Archive for the ‘Europe’ category

Divergence is around the corner

July 29, 2017

IMG_0212It is a good time now to update where the global trends are leading us to – how far can we see from here is the question. The one big change that seems to gain more strength is the political and economic divergence in interests of the USA and the EU. A couple of samples show this nicely: the German Chancellor Mrs. Merker has stated that Europe has to take its destiny into its own hands; the German minister of finance Mr. Schäuble stated that the joint European Army will be established at the latest by 2029; and the latest comes this week from Germany and the EU – Mrs. Merkel and Commission President Mr. Juncker announced that the EU will watch very carefully what kind of sanctions the US House of Representatives is setting on Russia, and if they violate unilaterally European firms in environmental or energy sector, the EU will not accept those and will retaliate – the earlier sanctions have caused EU companies around 90 billion Euros less exports to Russia that is more than US companies have suffered. The Trump administration has definitely given Europeans a wake-up call that has changed the thinking in Brussels and Berlin quite a bit. The economic super power EU will now bild up its military capabilities and definitely take more European stance on world affairs. The statement from Mr. Juncker was like this: Trump’s “America First” -policy cannot mean “Europe the Last”. On top of this the EU, Japan and China are forcing the global Free Trade and oppose the Trump administration’s aim at bilateral deals and protectionism which could lead even to isolationism of the USA down the road. My prediction remains the same as before – the power of Europe is underestimated, and when adding a very strong military and space capability to the economical power, it has already, Europe will become the major political, economical and military player on the global arena over the next 25 years, and might take the Western leadership role from the USA even faster. My hope was in tighter North-Atlantic relationships, but that has not happened, and it seems to be that now it is already too late for that – the USA is driving to another direction. There are large issues in the USA to be resolved from US National Debt of almost $20 trillion that equals $61.4 k per citizen,  US Foreign Debt of $6 trillion, growing Medic Aid spending already at over $1.1 trillion, increasing total taxation (Federal, State, City, Community) to the 15 % of population living below the poverty level. It might be that the USA has to focus on internal issues and will anyhow, independently of the Trump administration,  be playing a minor role on world affairs in the future.

 

There is a new puzzle to play now

March 21, 2015

WP_20140404_001The world we live in has now a new situation to handle that I call a new puzzle to play. It is very much a complicated one, and I don’t like complicated issues, because they normally don’t work well. The very old game is back – power game. But not enough with that – now it is back even stronger through military power. So, we have now a game with economic power + military power + mental power + moral power + nature power. There are a couple of new elements or reborn elements here: the world has become multipolar with several centers of power – depending on definition – like Asia – Europe – USA or China – EU – USA or Developing countries – BRICS – OPEC – Developed Nations or nuclear and non-nuclear power countries and military pacts or lately more troublesome radicalization of groups of people – destructive power in a way.

There are simply more unstable and risky locations on this planet than a couple of years back through natural disasters, epidemic diseases, terrorism, military action and wars, corruption, unemployment, national debt, political instability etc.

The basic elements for a better future are centered around equality between people, freedom, and prosperity. We are talking here about happiness that can be seen in the “American dream” or even the highlights of the French revolution in 1789. The basic idea behind the EU is to avoid war between Germany and France – this has worked well. It is obvious for even a child without no education that you cannot succeed if you are in a fight all the time. So, the peace must be there as a foundation. If people do not have equal rights and a chance to improve their situation, lots of energy remains unused or is getting lost. Apparently until kinder garden age a human should understand to live in peace and have friends to play with. It is then obvious that by working together more can be achieved. Suddenly we figure out that Adam Smith was right – it makes sense to deal with others and improve ones situation (he wrote it also around 1789). Then you graduate from the high school with the great idea to change the world and make it better! After that moment people tend to forget everything and things get complicated!

