I have had occasion in the past to comment about the uncertain international situation. I believe that in the past weeks the uncertainty has increased and a new scenario is developing. It could be said (and probably rightly so) that the uncertainty is more political than economic in nature. However I believe that the two elements cannot be detached from each other.
The result of the elections in the United Kingdom has fuelled the uncertainty once more. Theresa May, the outgoing UK Prime Minister, was hoping to be given a clear mandate by the electorate to negotiate the country’s exit from the European Union. She had a 17 overall majority, expected to increase that to 100, ended up with a minority and needs the 12 seats of the Democratic Unionist Party of Northern Ireland to form a government.
She has been left with no clear mandate on Brexit and, in practical terms, unable to govern the country. She needs to rely on the support of the Democratic Unionist Party of Northern Ireland, whose only agenda is to make sure that Northern Ireland remains part of the UK. Negotiations between the UK and the European Union start in the next 10 days. Brexit is likely to emerge in a very different form from what was expected. It is most likely to be softer.
The leader of the Liberal group in the European Parliament and the EU Parliament’s Brexit coordinator was reported saying that, while the door to the EU would remain open to Britain during Brexit negotiations, like Alice in Wonderland, not all the doors are the same.
She has been left with no clear mandate on Brexit and, in practical terms, unable to govern the country
“It will be a brand-new door, with a new Europe, a Europe without rebates, without complexity, with real powers and with unity.” So how this issue will unfold in the next 24 months is really anybody’s guess. Moreover it is not known what the impact could be on the UK economy and the pound sterling.
France has a new President, Emmanuel Macron. His party has also won the parliamentary elections last weekend. So some may wonder where the uncertainty is in all this. After all the Front National of Marine le Pen had been defeated and France has once more voted for a President who is not a euro sceptic.
The point is that Macron does not belong to either one of the traditional French parties – the Socialists and the Gaullists. Therefore it still needs to be determined what his political (as opposed to popular) base actually is. The uncertainty lies in the fact that no one really knows if he will manage to deliver the electoral programme that got him elected in the first place.
He will need to carry out economic reforms in France but may not be able to because of the opposition he will face. Macron must have noted the fall in popularity of Theresa May, the minute she spoke about the need to control welfare costs. Therefore where France shall be going in the next two years is also uncertain.
The US has reneged on the Paris agreement on climate signed last year. It was a decision that was expected. However, the issue is not the agreement itself. The issue is the fallout from this decision. How will countries respond to other attempts at global regulation, when the US reneged on climate regulation? China, which had initially opposed such an agreement, has now joined forces with Europe to support it fully. So how will relations between Europe and China develop in the coming years?
The Middle East continues to be a melting point; not so much because of the Israeli-Palestinian issue, but because of internal strife in the Arab world. The decision by a number of Arab states to impose sanctions on Qatar, because in their opinion Qatar is supporting terrorists, creates further uncertainty. What could be the impact of such sanctions on the price of oil, since Qatar is a significant global producer of petroleum and liquefied natural gas?
I started off this week’s contribution by saying that a new scenario is evolving. The scenario six months ago was also uncertain but it has now mutated into something that most economic and political analysts were not expecting. It is this aspect, which makes the international economic situation more difficult to understand. In such a situation it is difficult for investor and consumer sentiment to be positive – something which cannot be seen as good news for anyone.