The Global Review
Greece
While not yet free from the yoke of economic stagnation, the Greek economy has lumbered along in the eight months since it ended its arduous eight-year international bailout program. Athens is fresh off securing IMF approval for pre-paying a portion of its high-interest loans, and its debt levels are looking sustainable, even as they are hovering at 180% of GDP. In addition, its housing market is booming, even though property prices are only recently recovering after a 40% drop since 2010. This resurgence has been fueled by local homeowners selling or renting their homes to a record wave of tourists, coupled with its “golden visa” scheme in which investors who spend a minimum of €250,000 on a Greek home are able to obtain a five-year renewable visa. So far Russian, Turkish, Middle Eastern, and especially Chinese investors are bringing the bulk of the capital. Indeed, many Chinese state-owned companies are viewing Greece’s economic difficulties with an eye for a bargain, including Cosco, which owns the majority of Greece’s Piraeus port (in spite of recent delays by the feared Greek Central Archaeological Council). Beijing has also lured in Athens into its new regional “16+1” intiative, which is a part of its global “Belt and Road” trade and infrastructure strategy. Moreover, international private equity funds are getting in on the action, particularly in Greek real estate investment trusts and mortgage-backed securities.
The average Greek, however, is still struggling, with unemployment at 18.5% and a raft of high taxes leading to the average unmarried worker paying 41% of his gross income toward taxes and social security contributions. This has led to the opposition gaining on the ruling leftist Syriza party (albeit in a minority government), which is widely blamed for accepting the unpopular third-and-final bailout in July, as well as for accepting the name change of its northern neighbor to “North Macedonia”. While Prime Minister Alexis Tsipras might buy some time by pushing elections to October – the latest date they can legally take place – it is only a matter of time before Athens will be ruled by the centre-right New Democracy Party. More troubling, however, is that the backlash against migrants – Greece is currently hosting nearly 80,000 – continues, with the neo-Nazi Golden Dawn party still polling at 6%, which puts it in a tie for the third-most popular Greek political party.
Italy
European far-right populism has a new home. Matteo Salvini, Italian interior minister and leader of the anti-immigrant League Party, just scored a coup in bringing together a number of other far-right and populist parties across the continent in an alliance to contest European elections in May. His coalition partner – deputy prime minister and head of the anti-establishment Five Star Movement Luigi Di Maio – is also a populist who took no issue in dallying with French Yellow Vest protesters in Paris two months ago. Their sights are set on targeting both Brussels and the thousands of migrants who mainly arrive in boats from Libya, although their inexperience in governing and inability to agree on budget priorities has been amply shown.
In spite of the Italian industrial sector rebounding steadily since January, the eurozone’s third-largest economy just entered its first recession since 2013, based on falling output during the third and fourth quarters of 2018. Rome’s deficit and debt levels are increasing, and it has the dubious distinction of being the only nation in the 36-member OECD with current per-capita GDP below its 2000. Expect another extensive (and thorny) back-and-forth with Brussels later this year on its budget, as the coalition continues its push for more pension spending, reduced taxes, and maintaining the “citizens’ wage”, a recently-rolled-out version of universal basic income for the country’s poorest families. Technocrat prime minister Giuseppe Conte, who was chosen last year precisely because he did not come from a power center and could effectively serve as a mediator between the League Party and the Five Star Movement, will have his hands full during the next few months dealing with rising investor anxiety, poor performance of Italian equities, attracting further infrastructure investment from Beijing, and flirting with Moscow and other powers in order to increase Rome’s chances of stabilizing Libya (which do not look so good right now).
China
Arguably no country is as strong a bellwether of global growth as China is, and so concerns about its long-term growth trajectory continue to worry investors. Beijing is certainly feeling the pinch. 2018 saw Beijing and Washington levy more than $360 billion in tariffs on bilateral trade. Plus, lukewarm global growth means less business for China’s export sector, which used to be the mainstay of its economy. This has resulted in the world’s second-largest economy growing by 6.3% during the first quarter – its slowest pace in three decades. Offering tax cuts and a slightly better domestic business climate, the government is hoping to assist the transition into a consumption-led economy without overheating the property market.
It may have some help on that front. Negotiations around a US-China free trade agreement – once an Ivory Tower-held pipe dream – are closing in on their final round, with Washington apparently even relenting on its demand that China curb industrial subsidies, mainly to state-owned firms (although, this seems to be in part so that Beijing can purchase more US products). A deal would give President Xi Jinping even more reason to further consolidate power, after a massive 6-year anti-graft campaign and clampdown on domestic dissent already eliminated most of his potential political competition. While Beijing will continue to hear muted criticism about its treatment of the Uyghur population in Xinjiang and occasionally scorn from regional neighbors about its military expansion in the South China Sea, Xinping and Trump seem set to reach some sort of economic agreement, which should ultimately bode well for global trade and capital flows.
France
As the Gilets-Jaunes (Yellow Vest) protests continue for a sixth month, French President Emmanuel must balance restoring law and order to city centers on the weekends with addressing some of the agitators’ actual demands, such as lower taxes and better public services. While less numerous than when the demonstrations began in November, 31,000 protesters did turn out across France last Saturday, compared to 22,300 one week prior, showing that the problem is not going away. Indeed, polls peg the Yellow Vests’ popularity at 46%, and Macron has taken note, having just capped off a 10-week debate with citizens across the country by unveiling a package of policy reforms intended to alleviate rising public frustration.
The key question will be whether the proposal will be enough, and even if it is, how it will mesh with the controversial pro-market reforms of his first year in office. To say Macron is embattled would be an understatement. With his approval rating at just 27% and his administration still reeling from a scandal with his bodyguard and the resignation of several popular ministers, he desperately needs a public victory, else European elections in May will be a referendum on his policies. If that happens, the results might not look rosy for Macron’s En Marche party, which is being challenged from the left and right, respectively, by the parties of ever-present political rivals Jean-Luc Melenchon and Marine Le Pen. Macron has not been too successful in Brussels either, with the EU overruling Paris and voting to launch trade talks with Washington.
Written by Roberto Pucciano for H Edition Magazine