'Portugal will need a second bailout before 2018'

portuguese euroA large multidisciplinary group from several countries makes annual predictions for 3 or 4 years ahead, almost always with a high success rate.

Let’s have a go up to January 2018 but unlike previous year-end summaries, this year’s has a high level of uncertainty.

The key is, how will China respond to Donald Trump's threats to re-establish ties with Taiwan?

Chinese funds hold the majority of votes in many of the giant US corporations and China still has reserves of 850-900 billion US dollars.

If China starts selling, the value of the dollar falls which makes the US more competitive. If big corporations increase prices, the end price of American products rises and unemployment rises, disrupting Trump.

China may limit the import of US machinery and chemicals, which would raise EU exports. The World Trade Organization will react and threaten but do nothing and the Chinese will continue to ignore the organisation.

Brexit and the EU

In the medium-term, BREXIT will increase exports from the UK to the Arab countries, Australia and New Zealand.

These are the countries that may be among the winners from the political crises that will occur in the US and in the EU.

It is likely that by the end of 2017 negotiations will begin for three other countries to leave the EU: Finland, Austria and Greece.

These are the countries where the populations that long have wanted to get out of the Euro but, since this is not possible, they will vote to leave the EU, even against the will of the politicians. There is already some talk of a new EFTA - European Free Trade Association, which will compete with the EU. Anyway, if the EU does not radically change its course, it will lose the most in the coming years.

"Portugal may need another rescue - Germany will decide after its 2017 election... Time for a change?"

Some new technologies, the reactivation of the Asian Tiger economies and of Russia’s thanks to the increase in the price of crude oil, will increase the demand for strategic minerals that exists mainly in Bolivia and Chile.

The search for sources of certified biological meat will trigger the Argentine economy and thus a greater demand for machines, transport, chemicals, etc. which may benefit Japan and / or some countries outside the Eurozone in the EU, such as the United Kingdom, Sweden and the Czech Republic.

Portugal and the EU

Portugal will have huge problems by the end of 2017. It is possible that the economy will grow a little, maybe 1%, but inflation also is expected to hit 1%. Local elections are likely to bring governance problems to the country.

The elections in Italy and France will influence the autonomy of Portugal.

The ECB will no longer buy debt from those EU countries in crisis. For sure, interest rates will rise. The government will not have the courage to cut bureaucratic jobs. Portugal may need another rescue and Germany will decide whether it will or not after its 2017 election.

Most Nobel Prize-winning economists say that current EU economic policy is wrong. Governments will increasingly do what the big foreign banks want them to do, to the dismay of citizens.

The small EU countries will press for changes during the BREXIT negotiations, or follow the UK out. And so the bureaucrats and the greedy will have destroyed the dream of Monnet / Schuman and of many of us, a free, democratic and just Europe.

Time for a change?

Jack Soifer 2016

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