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Erdoğan’s War In Syria Poses An Existential Threat To Europe


By Brunello Rosa

14 October 2019  


During a week in which the Nobel Peace Prize was granted to Ethiopia’s Prime Minister Abiy Ahmed Ali, for his “efforts to achieve peace and international cooperation, and in particular for his decisive initiative to resolve the border conflict with neighbouring Eritrea," still another new conflict is starting in the Middle East. After Donald Trump’s decision to withdraw US troops from the north-eastern corner of Syria, Turkey decided to occupy a strip of 20km inside that region to create a buffer zone. The occupation has two declared goals: to make it easier for the Turkish army to defend Turkey’s borders, and to relocate to Syria a portion of the 3.6m Syrian refugees currently living in Turkey. 

As part of this offensive (somehow ironically named “Operation Peace Spring”) Turkish troops have launched a series of airstrikes and artillery bombardment against the Syrian Democratic Forces (SDF), forces which have helped the US-led coalition in Syria to fight ISIS, but which Erdoğan considers effectively a terrorist organisation. This is because the SDF are led by the Kurdish People's Protection Units (YPG), which Turkey considers a terrorist group. So, this “Operation Peace Spring” will be directed mainly against the Kurdish ethnic groups, which Erdoğan has long considered a threat to Turkey’s national unity and security. 


The US position on this issue is contradictory at best. The US Department of Defense was reportedly against the abandonment of Northern Syria by US troops, and even Lindsey Graham, an ally of President Trump, said he would seek to introduce a bi-partisan resolution in the US Senate to reverse the decision and punish Turkey, if Turkey decides to attack the SDF. Trump himself, after giving green light to the Turkish invasion of Northern Syria, said that he would “obliterate” the Turkish economy if its actions were to be “off-limits”, or “inhumane.” In a spectacular U-turn, US Secretary of State Mike Pompeo said that the US did not give green light to the Turkish offensive in Syria, even as the official press statement following the phone call between Trump and Erdoğan states that “Turkey will soon be moving forward with its long-planned operation into Northern Syria”. 




Europe’s reaction has, for a change, been to unanimously condemn this brutal military operation. But it has also, as usual, been ineffective. This is because the EU is in no position to tell Erdoğan what to do, after making a treaty with him on 18 March 2016, the result of which has been that the EU has paid Turkey EUR 6bn for two years in return for keeping the Syrian refugees on Turkish territory. Ahead of the renegotiation of this atrocious deal in 2020, Erdoğan is now threatening to open the gates of its refugee camps and flood Europe with migrants, as happened in 2015. Then, Angela Merkel decided to accept 1.1 million refugees in Germany (and, in so doing, marked the beginning of her own political decline) and Italy and Greece also dealt with hundreds of thousands of migrants coming from (or through) the Middle East by land and sea, while Hungary and other countries closed their borders.


If Erdoğan were to do what he is threatening to do – a scenario we do not expect to happen – the EU would not now be able to cope with such a migration crisis the same way it did in 2015. Germany would be unwilling and unable to accept more migrants, since the CDU has been severely punished for that humanitarian decision by Merkel in 2015. Italy, after the “security decrees” by Salvini (which are still active), has closed its ports to the ships rescuing migrants. Greece is now governed by a centre-right government much tougher on migration than Syriza’s far-left positions were. The Viségrad group (Poland, Hungary, Czechia and Slovakia) remains resolutely against any re-distribution of migrants within the EU (even as they continue to collect, financially, the “solidarity contributions” from larger EU countries). The EU Commission is in the middle of a difficult transition from Juncker’s presidency to Von Der Leyen’s, preventing it from making any big decisions. So, another migration crisis would most likely destabilize Europe, sending it close to collapse. A dis-integration of Europe would have large economic, financial and social consequences. 

This means that Erdoğan’s threat is credible. Unfortunately, the likely conclusion to all this is that the EU will renew its deal with Turkey, and receive only a somewhat less “inhumane” war in Northern Syria than would otherwise occur.  


EU Update: A Challenging Start For The “Geopolitical Commission”


by Grégoire Roos and Brunello Rosa

11 October 2019

ITALY UPDATE: Upcoming Budget To Test The Solidity Of The M5S-PD Majority


by Brunello Rosa

4 October 2019

Q4-2019 SAA: Focusing On Capital Preservation, While Limiting The Risk-Taking To Fixed-Income


by Alessandro Bocchi, Fawaz Al Mughrabi and Farah Aladsani 

3 October 2019

POLICY COMPASS: An Investor Guide to Navigate Argentina's Debt Restructuring


 by Nouriel Roubini and Alessandro Magnoli Bocchi 

23 September 2019

Brexit Update: Despite The Constitutional Crisis, Boris Johnson Remains The Most Popular Leader


by Brunello Rosa 

26 September 2019

Tension Between US and Iran Increases After The Attack On Saudi Arabia’s Oil Facilities


 by Giorgio Cafiero

17 September 2019

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The Geopolitical Corner by John Hulsman

Trump’s Impeachment Would Benefit No One… But Trump Himself


8 October 2019

No-One Gains From An Impeachment Process 

It is safe to say that there are no heroes, none at all, in the present impeachment saga that is gripping American politics. Choosing between the fixated, self-righteous Democrats - gripped by their all-consuming hatred of Donald Trump—and the facts-challenged, Trump-at-all-costs Republican defenders is like choosing between death by cyanide and strychnine; they are both equally poisonous. 

