A month ago I posted an update which looked at preliminary plans for reform of the European Union, as announced by President of the European Commission Jean – Claude Juncker. I argued that for reforms to advance beyond rhetoric conflict would have to be generated within the union to justify to citizens the need for treaty adaptations and further consolidation of power.
Juncker’s proposals for reform came during his State of the Union Speech on September 13th, 2017. Twenty four hours later, Reuters quoted Juncker as saying that an independent Catalonia would have to apply for membership of the European Union.
If there were to be a ‘yes’ vote in favor of Catalan independence, then we will respect that opinion. But Catalonia will not be able to be an EU member state on the day after such a vote.
Just over two weeks on, Catalonia overwhelmingly voted for independence. The latest is that Catalonia’s President, Carles Puigdemont, has signed a declaration of independence but has yet to implement it due to ongoing talks with the Spanish government, led by Prime Minister Mariano Rajoy. Rajoy has given Puigdemont until next week to officially declare independence.
It should be recognised that Catalonia represents around 20% of Spain’s gross domestic product. The region’s secession from Spain would have a catastrophic impact on the country’s economy.
Former Italian Prime Minister Enrico Letta was quoted last week by CNBC as saying,
Europe needs a solution and Europe needs to avoid this chaos — chaos can be like a virus and we need to avoid chaos.
We were exiting from the main political problems in Europe and now this Catalonian issue risks bringing a new virus and new chaos.
Many believed that after Marine Le Pen’s defeat to Emmanuel Macron in France and Geert Wilders defeat to Mark Rutte in the Netherlands that ‘populism‘ was on the wain in Europe. What they failed to acknowledge is that whilst the ‘far right‘ were unsuccessful in attaining power in these countries, the growth of both movements was substantial – to the point where they became prominent opposition to the ‘status quo‘. The AfD’s rise to the third largest political party in the German Bundestag in September was another expression of the growth of ‘far right populism‘.
Ultimately, chaos is the formula that globalists traditionally use to implement greater centralisation of powers, both economically and politically. The globalised structure in which the world operates means that chaos on one side of the planet invariably spreads to the other, generating the conditions for conflict. And out of conflict comes consolidation of power into fewer and fewer hands.
Right now it appears as though Catalonia will be pushed all the way to invoking the referendum result and declaring independence. Much as we are seeing in the UK with Brexit.
Catalonia is one of many potential triggers that could be used to galvanise support for wide scale reform of the EU. The upcoming Italian elections in 2018 are also one to watch. The ‘populist’ 5-Star Movement party has now elected it’s leader for the elections, Luigi Di Maio, and are said to be running neck and neck with the centre-left ruling Democratic Party (PD).
On a wider front, institutions such as the IMF and the Bank for International Settlements are persisting with the narrative of populism, nationalism and protectionism being a danger to global financial stability. In my view this is an indication that political ‘turmoil’ through Brexit, Trump and other expressions of ‘populism’ that are still gestating have a long way to run.
- Federal Reserve officials see the economy expanding at a steady clip and indicate that an interest rate hike later this year is a near lock, despite some divisions over where inflation is headed.
- Minutes from the September meeting of the policy making Federal Open Market Committee show members anticipating that the factors slowing down inflation will pass. The expectation is that inflation will hit the 2 percent target the central bank believes is consistent with healthy growth.
- In conjunction with those sentiments, the FOMC indicated that a third increase in 2017 of its benchmark funds rate is warranted.
- Traders broadly expect the Fed to hike in December. Just a month or so ago, traders in the federal funds futures market gave little chance to another move in 2017.
- For the first time in years the International Monetary Fund is optimistic about global economic growth. But it sees a new problem: mounting debt in the world’s largest countries.
- “Debt levels are increasing in G20 economies,” Tobias Adrian, who heads the IMF’s monetary and capital markets division, said Wednesday.
- Among private businesses in those countries, leverage is higher than before the financial crisis. And the weight of debt service has also jumped in several top economies, he noted.
- With central banks in the United States and Europe expected to tighten monetary conditions, he said, “This poses greater risks over time from sharp increases in interest rates.”
- The International Monetary Fund has said the global economy’s recent recovery may not last, despite a pickup in activity in all western countries except the UK.
- Marking the 10th anniversary of the onset of the financial crisis, the IMF said in its World Economic Outlook (WEO) there was a risk that governments could be lulled into a false sense of security by booming markets and policymakers needed to guard against complacency.
- Maurice Obstfeld, the IMF’s economic counsellor, cited high asset prices, rapid credit growth in China, political turmoil in Catalonia and a cliff-edge Brexit as risks to an improving global outlook.
- “We very much hope these negotiations can be constructive and minimise the costs to both sides”, Obstfeld said. “That is in everybody’s interest. A cliff-edge Brexit without any formal arrangements would lead to a lot of uncertainty.”
