In Asia, the stock markets recorded gains too. However, the 0.4 percent drop in Japan’s Nikkei 225 index can be treated as an isolated incident following Prime Minister Yoshihide Suga’s confirmation of the government considering to issue an emergency for Tokyo and three close by districts to contain the infection spread. On the bright side, the Tokyo stock exchange reached record highs in February, for the first time since August 1990. This proves that investor sentiment has drastically improved against the global situation over the last few months. In the first fifteen minutes of trading, the stock average on the Nikkei index rose 339.93 points and stood at 29,119.12.. That said, the Tokyo Stock Price Index 22.96 points on the same day, leading up to 1,913.91.

Although trying to predict the future performance of stocks in the context of the pandemic seems challenging, one plausible scenario is that inflation could rise modestly over the next 12 to 18 months to below 2 percent in the United States and nearly 1 percent in Europe. This implies that ‘policy rates will remain anchored’ and investors should be more cautious about holding excess cash. Another factor that could play a significant role in the stock market performance is the US-China trade war that is here to stay. Despite the new Biden administration, it is reported that the trade relations between the two superpowers are not likely to experience much improvement following the tit-for-tat tariff hikes.

For emerging markets, policy revolution might remain in place despite the possibility of inflation rise. Morgan Stanley expressed that globally there are many ‘buying opportunities in banks as they benefit immensely from reopenings as vaccines are distributed through 2021’.

HYCM is a leading multi-regulated broker of forex and Contracts for Difference (CFDs) trading services for both retail and institutional traders. HYCM is regulated by the internationally recognised financial regulator FCA. HYCM is backed by the Henyep Capital Markets Group which is a leading global corporation established in 1977 with investments in property, financial services, charity and education. The group through its relevant subsidiaries have representations in Hong Kong, the United Kingdom, Dubai and Cyprus.

Are the rapid gains in global stock markets based on optimism that vaccines will help the world return to normal?
This is definitely part of the reason why we are seeing the major markets make positive gains in the opening stages of the year. Alongside the vaccination programme the main reasons for stock market gains are low interest rates from central banks, large levels of government support via fiscal stimulus and anticipation of a swift economic recovery across major countries. 2020 was a volatile year and this had to do with the general uncertainty that investors faced. Not only was there Covid-19; there was also a US presidential election and the UK’s scheduled departure from the EU. These are significant events by themselves, and with both of them now resolved for the most part, investors now have a better handle on what the coming months could bring.

If the vaccine rollout successfully continues, I’d like to think that the optimism currently on display will only grow as lockdown restrictions are slowly lifted. But we need to be realistic about this – I imagine we will not be in a position to confidently declare that the pandemic is on the verge of coming to an end until the latter stages of this year. So, the risk is that a vaccine resistant variant sends stocks lower again. It is a key theme I will be keeping our clients aware of.

It is reported that strategists say the market valuations are distorted and that we are likely to see a pullback in 2021. How did the global stock market perform in 2020 and can we expect a record-fast recovery of the stock market in 2021?
It is indeed an interesting point. All assets and markets are in a strong position at the moment, be it the Dow Jones, Nasdaq, or the Dax. We are even seeing rapidly rising interest in cryptocurrencies like Bitcoin. Naturally, there are concerns this cannot last and that we could even be in a bubble that is being enlarged by overvaluations and volatile market movements.

We all know that growth in the financial markets is by no means linear, but rather a series of peaks and troughs. On that basis, we could see a sudden retraction in prices as the market adjusts to new conditions. We also need to remember that there are big questions about public debt in the UK and the US, and how both countries will be now tasked with overcoming the economic disruption caused by Covid-19. While I do think the stock market will be in a stronger position come the end of the year, the reality is that the economic recovery from Covid-19 may take time. While there is good reason for investors and traders to be optimistic, they should also be cautious and realistic and expect pullbacks. From my standpoint the first test will come when the Federal Reserve considers raising interest rates. This will likely result in a re-pricing of stocks as the easier monetary conditions begin to fade.

