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Trump becomes number one threat to European economy

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US President Donald Trump’s decision to leave the Iran deal represents his third strike against the European economy in half a year and will add more volatility in an already difficult period, reported Euractiv (France).

As EU institutions are debating whether Europe’s economic growth is nearing the end of the cycle after years of robust recovery, Trump’s announcement has fuelled oil prices and increased the uncertainty for European companies doing business with Iran.

The decision came amid a trade dispute between the US and other large economies, including the EU and China, and followed the fiscal stimulus passed by Washington last autumn, seen as a potential risk on this side of the Atlantic.

The European Commission expected last week the eurozone economy to grow 2.3% this year and 2% in 2019. But in contrast with previous forecasts, the Commission did not review upwards the figure. The Commissioner for Economic Affairs, Pierre Moscovici, noted the “slowdown” of the output but said the growth remained “robust”.

In its forecast, the Commission strongly revised upwards the oil prices (Brent) to an average of $67.7 per barrel in 2018 and $63.9 in 2019, a 21.5% and 16.8% increase compared to its November forecast.

Above the reference
But rumours about a potential breakdown of the Iran deal and additional geopolitical turbulence, especially political instability in Venezuela, have sent Brent crude prices above the Commission’s reference price since early April. Prices went up by 2.81% to reach $76.

Analysts expect oil prices to remain at this level or higher in the coming months.

The Commission declined to estimate what could be the impact of higher oil prices on the European economy or its labour market.

“The Spring Forecast, published last week, notes that oil prices have been quite volatile in the first quarter of 2018 and that the current volatility is likely to persist in 2018, as uncertainties about the oil price outlook have increased,” a Commission spokesperson said.

But EU countries struggling to balance their public accounts have crunched the numbers in a worsened scenario in their draft budgetary plans sent to the Commission this spring.

The Spanish government estimated that if the barrel price grew to 75$, it could result in a -0.7% decrease of the GDP and 150.000 job losses. If the oil prices stabilise around $82, the Spanish economy could lose 3.8% of GDP over the 2018-2021 period and 550.000 jobs would disappear.

This is the third decision taken by Trump since last autumn that is threatening the global economy, in particular, the European expansion.

Moscovici warned last week that Washington’s fiscal stimulus and Trump’s protectionism represented a “dangerous nexus”.

Moreover, the Commission warned in its forecast that if the global value chain is disrupted because of the trade conflict, the European expansion could be thrown “off track”.

Protecting European firms
European companies will also be impacted by Trump’s Iran decision, as they will have six months to cease all activities with Iran or face US sanctions.

“US sanctions will target critical sectors of Iran’s economy. German companies doing business in Iran should wind down operations immediately,” said the new ambassador to Berlin, Richard Grenell, on Twitter.

It remains to be seen how the US will apply the sanctions and what mechanisms the Europeans could set up to protect their firms.

US Secretary of Treasure, Steve Mnuchin, said the US Administration would pursue action under primary and secondary sanctions authorities, so European firms with investments or operations in the US could be hit if they maintain their links with Iran.

Airbus, Siemens, Peugeot-Citroen, Renault, Total, Eni, Danieli are among the companies affected.

“At this moment it is not easy to quantify the possible economic impact of the US withdrawal on European business activity,” said Emma Marcegaglia, the president of BusinessEurope, the largest EU business association.

Marcegaglia said companies need “legal clarity”, but expected the EU institutions and European governments to help the European businesses deal with “the uncertainty and its negative consequences”.

The Commission said that it is working on plans to protect “the interests of the European companies”.

The nuclear deal “is not a bilateral agreement and it is not in the hands of any single country to terminate it unilaterally,” the EU foreign affairs chief Federica Mogherini said in a statement.

Cornelius Adebahr, a fellow at Carnegie Europe, told Bloomberg that the EU could establish euro-denominated credit lines and clearing-houses that can green-light legitimate business with Iran.

Vulnerability
For Grégory Claeys, a research fellow at Bruegel, the impact of higher oil prices could be limited, as the euro will be higher than expected. “The two effects could compensate thanks to a strong euro,” he told EURACTIV.

But he warned of the “fragility” of the European expansion. The EU’s economy is “very vulnerable”, given its dependency on external demand, the internal demand is “still suffering, he said.

The diminishing vigour of the European output sparked a debate in the ECB and in the European Commission on whether the bloc is nearing the end of the expansion cycle.

However, both institutions concluded that the “loss of momentum” in the economic activity was due primarily to temporary factors.

