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The Breaking Storm – the real threats to the Global Economy

Photograph by Nigel Tadyanehondo

Note: This piece is a high level comment on current threats to the global economy, there is more detail in other posts on this Site

There are two long-term problems that will increasingly drive events; one is the loss of German control of the European Union/EuroZone, and the second is the impending collapse of the Chinese economy. The Chinese economy will collapse when the current housing bubble deflates, while it could happen at any time, but I would pencil in 2020-2022. Just keep a weather eye open and don’t believe most of the “information” on China.
The loss of German control over the EU/EuroZone is becoming more obvious by the day. The failure of Mrs Merkel to form a strong government will severely restrict Germany’s ability to control events over the next year or so, and what is now happening in Italy is a real threat to the EuroZone – see for example. 
When people like Thomas Friedman claim that Brexit was all about immigration they are far from the mark (although I did enjoy his “Thank You for Being Late”, even if it’s two hundred pages too long). James Dyson’s views on Brussels reflect my own – he says, “as I’ve found out from 24 years of sitting on European committees with Dyson. No non-German company has ever won anything, and nobody has ever been able to block any suggestion from the German cartel. Never. They stifle innovation, the EU. And the European Court of Justice, well, that’s frankly crooked…” No American could accept such a situation. I have set up companies in Germany and France, been exposed to Brussels, and have dealt with the stupidity and arrogance of large European companies. Too often the people who control the EU are locked into a rigid and inflexible mindset, and only believe in “control”, not cooperation.
Germany transformed its large trade deficit into a massive trade surplus which it forced onto peripheral Europe (Spain, Italy, Portugal, Greece, etc.). Once the German trade surplus stops growing, so will its GDP. Germany, even more than China, has distorted the global economy with its weak domestic demand and massive surplus. The decline of the Chinese economy is going to remove a lot of German exports, as will Trump’s attack on the German trade surplus (I see this coming in the next few months, with high tariffs on German cars), a clean break Brexit will also be bad news for the German car industry, UK is its second largest market after the US. Germany has also failed to invest in new technology (the UK has as much investment in new technology, AI etc, as Germany, France and Italy combined), failed to move to a Green economy and remains wedded to metal-bashing industries, like cars and machine tools. 
What we are now seeing in Italy (Italian GDP has been static for nearly 20 years) is the inevitable result of the failure of the German currency management system, aka the Euro. Because of Germany’s dominant position in the EU, the decline of Germany (and its national inability to accept that it has made the wrong choices, and to change its bullying approach to its neighbours) will undermine the whole European Union, and the whole system, not just the Euro, may fall apart. I could also see Britain joining a new European organization that was fundamentally democratic, an alliance of free and democratic nations.
The European Union is the largest economic unit on the planet, and its problems will have an effect around the world. The next recession could well be driven by the problems in Europe, but otherwise the collapse of the Chinese banking system will ensure it. The two events may also be linked, problems in global financial markets will affect China, but things have now started in Europe, with Italy as the current centre of the storm.
About Andrew Palmer (275 Articles)
Book by Andrew Palmer explores today's fundamental & systemic problems of the world. Proposes a framework for understanding the forces that are driving change.

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