- Obstfeld said the backlash against globalisation, which had been stoked by stagnant wages and the loss of well-paid, middle-skill jobs, was one of the threats to the global economy. The IMF believes sustaining expansion will require policymakers to avoid protectionist measures and “do more to ensure that gains from growth are shared more widely”.
BIS: Andreas Dombret – What’s the future of globalisation? What’s the future of free markets? European optimism in an uncertain world
- We are far from having found sustainable solutions to the root causes of populist success. This is mirrored in the first far-right party entering the Bundestag since 1949: Alternative for Germany, or AfD for short. It is now the third-biggest party in the Bundestag, with almost 13% of voters supporting it.
- If we do not solve these actual challenges, populist influence might well grow – and that would put global and European cooperation at risk. These unresolved economic tensions could become the roots of serious political conflict.
- The EU appears stronger today than it did a year ago. This was mirrored in Commission President Jean-Claude Juncker’s State of the Union address on 13th of September, and in French President Emmanuel Macron’s plan to reform the EU, as set out in his speech on 26th of September. I agree with them that a strong EUis in the best interest of all Europeans and that it can play an important role in international relations.
- But I think that we should get the order right: first reform, then the next steps towards more integration. Taking economic and monetary union as an example, there remains a lot to be done to become a stable monetary union – in the case of the United States, it took more than a century of conflicts.
- In an interview with NPR’s Robert Siegel, Fischer says that despite record highs in the stock market — boosted by the Fed’s low interest rates — he doesn’t see a bubble. Fischer also says that the $20 trillion national debt is not worrisome currently, but if interest rates go up that could cause “significant problems” for the federal budget.
- “We don’t think we’re in a situation where we have an inflationary bubble or an unsustainable set of prices in the asset markets, but we don’t comment on that very much and I shouldn’t go on.”
- “You’re in a professional agency with a legal mandate to keep prices stable and to keep full employment. That’s the role of the Fed defined in the law. … And then you have to deal with difficulties at the margins, like … financial stability. That’s not a major part of the law; it maybe should be.”
- Output in the UK’s industrial sector improved for a third straight month in August, with an much better than expected improvement in manufacturing pushing growth to its highest level since February. Overall industrial production increased 1.6 per cent year on year, twice as fast as the 0.8 per cent rate economists had predicted.
- Manufacturing – the biggest sub-sector of the overall figures – was the main force behind the improvement, with annual growth rising from 1.9 per cent to 2.8 per cent. Production of cars dipped after a shift to new models drove a large increase at the start of the third quarter, but the decline was more than offset by growth in pharmaceuticals and metal product production.
- The ECB last week issued new proposals that will force banks from 2018 to set aside more cash against newly classified bad loans and, early next year, could revise recent guidelines for the reduction of the soured debt stock.
- Italy – whose banks hold nearly 30 percent of the bloc’s 915 billion euro bad loans – has reacted angrily to the proposals, asking the ECB to soften them following a public consultation that runs until Dec. 8.
- Separately, the ECB also said on Monday that 51 unnamed large euro zone banks are leaving themselves exposed to a sudden change in interest rates and may need to aside more capital against that risk.
- Asked whether the ECB this month should provide a firm date to end its quantitative easing program, Mersch said: “While it is true that the outlook has considerably improved, broadly-based, geographically and also across different sectors, it is also true that we have seen some disappointments in the development of inflationary pressures.”
- “By streamlining the regulatory system, we can make the U.S. capital markets a true source of economic growth which will harness American ingenuity and allow small businesses to grow,” Treasury Secretary Steven T. Mnuchin, said in a statement.
- The Treasury report addressed a wide swath of capital markets development from equities and Treasurys to corporate bonds and derivatives.
- The Treasury made several recommendations, including repealing sections of the Dodd-Frank Act involving disclosure requirements for mining and other natural resources companies and company disclosure of annual employee compensation compared with that of the chief executive officer.
- The United States needs to reform its tax system, invest in infrastructure programs, overhaul its immigration policies and cut business regulations, said Christine Lagarde, managing director of the International Monetary Fund.
- In an interview that aired Friday on “Squawk on the Street,” Lagarde said the strength is coming from about 75 percent of the economies around the world. “In other words, it’s not one country that’s leading the charge. It’s not only the emerging market economies that used to be the case. It’s Europe. It’s the United States. It’s Japan. And it’s China of course and India, plus a few other countries.”
- “We have said regularly, and very strongly in the last review of the U.S. economy, that tax reform is a must. Tax reform in the U.S. is an imperative,” she said. “It has to be simpler. It has to be a lower corporate rate. It has to eliminate all the exemptions … that make the system so complicated. It has to be focused on improving the situation of the middle class. It has to be conducive to more labor.”
- Lagarde did cite growing “debt around the world” as a concern, saying debt of all kinds — both public and private — has gone up since the 2008 financial crisis.