A vote of no confidence in Europe

A vote of no confidence in Europe

It’s been a historic week here in Europe. Everything changed.

Britain’s Prime Minister Theresa May, Poland’s Prime Minister Mateusz Morawiecki, and France’s President Emmanuel Macron all faced no-confidence votes.

In the end, they survived.

But the fact that the votes took place at all is deeply embarrassing for the establishment in Europe.

Macron’s ambitions for Europe lie in tatters.

May is now expected to quit for the next election.

Over in Germany, Europe’s mum Angela Merkel will no longer lead her party, either.

On Friday, her replacement was elected. Annegret Kramp-Karrenbauer (say that three times quickly) will take over the party, but not yet the chancellorship of Germany.

Sweden still doesn’t have a prime minister to face a vote of no-confidence after the elections were held in September.

The anti-immigrant right-wing party is making things difficult with their 17.5% of the vote.

Believe it or not, the opposition party managed to pass their budget!

On the streets, it’s no different.

Protests against government policy erupted in Brussels, Paris and Budapest during the week.

There were also peaceful demonstrations in London on the weekend.

The protests in France were bad enough to make French President Macron surrender faster than his compatriots usually do.

He reversed his policies and, with them, his dreams of uniting Europe.

His approval ratings make Trump look like Father Christmas.

Bloomberg wrote ‘Emmanuel Macron’s Euro Zone Dream Died This Week’ and the New York Times wrote ‘Macron Had a Big Plan for Europe. It’s Now Falling Apart.’ That’s because he no longer has any credibility, let alone backing.

Italy had its own dramas during the week, too. The populist government’s unelected prime minister and finance minister made a deal with Brussels.

They’d been holding out for a 2.4% of GDP deficit, but Brussels said no. The Italians declared they wouldn’t back down.

Then they went back with 2.2%, but Brussels said no.

The Italians fumed they’d make no more compromises.

Two weeks later, the Italians went back with 2.04% and Brussels said yes.

At least, everyone thought they did. Until this story came out in the Star Tribune: ‘EU finance official says new Italian budget insufficient’.

Back to the drawing board?

Just when the Italians looked to be making progress with Brussels, news of the French budget hit the press.

President Macron’s budget concessions to the protesters are so expensive, they leave Italy’s 2.04% in the dust with a 3.6% deficit.

That’s a clear breach of EU rules. But the EU said it wouldn’t pick a budget fight with France, despite the blatant breach of the EU rules.

The Italians were fuming. No doubt they’ll go back on their budget agreement with the EU.

Not that the budget battles matter one bit. Because all the figures presume decent GDP growth in Europe.

But Europe’s GDP growth is plunging.

Italy and Germany may already be in a recession.

Just in time for all the bad news, the ECB announced the end of quantitative easing on Thursday.

Meaning the European Central Bank will no longer buy bonds.

That’s problematic because the ECB is the only thing keeping the Italian government funded these last few years.

This chart shows how the ECB is the only entity buying Italian government bonds:

Source: Deutsche Bank

Without the ECB buying Italian government bonds, who will?

Only Brexit Britain will have a Merry Christmas

Despite Europe’s unfolding disasters, it’s Brexit that captured all the attention during the week.

The media is convinced that Brexit chaos has changed people’s minds. They would no longer vote to leave the EU. The only question now is, how can the vote be re-held?

But I’m not sure what Brexit chaos everyone is referring to.

UK wage growth reached a decade-high and the UK employment rate is at a joint-record high. The unemployment rate is the lowest since the 70s. GDP growth is seven-and-a-half times more in the UK than the Eurozone.

Back when the UK was growing slower than Europe, this was definitive proof Brexit was flawed. Now, nobody mentions GDP growth.

Not only is Brexit Britain powering on economically, but the Brexiteers’ most fantastical and ridiculed predictions about Europe are coming true.

When Brexiteers predicted the EU would become an empire, they were laughed at.

Then, France’s finance minister called for the EU to become ‘an empire’.

But you have to scroll through two pages of Google to find the quote in a mainstream UK newspaper.

(French President Macron’s no-confidence vote wasn’t covered either.)

Every empire has its army.

But when Brexiteers predicted the EU would have one, they were decried as fear-mongers.

Until Angela Merkel proposed just that.

Then the police tanks which took on France’s yellow vest protestors with tear gas were spotted with EU flags on them.

And British soldiers wore EU flags in Bosnia, too.

Brexit is on track. Europe is off the rails.

Until next time,

Nick Hubble Signature

Nick Hubble,
For The Daily Reckoning Australia