Out of the Box: The European Elections — The Kick-off Begins Today
While everyone is focused on the Chinese “Game of Thrones,” with the United States. I am not. The tariff wars could go on for months, if not years. While it is true that China has the second largest economy, it is 41% smaller than the United States. We can withstand the heat much better, and for far longer, than the Chinese, in my estimation.
China is vying for power, and domination, and for many years they have done everything possible to further their ambitions. I am not blaming the Chinese for this, as they are entitled to rise as far as they can get. However, they have done it in a manner that is inconsistent with the general values and morals of both America and Europe as they have bullied, bought, and stolen, as much as they could get, in the process.
Make note that in America and Europe that private enterprise, while governed by laws, is separate from the governments’ control in all but the most dire of circumstances, such as a bank failure. This is absolutely not the case in China. China may not be actually Communist, at this point in time, but it is a one-party system where the government’s tentacles are part and parcel of almost any large corporation. I would say that China puts on a mask when it does business abroad, and then takes it off when foreign companies want to do business with them in China, and it is a very different face, that is presented at home.
China, in my estimation, has done their best to “rig the game” and while many Presidents and Prime Ministers have objected, no one took up the mantle to actually stop the incursion until the current American government said, “Enough.” It had to come to that, after all. It was just a question of time before the financial invasion was curtailed.
The Chinese government also provides subsidies to many Chinese companies and they have done everything in their power to steal the “Intellectual Property” of both U.S. and European corporations. Now, announced just last week by their state-media, foreign investors will no longer be subject to compulsory technology transfers.
China has used money, and the lure of its large domestic market, to incentivize Western corporations, and their governments, to allow for their generally bad behavior. Now push has come to shove, the rock has met the road, and the artifice is about to be stopped. “End-Game” is hard upon the Chinese now and I am not sure that their financial system is up to the endeavor, as push comes to shove.
One of the main issues, with the current negotiations, is that China keeps its commitments in any deal that is reached. To that end, the United States issued a statement saying that, “The need for any agreement to provide for complete implementation subject to ongoing verification and effective enforcement.” It is understandable, of course, why the Chinese object to this, as they don’t want anyone to peer underneath the lid of the rice bowl.
Each and every day the Press says that the equity markets are up, because of China, or that they are down, because of China. There has been almost no other focus than the American/Chinese trade negotiations. I think this has been a mistake. Virtually no one has been paying attention to the European elections and they may rock not only Europe, but the equity and debt markets globally, and the Dollar/Euro, if the Nationalists, the Populists, gain a significant minority of the seats and the reaction will be even more forceful, if they gain the majority position.
Matteo Salvini, Italy’s Deputy Prime Minister and leader of the Italian Lega party, rallied in Milan on Saturday with a who’s who of far-right, nationalistic, anti-immigrant European leaders. The guest list included Marine Le Pen, of France’s National Rally (formerly the National Front), and Geert Wilders of the Netherlands’ Party for Freedom. They were making the case for why politicians and parties, deeply skeptical of the European Union, should be elected to the European Parliament in the elections. “There are no extremists, racists, or fascists in this square,” Salvini told the thousands of supporters who’d gathered in the central square in Milan. “Here you won’t find the far-right, but the politics of good sense. The extremists are those who have governed Europe for the past 20 years.”
The European Parliament does have a significant role in shaping the direction of the EU. It must, for example, approve or reject any EU budget and that’s a huge amount of influence. The European Parliament also approves the President and appointees to the EU Commission, meaning that the leadership at the top often reflects the desires of those in Parliament. Power now hangs in the balance and we shall all see, soon enough, just who is going to be in charge of Europe.
“We have a crisis of the European Union. This is a matter of fact.”
-French President Macron
The crisis may also show up at the ECB. The desires of the current government are in stark opposition to the desires of most of the Southern European countries and the banking system in Europe is none to stable. Some countries, such as Italy, are demanding that they breach the EU’s budgetary rules and this is also likely to come to the fore. Whatever happens, in my opinion, it is going to be messy at best, and a political disaster at its worst, if the Nationalists, Populists rule the day.
I issue my warning, once again!
Mark J. Grant
Chief Global Strategist, Fixed Income
B. Riley FBR Inc.
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