Which of the Southeast Asian stock markets rallied in the fourth quarter of 2020 to crack into the bull market territory and what were the contributing factors to their stock surge?
Emerging markets have been rallying strongly on the so-called reflation trade, and this is part of a coordinated global recovery. On this basis, the Southeast Asian stock markets have been rallying. What’s more, the MSCI Asia Pacific Index surged last year to outperform the US. A strong economic rebound in China and Asia’s low valuations relative to the US and Europe are key positives that will likely support the ongoing surge in activities across the Asia Pacific.

Were Chinese financial stocks some of the best performers in Hong Kong and Shanghai in the midst of the peak pandemic? If so, why?
Some of the best performing Chinese stocks were a mixture of energy and technology stocks. The ‘stay at home’ nature of 2020, induced by Covid-19 lockdowns, naturally helped demand for tech stocks. Future FinTech Group Inc grew by 317.18 percent and Renesola, a solar energy company, brought in a massive 704.30 percent return. As well as these outstanding returns, well-known consumer companies like JD.com and Alibaba also made excellent gains. Alibaba has made a 21.46 percent change and JD.com has seen a stunning 134.66 percent change.

What is the current state of stock market activity in the UAE and how is the foreign and local investor sentiment in the market?
Like other major indices the Dubai Financial Markets index has seen a recovery from April 2020 lows. However, the market closed -9.87 percent on the year in 2020. This year looks more promising as the UAE is showing excellent speed in vaccinating its population with one of the world’s fastest programs. It has been a very good start to the year for the DFM index and the price currently sits at 2594, which is a 3.04 percent rise for the year. The Abu Dhabi Securities Exchange has shown a very similar pattern to Dubai Financial Markets. On top of this, vaccine optimism and rising oil prices are contributing to the rise of positive investor sentiment.

Which of the GCC stock markets are expected to perform well in 2021? Why?
In 2020 Saudi Arabia and Qatar were the best performing regional markets. Qatar for instance has been able to establish a buffer of around 165 percent of its GDP, pointing to $320 billion, so it was able to attract defensive inflows. However, in terms of 2021 the UAE markets are well poised for recovery with Dubai’s economy being driven by tourism, hospitality and trade.

The UAE were hit hard by the pandemic, but I believe it should do very well as vaccinations continue and people are able to start travelling again. It is certainly one market to watch. Furthermore, with many expats leaving property in Dubai, we could see a large influx of people returning once the pandemic is brought under greater control.

Is the global stock market due for a correction and how should investors plan their portfolios?
At the moment, it is difficult to tell. Markets can trade ‘overvalued’ for months and even years. I anticipate that the pace of growth will presumably slow down in the coming months. There is plenty of speculation at the moment, which is why it is important for investors to do their research when it comes to planning future portfolio movements.

Investors are also still taking a cautious approach, reducing their risk exposure to assets that are subject to sudden price corrections. Recent research commissioned by HYCM revealed that cash savings remains the most popular asset class among UK investors at the beginning of 2021.

What this demonstrates is that while fiscal and monetary stimulus have been positively received by the market, investors are still treading carefully. Cash remains king, and this is despite interest rates in the UK hovering just about zero percent. The big question now is what kind of assurances investors will need to look beyond cash savings. Should the vaccine rollout and current lockdown successfully curb Covid-19 cases, I’d expect more investors to start moving some of their cash into other assets.

The post How should we interpret record performance on global stocks? appeared first on International Finance.

In 2015, China received its acknowledgment of economic importance when the International Monetary Fund added the renminbi currency to the basket of currencies that form the Special Drawing Right. The main focus of the board review was to understand whether the Chinese currency had met the criteria to be included in the basket, and the board had decided that all existing criterias were met. With that, the renminbi became a freely usable currency and was included as the fifth currency in the basket, along with the US dollar, the euro, the Japanese yen and the British pound. 

