Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

These Are the 3 Main Issues for Europe in 2017

Politics / European Union Jan 21, 2017 - 06:44 PM GMT

By: John_Mauldin

Politics

BY GEORGE FRIEDMAN AND JACOB L. SHAPIRO : What will the year ahead look like for Europe? 2017 will be another chapter in the European Union's slow unraveling… a process that has been underway for over a decade.

The EU is a union in name only. The transfer of sovereignty to Brussels was never total, and member states are independent countries… each with their own interests at stake.


Here are the major forces at work.

The Italian Crisis

Italy's banking crisis has played a key role in the destabilization of its domestic politics. The main problem is the Italian banking sector’s high rate of non-performing loans (NPLs). Approximately 17% of all loans from Italian banks are NPLs, according to the European Banking Authority. The bank currently making headlines, Banca Monte dei Paschi di Siena, had 45 billion euros ($47.4 billion) worth of NPLs and other doubtful loans when its problems came to light in 2016.

But the issue here is not simply money. The balance sheets of Italian banks don’t exist in a vacuum. If the European Central Bank were to bail out Italy, it would mean, in effect, that all of Europe would be paying for the bailout.

Greece, which had austerity forced upon it, would cry foul. The German public would object, and Chancellor Angela Merkel’s position would be severely weakened.

Declining German Exports

The major economic issue we expect to see in 2017 is a decline in German exports. The latest World Bank data shows that Germany’s exports-to-GDP ratio is 46.8%.

Neither China nor Russia will be increasing demand for German goods due to their own economic woes. And while Germany has managed to survive thus far by increasing exports to the UK and the US, this is not sustainable. This affects not just Germany, but all of Europe.

The EU is built around a massive exporter: Germany. That makes the EU vulnerable to drops in demand for German exports. It also creates a particular kind of political relationship between Germany and the rest of the EU. This is especially true for countries that are markets for German goods and those that are in the German supply chain.

This dependency and economic architecture has worked in the past. But now, it faces two key challenges. The first is how to increase demand for the products in question (which is not in any single country’s control). The second is that many of Europe’s economies are still struggling due to the 2008 financial crisis.

The EU’s growing socio-economic problems, in turn, are leading to increased nationalism. We saw this manifest in Brexit in 2016. In 2017, this dynamic already is affecting elections in France and Germany. The conversation has shifted from an internationalist position to a nationalist one—even for those who historically have been most committed to the EU (like Merkel).

The Security Question

Security will be an issue for the EU… and here, too, member states’ interests diverge. Some countries are more concerned with refugees than others, and Brussels is still unable to present a universally accepted plan for dealing with the refugee crisis.

There is also the question of Eastern Europe. It wants its security prioritized as it faces an increasingly aggressive Russia. Western Europe is less concerned with Russia on a daily basis and more concerned about Islamic terrorism.

Meanwhile, a Trump presidency is about to shine a very bright light on the future of NATO. This will mean hard choices for many European countries.

The security issues are not as serious as the economic and political issues for Europe right now. But they loom in the background and feed the strain on the EU rather than unite member states in common cause.

The Weakening of the EU

When we look at Europe today, we see less of a move toward EU dissolution than the gradual ignoring of EU directives. At the beginning of last year, George wrote the following, and it remains the general frame through which we view events in Europe:

The EU will survive, and one day you will be able to visit a dusty office in Brussels, much like the European Free Trade Association’s offices in Switzerland, where it still exists. [The EFTA was a British-led alternative to the European Community in the late 1950s and ’60s that is irrelevant today despite the continued existence of its offices.] I am sure the staff will be doing something, writing directives that no one will follow, or even care to object to. I once expected ‘Götterdämmerung,’ the ‘Twilight of the Gods,’ to move the EU. Today I became convinced, not that the EU couldn’t continue this way, but that it really isn’t continuing in any significant way.

Italian banks, German exports, nationalism affecting domestic elections, and divergences on security issues will be the main issues in 2017. But these are really just small parts of a much larger forecast that is slowly hulking toward fruition.

Grab This Free Report to See What Lies Ahead in 2017

Now, for a limited time, you can download this free report from Mauldin Economics detailing the rocky roads that lie ahead for three globally important countries in 2017—and how the economic fallout from their coming crises could affect you. Top 3 Economic Surprises for 2017 is required reading for investors and concerned citizens alike. Get your free copy now.

John Mauldin Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in