WEF - What Europe Faced
At WEF Davos, Trump’s hardline tactics shook Europe and NATO, exposing deep EU weaknesses while markets stayed calm amid solid growth and easing rates.
The World Economic Forum (WEF), which took place in our beautiful mountains last week, was a particularly special event this year. Donald Trump stole the show. His attempt to get Greenland and his threat to impose additional tariffs on European countries if they oppose it shaped the WEF completely. He was really playing with fire. The transatlantic alliance was at stake. It was more than just another episode of imperialistic posturing by a superpower, but rather a real game-changer for the Western world. Much to everyone's relief, Trump reversed his opinion after, together with Mark Rutte, finding a NATO-compliant solution that satisfied everyone. If this "solution," the details of which are still unknown, pans out, Trump's action will be added to the list of his tactical moves that have, on balance, been very successful, at least from his point of view. He always demands the maximum and uses whatever means necessary – some would call it blackmail – to shock his opponents. Once they move in the direction he deems appropriate, he lowers the pressure and is willing to compromise.
Whatever you may think of Trump. Yes, he is ruthless and offensive, and he often says things that don't stand up to a reality check. However, he is right about one thing and expresses it bluntly: Europe is seriously ill and needs fundamental change.
Misguided policies, a bureaucratic colossus in Brussels with a momentum of its own, and increasing regulations stifling economic activity are crippling the Old Continent. Since the euro was introduced in 2001, the U.S.'s real GDP has grown by 69%, compared with only 32% in the eurozone. Last week, the European Parliament offered yet another example of the standstill in the increasingly dense regulatory jungle. The Parliament wants the European Court of Justice to review the Mercosur agreement that Ursula von der Leyen has already signed. This will either delay or block the urgently needed growth spurt altogether.
Hopefully, Trump's ongoing pressure on Europe, which escalated to an extremely dangerous level in Davos, will prove beneficial, and Europe will finally try to pull itself out of the quagmire that the Greens and the Left have led it into.
The financial markets remain largely unaffected by political disputes. As long as they don't have a devastating impact on the economy, which, however, would have been the case if the transatlantic alliance had completely broken down. Stock markets don't really care whether Greenland belongs to the US or Denmark.
As we elaborated in our outlook a fortnight ago, the conditions for the stock markets remain favorable overall: solid growth and low or further falling interest rates.