“Whatever the potential downsides to Trump’s policies, there is one clear upside: they will boost growth and employment in a eurozone where economic dissatisfaction is generating political turmoil – and the gains will be most pronounced in the countries that most need them”.
Europe has just endured two more difficult tests with Austria rejecting the possibility of the EU getting its first far-right head of state, and the Italians giving a stinging rebuke to their government, and opening the way for populist forces to come into power. Added to a Brexit that has yet to unfold, it is clear that the survival of the common currency, the Euro, is far from guaranteed. Prime Minister Matteo Renzi’s decision to resign has thrown Italian politics into disarray, and an early general election is likely. At a time of substantial economic challenges, Italy’s output has been stagnant for a decade and it’s public finances remain precarious. To avoid the eurozone’s collapse, an economic boost is needed, and Donald Trump might be the person to deliver it The immediate effect of Trump’s victory has been a net positive for the eurozone, with rising European interest rates and increases in the yields of German bonds following his electoral triumph. Added to the stronger dollar resulting from Trump’s fiscal policies, this is good news for the eurozone as the US remains its leading export market. But, the peripheral countries stand to gain more. For example, a depreciation of the Euro affects Italy more than Germany, as demand for Germany’s exports of specialized capital goods is inelastic. Resultantly, rapid demand-fueled growth in the US, as well as a stronger dollar could contribute to a rebalancing of the eurozone. Trump’s energy policy might also be beneficial to it Europe. Trump’s pledge to ensure energy self-sufficiency could help suppress oil prices, and act as a boon fro the eurozone’s oil-importing countries. There is a precedent for Trumponomics’ potential benefits for Europe. Ronald Reagan’s policies produced a stronger dollar and large fiscal deficits, helping Europe overcome challenging disparities and achieve growth. Whatever the downsides to Trump’s policies, the fact remains that they will boost growth and employment in the eurozone, and the gains will be most pronounced in the countries that need them.