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R&R Weekly Column

Munich Security Conference Reveals The Shifting Tectonic Plates of Global Geopolitics


by Brunello Rosa

17 February 2020


During the weekend, the annual Munich Security Conference was held in the capital of Bavaria, Germany’s richest state. Media outlets extensively reported on the key proceedings of the conference, which this year focused on the concept of “Westlessness”; i.e., on whether the world has become less Western. This is a concept they also studied in depth in their annual report. As long as the “West” is defined by the alliance between North America and Europe, along with the key additions of Australia and New Zealand (part of the so-called Five Eyes), clearly the last few years have observed a marked deterioration in this relationship, and in particular of NATO, the military alliance underpinning it. 

US Secretary of State Mike Pompeo came to Munich to reassure those present that NATO is alive and well, and that it is ready to deploy its benefits to its constituent countries. Pompeo specifically said that he was “happy to report that the death of the transatlantic alliance is grossly exaggerated. The West is winning, and we’re winning together.” However, only in November 2019, Pompeo himself warned that NATO was risking extinction unless it adapted itself to reality. This happened at the same time as French President Emmanuel Macron was reported as saying that NATO was brain-dead. So, what’s the current state of the transatlantic alliance, in reality?

It is true that NATO is still alive, but its cohesion has been severely tested recently. Trump has just approved a series of tariffs on the Europeans, following the WTO ruling on EU’s aid to Airbus in that company’s long dispute with Boeing. (Italy, which does not belong to the Airbus consortium, got exempted from these tariffs, thanks to their own successful bilateral negotiations). Other tariffs aimed at the auto sector are also being considered by the Trump administration at the moment, after being delayed by six months in May 2019



In a few months, when the WTO will likely rule in favour of Airbus and the Europeans will be able to impose retaliatory tariffs on the US, we might be at the beginning of another tit-for-tat trade war, similar to that we have been observing between US and China in the last three years. 


Within Europe, the situation is, at best, fluid. The UK has just left the EU, imposing a severe level of damage onto the geopolitical standing of the continental bloc, as discussed by John Hulsman in his recent analysis. PM Johnson is now mostly committed to establish his leadership within Whitehall, as the recent reshuffling of his government proves. What is left of the EU is in flux. In Germany, the decision by Annegret Kramp Karrembauer not to run for Chancellor at the next federal election has completely ruined Angela Merkel’s succession plans. As we discussed in our analysis of the German political scene, under certain circumstances, this might eventually lead to a desirable outcome, for example a Green-Black coalition. On the other hand, it might make Germany even more inward-looking and undecided as to how to exert its leadership on the continent. And Germany is absolutely needed by French President Macron if he wants any of his grandiose plans for the future of Europe to ever become a reality. As we discussed in our recent trip report, both the social and political opposition to Macron are weak or weakening, paving the way to his re-election in 2022 (bar a global economic crisis occurring in the meantime). But without its German dance partner, there is very little France will be able to do. 

So, the West might be still in the position of taking on China, weakened by the impact that the Coronavirus might have on the Chinese economy and on the legitimacy of its regime. But the West needs to find a new sense of unity if it wants to win the battle for the geo-strategic hegemony of the future. At a time when China is trying to reach out to the Europeans, to convince them to break ranks with their historical US ally, and with Trump not hiding his distaste for the EU concept, this might be easier said than done.  


Argentina: The Road Ahead For The Debt-Restructuring Negotiations


by Nouriel Roubini and Alessandro Magnoli Bocchi

18 February 2020

Flash Review: Riksbank On Hold, With A Dovish Twist In The Statement


by Brunello Rosa and Karmen Meneses

12 February 2020

Flash Review: RBNZ Remains Hawkish Despite Coronavirus Risk


by Brunello Rosa and Farah Aladsani

12 February 2020

TRAVEL NOTES - FRANCE: Macron Mixes Reforms And “Populist” Approach


 by Brunello Rosa

14 February 2020

Bank of England Flash Review: “So Far Good Enough,” But A Rate Cut Remains On The Table


 by Brunello Rosa

30 January 2020

Flash Review: Regional Elections Give a Breather To The Italian Government


by Brunello Rosa

27 January 2020

The Geopolitical Corner by John Hulsman

Brexit Painfully Illuminates Europe’s Weakness, But Is There Light at the End of the Tunnel?


11 February 2020


Introduction: The Revolutionary Advantages of Meritocracy 

I have always held the heretical, even revolutionary, view that one should judge a person—particularly if they are a political risk analyst—by their actual long-term analytical record. Doing so allows the wise to wade through a lot of the humbug permeating the commentariat, focusing on intellectual quality rather than playing the parlour game of ‘who is up, and who is down.’