“It is also a recognition of the progress that the Chinese authorities have made in the past years in reforming China’s monetary and financial systems, Christine Lagarde, the IMF’s managing director, said in a statement. “The continuation and deepening of these efforts will bring about a more robust international monetary and financial system, which in turn will support the growth and stability of China and the global economy.”

Last year, a report published by China Power stated that more than $285 billion worth of renminbi was traded daily in the foreign exchange market. Although the amount seems significant, it was only a fraction of the total currencies traded in any given day, while the US dollar trade had reached more than $5.8 trillion percent last year, moving the dollar into a category representing more than 88 percent of all foreign exchange transactions. It is a known fact that the US dollar has been prevalent in the foreign exchange markets for decades mainly because of its large size and economic stability. 

China’s contest with the US continues 

Now it is part of Beijing’s large-scale strategy to supersede the US dollar as the dominant international currency, thereby inheriting decades-worth of benefits enjoyed by the US on the monetary front. Previously, China had tried to internationalise the renminbi by slowly liberalising its capital accounts, but its efforts had no potent effect on the currency unlike what it might have anticipated. The problem is China still lacks free flow of capital, despite Beijing implementing measures to ‘widen the bank that the renminbi floats in to sell renminbi-denominated offshore bonds’, as the Jamestown Foundation which is a provider of non-partisan global research analysis on Eurasian security and political developments in its report stated. Now it is believed that Beijing has realigned its focus to prevent capital flight and enable currency stability at the expense of internationalising the renminbi. 

Another factor to take into account is that the country’s trade surplus is making it difficult for Beijing to push large amounts of the currency into global circulation. Last year, Morgan Stanley economists said that the country’s current account deficit could reach $420 billion which translates to 1.6 percent of GDP by 2030. However, China could maintain a modest current-account deficit in the medium-term if it develops a healthy external balance sheet, where its net foreign asset position is the highest in emerging markets, further resulting in increased levels of competitiveness in export and production. 

Coming back to its global currency push, Beijing is determined to reduce dependency on the greenback. For that reason, the central bank has announced that the country will make it easier for foreing investors to use the renminbi to invest in Chinese stocks and bonds on the back of its relentless pursuit in currency internationalisation. This in turn is anticipated to strengthen the development of offshore renminbi markets. To add value, the central bank said that the cross-border renminbi settlements in foreign trade grew more than 16 percent last year, which accounts for 13.4 percent of the total cross-border trade settlements. It is reported that the central bank will increase monitoring of cross-border capital flows while using its counter-cyclical policies to mitigate potential risks from it. 

Europe might become the biggest CYR market after Hong Kong

Now what is interesting is that Europe has come into China’s focus to grow the renminbi internationally by setting up many market access and trading infrastructure schemes on the continent. This means that Europe will become the largest China Yuan Renminbi market outside of Hong Kong, which in turn will commercially benefit its countries and  businesses from the wider use of the China Yuan Renminbi. The development is quite appealing because it will allow Europeans to make purchases in China Yuan Renminbi overseas and could even increase exports of goods and services from Europe to China. 

Some of the European government’s strategic interest in the internationalisation of China Yuan Renminbi develops from the fact that they are highly-reliant on exports, unlike the US. A report published by Merics found that merchandise trade in 2018 accounted for 71.2 percent of German GDP, 42.5 percent of French GDP and 41 percent of the UK GDP, while only 20.8 percent of the US GDP. This is proof enough that European countries want to protect their business interests by establishing a healthy access to foreign currency markets. 

Despite that, China has not always been forthcoming on the back of looming political events. The cross-border listing, for instance, on the London-Shanghai Stock Exchange was stalled in January this year owing to the Hong Kong protests. Because London is the world’s largest foreign currency market it has become the medium for the majority of the European China Yuan Renminbi clearing. That said, Paris, Frankfurt and Luxembourg also have a prominent role to play in the market, but the international circulation of the currency still remains low as a result of China’s stringent rules on convertibility.Merics in its report said that European companies are even competing with each other to attract China Yuan Renminbi clearing business, but on the downside, there are restrictions on foreign access to China’s financial markets, limiting the scope of the currency’s wider use. 

