Europe At A Crossroads: How Will It Respond To The Next Shock?

Europe At A Crossroads: How Will It Respond To The Next Shock?
     The title above comes from Peter Briancon’s April 1, 2019 article in this weekend’s Barron’s. With Brexit still unfolding, and burgeoning populist movements across the continent, the idea that the European Union (EU) could crumble is far from fantasy. The continent is in danger of a widespread recession, with Italy already there, Germany teetering and others like France and Spain barely showing an economic pulse.
     Mr. Briancon observes, “the geopolitical challenges that Europe faces this year, raise the question of whether it would find the political will and ability to react swiftly [enough] to an economic shock.” “A shock such as Brexit,” says Isabelle Mateosy Lago, Chief Multi-Asset Strategist at Blackrock, “would hit the EU economy at a time of weakness in economic momentum and sentiment, and this initial impact could be compounded by uncertainty — as to the scope for either monetary or fiscal policy to respond swiftly and boldly enough.”
     “Part of the reason for uncertainty is that these new challenges come amid a changing of the guard in Europe’s leadership,” Mr. Briancon notes. “The politicians and central bankers who saw Europe through the tribulations of the past decade will be retiring in the next few months; and, the new generation of leaders is untested.”
     “I’m not sure we could act together fast enough when the next big one happens,” said a European treasury official, who Mr. Briancon wrote was one of the key architects of the euro zone’s Greek, Portuguese, and Irish euro-zone bailouts of the past decade. Mr. Briancon then goes on to provide economic figures that show continent-wide GDP at +1.6 percent in 2019 and +1.7 percent in 2020. But, I believe those figures are overly optimistic at this time. I refer you to this weekend’s Barron’s and Mr. Briancon’s article for his full explanation and data.
     “A slump in Europe, the world’s second-largest trading market, would have ripple effects on the world economy,” Mr. Briancon wrote. “And, if the slowdown turns into recession, the question for Europe is whether it would trigger a chain of events that might lead to another euro scare. That could happen through another major banking crisis,” he adds, and this time it could be Italy, as opposed to Spain in 2012.
     Europe may well muddle through; but, I still believe that the U.K. will leave the EU; and, the concept of collective government at the expense of sovereignty and individual liberty…….cannot stand.  RCP,

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