Such a precious ability, enabling one to see through intellectual nonsense, is particularly important just now, as ironically many of the same political risk analysts who were so wrong about the Brexit result in the first place—yet are still somehow unashamed of their general cluelessness—are now sonorously pontificating about the peril Britain finds itself in after cutting ties to the EU. Wrong yet again, the commentariat are largely oblivious to the fact that dangers are primarily the other way around. 

Looking At A Declining EU in the Mirror 

For the UK, the political risk way forward is clear. The metric for post-Brexit success is simple enough to gauge. If, in the course of Boris Johnson’s premiership over the next five years, Britain can nail down free trade agreements with the main Anglosphere countries (the US, Canada, New Zealand, Australia, and India), all of which will continue growing faster than the moribund EU, than all is well. If the Johnson government fails in this challenging task, then Brexit is a disaster. It is as simple as that. 

But while, for the British, trade tactics will determine the outcome of their huge post-Brexit geopolitical gamble, for the EU the problem is both more existential and more intractable. 

A thought experiment highlights the overlooked peril Brussels now finds itself in. Imagine that one of the major states of the American union (California, perhaps) decided to go its own way. What would the reaction be in the world’s opinion pages? 

Apocalyptic, to put it mildly. There would be literally thousands of articles sounding the death knell of the American Republic itself, and obituaries about the sudden end of America’s great power status would be literally everywhere. While this is precisely what has just happened to the EU, the present silence about this basic reality is as deafening as it is telling. 

But even though the commentariat at loath to admit it, there is little doubt that the EU is undoubtedly in geostrategic decline, representing the past, not the future. For practically, in losing the UK, the EU has all at once lost its major financial centre, its most vibrant major economy, its best intelligence-gathering locus, and one of only two countries (along with France) that can do full spectrum military operations, from peace keeping to war fighting. The UK’s diplomatic corps is world class and (again only along with France) it almost uniquely retains a global outlook, so different, say, than parochial great regional power Germany.


A Europe that already punches well below its weight in military affairs — excluding the US and UK, only five of the NATO allies met the minimal two percent gross domestic product defence spending target in 2019 — just got significantly punier. 

A Europe that is economically sclerotic—the euro zone grew by a paltry 1 percent last year, with powerhouse Germany managing only 0.5 percent and pathetic Italy doing even worse—just got significantly less dynamic.  

The Geopolitical Price of Weakness 

A Europe that is politically divided and far too inward-looking just lost one of its most historically internationalist members; a pivotal force for the EU mattering in global affairs. For example, London long served as a conduit for transatlantic relations, explaining Europe to the US and vice versa. Given the major tremors of the Trump era, this vital role is more necessary than ever. With the advent of Brexit, it is a function that is going vacant at precisely the worst time possible for an EU which cannot begin to understand the Trump revolution. 

These facts — and they are just that — broadly summarize the internal damage Brexit has done Brussels. Of course, such grievous wounds have significant geopolitical ramifications. While nationalist superpowers China and the US go from strength to strength, with regional powers Russia, India, Turkey and Iran also beginning to flex their muscles, a becalmed EU sits in real danger of being on the global menu, as it is not sitting at the global table. 

Before Brexit, the EU was militarily weak, economically sclerotic, and politically divided. Losing one of its great regional powers (along with France and Germany) has just made a very bad political risk situation infinitely worse. 

And history makes clear that weakness in geopolitics is like blood in the water for a shark. Sensing decline, other great powers attack and divide, as if by instinct. With the EU bereft of the UK, it is increasingly clear that China, Russia and (even) the US are on the march, exploiting Brussels’ growing divisions and weakness. Brexit both confirms and amplifies this basic and telling geopolitical trend. For, with the loss of the UK—the California of the European Union—it ought to be clear that the EU is in significant and growing geopolitical peril.  


(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 17 - 23 February 2020 


EZ’s Economic Sentiment Is Expected To Rise, GDP Is Expected To Fall Sharply In Japan

In the EZ, February’s economic sentiment is expected to rise to 30.0 (p: 25.6), while consumer confidence is likely to remain in contractionary territories at -7.8 (p: -8.1). 

In Japan, annualized GDP for Q4-2019 is expected to fall sharply to -3.7% y-o-y (p: 1.8%), while December’s IP is expected to remain unchanged at -3.0% y-o-y. 

In China, the PBoC is expected to cut its loan prime rate by 20bps to 3.95% (p: 4.15%).

