The 2020s will be best characterized by a great power competition between the U.S., the EU and China, writes Beat Wittmann in his essay for finews.first.
This article is published on finews.first, a forum for authors specialized in economic and financial topics.
The 2020s will be characterized by a great power competition between the U.S., the EU and China which will lead to a new tri-polar world order. This unfortunately will happen to the detriment of the multilateral organizations, international rules and global cooperation, which would be more than ever needed with global challenges such as the pandemic and climate change.
And as a direct result all other players, big or small countries and/or companies, will either adapt or be in trouble and pay in any case an economic price.
«China has experienced an unparalleled development by a capitalistic and not a communist approach»
The transition from the U.S.-led post WW ll global order to a new geopolitical and geoeconomic equilibrium will be disruptive and a long and winding road as all of the three superpowers have the size, skills, experience, resources and comparative strengths to secure more strategic autonomy and dominate their respective greater geographic regions.
The U.S. still benefits hugely from the dollar-based global financial system, its technological capabilities and global hard power projection. China has the world’s largest – and ethnically homogeneous – population and has experienced over the past 40 years an unparalleled economic development – and nota bene this by a capitalistic and not a communist economic approach – and achieved to become the largest creditor to the U.S. The EU is a highly developed economic and regulatory superpower based on multilateral institutions and processes and a common set of humanistic and democratic values and legal rules.
«U.S. President Donald Trump has no respect for institutions nor rules»
To get a foretaste of the new decade you can simply extrapolate the 2020 year-to-date political developments into 2H 2020. The U.S. with President Donald Trump who has no respect for institutions nor rules managing a highly divisive ‘whatever-it-takes’ approach to getting re-elected.
China’s autocratic President Xi Jinping keeping up the pressure to politically dominate the South China Sea and strengthen strategic autonomy. The EU having launched a comprehensive and unprecedented monetary, fiscal and regulatory response to address the crisis and to advance overdue structural reform.
I am absolutely convinced that later this year under the leadership of the President of the European Commission Ursula von der Leyen, the President of the European Central Bank (ECB) Christine Lagarde and the EU Council Presidency under Angela Merkel this historic and bold package will be approved by all 27 EU members.
«The unlimited supply of liquidity by central banks and governments has so far mitigated the worst fallouts»
A key question is who will put this crisis to best use and where are the risks and the best investment opportunities. There is a wide gap between the impressive snap back performances of equity markets and the historically high unemployment levels, losses of personal incomes and corporate revenues and the massive risk of record insolvencies, particularly in the SME space.
The unlimited supply of liquidity by central banks and governments has so far mitigated the worst fallouts, however with significantly higher sovereign and corporate debt levels as a result. And those will have to be resolved by either prolonged financial repression, an economic growth agenda, defaults, higher taxes or inflation.
The EU led by Germany has had a highly disciplined and well-calibrated response to global health and related economic crisis. EU risk assets have been generally under-appreciated, are undervalued and still under-owned and I think that also the euro has further significant upside potential relative to all other currencies.
Beat Wittmann is chairman and partner of Swiss-based financial advisory firm Porta Advisors for almost five years now. His more than 30-year career in banking includes stints at both UBS and Credit Suisse as well as Clariden Leu and Julius Baer. He operated his own firm from 2009 to 2015, first independently and more recently under the Raiffeisen Group.
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