This is nothing new yet, but I just wanted to remind you about the simple game we need to play and not the complicated one. There are now players who want to change the rules of the game by limiting the people’s rights, destroying peace and not letting them to pursuit after happiness and prosperity. The EU‘s foundation is in avoiding a war between Germany and France and that works well. With over 500 million inhabitants the EU is having the largest economic power now. However, the EU got surprised by Russia in respect to military power in Crimea and a war in Ukraine – the EU has no defense forces by itself. Now it is obvious that in future years a massive build up of a new military power will happen. That will be one driver of the European economy in the future. Furthermore I will expect that in a very near future European politicians will start to talk about birth rates and limiting immigration. When the birthrate will get up then the immigration will get reduced step by step. How to turn Europe to grow again is the main question. When the EU – USA free trade negotiations lead to a positive outcome there wlll be a new huge economic zone in labor. The USA has extra strength from the fracking oil and gas and thereby it has gained the independence of foreign energy. The economic zone with EU and USA and Canada & Mexico will be around 900 million people. That can be called a power! Also Canada and Mexico have free trade agreements with the USA and EU and both have oil, too. When the EU builds up its military muscle as well, the new puzzle has more parts to be played. China has reached economic power and it is now working on its military build up, too. The Chinese economy has been growing due to massive pumping of public money into infrastructure. Now the economy is running if the consumption remains high and grows. There are too many empty buildings in China and stock values might be too high, so some reduction in property values and stock might be expected in the future. The low cost oil has helped China a lot in its situation this year. Europeans profit of the ow cost oil as well. Australia has been doing well for a couple of decades now based on mining industry and Asian growth. The situation should stay like that, unless nature events disrupt the positive trend there. That risk is also with other countries, too, like Japan, Vietnam, Philippines, New Zealand, the USA, Chile, Turkey, Italy just to mention a few. India has a huge potential for the future. This will certainly drive European and US politicians and businesses to improve ties with India. The democracy in India is a positive thing, but the values are at least partially still far of the western ones – especially what comes to the quality of people. The regulation is also something that needs of improvement there. When India invests in India (unlike Russia not investing in Russia) and continue to do so the results will be remarkable – even today the national income per capita in India is higher than in Russia – what a change! My expectation is however that India will have more closer ties with Middle East countries in the future based on the energy issues related to oil and gas. India’s distance to ME is less than to Europe or the USA. The new component in the economic part of the puzzle is the rising countries in Africa. There is now oil and gas and a low cost level available. Some companies are moving out of China to Africa already. Many educated people from Europe are moving to work in Africa now and help them to build their new wealth. There is lots of hope in Botswana, Namibia, South-Africa, Mozambique, Tansania, Kenia and others on top of Nigeria and Ghana and North-African countries who had oil already. I shortly only mention now that there are developments also in the South American countries and an intensifying situation around the polar energy discussion related to Canada, USA, Greenland (think about Denmark as an oil country, too), Norway, and Russia.

This was my short introduction to the new puzzle with multipolar situation. In the future I will dive deeper into this and give more projections and forecasts about the future. It is interesting to see that many things have been moving toward that direction I have predicted. Especially my hope of closer economic ties between EU and the USA seem to proceed well. My biggest mistake so far is that the USA has not made the decision yet to print so much of Greenback (dollars) that it could pay off the foreign debt. That day might however come later on – the timing is very difficult to predict. My assumption didn’t take the fracking oil into equation and that changed the situation. However, the outcome is anyhow what I predicted – the US economy is growing again.

Shifting powers impact future paths

April 5, 2014

Jurmala Turtle

There are some strong changes ongoing in the global arena that will influence the  business environment of tomorrow. I will discuss here some of those shortly. One  less spectacular change is that the European Union has been able to get the joint  area rectified from a long lasting downward path. The EU as a whole is  economically stable now although there are still huge differences between areas.  This means that Europeans are earning more than they are spending – the area is  not adding any debt but is able to save. This builds a strong basis for more positive  anticipations for the growth because 70% of EU’s economic activity happens  inside the EU. There are two questions for Europe: energy and defense forces.

Another change is that the USA is now independent of foreign energy sources. This has given a boost for the business in form of lower energy costs than in other parts of the world. On top of that the nation is also growing in number of inhabitants unlike Europe or Russia. The economic activity is growing and new jobs are created. The USA is less dependent on exports than other nations, so the growing economy will be a kind of self sustaining motor that will also attract foreign companies to invest in the USA. The lesser energy is imported to the US the better the foreign trade balance that might turn to positive in the years to come due to anticipated exports of gas. Maybe a bit surprising insight I have is that the USA must get Mexico and other nearby countries in the south stabilized so far that the neighbor country Mexico would get a strong growing middle class. This would have a huge impact for the growth and stability in the USA as well.

The third change is the weakening economic influence of China. The Asian giant is still growing at at a rate of 7 % p.a. However, China’s growth is not anymore coming from exports at large but more through growing consumption and imports. That will be the trend for coming years. Many local infrastructure projects have been financed by local “shadow banks” that have lent money to local governments bypassing regulations not to borrow from banks. On top of this the environmental conditions are very bad – the air, water and food quality is questionable at many places. There are many important projects to improve the situation that is a business opportunity for some western companies, but the time is flying and people must make individual decisions what they will do. There are also two other factors that concern me: there a plenty of empty buildings where no one is moving in, and the stock market values. The energy supply is also causing some headache for the future – in a way a similar question like the Europeans have.