In Turkey, the CBT is also expected to cut its one-week repo auction rate by 25bps to 11.00% (p: 11.25%) – bringing borrowing costs to the lowest level since 2018.  

The Quarter Ahead



COVID-19 To Weigh Of Economic Activity. Democrats’ Primaries Continue In The US

Globally, the outbreak of COVID-19: 1) will hit the global tourism industry: according to “China Tourism Academy”, in 2019 Chinese overseas: i) accounted for 150mn trips; and ii) spent USD130bn in 2018, up 13% from the previous year; and 2) could negatively impact the recently signed "phase one" US-China trade agreement: according to White House officials, “the outbreak could cause China to buy fewer US agricultural products this year”, causing further disruption in global supply chains. 

In the US, Senator Bernie Sanders beat his rivals in the New Hampshire primary – a step further in the tight race for the Democratic presidential nomination; to date, eight candidates remain in the contest. 

In the US, according to Fed’s Chairman Powell “the US economy is in a very good place” but “it would be advisable to reduce the federal budget deficit” (expected to top USD 1tn) in 2020. The markets keep expecting the Fed to cut rates sooner than announced: the probability of ‘one or more’ rate cut in 2020 stands at 82%. 

In the EZ, ECB’s President Christine Lagarde stated: "monetary policy cannot, and should not, be the only game in town", warning that “as long as monetary policy remains accommodative, the risk of side effects will increase”. Furthermore, she asked governments to stimulate the economy, remarking that “fiscal policy could be highly effective in a low interest environment”. 

For the first time in a decade, oil demand is likely to shrink, as China’s economic slowdown – brought about by the COVID-19 outbreak – will inevitably contribute to a fall in oil demand in Q1-2020.

In Lebanon, the new government made a request for technical assistance to the IMF, in order to: i) secure urgent aid; and ii) gain credibility to cope with a raging financial crisis. Lebanon needs external funding to implement fiscal reforms that would: i) reduce its deficit; ii) revamp an ailing electricity sector; and iii) decrease its public debt – estimated at 155% of GDP. 

Last week's Summary (10 - 16 February 2020)

Real Economy: The Coronavirus Outbreak Constraints The Recovery, Geopolitical Risks Ease

In the US, January’s CPI rose in-line with consensus to 2.4% y-o-y, (c:2.4%; p:2.3%), while core CPI fell to 2.2% y-o-y (c:2.2%; p:2.3%). 

In the EZ, December’s IP fell by -4.1% y-o-y, more-than-expected (c: -2.3%; p: -1.7%) – the largest contraction since November 2009; in February, investor confidence declined to 5.2 (c: 4.0; p: 7.6). 

In China, CPI inflation rose above expectations, to 5.4% y-o-y (c: 4.9%; p: 4.5%), the highest rate since October 2011 - due to: i) rising pork prices; ii) strong demand during the Lunar New Year holiday; and iii) the ongoing outbreak of coronavirus (COVID-19). 

In Sweden and New Zealand, both CBs kept their key policy rates unchanged at 0.0% and 1.0%, respectively.


Financial Markets: Stocks Kept Rallying, Volatility Fell Below 15. Bonds Flat, Oil And Gold Rose

Market drivers: A sharp rise in COVID-19 cases casted doubts on reporting accuracy, hampering “risk-on” sentiment. Yet, the markets showed resilience, with equities hitting new highs.

Stocks: w-o-w global indices rose (MSCI ACWI, +1.1% to 580), driven by DMs (S&P 500, +1.6% to 3,380; Eurostoxx 50, +1.1% to 3,841). Volatility fell below 15 (VIX S&P 500, -1.8pts to 13.7; 52w avg,: 14.8; 10y avg.: 16.7), showing trust in China’s growth prospects. 

Bonds: safe-haven bonds remained well in demand w-o-w: while returns remained flat (BAML Global, +0.1% to 289.4), the UST yield staid at recent lows (10y UST, +1 bps to 1.59%).

FX: w-o-w, the USD rose further (DXY, +0.4% to 99.124), underpinned by positive economic data and safe-haven flows, while the EUR hit a new 52w low (EUR/USD, -1% to 1.083), due to weak economic data and political concerns in Germany. In EMs idiosyncratic factors weighed on both ARS and TRY. 

Commodities: Oil prices recorded their first weekly gain since early-January (Brent, 5.2% to 57.3 USD/b), as the market shook off COVID-19-related concerns, betting on Chinese stimulus in case of economic slowdown. Gold rose w-o-w (Gold, +0.9% to 1,584 USD/Oz), as “safe-heaven” demand keeps fueling market appetite.

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