April 2017: Shock and renewal

Europe’s leaders gathered on 25 March to celebrate the 60th anniversary of the signing of the Treaty of Rome. It would be easy to dismiss the occasion as lacking any cause for cheer. There are plenty of shadows over Europe: the terrorist attack in London on 22 March, uncertainties over the French and German elections, renewed concerns about the Greek and Italian economies, and worries over the UK’s exit from the European Union. This month’s Bulletin attempts to summarise the risks and challenges for Europe as it moves on from commemorating the past towards examining priorities for the future and attempting to renew structures and objectives. Roel Janssen argues that populism’s loss of momentum in the Dutch elections will influence other European polls. The most immediate one is the presidential election in France. Jean-Jacques Barbéris and Brigitte Granville reflect on the concerns of voters and the candidates’ economic policies. Victory for Marine Le Pen, leader of the anti-euro, anti-immigrant National Front (FN), is deemed doubtful. Yet her standing in the opinion polls and the FN’s electoral success so far put pressure on elites to adapt to a new political environment. Regulation, reforms and monetary policy remain key tenets as the European Community, now the EU, enters its seventh decade. Felix Hufeld highlights the need for balance between rules and principles in financial regulation. Hans Blommestein draws attention to the negative side-effects of easing policies on bond market liquidity, while Gary Smith presents the challenges for central banks in the context of future demographic shifts.

Lorenzo Codogno focuses on the issue of minority shareholder protection and its importance in Italy’s efforts to attract foreign investment. The shock waves emanating from Britain’s decision will mingle with further perturbations stemming from expected political acrimony in the exit negotiations and a wider economic reordering as nations within and beyond the EU adjust to the consequences for trade, business and finance. The European Commission’s surprisingly (and, for some, disappointingly) broad set of options for the future in its ‘five scenarios’ 60th anniversary document emphasises the lack of certainty over the journey’s direction and destination. The phrase ‘variable geometry’ – popularised during the 1990s – remains the best description of the continent’s present and future set-up. The British economy so far has been relatively undisturbed by the referendum result – but shocks may still be in store. The British chancellor may need to reassess his plans and impose new cuts, argues Vicky Pryce in her review of Philip Hammond’s first Budget. David Marsh draws attention to the political repercussions of a prospective second referendum on Scottish independence. Our monthly Advisers Network poll focuses on the likely outcome of the two year
negotiation period, with a small majority of those polled concluding that a deal acceptable to both the UK and EU27 will materialise. Outside Europe, Carlos Giraldo argues that, despite vulnerability to difficult external conditions, the economic backdrop remains positive for Latin America. One external risk is monetary tightening in the US. Darrell Delamaide states how steady improvement of the domestic economy is making the Federal Reserve more confident about raising interest rates twice again this year. The choices are less obvious for the Bank of Japan: Sayuri Shirai reflects on the dilemma between short-term, large-scale monetary accommodation and a more restrained pace of easing that may last for longer. On Africa, Mthuli Ncube highlights the importance of interoperability for models of mobile banking. We close with three book reviews. John Nugée surveys the reflections of Yanis Varoufakis on the euro area and Greek crises in And The Weak Suffer What They Must?. Danae Kyriakopoulou compares them with those of another former Greek finance minister, George Papaconstantinou, as revealed in Game Over. Lord (Meghnad) Desai reflects on the history of monetary theory and policy-making of the past 50 years through
Sebastian Mallaby’s biography of Alan Greenspan, The Man Who Knew.

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