The fourth change is coming from the political and military arena: Russia wants to play a stronger and harder than in the past. The economy of Russia, however, is not supporting this for longer periods unless the price of oil and gas would rise and/or some nature catastrophe would cut the USA off from the political and military arena. Russia needs an update of everything – now they are updating only their military. That will certainly put them stronger to the arena, but what can be gained at the end by that? At least this will force Europeans to build up stronger defense forces. Russia is the largest nation measured in inhabitants in Europe, but economically with a GDP of 2014,8 bn USD at the level of Italy. Per capital that looks then much worse for them. Russia is certainly a player also in Asia with their natural resources and military power. The Russian government wants to force foreign companies to invest into manufacturing in Russia by demanding local content of production value to be over 50%. This is valid for strategic fields like energy, military, motor vehicles etc. This might bring some positive activity into the country, but the government should make it sure that the companies can develop and grow on a long/term basis. When that can be guaranteed there would be some hope for a better future.  The currency value has dropped 30% since 2012 and will anyhow make it difficult for foreign companies to sell in Russia. For a long-term development of the country it would most likely be better to improve the living standard of its citizens and the infrastructure including roads, railroads, health care, etc.

There are more of this kind of interesting developments, but as a conclusion of these short comments I can say that the USA will keep on growing now and become economically healthier day by day, but must take care of its south neighbor Mexico; the EU is stabilizing economically and must start to build up its own military power – will that happen without a deeper political union under Nato or not will remain to be seen – my guess is that the EU will do it on its own anyhow; Russia will put more power behind its military and will push for south although they should develop their country and make sure that the middle class could grow and prosper; Chinese must invest in China and will have less growth than in the past, and they will use their foreign exchange reserves to buy more companies abroad to  ensure the access to the markets in the west and to the technology. The risk of trade barriers is now higher than in the past. However, the negotiations between the USA and EU might lead to a better situation in the future.

There is hope for economies to grow, but risks of man made troubles – looks very much like the human history…

Texas is going stronger

November 3, 2012

The US economy is giving signs of up-ticking, but especially in Texas prospects are very promising: the port of Corpus Christi is exporting more crude oil than ever since 1940 reports Financial Times on October 18th, and oil imports are going down! Texas has also lots of gas, solar, wind, and atomic power. The businesses in Texas will benefit greatly of this situation. The housing market has started to rise again in Texas – especially in DFW area. The unemployment is around 8% and falling there. There are no state taxes in Texas. On top of this all comes the growing number of people living in Texas. So, what would be a more lucrative location to set up a business in the US? As a nice curiosity from Northern Europe:  in tiny Finland there was a scenario work done by EVA (policy and pro-market think tank) for the years to come. In this work the role of US was seen as a slowly degrading super power loosing its position. The hope was put on China. We all agree that China is coming up as a power, but the scenario of the USA needs of a slight correction because US is now self-sufficient with energy and can curb up a great economic growth when manufacturing is coming back to US as well as foreign companies are investing in the USA. I still call for a more intense business and relationships over the Atlantic. EU is clearly the largest economic power on earth, so EU-US relations should play a more significant role. The paths for oil are changing, so why not the way of politics as well?

European perspectives and meaning for the USA

July 2, 2012

The USA exports goods and services for 1,48 billion Euro to Europe (2% of GDP and 20% of US exports), and imports for 0,96 billion Euro from Europe. Mr. Joseph Quinland of US Trust made an interesting comment in Finnish business paper Kauppalehti on June 15th by stating that Europeans are in charge of around 30% of total world private consumption – that is more than Americans and much more than Chinese. About half of foreign income of US corporations is generated in Europe. He continues stating that transatlantic economy represents 41% of world’s GDP! So, there is an important role to be played by Europeans for the world economy and US especially.

The problems in Europe vary a bit by country, but the basic question is how to generate growth. The growth brings jobs, investments, and capital into a country. Especially Spain, Portugal, Italy, and Greece need more and faster growth. The growth comes however through private enterprises and some public projects for infrastructure building. We have to ask, if there is demand for products and services in those countries and made by those countries. The best business prospectives are for companies located in Northern Italy, because they make high tech and high quality products for global markets. For Greece it looks much more complicated – the base for value added manufacturing and production is much thinner than in Italy. European politicans want to keep Europe more or less united and Euro zone as one, but EU has already today several currencies like Swedish Krona, Danish Krona, Czech Koruna, Sterling Pound, Polish Zloty etc. So, from that perspective it wouldn’t be a big deal to have a couple of more currencies in the EU. The nations in trouble would benefit from a lower valued currency to boost their exports and thereby generating  growth and jobs. My personal projection leans towards this kind of thinking – more national currencies, but stronger political and economical unification of EU. At the end there will be a federal state of Europe. Local currencies would allow differences in speed of economies, progress, productivity etc.

For the US economy it makes sense to keep and develop business with Europe on a high level to boost manufacturing in the USA and repatriating earnings from Europe. This balances also nicely the development in and dependence from Asia. Europe will see more national currencies and a deeper political and economic unification.