With the election of Trump in America and of Macron in France many thought that Europe and the United States would begin to drift away from each other at the ever-accelerating speed with which the stars have drifted across the cosmos since the day of the Big Bang. On the one hand the triumph of populism, on the other that of the liberal rationality. There the launch of economic policies marked by adventurism, with tax cuts that would have exploded the deficit, debt and interest rates, here the broadening of the consensus for sober and prudent budgetary policies, with Macron committed to reporting France within those parameters of Maastricht which it had never respected for decades.
The corollary of this narrative was that America could at best enjoy a burst of drugged growth for a few quarters, only to then plunge into recession due to the inevitable rise in interest rates, while Europe, having ward off the populist threat and in motion the process of creating a federal state would have inherited the function, perhaps to be shared with China, as an island of stability, growth and free trade.
Hence the belief that the decoupling on the stock exchanges it would finally come true, with an expensive, tired and run-down America on one side and a relatively cheap Europe, with sharply growing profits and ready for a big upside fueled by capital from all corners of the planet on the other.
A first blow to this narrative, at least in terms of image, came frommeeting in Paris between Macron and Trump. Socialisme ou barbarism, he has always liked to say the French left quoting Friedrich Engels. And there they were, socialism and barbarism, having dinner together on top of the Eiffel Tower in an atmosphere of ostentatious cheerfulness and friendship.
Show politics, they say. Tactical utility for both to have a bank to get out of isolation (Trump) or the suffocating embrace of Merkel (Macron). In short, things that leave the time they find.
Other things, however, some visible and some less visible, go in the same direction, that of one convergence, rather than a divergence, between Europe and America.
Here we are preparing, as they say, to have more Europe. It is one of Macron's two strong ideas (the other is labor reform) to create a European fiscal policy, to harmonize taxation (with France lowering taxes a bit and all the others raising them French level), to create a federal tax capacity and to manage everything with personnel coming from the French technocracy.
In America, on the other hand, we move to have less America and for dismantle one of the three pillars (health, pensions, military spending) with which the policy of transfers between states is implemented, the one that little and secretly is done in Europe (via the ECB) so as not to disturb Germany. The idea of devolving healthcare to the 50 states is well advanced. The initiative is promoted by Republicans (everyone from the right wing of Breitbart and the Tea Party to the proud anti-Trump Senator Graham) and would allow them to get out of the mess they got into with the failed attempt to reform Obamacare.
Democratic states could thus try to introduce a single European-style health service (if they have the money to do so) and republican states could reintroduce the market and competition and everyone, in the end, would have what they wanted. This was the case in 1996, when it was decided to devolve federal welfare subsidies to the states. To everyone's satisfaction.
It will be objected that if Europe builds the federal state while America is discussing whether to dismantle an important part of it, this is divergence, not convergence. However, it becomes convergence if you meet halfway.
This midway convergence is now also evident on other, less structural planes. The currency policies are one example. Between a clearly undervalued euro and an overvalued dollar we are meeting at an intermediate point. It is possible that the equilibrium level is higher, between 1.25 and 1.30, but the more it is done and the rest will be better done slowly, perhaps in the next two years.
La devaluation of the dollar is Trump's real big surprise, which first raised the bar with protectionist rhetoric and then reached a good compromise by convincing everyone else to reevaluate to avoid a trade war. Today the dollar is still overvalued, but not by much, and the world is more balanced. With a stronger exchange rate, pathological exporters (Germany and China) will have an incentive to strengthen domestic demand (and for Germany, domestic demand is European).
There is convergence, virtuous, also in terms of growth. The distance between the American 3 percent in the second quarter and the European 2.8 percent (both accelerating) is now narrow.
The price we paid on the markets for this rebalancing was the decoupling freeze on the European stock exchanges, which are now lower than when it was understood that Macron would win the elections. It is a price that we will continue to pay if the euro continues to strengthen, but if this strengthening is, as we believe, much slower, the European stock markets will also be able to benefit from the good performance of our economy.
Those who have dollars in their portfolio will be able to neutralize their residual weakness by buying gold in moments of decline (gold also tends to protect against possible stock falls) and, even more, by choosing the securities of major exporters on the American stock exchange.
Those who have euros, on the contrary, as well as benefiting (even if they don't realize it) from the appreciation of their currency, will be able to round off by favoring the stock markets of the European periphery, including Italy fully, and the sectors most exposed to the domestic market.
