Europe: Political dynamics taking control - BBH

Analysts at BBH suggest that what is new now are the political dynamics in Europe as since late April when the euro gapped higher after it became clear that Le Pen was not going to win in France, the unwind of the populist fear trade (short euro), may have been just as important as the unwind of the Trump trade.  

Key Quotes

“The Europe political elite generally survived the crisis better than in the US.”  

“The consensus seems to see Macron an exception.  He is not.  He offers a new skin for the old wine.  His agenda of labor reforms and tax and spending cuts are the neoliberal solution for nearly every problem for the past several decades.  Lest we forget, it was the program that was imposed on Greece by its official international creditors.”  

“Merkel may be Chancellor for the fourth time and it could be the most challenging term.  Finance Minister Schaeuble appears to be the first casualty.  However, the longer-term cost of including the FDP into the government is to rein the kind of institutional reforms that will be part of the post-Brexit, post-crisis Europe.  Macron's recently shared European vision will join the other numerous speeches and reports from the same genre that will be looked back upon as quaint period pieces.”  

“European politics that were seen as a headwind on the euro at the start of the year became a tailwind for most of Q2 and Q3.  Now post-German elections, it is a tailwind again.  It is likely to take Germany most of Q4 to forge a new governing coalition.  While that is taking place, little in Europe can get done.  And this says nothing about the escalating tensions between Catalonia and Madrid, or Italian elections next spring, for which no electoral law has been set.  Trump’s public low level of public approval is well known.  What will surprise many is that it is not worse than the support for Europe’s Three Ms—Merkel, Macron, and May.”