Increasing profit warnings from large corporations, reduced growth forecasts and a tense mood on the stock markets all point towards an economic slump, the group said. And while they identified a series of scenarios which could trigger a worldwide financial crisis, they warned the uncertain political situation in many of the world’s largest economies poses the most immediate threat. Writing in the German business Newspaper Handelsblatt, the group of veteran finance writers said traditional alliances, like the ties between the UK and US, would be tested in the event of a crash.
They wrote: “At the moment, the biggest risk to the world economy is politics itself – or rather, the fact that cooperation among the main economies, such as those that took place during the financial crisis, can no longer be taken for granted.”
The group pointed to US President Donald Trump’s weakened position following the midterm elections this week, Theresa May’s precarious role during the Brexit talks and Angela Merkel’s shock announcement that she should not stand for re-election as Germany’s Chancellor as some of the factors behind the uncertain climate.
On Mr Trump, they warned the midterm results could prove to be the catalyst for even more economic uncertainty.
Tuesday’s vote saw the President’s Republican party maintain control over the Senate but lose its majority in the House of Representatives.
Democrats in the House have pledged to provide a check on Mr Trump but could bring his legislative agenda to a halt if they choose to.
The group, which includes Dr Jens Muenchath, Christian Rickens and Daniel Schäfer, wrote: “In the best case, the Democratic delegates will slow down the erratic Trump.
“In the worst case, the opposition of President and Congress will cause even more back and forth and thus uncertainty.”
On Brexit, they warned Mrs May’s precarious position attempting to maintain unity in her Conservative Party while negotiating an exit deal which can win the support of enough MPs to pass through the House of Commons added to growing uncertainty in European markets.
The panel said Italy, now run by “hard to predict populists” also posed a major threat with its budget proposals.
The newly elected government in Rome hopes to increase borrowing to make good on its campaign promises but the spending plans fly in the face of EU rules and would increase debt in the cash-strapped country.
They said a financial crash in Italy would put the Mediterranean county would be well beyond the help of bailouts meaning a “state bankruptcy followed by a debt cut would be almost inevitable”.
And they warned Germany’s Angela Merkel, “who is regarded worldwide as a tireless and influential mediator in crisis situations”, is politically weakened after she revealed she would not stand for re-election.
The group added: “It is questionable whether, in a new crisis in the euro area, for example, she will still have the authority to force the leaders of other states to cooperate at the negotiating table.”
Additional reporting by Monika Pallenberg.
Source : EXPRESS