AFTER ITALY: DEALING WITH THE POPULIST MENACE IN EUROPE

Financial markets have taken the surge in support for radical anti-establishment parties in Italy in their stride so far. Does that make sense? Yes and no. Yes, the ultimate tail risk that Italy may leave the euro remains very small, although it has edged up a bit. No in the sense that the success of the 5Stars and Lega has raised some serious risks for Italy and read more

GERMANY: A NEW TERM FOR MERKEL

Europe and Germany can breathe a sigh of relief. Germany’s centre-left SPD has agreed to join chancellor Angela Merkel’s centre-right CDU/CSU in a renewed “grand coalition”. SPD members endorsed the draft coalition deal which party leaders had struck four weeks ago with a 66% majority, that is by a bigger margin than expected. This bodes well for the stability of the new government.

The Bundestag is scheduled read more

BACK TO THE OLD NORMAL

Could it be too good to be true? Some clients are responding to our upbeat macro outlook for 2018 with this question. Almost all seem to agree that the world made progress in 2017, that the starting situation for 2018 looks auspicious, and that the inevitable risks do not loom larger than usual. However, can the good times really last much longer? Very few clients probe the read more

SLOWLY GETTING REAL: THERESA MAY’S BREXIT SPEECH IN FLORENCE

Slowly, slowly, slowly, the British government is getting real about Brexit. Prime MinisterTheresa May’s Florence speech marks another modest step in that direction. After a referendum campaign in 2016 in which blatant distortions of the truth had carried the day, the United Kingdom is on the way towards acknowledging the facts of life in Europe.

The facts are simple:
• Upon leaving the European Union on 29 March read more

THE GERMAN PROBLEM? IT’S COMPLACENCY, NOT THE CURRENT ACCOUNT

Three weeks ago, The Economist diagnosed a „German problem“. The newspaper tends to know my home country quite well. A few months after I had called Germany “the sick man of Europe” on the cover of a research report, The Economist made the label stick by putting it on its own cover in June 1999. But today, contemplating the surge in German Ifo business confidence to a read more

ADVANTAGE MACRON: SERIOUS REFORMS AHEAD

Advantage Macron. With a solid majority of around 355 out of 577 seats in the French National Assembly according to an Ipsos poll update at 20:53h Paris time, France’s new president has a unique opportunity to reform his country and strengthen the EU27 and the Eurozone in the process. Although Macron’s centrist REM party did not do quite as well in the second round of the parliamentary read more

NOTES ON THE FUTURE OF BRITAIN

Britain is a great country. Combining a charming quirkiness with flexible markets for labour, services and goods as well as an admirable openness for skilled migrants, Great Britain today has the most dynamic economy of all major European countries as measured by its trend rate of GDP growth. Its superb armed forces, its top-notch intelligence services and its competent bureaucracy allow Britain to punch well above its read more

THE MACRON EFFECT: CAN FRANCE OVERTAKE GERMANY AGAIN?

THE BIG PICTURE: TRADING PLACES
Over the last seven decades, Germany and France have taken their turns at the top. (West) Germany enjoyed its post-war economic miracle in the 1950s before France caught up in the 1960s and 1970s. Following a German rebound after 1985, Germany became the sick man of Europe from 1995 to 2005 while France moved ahead. Thanks to its “Agenda 2010″ reforms of read more

FRANCE: HOPE BEATS ANGER

THE POSITIVES
• The staunchly pro-European reformer Macron is in the pole position to be the next French president. He is better suited to defeat Le Pen than Fillon would have been.
• The result is more than a risk avoided. It offers a genuine chance to reform France and strengthen the Eurozone and the EU.
• More than two points behind Macron, Le Pen got less support than polls had read more

THE BREXIT BRIEF

Today, the UK will file for divorce from the European Union. This is the worst setback ever for the process of European integration that started with a six-nation coal and steel community in 1952. Over the last 12 months, we have written extensively about the potential impact on the UK and the EU. Below, we summarise our key views in 10 bullets:

Brexit is inevitable. After the two-year read more