June 29, 2018

Europeans confronts their destiny

Management comment

To define the sport of football, we have the habit of saying that it is a (foot) ball game played by 11 players from each team and in the end Germany always wins. This is (fortunately) not always true however. The Mannschaft’s defeat may ultimately serve as a lesson to Angela Merkel and the German political system as a whole. The non-renewal in football, like in politics, creates the conditions for individual and collective failure. Pressured internally by the powerful conservative Bavarian CSU, Angela Merkel, unbeatable but currently destabilised by the American grossbruder (big brother) in terms of international commerce, must find a response with her European allies on the subjects which are preoccupying citizens (migratory flows, rebalancing wealth distribution, reducing the weight of certain debts...). Germany’s leadership is disconcerting today, whereas it represented a harbour of stability during the various crises in the eurozone.

The United Kingdom is the other country which is preoccupying the markets. The UK shares a common history with Germany as these last two royal dynasties are descendants of the Germanic nobility (the houses of Hanover and Saxe-Cobourg-Gotha). For the time being, nothing is ready for the Brexit on 30th March 2019. A hard Brexit would be a catastrophe. Warnings from industrialists within certain sectors (aerospace, automobile...) have so far had no effect. Brexiters are continuing to say that the Brexit (voted in June 2016) has changed nothing for the UK economy (which has been disproven by published data). On the other hand, there has been no Brexit yet. The UK is still in the European Union.

Between the Italian 2019 budget vote in the autumn and the disputes within the Franco-German couple over eurozone reforms, it is currently difficult to be confident about the old continent. There has been some initial progress however: the Europeans appear to have reached an agreement on the subject of migration on the first day of the European Council.

Furthermore, indicators (the rate of job creations has reached 220,000 per month in 2018 which is close to the level in 2017) continue to demonstrate a growing economy. Will this suffice to stem the outflow of funds from European equity markets? To be continued...as they say in American TV series.

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in June 29th, 2018.

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To define the sport of football, we have the habit of saying that it is a (foot) ball game played by 11 players from each team and in the end Germany always wins. This is (fortunately) not always true however. The Mannschaft’s defeat may ultimately serve as a lesson to Angela Merkel and the German political system as a whole. The non-renewal in...
2018-06-29