Emanuel Arbib

Italy’s twin vice premiers knew that they had a good hand in their latest round of brinksmanship with their own FM and the EU. One will recall that President Mattarella was instrumental in getting Tria to be the Finance minister, whereas the coalition wanted Savona, a euro sceptic. Faced with tremendous pressure, Tria could have resigned rather than agreeing to a budget that will increase the national debt by 2.4%, rather than the 1.9% agreed with the EU. The problem is that if he did, then the replacement would have been either a ‘yes man’ like Conte, or a euro sceptic like Savona. Mattarella was keenly aware of this, and even though, technically Mattarella could have vetoed a candidate he didn’t like, this would have plunged Italy into an institutional crisis without precedent against a coalition that is still in a honeymoon phase with the electorate. Tria, probably on Mattarella’s advice, had to blink.

As far as the EU is concerned, they will huff and puff, but at the end they will also have to swallow the Italian pill, based on two considerations. First that it could have been worse…and second, that forcing Italy to the brink would at this time play to the populists’ advantage, and quite possibly provide them with the excuse to renounce the euro altogether.

It is very unlikely that the EU will travel this uncharted territory whilst in the middle of Brexit. Let’s hope that its highly successful bargaining with Mrs May will not give the eurocrats a feeling that they could do it again with Italy…

Whether you like Trump’s style or not, it is difficult to say that his performance, at least during the press conference in Helsinki, amounted to good negotiating tactics. Agreeing with your opponent and trashing your team isn’t exactly clever.

There are two possible explanations to this bizarre performance. Either the President’s detractors are right and he is in ‘Putin’s pocket’ for whatever sordid reasons…or the face to face meetings and the press conference were different ‘movies’.

 As Trump likes to say, ‘we will see what happens’!

Diplomacy is dead. Today’s leaders resemble more carpet dealers in the sook that ask for a price knowing that the buyers will haggle and they will eventually settle for a lot less than the sticker price.

Take Trump. While he certainly has done a lot of what he promised he would do, and this is to his credit, the recent tariffs spat with his allies are probably part of a wider negotiation strategy with a specific endgame. Same with the amateurish Italian duo Salvini/Di Maio. Their rants against Europe are designed to “flatten the battlefield” in order to win concessions from Europe. In this, like Trump, they have the advantage of Street Cred…they just may actually carry through with their threats.

Europe will need to be pragmatic in dealing with them and they just may be able to extract meaningful concessions, because they started with a maximalist strategy.

Even the NYT had to admit that Trump is ‘on solid ground when accuses China’ of nefarious trade practices, even though that newspaper continues to say that he is going about it the wrong way. Let’s try to translate this. Trump has made the correct diagnosis but is administering the wrong cure. Maybe they have a point, in saying for example that his solutions are half baked.

But perhaps the more interesting question that is not asked, is why did it take so long to realise that the US has been trade-abused for decades, and why has no other more literate, polite, erudite president been able to articulate the problem, and propose a ‘fully baked’ solution?

 Why hasn’t that darling of the liberals, Mr. Obama, done anything about it? Maybe if he did, he would have done much more elegantly? But the truth is that nobody else has. In the same way, previous presidents have chosen to kick the can down the road with the North Korean problem, the Jerusalem capital issue, and most important of all, this president is not going to let the bad deal that his predecessor held up as his chef d’oeuvre, turn Iran into a nuclear nation…just not now, in a few years.

 Trump may not be articulate, elegant, loyal, or politically correct, but he seems to be able to identify big wrongs and start to do something about it.

In another theatrical move, Trump is proving that one underestimates his willingness to do the unexpected at his peril.

Going to the lion’s den is a high stakes move, both from a personal security point of view (secret service nightmare!), and of course politically. Trump will have to ensure that he doesn’t repeat his predecessors’ mistakes in negotiating ad nauseam with someone who may just want to buy more time and fool another commander in chief.

 If the gamble works, however, this could be a great precedent to tackle Iran and the Palestinian conflict. Telling it as it is, speaking tough with all the bulk and power of Uncle Sam and then negotiating a hard deal.

Would any G-7 nation elect today a president or prime minister who sleeps during the day and works at night, who wakes up by breakfasting on Champagne and continues his day with whisky, and in the meantime nearly bankrupts his own family to finance his addiction for Cuban cigars?

