Global fallout from Trumps new ‘policy’ of uncertainty. France is down, but not out and not Greece. What are Putin’s limits? Europe must now pay its way – but how? COP29 – too little too late. But tech could still save the day.

  • “STRUCTURAL BREAKS” IMPACTING THE GLOBAL OUTLOOK. Nobody knows what Donald Trump will do when he gets into the White House, and perhaps, he doesn’t even know himself. A volley of future policy measures has already been announced, but less clear is (1) if, (2) how and (3) when he’ll implement them. The only certainty is more uncertainty used as a policy tool, which will result in greater volatility. When uncertainty becomes a policy intention (clearly Trump’s direction of travel, see his espousal of the ‘mad man’ theory of governance), this creates “structural breaks”. The stable assumptions and relationships between variables then beak down, rendering useless the forecasting models used in the financial markets, policy planning and central banking. Furthermore, decisionmakers should expect major policy upheavals in most areas, like diplomacy, trade, tax, immigration, and climate – all intertwined, all conflating with each other, and all subject to non-linearity (when small causes can provoke huge effects). With President Trump at the helm, and the huge amount of uncertainty he’ll create, it makes much more sense to turn to scenario analysis.
  • TARIFF THREATS AS A BARGAINING TOOL. Tariffs are a case in point of “uncertainty as the intention”. Trump’s campaign has largely been based on the promise to lower prices, but his most recent threats to impose 25% tariffs on all products from Canada and Mexico (both ‘friends’ of the US) and 100% tariffs on BRIC countries that undermine the USD, would achieve the exact opposite. In effect, they’d lead to a world in which inflation rises. Most likely, the President-elect is bluffing to extract concessions, but it almost doesn’t matter, the damage is done. The uncertainty already generated by such announcements deters investment decisions and therefore lower future GDP growth. This will create a ‘chaos premium’ for investors.
  • FRANCE IN TROUBLE, BUT CATASTROPHIC SCENARIOS ARE NONSENSE. Having started the year at about 2.6%, French 10-year yields now stand at around 3% – the level of Greece, and 90 basis points above Germany. This has prompted some analysts and politicians to raise the spectre of a French Greek crisis. This is nonsense, for the idea that France could be the new Greece and break the € as it collapses is based on an absurd false equivalence. First at the height of its debt crisis, the yield on Greek debt climbed above 30%. Second, the French economy is nowhere near the catastrophic collapse that Greece experienced in the 2010s. This said, France is in crisis, as it faces a combination of (1) political paralysis and (2) unsustainable public finance (the public deficit stands at 6.2% of GDP). Understandably, the impression of ungovernability is unnerving financial and direct investors. Buckle up for the months to come, but don’t expect the worse to happen.
  • ESCALATION – WHAT WILL PUTIN DO NEXT? After months of attrition, Russia’s war in Ukraine is escalating. The much-awaited use of long-range US and UK missiles striking deep into Russian territory has prompted the Kremlin to update its nuclear-weapons doctrine (potentially allowing the use of nuclear weapons in response to conventional attacks) and pushed Putin to engage once more in nuclear sabre-rattling. As before, he is trying to convince Western leaders that they must choose between a settlement on Russia’s terms or a potential nuclear conflict. How far could this go? A BBC journalist got it just right: “The Putinmobile is a car with no reverse gear and no brakes, careering down the highway, accelerator pedal stuck to the floor.” It’s highly unlikely Putin will push his red button, but it’s highly likely he’ll push all the others. More hybrid attacks like cyber and sabotage are his weapon of choice, as shown by the recent severing of two communication cables in the Baltic Sea. (Global underwater telecommunication networks carry more than 95% of the world’s international internet traffic and each day process USD10T in financial transactions).
  • EUROPE’S PREDICAMENT. Putin’s escalation and Trump’s election force European leaders to recognise that the cost and demands of defending themselves now falls to them. According to Bloomberg, the 15 largest European members of NATO will need to nearly double their annual military investment to USD720bn while adding a further USD340bn a year to bolster capacity against Russia and offset the likelihood of less US support. And all this at a time when Europe faces a structural decline in growth combined with the need to continue generous welfare state provisions (to address its democratic crisis) and to invest in the energy transition (to address the climate crisis). Dealing simultaneously with a triple-nexus of conflict, climate and democracy crises is Europe’s greatest challenge. There is an upside: it could act as a catalyst for vital change.
  • COP29: “TOO LITTLE, TOO LATE”. Experts rate the outcome of COP29 on a scale ranging from failure to disaster. Under the deal agreed in extremis, by 2035, rich country will provide developing countries with at least USD300bn per year in climate finance to scale up their clean energy revolution. Much of it would have to come in the form of concessional funding to catalyse a vast increase in private-sector investment. This falls short of the initial amount of USD1.3tr deemed necessary to keep the temperature increase to below 1.5C. In most of the world, governments are even retreating from their legally binding promises to decarbonize. Once at the helm, Donald Trump will exacerbate this trend.
  • BUT DON’T UNDERESTIMATE TECH INNOVATION that will reduce the cost of the energy transition much faster than commonly assumed. Until now, modelers have consistently underestimated the speed both (1) at which new technologies develop, and (2) at which the cost of existing technologies falls. As a result, a global renewables boom is well underway, with worldwide investment in clean energy reaching USD2tr this year, and total solar capacity doubling since 2022. No matter what politicians do, green will remain a compelling investment theme.
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