19.05 Weekly Viewpoint : Trump administration

The increasingly dark skies building up over the Trump administration have shattered markets’ confidence in the miraculous effects of its possible economic policies. In Europe, Austria (another country with a strong euro-sceptic party) will be the fourth country to face elections this year……

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In the past few days, the crisis of the Trump administration has suddenly stepped up a gear, on a dangerous intertwining of faux pas, all of which revolve around the strange relation between the US president and Russia, and Trump’s obvious difficulty in adapting to the standards required by his role. For the time being, the administration has only been forced to appoint an independent counsel to lead the FBI investigation on the matter of ties with Russia, although the investigations launched by the House and Senate Committees remain open, and may bring developments already next week, with the submission of the former FBI director’s memoirs. It is surely early days yet to start speculating on an impeachment: the precondition for the president to be removed from office is that the investigation (potentially long) come to an end with evidence of high crimes and misdemeanours having been committed. Furthermore, political conditions must be in place, in order to persuade a qualified majority of two-thirds of the Senate to impeach the president. Despite increasing unease among Republican congressmen and women, and a real chance of the dismissal of the FBI director constituting “obstruction of justice”, several analysts stress that such conditions are unlikely to materialise before the mid-term elections. This is because the president’s popularity ratings are still high among core Republican voters, and making a stand against Trump may damage the re-election chances of senators and representatives.

The markets reacted to the affair with a sharp correction of stock indices, and a strong decline in the dollar’s exchange rate and in interest rates. The dollar in particular returned to its preelection levels, whereas stock indices have only corrected in part, for now. The reason behind the movement is not necessarily the risk of an impeachment: if a president is obviously unsuited for office, his removal before he can do serious damage is ultimately a better solution. The main reason, therefore, is the increasing awareness that the Trump administration’s vision, built up in the wake of the electoral victory, is not viable. The vision rested on four pillars: tax cuts to benefit businesses and the richer portion of the population, funded in part with the dismantlement of the health care reform penned by Obama, and integrated by a programme of investments in infrastructure; a protectionist agenda which should have supported US companies; the abolishment of part of the financial market regulations introduced following the crisis; the persuasion that the president’s weaknesses would be controlled and balanced by the apparatus. The conclusion was positive for expectations referred to corporate dividends, and therefore supportive for stock prices; cautiously positive for the dollar; negative for the Federal government’s debt. Not much of this vision has been salvaged. Regardless of the difficulties already faced in the attempt to repeal Obamacare, the loss of credibility being incurred in the present period by the administration and the president will make Trump’s economic agenda also more difficult to implement.

In Europe, Austria (another country with a strong euro-sceptic party) will be the fourth country to face elections this year.

In Europe, the political calendar will unexpectedly flare in the autumn. An early election has been called in Austria, on 15 October 2017. According to survey data, the nationalist eurosceptic FPÖ party is still in the race to win a relative majority, although the polls carried out following the formation of the Liste Sebastian Kurz, which includes the Austrian People’s Party ÖVP, seem to have gained a certain lead over the other parties, including the SPÖ. In any case, the Austrian electoral mechanism makes the chances of the FPÖ winning an absolute majority very slim. At most, it may hope to govern as part of a coalition, which will tend to water-down its destabilising potential.

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