Of course, that leader was Winston Churchill, and the answer is probably no. Incidentally, Churchill lost the elections after winning the war.

With the possible exception of the current occupier of the white house, the western world today couldn’t tolerate or elect a leader that has an outwardly egregious lifestyle even though he or she has the qualities needed to run a nation in a difficult hour. Of course, Churchill wasn’t perfect and his lifestyle is not to be recommended to anyone; however, one wonders if today’s system of values of uber political correctness are conducive to attract men and women who do not just say what the electorate wants to hear, but are able to take personal political risks to back what is right in the face of strong opposition. One last such leader, Margaret Thatcher, when confronted by many including in her own party, that her policies were going to lose the party’s standing in the polls, and asked her to turn around, famously said:”this lady is not for turning.” Leaders like her are sorely missed.

Judging Trump with the usual “presidential lens” is not going to work. ‘Normal’ Presidents speak only formally, their words carefully weighed and chosen by multiple advisors. For example, consider the press conferences of the heads of the Fed or the ECB. Analysts look for clues as to direction of policy not only from their carefully crafted comments, but also from the nuances, the expression, what is said and what is not said.

Donald Trump has a completely different style, this is obvious. The important question is if there is method in the (perceived) madness. For the ones that think that there isn’t any, such as all the liberals, the New York Times, most of the Europeans, etc. all his comments on Haiti, embassies, and the like are read through the prism of a crass, inept, president, whose only allegiance is to himself and the rabid right-wing constituency that elected him.

But consider the following. US presidents have to deal with very complex, sometimes generationally intractable issues, such as for example, Iran, North Korea, the Middle Eastern conflict, to name a few. The truth is that successive politically correct presidents, haven’t achieved any result with the standard methods. Trump is trying a completely different system. He wants to broker peace between Israel and the Palestinians, but doesn’t desist from doing what he perceives to be the right thing such as moving the embassy, and empowering his ambassadors to say the truths about the origins of violence, the bias of the UN and many others. He can also say that he has a good relationship with the N Korean leader after calling him names only a few weeks ago. This is a negotiating style. It forces opponents to keep on guessing, and sometimes in negotiations that is a winning tactic, albeit not one without risks.

An unfortunate trait of politicians is to take credit for things they…didn’t do. Clinton famously benefitted from George W’s tax hike that created many good years of income for the treasury, Obama claimed credit for the turnaround of the economy after 9/11 even though most of the credit should have gone to the Fed, and the list can go on.

 Donald Trump is following in the footsteps of his predecessors when he takes credit for…. the decrease in airline accidents, but is probably correct in taking credit for the stock market rally. Time will tell whether the tax cut will translate in lasting gains for the economy but in the meantime, investors should ignore the bull market at their peril.

Today Sterling had a blip up on expectations that the EU and HM’s government were going to announce a Brexit deal. The reasoning being that once there will be a ‘clean’ Brexit agreement, all will be well and the UK will continue its path to greater prosperity and lower uncertainty.

This is most probably a fallacious opinion. The big elephant in the room is not Brexit, it is Jeremy Corbyn. The markets can deal with any Brexit, but the markets and the UK cannot deal with a radical socialist, who has at this time better than even odds to succeed the weakened Ms. May at Number 10 Downing Street.

Any rally in sterling should be sold until such time as the spectre of a Corbyn’s government stops looming in the horizon.

One can imagine that the last several presidents had their sadness for leaving office mitigated by one major relief: “Thank G-D I didn’t have to deal with a major problem with North Korea on my watch!”

The N Korean problem has been simmering for the last dozen years or more, and no president has done anything really concrete to tackle the threat, preferring to resort to placebos of an alternate menu of sanctions, bribes, and ‘deals’. Trump is now possibly going to be the president that has to deal with the issue, rather than hiding it under the carpet. Will he? Just like Bibi Netanyahu with the Iran strike that wasn’t, it is the military that is very concerned about the fallout and is trying to keep the political echelon from pulling the trigger. A war with North Korea will not be pretty, and it will have devastating consequences for South Korea, and possibly Japan. The problem is that by not doing anything, Kim Jong-un will continue to feel untouchable and be further emboldened. The truth is that there is no good solution to this problem, and Trump has had the bad luck to have to deal with bad or worse scenarios on his watch. Let’s see if he will get lucky, or bold…