Let’s start with the G20 meeting in Hamburg early July. After a warm welcome in Warsaw (Poland), Trump was greeted by protestors in Germany. His demeanor and isolation at the meeting unsettled the US allies (1). Back home, he declared that the US will be pulling out of the Paris Agreement on climate change.
On July 14, Emmanuel Macron, the new French president, welcomed the President of the United States at the Bastille Day parade which this year commemorated the American involvement in WWI, 100 years ago. A contingent of about 200 US troops led the Parade on the Champs Elysees: https://www.youtube.com/watch?v=tcBfUVIeKPk, and US Air Force Thunderbirds and an F-22 Raptor participated in a flyover of the parade: https://www.youtube.com/watch?v=aZWpn-MPZB8).
While America seemed busy with the Russian investigation and the Scaramucci affair, Macron embarked in a series of reforms including the ‘herculean’ task of reforming the French labor market! This is likely to result in strikes this Fall (quite common at this time of year anyway!). Support for Macron has dramatically diminished from a high 64% after his election in May to a low 36%, as a result of a couple of faux-pas and mis-communication. Challenges await him!
Meanwhile, in nearby Germany, Chancellor Merkel is preparing for the federal elections on September 24. If re-elected, this would her 4th term. Contrary to the previous Dutch and French elections, her challenger Martin Schulz (ex-European Parliament President) is pro-Europe and pro-euro, as she is. As of today, Merkel is likely to win.
From a low 1.05 at the beginning of the year, the euro is now at 1.20 to the dollar. The European economy has been strengthening (2). We even talk of Greece slowly emerging from its doldrums, despite a public debt level reaching nearly 180% GDP. Unemployment has decreased (though still in the 20% range), and the public deficit is now within the EU rule. A renewed investors’ interest may help the recent issue of government bonds. China has been investing in the country, e.g., having bought the Piraeus port in 2016 as part of its Silk Road-Maritime Route initiative, an infrastructure project which is sprawling through Asia and Africa to Europe and involving more than 60 countries (3) . Meanwhile, Italy has “stepped in to wind up two failing lenders and prevent a bank run, at a total cost of up to €17bn” (4).
Brexit negotiations are finally underway, the first meeting took place in July. Not the most amicable ambiance between David Davis, the UK negotiator (on the left), and Michel Barrier, the EU negotiator (on the right)! The EU has estimated the UK exit bill at about €60bn. The UK has finally announced that it will look to maintain a customs union with the EU until full negotiations are over, basically to avoid a ‘cliff-edge’ upon expiration of the 2-year timeframe to negotiate the separation. Meanwhile Eurozone banking supervisors are pressing financial companies to plan relocation of some of their activities currently based in the UK to the Continental Europe (5).
In July, British regulators announced plans to phase out the Libor ‘as is’ by 2021. This is in response to the manipulation scandal which took place in 2008/2009 which resulted in billions of dollars fines for the involved banks and jail time for some traders. In an unprecedented move, the FDIC has just announced filing a new suit against European banks, but this time in a London court.
And what about the US? The stock market still runs high, and gold has surged above the $1,300 level. After having slashed duties on imports of softwood from Canada and reached an agreement with Mexico regarding sugar, the US has started the re-negotiation of NAFTA with both countries. Meanwhile, it has imposed economic sanctions against Venezuela, sparing the oil sector !(6)
Quite a busy summer! sometimes, I wonder what comes first: geo-economics or geo-politics… or are they so intertwined that one cannot understand one without the other one!