. Go to Breitbart, the site inspired by Steve Bannon, now Trump's chief strategist. It is a site as radical as it is intelligent, but its intelligence makes the commitment made in the evident and declared design of disintegrating/liberating Europe from the yoke of Brussels even more impressive (soon Breitbart will publish a European edition).
After all, Trump sees Europe through Farage's eyes. It is preparing to respect Merkel to the extent that Merkel will still have power, but it is certainly not preparing to favor it in any way and where possible it will try to weaken it.
Neither Trump nor Putin nor Xi have an interest in a united Europe and they would prefer to deal, from an evident position of strength, with individual nation states. In some respects it has always been like this, but Realpolitik has always involved a recognition of the Union. At the time of the Cold War the two Europes were in bloc with the two superpowers. The euro has been accepted by America, if only as a lesser evil. Obama has been icy towards Europe, but not hostile. Today there is something that never was, a clear dislike.
2017 will likely end with the Union and the Eurozone still standing. Wilders, while rising, is given 36 out of 150 seats in the Dutch parliament. Fillon is given at 70 to 30 in the runoff with Le Pen and Italy, with a new electoral law, will make access to the opposition government very difficult. Merkel, for her part, is heading confidently towards her fourth term. You need caution, however, and not just because of the reduced reliability of the polls. The distance between Fillon and Le Pen is already closing and moods are fluid. If they feel like it, Isis and its sympathizers will be able to weigh heavily on the vote.
However, the baseline scenario remains the one in which a fragile and isolated Europe manages to survive (its real test will be the next recession) but not to find the trigger to reform and relaunch itself in a credible way. Fillon, if necessary, will be an important step forward, but the road blocked by Merkel will always be found on the decisive issues.
In its fragility, Europe will therefore continue to resort to soothing, painkillers and antidepressants such as the undervalued euro and Qe, to which will be added a further modest easing of fiscal policy, which will in any case remain inspired by austerity. These remedies will by no means be decisive, but they will allow us to carry on and will leave the European stock exchanges the possibility of following Wall Street upwards and even overcoming it, at least temporarily, thanks to the favorable exchange rate. And Italy, despite the not particularly glorious conclusion of this bank recapitalization cycle, will benefit from the fact that it has nevertheless completed it, in one way or another, and will even be able to do better, on the stock market, than the rest of the country. 'Europe, at least for some time.
Coming to the short term, we recommend a certain tactical prudence. Many sales in America have been postponed until the new year, when lower capital gains taxes are likely to be paid than today. From 10 January we will then have the quarterly results and it is difficult to think that the strong dollar has not caused some victims among exporters. Therefore, between now and the end of the year, it will be possible to accumulate some liquidity to be used eventually in January.
In the meantime, happy holidays everyone.
