Emanuel Arbib

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…

Trump’s tweet about North Korea had a close resemblance to Truman’s warning to Japan towards the end of WW II. That warning was not heeded, and we all know the result. Truman aside, it is probably unprecedented for a President to use such strong and allusive words especially against one of the worst thugs in the world. In high stakes diplomacy words are weighed umpteen times before being uttered, and usually a president doesn’t say hello to reporters without his remarks being carefully scripted. The problem, or the opportunity, with Trump is that nobody knows if he means what he says, says what he means, says what he doesn’t mean, etc. What’s good about is that sometime unpredictability can be helpful in negotiations. If the other side thinks you might really push the button, it may make them think twice before provoking. However, here we have two statesmen that could very well precipitate a crisis by mistake. Maybe, actually probably, a crisis with North Korea is the right thing to do, shame that Obama didn’t have the guts or will to do it with Iran. What we need to avoid though, is a mistake…as that will be immensely costly.

The President has an urgent need to change the subject, but the media is intent on not allowing him to do so for the time being. Normally, people would get tired and stop reading or listening to these old news, whether bona fide or fake…but the president’s detractors are clearly not going to let go, drip-releasing snippets on almost a daily basis. There are a few things that the president can do to force the change of subject. First, try to become a news maker, rather than a news taker. This he is trying to do with the appointment of Mr Scaramucci. Next, he and his family and advisors should also release any information remotely dealing with the Russia issues at once so that there can be no more daily leaks. Of course, he and they can only do this to the extent that there is no smoking gun out there….

Finally, a real international crisis, such as a war with N Korea, or in the middle east, would probably go a long way to replace these irritating news…are we in for a hot summer?

It is becoming increasingly clear that the Obamacare bill that most people didn’t like a couple of years ago, has become an ACA that is certainly not perfect but not even a disaster. It is probably best characterised as the lesser of the evils. Repealing it will be tough, and changing it has proven impossible for the Republicans to achieve, given their own divisions between right and left of the party.

 The problem now, witness the US dollar rapid depreciation, is that this legislative debacle has significantly eroded investor confidence in the Trump’s administration ability to push through much of his economic agenda. The main next step will be tax reform. Trump and the GOP congress better gets their ducks in line this time, as confidence is easy to lose and very tough to regain…

For a long time Italian banks have been the scare of the Eurozone. In particular, their mountain of NPLs, usually not properly covered by adequate reserves, have been a Damocles sword on top of European technocrats. However, the recent swift, bail-out of the venetian banks and MPS has suddenly taken a weight off the sector. Italian bank shares are up over 25% year to date, and problem cases are now much more manageable. Of course, there is still the problem that on top of the mountain of NPLs there is an even taller pile of UTPs (acronym for unlikely to pay…), which are essentially NPLs in gestation. If the economy picks up steam, and the banks continue to work through their NPLs, it is still possible that the UTPs will not become the next ticking bomb for the Eurozone. The markets have turned bullish, we shall see…

President Macron is increasingly looking like a modern Roi Soleil. He is now meeting foreign visitors and holding parliament meetings in Versailles. This is probably not a bad thing as long as he utilises France’s attempt at regaining ‘grandeur’ to make the necessary reforms at home. He seems to be inclined to hit the ground running with labour laws reform… Let’s see how he deals with the inevitable street demonstrations that will certainly happen.

If the Brits finally decide to leave, as the most recent polls seem to suggest, it will be due to three main factors. The first is the miscalculation that EU core countries, and Germany in particular, have made in continuing to push for a Frankfurt/Berlin centric fiscal policy. The second is how Europe has quickly become a scapegoat for inefficiencies, a feeling that is partially true and due to multiple level of government that obviously costs more and takes more time. Finally, we have reached this low point in political strategy, as a result of a colossal miscalculation of David Cameron.

The problem with British leaders, unlike some continental ones,  is that they will admit a loss when it happens, and he will have to resign if he loses the referendum. In this case, brace for volatility.

