And now Europe faces the Trump test

US pres­i­dent’s com­ments point to pro­tec­tion­ism that will re­verse decades-long path to lib­eral eco­nomic or­der

Kathimerini English - - Focus - BY NICK MALKOUTZIS

ANAL­Y­SIS One of the big­gest eco­nomic threats that Don­ald Trump, in­au­gu­rated as the 45th US pres­i­dent on Fri­day, car­ries is the el­e­ment of un­cer­tainty. The fact that no­body is re­ally sure what poli­cies he is go­ing to im­ple­ment and what he wants to achieve makes it dif­fi­cult to as­sess what his pres­i­dency could mean for the global econ­omy. His in­au­gu­ra­tion speech cleared up some of this un­cer­tainty but did not ban­ish any of the fears that the next four years will see eco­nomic up­heaval that will se­verely test Europe, among oth­ers.

There had al­ready been con­cerns in Europe about Trump’s eco­nomic poli­cies be­fore he took to the podium as rain fell on Capi­tol Hill on Fri­day.

Trump had said that he would like to with­draw the US from the North Amer­i­can Free Trade Agree­ment (NAFTA) and im­pose tar­iffs on some im­ports, pos­si­bly spark­ing a trade war. He also pledged a 1-tril­lion-dol­lar pub­lic in­vest­ment pro­gram, which Greece’s Al­ter­nate Fi­nance Min­is­ter Gior­gos Hou­liarakis, among oth­ers, warned could have an im­pact on the US’s cur­rent ac­count and lead to the dol­lar weak­en­ing against the euro.

The Greek of­fi­cial was also one of those who cau­tioned that the Fed­eral Re­serve could raise its in­ter­est rates if it deems Trump’s poli­cies to be in­fla­tion­ary, lead­ing to a tight­en­ing of liq­uid­ity around the world, not just in the US.

Last month, the Fed raised in­ter­est rates for only the sec­ond time since the 2007-09 fi­nan­cial cri­sis in the US, and last Wed­nes­day, the Fed’s Chair Janet Yellen said it “makes sense” for the Amer­i­can cen­tral bank to grad­u­ally raise rates to avoid a “nasty sur­prise” such as “too much inflation, fi­nan­cial in­sta­bil­ity, or both” in the fu­ture. She warned that rais­ing in­ter­est rates sud­denly could risk tip­ping the US econ­omy into re­ces­sion.

Euro-dol­lar ri­valry

In­creases in Amer­i­can in­ter­est rates could lead to the dol­lar ris­ing and of­fer­ing greater re­turn to in­vestors, spark­ing an ex­change rate con­test with the euro, which hit a 14-year low against the US cur­rency in De­cem­ber.

How­ever, it is when one steps back from the me­chan­ics of the global econ­omy, and the in­trin­sic part the US plays within it, that the most se­ri­ous warn­ing signs can be seen.

Trump’s speech on Fri­day was light on the finer points of fi­nance and big on broader eco­nomic con­cepts. The most con­spic­u­ous of these was the US pres­i­dent’s in­ten­tion to adopt a more pro­tec­tion­ist stance.

“From this mo­ment on, it’s go­ing to be Amer­ica first,” he told a fairly sparse crowd. “Ev­ery de­ci­sion on trade, on taxes, on im­mi­gra­tion, on for­eign af­fairs, will be made to ben­e­fit Amer­i­can work­ers and Amer­i­can fam­i­lies.

“We must protect our bor­ders from the rav­ages of other coun­tries mak­ing our prod­ucts, steal­ing our com­pa­nies, and de­stroy­ing our jobs. Pro­tec­tion will lead to great pros­per­ity and strength.”