The Democrats, badly burned to the point of foolishness over these past two years trying to depose Trump through the Mueller investigation into Russian interference in the 2016 election, now think they have a better chance with the present Ukrainian whistle-blower crisis. A senior anonymous CIA officer allegedly heard from numerous second-hand sources (he admits he wasn’t there to authenticate this) that Trump was bullying the new Ukrainian President, Volodymyr Zelensky, to dig up dirt on one of his Democratic rivals in 2020, former Vice President Joe Biden. And, indeed, the transcript notes released of their telephone conversation does not make for pretty reading. While the President is correct in that there is no explicit quid pro quo mentioned during the call, there hardly needs to have been. 

Just prior to it, a vital $400 million in military aid for Kiev had been held up, weaponry desperately needed for Ukraine to fight off the Russian-backed insurgency in the east of the country. The aid would only be quickly released with the President’s blessing. At the same time, the newly-installed President Zelensky was eager to nail down a phone call with the president, as a symbol to his people that he had the superpower’s ear. 

As Democratic Speaker of the House Nancy Pelosi sensibly enough points out, it is not one act but the narrative that is the problem here. Neither Trump nor his acolytes have to mention that aid is suspended, as the fledgling Ukrainian government is surely capable of putting two and two together, knowing that a failure to please the mercurial Trump will amount to a strategic disaster for them. There is absolutely no doubt from reading the transcript that Trump was leveraging Ukraine’s dependent position over the aid to do as he wanted for partisan political gain. 

The Founders of the American Republic clearly set out impeachment in the Constitution as a political, rather than legal, remedy. In behaving this openly crassly, Trump has left himself wide open to the impeachment standard. 

Having just been (largely) exonerated by the Mueller report, and with his Democratic rivals moving ever leftwards in a country that remains resolutely centre-right, this should have been the moment for the President to do absolutely nothing untoward and instead let organic electoral forces work in his favour.  




Of course , Trump could not manage that. Disastrously, the president got right back down into the muck and the mire. He thoroughly deserves the impeachment ordeal that is about to be visited upon him. 

But let’s pause a moment and look at the equally risible Democrats. The Democrats’ motives for impeachment are highly suspect. They are fooling no one except themselves. 

Using anonymous sources, armed with second-hand information, and with Democratic House staffers under Representative Adam Schiff (one of Trump’s primary tormentors over the Mueller report these past few years, and the figure who will now be the point man over impeachment) actively helping the whistle-blower with his complaint, it is crystal clear that the opposition party is not acting as neutral defenders of the Constitution here. 

Instead, disastrously, it seems that congressional Democrats are prepared to hound Donald Trump by whatever means possible—still attempting to overturn a 2016 election result that horrifies them. They have increasingly become appalling carbon copies of their great adversary, in that they do not let facts, the Constitution, or due process get in the way of their personal vendettas.

And that’s without delving into genuine Democratic quid pro quo corruption, which Trump is right to point out. Biden’s troubled son Hunter made a fortune serving on the board of a Ukrainian gas company (he also has done very well in China), despite having absolutely no energy-related experience. 

The obvious assumption one could make is that he was paid for access to his father by those wishing to influence the Vice President.

Worse, and in true Trump-like fashion, Biden senior has bragged about holding $1 billion in aid hostage during the Obama years, dependent on an earlier Ukrainian government removing a prosecutor who had looked into the gas company’s dealings. Again legal—and again, shameful. 

The end result of this will be nothing but the further coarsening of the American body politic.


(This is an excerpt of Dr. Hulsman's latest article, which you can read here)

Dr. John C. Hulsman is the widely-read Senior Columnist for City AM, the newspaper of the city of London. Dr. Hulsman is also a Life Member of the US Council on Foreign Relations. His most recent work, the best-selling, To Dare More Boldly; The Audacious Story of Political Risk, was published by Princeton University Press in April 2018 and is available for order on Amazon. He can be reached for corporate speaking and private briefings at 

Looking Ahead

The Week Ahead


Week 14 -20  October 2019

Manufacturing Sector To Remain Weak Around The World And Chinese Growth To Slow Down 

Across DMs, the manufacturing sector is expected to remain weak (IP EZ Aug., c: -2.5% y-o-y; p: -2.0; IP Japan, c: -4.7% y-o-y; p: -4.7).

In China, growth is expected to mildly slow down (GDP Q3 c: 6.1% y-o-y; p: 6.2), hampered by the external sector, where trade tensions keep weakening export growth (Exports Sep., c: -3.0% y-o-y; p :-1.0); yet, the domestic sector is likely to remain healthy, driven by industrial activity and consumption (IP Sep., c: 5.0% y-o-y; p: 4.4; Retail sales, c: 7.8% y-o-y; p: 7.5). 