Matteo Renzi didn’t lose the local elections but he also didn’t ‘super win’ like he did in last year’s European polls. The reasons why he did…OK…but not great, are probably not due to him, but a  combination of the resuscitation of the Italian far right and part of a wider European malaise.

With Berlusconi’s semi-demise, Renzi was left for a couple of years to be the only kid on the block. Now Italians have found the right wing version of Renzi in Mr. Salvini, leader of the Northern league, a young populist politician widely reputed to have far right views.

 Mr. Salvini’s party platform has borrowed planks from a collection of European reactionary parties, including Podemos, Syriza, Front National, UKIP. The difference with the situation in Italy and Britain, though is that Italy’s still very proportional electoral system will give Salvini a lot of MPs in the next elections and he will be a force to be reckoned with.

Come the next general elections, it is likely that it will be a two way fight between Renzi and Salvini, with Grillo’s M5S as a possible party spoiler. Renzi and many Italians may at that point start missing Mr. Berlusconi….

As someone who has an interest in comparative electoral systems, I couldn’t help being so favourably impressed by the outcome of the British election and its electoral system. The campaign lasts one month, the elections one day, by the end of the night of the elections the winner is known. The next day the prime minister goes to the Queen, and goes, or comes back, to 10 Downing Street. In the meantime, the losers accept their failure and resign. Compare this to what happens in Italy or Israel, for instance. In both countries electoral campaigns are a lengthy affair that sometimes starts the day after the elections; the losers complain but don’t resign, the winners squabble for the spoils of victory. In fact in Israel this spoils system is even more voracious and obnoxious than almost anywhere else. The coalition is formed not before the elections but after the elections and every party have exorbitant requests, cross vetoes, last hour blackmail etc. Bottom line, Bibi Netanyahu was only able to form his coalition seven weeks after winning the elections, Cameron did it seven hours after the elections. Whose electoral system would you rather have?

 The question is not as simple as it looks, because the downside of the clear cut civility of the British system is very harsh on the losers, who may get a very high share of the electoral vote and almost no representation in parliament—go speak to Farage for example (the leader of the UKIP). Serious publications such as the Economist have been advocating the introduction of some proportional representation into the British system. Despite its drawdowns–no system is perfect, Brits should think twice before giving up their current system which guarantees a civil transfer of power, accountability, and certainty, for a Levantine correction that engenders unending discussions and very often extortion.

Press rumours are speculating about the creation of a wider rift between the head of the ECB, Mario Draghi, and Mr.Weidmann, the formal Merkel advisor currently head of the Bundesbank. Whatever the specific motives of the alleged breakdown in their relationship, this personal issue has wider ECB and pan European implications. Simply put, France, Italy and the other weaker EU countries believe that without fiscal stimulus there is no getting out of this painful and prolonged recession. Draghi has done ‘all he could’ with conventional monetary policy and now, in the absence of fiscal stimulus which is constrained by the EU budget rules (i.e. to stay within 3% limit), is beginning to do, at least in Germany’s view, more than he should.

Renzi and Valls’ point of view is widely known: too much continued austerity is killing the patient. They argue that now that both France and Italy have governments which appear serious on reforming, they should be given the slack to enact countercyclical measures that will result in a widening of budget deficits in the short term, but in a sustained recovery in the medium term.

The problem is Germany has seen all of this before, and from their point of view, they need to see real action on the ground of labour reforms, spending cuts, etc. before agreeing to any more stimulus measures. With regards to the unconventional monetary policy steps that Draghi is beginning to embark upon, the Germans are not happy at all. Rock bottom interest rates, negative in certain instances, are hurting both savers and corporates; the idea of the ECB starting to buy structured products is equally scary to them.

As always, the solution will have to be political. France and Italy will have to do more real action on the ground to nudge Germany to reluctantly agree to fiscal stimulus such as widening budget deficits…most will agree that monetary policy has done all it could in this cycle.