The EU remains vulnerable to downturns in the US economy

According to the correspondent of the newspaper Libération to the European community Jean Quatremer, the USA risk to be in a recession in the next 12-18 months.

Financial, economic and trade problems of the United States were and will continue to have a negative impact on the state of the EU economy. This is indicated on Thursday by the newspaper Libération in an article entitled “The European Union remains vulnerable.” The material is written by a correspondent of the European communities Jean Quatremer, the author of numerous books on the EU and international law for his first profession.

The journalist recalls that almost 12 years ago, in February 2007, a mortgage crisis broke out in the United States, which 18 months later “plunged Europe into its worst financial and banking crisis since 1929.” “She was chosen from it for eight years, and the scars from it are still visible,” the author emphasizes.
Considering the impact of the current situation in the US on the EU, he wondered whether it was similar in scope and danger to the previous crisis. “Apparently not,” the author answers. – However, it is clear that Europe once again, still being dependent on the American locomotive, will have to suffer. Not only does it lack the foundations for economic growth, but it is also, because of its structural weaknesses, extremely vulnerable to external shocks.”

“This time the crisis is not financial-banking, but primarily economic, because the US is at risk of being in a recession in the next 12-18 months,” – said Quatremer. At the same time, he adds: “In any case, this is what the markets think, and this is indicated by the current inversion of the curve in the interest rate chart.”

“It is obvious that in the near future it will become more expensive to take out loans for two or five years than for a ten-year period-while the situation should be completely opposite,” the author writes. “And all this points to the fact that investors expect a genuine “storm” in the short term, ” the expert emphasizes.

Under the influence of Trump

“Such an opinion arose among investors under the influence of the policy of [the US President ] Donald Trump – primarily unleashed by him in all areas of trade war, but also the diplomatic tension that has become a consequence of his aggressive unilateral policy. All this is beginning to have a detrimental effect on world trade”, – noted in the material.

The author cites as proof of the existence of adverse trends in the data that the rate of transport of goods in containers, which accounts for 80% of world trade has declined from the level of growth at 6 percentage points in 2017 up to 2 percentage points in 2018. “Such an impact [policy of Trump] leads to the undermining of confidence in world trade was the decline in investment,” – emphasizes Quatremer.

Problems of The European Union

He emphasizes that for the EU “the problem is that its GDP growth, expected in 2019 in the amount of 2%, can not be called successful, which makes the EU extremely vulnerable to the slightest strong wind from other regions.” In particular, the article suggests that Europe should actively participate in the technological race between the United States and China, and in which it is completely absent, in order to strengthen its position. As a result, Europe “does not have many Trump cards” that could allow it to attract investors in the conditions if the GDP growth of the Asian zone remains at the level of 4%.

The author at the same time draws attention to the fact that in the conditions of instability of the financial and economic sphere of the United States in Europe there is also “such a risk factor as the uncertainty of its political situation caused, in particular, by the protests of “yellow vests” in France, as well as the strengthening of the positions of extreme right or populist parties in a number of countries, which risks leading to the fact that after the May’s European elections the continent will receive an unmanaged European Parliament and an extremely weakened European Commission.”

In addition, the EU will be affected by the upcoming renewal of half of the Board of Directors of the European Central Bank “and, of course, Brexit, the strength of the shock which will depend on whether the UK will exit from the EU on the basis of the Treaty or without it.” Destabilizing for the Euro area may be the fact that Germany, as it was before, will try to impose its special view on the way out of the crisis, “thereby destabilizing the Euro area in its favor.”