Europe

Does Trump hate the EU?

“Love-in at the White House” was Saturday’s front page headline in the Daily Mail, a British tabloid newspaper. No, it’s not what you’re thinking. Donald Trump didn’t hire ladies of the night to frolic where the Obamas had once laid. Instead, Trump was pictured holding (note: not grabbing) the hand of British prime minister Theresa May, who was visiting Washington. Is Trump’s flirtation with Brexit Britain actually a sign of a deeper hatred for the European Union?

Britain fell in love with the European Economic Community (EEC) in 1973. It joined up after a referendum. But institutions, just like people, change over time. Love doesn’t always last.

The EEC of the 1970s has matured from an adolescent trade block – full of verve and hope – into a sclerotic, if not quite geriatric, political project.

Youthful optimism has been replaced by the hallmarks of middle age. Regret at past mistakes and missed opportunities, a heavy debt burden, complex and awkward relationships with family and neighbours, and the prospect of slow decline and eventual demise.

The eyes are beginning to dim, the joints are starting to creak. Habits are fully formed. The old EU dog won’t learn any new tricks. It just barks and howls.

Last year a majority of the British decided they’d had enough, and voted for a divorce. But the divorce proceedings will take a couple more years to negotiate, agree and execute.

In the meantime, a lot of people are still trying to keep the unhappy couple together – such as certain politicians and anyone with the funds to start a constitutional court case. Whatever the rights and wrongs of their motivations, this makes the entire disentanglement far more painful and drawn out than it needs to be.

But the government is doggedly navigating the obstacles, and has made it clear that it has no intention of turning back.

In the meantime, while the lawyers and lobbyists slug it all out, the country is flirting with potential new partners. Or, most recently, rekindling the old flames of a “special relationship” from the past.

Enter the new administration in the USA. Last week I pointed out how president Trump’s trade policies, combined with Brexit, could potentially lead to Britain getting free trade deals with both China and the USA, or 40% of the world economy (for more see here).

On Friday, Theresa May was the first foreign leader to visit the new president in Washington. It seems that the visit went pretty well.

Trump heaped on the praise. As part of the charm offensive, he pointed out that a bust of Winston Churchill was back in the oval office – having been removed by his predecessor.

He even came up with a decent and interesting present – an 1865 edition of Harper’s Weekly magazine that covered Abraham Lincoln’s second inauguration. That was a welcome improvement from the set of 25 DVDs given by Barack Obama to ex-PM Gordon Brown in 2009.

For her part May – when she wasn’t giving a (perhaps ironic) food hamper to first lady Melania, an ex-model – explained why James Bond & Co. can’t cooperate with torturers (it’s very illegal in Britain)…why she thinks NATO still matters…and cautioned about dealings with Russia (the British government and media remains rabidly anti-Russian).

Most notably – for our purposes, at least – Mr. Trump declared that Brexit was a “blessing to the world”. In case the Brussels bureaucrats had missed the point, he added that leaving the European Union would be a “wonderful thing” leading to “great days” ahead.

Still not got the message? “I think it will go down being a fantastic thing for the UK. It will be a tremendous asset not a tremendous liability.”

Apparently the Donald is committed to a free trade deal with Britain, which shows that he’s not just a protectionist. But then he’s also been offered a state visit to Britain later in the year.

Almost everyone goes wobbly at the knees when offered the prospect of a sleepover with Her Majesty at Buckingham Palace. And if anyone knows how to woo foreign dignitaries then it’s Queen Elizabeth II, who’s been at it for over 63 years (and alive for 90 years).

Many have been quick to say that the Trump and May relationship could be a rerun of the Reagan and Thatcher show of the 1980s. I doubt it – especially in terms of what it means for investors (although there are some parallels). But that’s a story for another day.

May herself is said to think that easy comparisons between herself and Margaret Thatcher – Britain’s first female PM (but not first female leader)  – are lazy.

Anyhow, let’s get back to the EU. Which Trump described as a “consortium” when May was in town.

Technically speaking that’s not a derogatory term. It just refers to an association, most usually of participants in a business deal. But, on the other hand, its use certainly didn’t sound complementary. Alternative terms with a similar meaning include gang, mob, ring and syndicate. Hmmm.

It would be no surprise if Trump has little love for the EU. During his candidacy – both for the Republican party nomination and then the presidency – mainstream European politicians were quick to dismiss or insult him.

Now that he’s become the most powerful man in the world – albeit temporarily – this is terribly awkward, to say the least. Actually, in diplomatic terms it’s about as bad as it gets.

So the eurocrats squirm and grovel and change their tune. But the damage has already been done over the past couple of years, as one after another they’ve scrambled to publicly condemn someone they never believed would actually win.

Oops.

At the same time, those that want the EU to survive – basically the same mob – need to ensure that Brexit is a failure. If Britain has an easy divorce and goes on to new heights of prosperity – while much of the EU continues to stagnate or flounder (Greece, Spain, Italy, Portugal, France etc…) – then the Brussels gravy train will derail.

So what better way to spill that gravy than to help out Britain? And what better way to help out Britain, in its time of need, than for the biggest economy in the world to offer it more trade? Or even a big, quick, no-nonsense trade deal with the good old US of A?

Beyond that, has Trump got his eye on “Frexit”? There are French presidential elections in a few months and nationalist leader Marine Le Pen is both (a) expected to reach the final round comfortably and (b) was recently seen downstairs at the Trump tower in New York.

A coincidence? Perhaps. But nobody really knows.

And then there’s Dutch nationalist Geert Wilders, who has a good chance of getting the most votes and seats in the general election in March. Wilders is unashamedly anti-EU, anti-Islam and pro-Trump (and golden haired, to boot).

The better things look for post-EU Britain, the easier it is to sell EU escape to voters across Europe. Trump and his advisors must be aware of this. Buddying up to Britain can only infuriate the pro-EU establishment.

Does the new American president hate the EU and its leaders? Quite possibly, even if he likes Europe and its countries and peoples.

In any case, it’s one to watch. And yet another reason to be cautious when investing in Europe.

Political uncertainty – built on structurally weak foundations such as rapidly ageing populations and excessive debts – remains the name of the game.

Put another way, when it comes to Europe, expect to be surprised. Trump – for good or ill (depending on your point of view) – is just another factor to throw into the mix.

Stay tuned OfWealthers,

Rob Marstrand

robmarstrand@ofwealth.com

Previous ArticleNext Article
Rob is the founder of OfWealth, a service that aims to explain to private investors, in simple terms, how to maximise their investment success in world markets. Before that he spent 15 years working for investment bank UBS, the world’s largest wealth manager and stock trader with headquarters in Switzerland. During that time he was based in London, Zurich and Hong Kong and worked in many countries, especially throughout Asia. After that he was Chief Investment Strategist for the Bonner & Partners Family Office for four years, a project set up by Agora founder Bill Bonner that focuses on successful inter-generational wealth transfer and long term investment. Rob has lived in Buenos Aires, Argentina for the past eight years, which is the perfect place to learn about financial crises.