***

While Washington is challenging the multipolar world with unilateral actions, Europe has vowed to challenge its hegemony. However, it has not enough character and political will to fit the role, former UK MP George Galloway says, reported Russia Today.

The US decision to pull out from the long-weaved nuclear deal with Iran prompted the EU to consider replacing its overseas ally “as an international actor.”

US President Donald Trump's stance on the accord failed to draw support of European signatories of the agreement, but the European leaders may fail to respond to the aftermath of the American move, politician-turned-broadcaster Galloway told RT.

Such an approach is the result of the leaders’ emaciated political strength, which is nothing compared to the heavyweights of last century, he said. “I could not imagine the France of General de Galle or the France even of Jacques Chirac being pulled around the Washington DC rose garden at the White House and allowing dandruff to be flipped from their shoulders,” the former MP said.

Galloway was referring to the recent visit by French leader Emmanuel Macron to the US and his so-called bromance with Trump, as the duo were spotted holding hands, kissing cheeks and slapping each other on the back.

“The era of even Chirac, never mind de Galle; even Thatcher, never mind Churchill, is not the era we are currently living in,” he observed.

While the Europeans themselves know that American hegemony has never been anything good, “neoliberal collapse in the leadership class” would prevent it from taking action against the US, according to Galloway. The situation in the ruling class left it in disparity between its historical past and current political strength.

“Never been the case that Europe has exhibited anything like the same political strength that economic and cultural weight would warrant,” he told RT.

On the other hand, the demise of Europe does not stop other players on the international arena from voicing their opposition to Washington. “Russia in the last nearly 20 years has recovered its political weight, and its political weight is now commensurate with its economic, cultural and historic weight. China is not yet politically expressing itself... and Europe is some way behind both of them,” the commentator stated.

Russia and China are part of the 2015 nuclear deal with Iran, officially called the Joint Plan of Action, which caps the country’s nuclear program in exchange for sanctions relief. Both have been strongly condemning the US approach to the deal and – alongside France, the UK and Germany – vowed to preserve the agreement. Nevertheless, US secondary sanctions may affect Western companies doing business with Iran.

“The arrogant dictatorial sanction of the United States that it is entitled to effectively ruin companies in foreign countries in pursuit of its own unilateral political stances is of course an existential challenge to the multipolar world,” Galloway said.

***

The Turkish economy minister on Friday said the United States' withdrawal from the Iran nuclear deal was an “opportunity” for Turkey, insisting there would be no let-up in trade with Tehran, reported Dawn (Pakistan).

Despite strong protests and last-minute lobbying by his European partners, US President Donald Trump announced that Washington would withdraw from the historic nuclear accord.
Trump then vowed that there would be fresh sanctions issued against Iran.

“I see it like this, this is an opportunity for Turkey,” Nihat Zeybekci told state news agency Anadolu, adding: “I will continue to trade with Iran.”

But he said that if there are United Nations decisions related to Iran's nuclear activities and other issues, “of course” trade would continue “complying with them”.

Turkish President Recep Tayyip Erdogan spoke on the phone with his Russian counterpart Vladimir Putin during which both men agreed the US move was a mistake.

Zeybekci criticised the unilateral decision by Washington but added: “I don't see anything big to worry about at this stage,” noting that other countries including EU members were not of the same opinion as the US.

Relations between Turkey and the US have been strained over several issues including the conviction in January of a Turkish banker who helped Iran evade US sanctions.

Mehmet Haka Atilla was convicted after well-connected Turkish-Iranian businessman Reza Zarrab, arrested in the US in 2016, became a government witness and admitted involvement in a multi-billion-dollar gold-for-oil scheme to subvert US economic sanctions against Iran.

During Zarrab's testimony late last year, the businessman, who was once close to the ruling party elite, implicated Erdogan and other officials in the scheme.

In a deal negotiated between Iran and the five permanent members of the UN Security Council — the UK, China, France, Russia and the US — plus Germany, Iran agreed in 2015 to freeze its nuclear programme in exchange for the lifting of international sanctions.

Turkey and Iran together with Russia have been working closely on the Syrian peace process despite being on opposing sides of the seven-year conflict.

Erdogan held a telephone call with Iranian President Hassan Rouhani during which the Turkish leader reiterated Turkey's commitment to JCPOA (the formal abbreviation for the accord).

The men also touched upon developing bilateral economic relations, a Turkish presidential source said.
(https://www.dawn.com/news/1407042/trumps-iran-deal-exit-an-opportunity-for-turkey-says-minister)

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