If we can over­look the irony of an arch-cap­i­tal­ist pledg­ing to use pub­lic money to be­come the “great­est job pro­ducer God has ever cre­ated” and the head of the world’s fore­most mar­ket econ­omy claim­ing growth will come through erect­ing bar­ri­ers to com­pe­ti­tion, Trump’s com­ments on Fri­day are a se­ri­ous cause for con­cern. Europe sud­denly faces the pos­si­bil­ity of be­ing re­garded as an ad­ver­sary rather than a part­ner.

“Trump sees Europe, es­pe­cially, as an eco­nomic ri­val to the US,” Miguel Otero-Igle­sias, a se­nior an­a­lyst at the El­cano Royal In­sti­tute, told Kathimerini English Edi­tion.

“This means that he will not be too con­cerned whether the EU or the eu­ro­zone frag­ment. He sees this as the de­feat or weak­en­ing of a com­peti­tor,” he added.

While the world has ex­pe­ri­enced fluc­tu­at­ing in­ter­est rates and cur­rency val­ues over the last few decades, as well as en­dur­ing ma­jor fi­nan­cial and eco­nomic crises, it has not had to con­tend with pro­tec­tion­ism driven by na­tion­al­ist fer­vor since be­fore the Sec­ond World War.


Ev­ery step the in­ter­na­tional com­mu­nity has taken since then has been de­signed to cre­ate an eco­nomic interconnection that also merges na­tional in­ter­ests, en­sur­ing no­body has any­thing to gain by strik­ing out on their own at the ex­pense of oth­ers. Should Trump be true to his word, loom­ing trade wars could threaten this lib­eral eco­nomic or­der.

The European Union, which has strug­gled to deal de­ci­sively with the cri­sis that broke out in its sin­gle cur­rency area in 2010, is now fac­ing a com­pletely dif­fer­ent type of chal­lenge.

“Europe will have to adapt to a more in­ward-look­ing and pro­tec­tion­ist US,” said Otero-Igle­sias, who spe­cial­izes in in­ter­na­tional po­lit­i­cal econ­omy. “This means that it will have to fill the gap and be­come the up­holder of the lib­eral or­der. It also means that it will have to de­velop its own type of cap­i­tal­ist model, based more on the so­cial-demo­cratic and Christian-demo­cratic val­ues of the con­ti­nent.

“In other words, it would need to help build a more em­bed­ded lib­er­al­ism. If it doesn’t, neo-na­tion­al­ism will take over,” warned Otero-Igle­sias.

Greece, fac­ing an un­cer­tain eco­nomic fu­ture any­way as long as its re­la­tion­ship with its cred­i­tors is not set­tled, is more vul­ner­a­ble than most to this po­ten­tial up­heaval.

De­fense Min­is­ter Panos Kam­menos, who leads the ju­nior coali­tion part­ner In­de­pen­dent Greeks, and Dig­i­tal Pol­icy Min­is­ter Nikos Pap­pas trav­eled to Washington for Trump’s in­au­gu­ra­tion. They spoke at an event held in honor of the Greek Amer­i­cans in Trump’s ad­min­is­tra­tion and met with the new pres­i­dent’s chief of staff, Reince Priebus, who has Greek roots.

While ac­quaint­ing one­self with the new faces in Washington makes diplo­matic sense, there also seems to be a be­lief in Athens that the Greek Amer­i­cans in the Trump team could play a sig­nif­i­cant role in shap­ing US pol­icy to­ward Greece. Such a pos­si­bil­ity should not be dis­missed, but the tone and con­tent of Trump’s in­au­gu­ra­tion speech sug­gests the fac­tors that will be at play over the com­ing months and years will ex­tend far beyond Greece’s bor­ders and in­ter­ests.

The signs so far sug­gest that the coun­try’s de­ci­sion mak­ers will have to up their game and broaden their field of vi­sion to be pre­pared for what may be com­ing. They will have to think big, or huge, as the new US pres­i­dent might say.

Demon­stra­tors hold up ban­ners dur­ing a protest against the in­au­gu­ra­tion of Don­ald Trump as US pres­i­dent out­side the US Em­bassy in Lon­don.

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