Goldman: Trump Threatens Europe With Strongman “Bilateral World Order”

We already know the EU is coming apart at the seams, so don’t rub it in.

As I wrote on Monday evening in “Poetic Justice? Europe ‘Celebrates’ 25 Years Of Integration With Descent Into Chaos,” it’s likely that proponents of the nationalistic fervor currently spreading across the region will find some poetic justice in the fact that the dissolution of the EU could ultimately unfold just as the bloc celebrates a milestone in time.

Needless to say, the rise of Donald Trump in the US has only emboldened the likes of Marine Le Pen and Geert Wilders, who now have a second piece of evidence (the Brexit vote being the first) to support the contention that large swaths of the electorate can effectively be fooled into voting against their own self-interest (how ironic is that given that this is supposed to be a “populist” movement?).

Indeed if you follow Breitbart News (and I certainly don’t suggest that you do if you want to maintain any semblance of sanity, but if you’re interested in knowing where the world is headed under secret President Steve Bannon, you can get a good feel for things by perusing Breitbart), you’re well aware that Trump’s closest adviser has put in quite the effort when it comes to promoting EU disintegration. 

So you know, the percentage of the European population that’s still sane (and that’s an ever dwindling number apparently) would have really appreciated it if Trump would have just been satisfied with the damage he’s already done rather than piling it on by dispatching Peter Navarro to weigh in on the legitimacy of the common currency.

No such luck. As we saw a few weeks back, Navarro pretty clearly wants to create a fractious relationship with Berlin on par with the tenuous situation that prevails between Washington and Beijing.

With that in mind, consider the following from Goldman who notes that “given its weak economic performance, poor economic governance and uniquely complex institutional structure (one monetary policy with nineteen sovereign governments), the Euro area (or EU) is not well placed to steer bilateral negotiations with stronger and/or more centrally governed economic counterparts.”

Via Goldman

President Trump’s inauguration has ushered in a new era of global economic governance. Thus far, uncertainty has been its defining feature: many tweets, much bluster, but little concrete guidance as to how the US will shape currency and trading arrangements.

Bilateralism replacing multilateralism. But one feature of the new world economic order is already becoming evident: a preference on the part of the Trump administration for bilateralism, distinct from the multilateral globalism characteristic of the Obama era. As the world’s largest and most powerful economy, the leverage enjoyed by the US in bilateral trade negotiations represents an important motivation for the President’s adoption of such a transactional approach.

This new international order represents a threat to Europe. While a large and still rapidly growing China has its own clout on the world stage and Japan’s centralised national economic governance makes it a nimble negotiating counterpart, Europe suffers from both still sclerotic economic performance and a dilution of policy making authority deriving from its multi-country make-up.

Weak economic governance underlay many of the Euro area’s travails during the sovereign and banking crises. Reflecting Henry Kissinger’s (in)famous critique — “Who do I call if I want to call Europe?” — weak governance threatens the EU’s ability to punch its weight in bilateral negotiations over trading and currency arrangements.

American criticism of the EU. In a recent interview with the Financial Times, the head of President Trump’s National Trade Council, Peter Navarro, increased the pressure on Europe, complaining about the value of the Euro and the magnitude of Germany’s trade surplus. In his words, Germany “continues to exploit other countries in the EU as well as the US with an ‘implicit Deutsche Mark’ that is grossly undervalued.”

Europe is not well-placed to respond to these pressures. The ECB is independent and sets monetary policy for the Euro area as a whole, not just for Germany. Altering the course of monetary policy to strengthen the Euro so as to assuage American concerns comes with obvious risks to the European recovery. While largely respecting the ECB’s independence, the German authorities have generally favoured tighter monetary policy (and thus a stronger Euro). Differences of opinion and circumstance within the Euro area, national policy responsibility in the fiscal and structural domains and a politics that is still overwhelmingly national in character make a common and effective response challenging.

More generally, the Trump administration has been sceptical of the European Union and its institutions. In particular, President Trump has been critical of the EU’s management of the refugee crisis. He has welcomed Brexit and questioned the viability of the EU going forward. In an interview with the Times given just ahead of his inauguration, Mr Trump characterised the EU as “basically a vehicle for Germany. That is why I thought the UK was so smart in getting out. … I believe others will leave.” He identified specific German car makers as potential targets for tax and tariffs should they seek to build production capacity in Mexico for export to the US market.

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