In the US, on October 15 the Fed will start purchasing USTs (USD 60bn a month) to keep short-term interest-rates in check, until ‘at least into Q2-2020’.

In Japan, inflation is expected to decelerate (National CPI ex. fresh food Sep.; c: 0.3% y-o-y; p: 0.5).   

The Quarter Ahead



Recession Fears Recede, Supported By Rising Prospects Of A US-China Trade-Deal

US and China announced: 1) a partial agreement; and 2) a more comprehensive deal, likely to be signed ‘a month from now’. As part of the pact, China will: i) increase purchases of US agricultural commodities; and ii) agree to still-unspecified IP, FX, and financial services measures; in exchange, the US will further delay the announced tariff increases (to date, tariffs remain in place on USD 360bn of Chinese imports). The trade deal will leave some key issues unaddressed, such as: i) US restrictions on Huawei; and ii) the enforcement mechanism able to ensure compliance on both sides.

In the US, the market-probability of ‘one rate cut’ in the Fed’s October meeting stands at 75.4% (p: 78.0).

In the UK, the EU’s Chief Brexit negotiator Barnier, announced that UK’s PM Johnson “shifted his position on several central demands by the EU” – including accepting that “there could not be a border across the island of Ireland”. If a Brexit deal is finalized on October 17-18 at the EC meeting, PM Johnson will attempt to win UK parliamentary approval at a special Commons sitting on October 19. 

In Turkey, tensions with the US are likely to rise due to the Turkish invasion of north-eastern Syria, as: i) the Pentagon stated that “US troops had come under Turkish fire”; and ii) the US Treasury announced it is “drafting very powerful sanctions against Turkey, to be activated if needed”. 

In Hong Kong, a recession is likely, as key indicators weaken (i.e. in August: retail sales fell by 23% y-o-y; tourist arrivals declined by 40% y-o-y), as a result of: i) the violent, ongoing protests; ii) US-China trade tensions; and iii) declining tourist spending power.

Last week's Summary (7 - 13 OCTOBer 2019)

Real Economy: A Manufacturing-Led Slowdown Hampers The Global Outlook

In the US, consumer sentiment rose above-consensus (Michigan Consumer Sentiment Index Oct., a: 96.0; c: 92.0; p: 93.2), as incomes rise and inflation remains subdued (CPI Sep., a: 1.7% y-o-y; c: 1.7; p: 1.8; CPI ex. food & energy, a: 2.4% y-o-y; c: 2.4; p: 2.4). 

In Germany, industrial activity keeps declining (German factory orders Aug., a: -6.7% y-o-y; c: -4.6; p: -5.0; IP, a: -4.0% y-o-y; c: -2.7; p: -3.9), as trade tensions hinder businesses confidence and waken demand.

In the UK, the economy contracted in August (GDP, a: -0.1% m-o-m; c: 0.0; p: 0.4), due to weakness in both manufacturing and services. 

In China, the Caixin Services PMI fell to a seven-month low (Sep., a: 51.3; c: 52.9; p: 52.1), as a rise in operating expenses outweighed an increase in ‘new orders’.  

Financial Markets: Optimism over US-China trade negotiations and Brexit lifted the markets

Market drivers: Following progress on US-China trade negotiations equities rose and DM bonds fell. 

Stocks: w-o-w, global equity indices rose (MSCI ACWI, +1.2% to 521), driven by both DMs (S&P500, +0.6% to 2,970, breaking a three-week losing streak) and EMs (MSCI EMs, +1.5% to 1,012). Volatility fell below historical averages (VIX S&P 500, -1.4 points to 15.6, 52w avg.: 17.2; 10y avg.: 17.0). 

Bonds: w-o-w, global indices fell (BAML Global bond index, -1.0% to 285.5) led by DMs (S&P Global, -0.9% to 110.8), as two risk factors that had so far driven bond performance – US-China trade tensions and Brexit uncertainties – showed signs of easing. Across DMs, bond yields rose: i) 10y UST by 24 bps to 1.75%; ii)German bund by 15 bps to -0.44%; and iii) 10y UK sovereign bond by 26 bps to 0.71%. In MENA, debt capital supply stands at USD85.6bn y-t-d, higher than last year (USD 68.4bn over the same period). 

FX: w-o-w, the USD weakened against a basket of currencies (DXY, -0.5% to 98.301), the EUR (EUR/USD, +0.6 to 1.104) and the GBP (GBP/USD, +2.6% to 1.265). While EM FX strengthened (MSCI EMs, +0.4% at 1,621), the Turkish lira - hit by rising tensions - weakened (USD/TRY, -3.2% to 5.883). 

Commodities: Oil prices rose (Brent, +3.7% to 60.5 USD/b) following a missile attack on an Iranian oil tanker in the Red Sea. Gold prices fell (Gold, -1.0% to 1,489 USD/Oz.). 

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