Trump Nicks London City FX and Dollarizes Greece?
The pound has had to be as stubborn as a bulldog, holding tenaciously to its diminished value after being battered by news releases of rising inflation, then battling back despite Brexit worries. Adding to this fluctuation, the looming loss of the City as the financial gateway to Europe will continue to spread uncertainty. Meanwhile, the euro stalls as Greek farmers strike and the spectre of Grexit hangs like a question mark in frozen mist. Even before Trump’s brash new EU Ambassador is nominated, Theodore Roosevelt Malloch told a Greek interviewer that Trump thinks Greece should Grexit. He trashed the euro (again), suggesting Greece go to the dollar, hinting that he might be willing to sort out this messy business for Greece. Previously, he said that the US could benefit Britain in Brexit, acting as a ‘rich uncle’. He’s enraged EU leaders, saying that he ‘had in a previous career, a diplomatic post where I helped bring down the Soviet Union. So maybe there’s another union that needs a little taming.’ We live in remarkably interesting times…
Vulnerable: London City Jobs
On 15 February, UK real wage hit a two-year low, putting those households that were just about managing in more of a jam. With Brexit looming, the British consumer has been propping up the UK economy, as much as possible, but how much longer can they finance this political decision’s consequences? Reports show that inflation has shot up to 1.8% from 1.2%, as, for now, wages are still outpacing inflation, for some. The prediction is for inflation to register around 3% by next winter, with increased prices in fuel. The Resolution Foundation says that real growth will fall next month because it hasn’t shown a ‘sign of responding to fast-rising inflation.’ Plus, these wages are averages that simply don’t include everyone, certainly not the rising number of self-employed.
Do the maths and you see that London workers are under increased pressure as inflation eats away at income, then add job insecurity for EU nationals and you can see why many aren’t planning to stay at their FX positions, according to the monthly employment monitor published by jobs recruiter Morgan McKinley. The lack of assurance that they’ll have the right to work is discouraging workers from making a long-term commitment to stay in their positions and even remain in the UK.
The labour data shows a small drop in the number of EU workers in the UK. This corroborates with a similar CIPD 2016-7 Labour Market report that shows the City is attracting fewer EU national workers, who comprise about 10% of the workforce. McKinley reports that workers are turning away from London finance jobs because of Brexit uncertainty. They suggest New York will challenge London’s position as the world’s financial centre, noting Trump’s executive order to alter the Dodd-Frank financial services regulation law, combined with the recent confirmation of former Goldman Sachs’ banker Steven Mnuchin as Treasury Secretary.
New York poses a much stronger contender for a central finance operation than Paris, Berlin, Frankfurt or any of the European cities that have already seen UK based banks and financial companies set up new offices. If Trump has carte blanche to craft regulation that European banks agree with, they’d be highly unlikely to allow the US to have a prize they, too, covet. However, suppose we imagine a different sort of Europe, one in which a former EU member country became dollarised, or, in other words, used the US currency. Perhaps, if EU was roiled by chaos, one of the former member states would, indeed, agree to letting America play this ‘rich uncle’ role. Trump’s most influential advisor, Stephen Bannon, has described America’s future role as a ‘preserver’ of Europe—is this the future the former Breitbart head and film producer imagines?
The Dollarisation of Greece?
The data just released from Greece is especially grim: it appears heading into recession as growth shrank by 0.4% in the fourth quarter of 2016. Greek farmers snarled Athens traffic as they protested the burden of their bailout obligation. Some of their higher taxes went into effect on 1 January, and their increased pension obligations are also difficult to pay during a winter that’s been especially frigid. The International Monetary Fund (IMF) and European lenders pressed Greece to make 1.8 billion euros worth of new reforms by 2018, comprising 1% of GDP. The EU Commission forecasts Greece will have a primary surplus in the budget of 3.7% of gross domestic product next year. This figure is the balance before debt-servicing costs, which exceeds the 3.5% that’s been agreed with Greece’s creditors. The IMF has pessimistically disagreed, predicting Greece will only have a 1.5% surplus.
Into the fray strides the EU Ambassador wanna-be, Theodore Roosevelt Malloch, again making shocking statements designed to damage the union he wishes to work with as the US’s diplomatic envoy (presumably only as a short term, 18-month assignment). His earlier statements included: ‘Short the euro’ and he’s been quoted for saying the EU won’t last 18 months. The recent Greek interview is another example of his glaring unsuitability as an envoy to Europe. EU leaders are making their feelings known in an unprecedented plan to block him from physically entering EU buildings, treating him as a persona non-grata for his openly ‘outrageous malevolence’. His smug arrogance—as writer Simon Jenkins put it: ’Malloch does not suffer the vice of reticence’—is a second slap to Brussels after Brexit, a shot across the bow testing Trump’s ambitions. Or Bannon’s. He’s a massive fan of the Alt-right and would love to see a President Le Pen of France. Would the franc need ‘a rich American uncle’? What’s Britain expected to pay in return for the US’s largesse, anyway? Surely, the US wouldn’t suggest the venerable pound Sterling become dollarised? But isn’t that just as arrogant as dollarising the drachma? Where, in this dystopian Trumpolian future, does the buck stop?