Last weekend, Angela Merkel debated her opposite number Martin Schulz on television, ahead of this month’s election. What was billed as a ‘duel’ between the German Chancellor and her Social Democrat challenger, was actually more of a ‘tea dance’.
Largely agreeing with Merkel throughout, Schulz made little impact. With a fortnight to go until the 24 September election, it’s now almost certain the Christian Democrats will prevail. Having led her party since 2000, and Europe’s largest economy since 2005, Merkel is set to win another term.
“En Marche!” That’s the message of Emmanuel Macron – the telegenic “independent” inaugurated today as the youngest ever President of France. Can Macron get the moribund French economy “on the move” as his slogan suggests? Can this 39-year old, with only two years of political experience, no Parliamentary party and having never held elected office, succeed where so many have failed, injecting some dynamism into France? And can he re-invigorate the crisis-ridden European Union.
Much is at stake. The world’s sixth-biggest economy, France is also the second-largest member of the eurozone – a key player, economically and diplomatically, if the single currency is ever going to work. Having seen off Marine Le Pen, can Macron now drive jobs, growth and broader French prosperity, so keeping bad-tempered euro-populism in check?
Brexit clearly caught financial markets on the hop. With opinion polls, betting odds and the “conventional wisdom” all pointing in one direction, the vast weight of money thought the UK would stay in the European Union.
That’s why, when reality hit in the small hours of Friday morning, the pound plunged violently, enduring its biggest one-day drop in living memory. And when the London stock market opened later, the FTSE-100 dropped a stomach-churning 8.7pc – again, showing the extent to which traders had previously backed Remain.
So, the gloves are off. Anyone who thought negotiations between the new radical-left Greek government and its creditors were going to be conciliatory, or even rational, must think again. It’s only a few days since Syriza’s seismic election victory and the installation of Alexis Tspiras as Prime Minister. Yet discussions over Athens’ €350bn (£240bn) debt mountain – owed mainly to other eurozone governments, the International Monetary Fund and European Central Bank – have already turned ugly.
Greece and its official creditors are now issuing full-blooded threats and counter-threats, regardless of the impact on financial markets. The Athens Stock Exchange endured single-day double-digit percentage falls last week. On Tuesday, Greek banks, effectively controlled by official foreign creditors, lost over a quarter of their value.
The German government is stuck on the horns of an extremely nasty dilemma. Berlin’s decision will go a long way towards determining whether or not we endure serious instability on global financial markets over the coming months. The future path not just of the eurozone but also the UK and, in fact, the entire world economy will be impacted significantly by Angela Merkel’s next move. The German Chancellor, moreover, has just days to make up her mind.
Is Berlin to permit full-scale quantitative easing? Will Germany’s coalition government allow money created ex nihilo by the European Central Bank to be used to buy the sovereign bonds of otherwise insolvent eurozone nations? While this is an arcane,technical question, the real-world implications are huge.
After months of escalating tensions over Ukraine and talk of a new cold war, Russia and the West could soon reach a sanctions rapprochement. The eurozone economy is suffering badly and sanctions are partly to blame. Winter is also upon us, and that reminds everyone Vladimir Putin still holds the cards when it comes to supplying gas.
The clincher, though, is that Kiev is in a deep financial hole and fast heading towards financial meltdown. Unless an extremely large bail-out is delivered soon, there will be a default, sending shockwaves through the global economy. That’s a risk nobody wants to take – not least in Washington, London or Berlin.
This column was going to be about emerging markets – and the potential impact on the UK of the recent slowdown in the generally resurgent economies of the East. It was going to be relatively upbeat, not least because I’m an emerging markets enthusiast and think it’s wrong to confuse a blip for a trend.
Yes, stock markets and currencies are suffering in the likes of India and China, largely due to Federal Reserve “tapering” – the reining in, by America’s central bank, of its $85bn-a-month money-printing habit. Last month, as the Fed’s funny-money machine slowed marginally, exchange traded funds focused on shares and bonds from developing nations endured withdrawals of $7bn – a January record. The MSCI EM index of leading emerging market shares shed a painful 9pc, compared to a 1.6pc drop in the S&P500, the bellwether index for Western stocks.