In fact, European regulators and financial institutions have expressed their views that identifying various business needs can promote further development of the China Yuan Renminbi. It was two years ago when the UK, France, Germany and Luxembourg played an important role in clearing the largest share of China Yuan Renminbi market payments. The combined efforts European countries and China is likely to have a ripple effect on the China Yuan Renminbi market and its wider use as an international currency. 

It is clear that Europe is highly suited to become the next China Yuan Renminbi market, but there are indications that it might have considerable consequences in the matter. For example, the market will be in favour of  Chinese companies seeking to purchase European goods, causing a higher demand for the currency as more China Yuan Renminbi-denominated goods become available on the continent. On the other hand, European exports to China will also increase and lower their trade deficit.

The dramatic rise of renminbi 

Morgan Stanley analysts suggest that the wider use of renminbi can be achieved with increased foreign investments into Chinese markets. This might actually push the currency to become the third largest reserve currency in the world behind the US dollar and the euro. The projected forecast follows the Chinese government’s relentless efforts in internationalising the use of renminbi over the years. For now, the renminbi accounts for 2 percent of foreign exchange reserve assets, but it has the potential to rise between 5 percent and 10 percent by 2030. Though the rise in percentage is not massive it can surpass the levels of the Japanese yen and the British pound. 

The report stated “We expect private and reserve managers will generate more than US$150 billion in total portfolio inflows to China in 2020, for the third consecutive year, highlighting the transformations underway. The annual inflow should reach US$200-300 billion in 2021-30.” Meanwhile, the investment portfolio inflows might become more significant than foreign direct investment in the coming decade, indicating a cumulative  $3 trillion worth of inflows. 

These prospect investments effectively state the fact that more global assets will be held in renminbi, and with the government traditionally keeping a firm grip on the currency it is impossible for large amounts of capital to leave the country. Again, Morgan Stanley analysts predict that the Chinese currency will likely gain momentum to 6.6 renminbi versus the US dollar by the end of next year. The People’s Bank of China in its annual RMB internationalisation report referred to another interesting finding that nearly 70 percent of central banks across the world held renminbi in their reserves at the end of 2019, which climbed from 60 percent in the previous year. 

And crucially, there are some risks to the projections made by Morgan Stanley analysts, that the country’s current account comprising trade and payments to foreign investment count turn negative from 2025 and reach -1.2 percent of GDP by 2030. This further explains that annual net foreign capital inflows worth $180 billion are necessary between that period to plug the current account deficit. Additionally, slow opening of the Chinese financial markets to foreign investment, global market volatility, economic risks and US-China trade escalations might somewhat impact the trend of the internationalisation of China Yuan Renminbi. 

Chinese policymakers dilemma and control in economic relations

Wang Yongli, a former vice-president with the Bank of China, wrote in The Economic Observer, “The internationalisation of the yuan needs to be further accelerated.” The big gap in the use of renminbi in foreign trade is something that has to be addressed for the country to fasten global circulation of its currency. In fact, various Chinese documentations have already highlighted the need for the internationalisation of the renminbi, while the Merics China monitor is looking at the existing dillemesa among Chinese policymakers, who are indeed responsible for deciding the extent to which the currency can be internationalised. For the central bank to make the China Yuan Renminbi an international currency would necessitate foreign economic policy goals. 

Although Europe has access to all the necessary trading infrastructure, there are certain constraints which limit its play in China’s currency. For one, China itself has become an obstacle, pointing to the confusions in formulating economic policies that can support the transformation of China Yuan Renminbi into an international currency. To explain the matter further, China most definitely seeks to internationalise the renminbi, but while retaining full control over its economic relations with other countries. This incompatibility in China’s approach to push its currency into global circulation is majorly preventing Europe from backing the former’s large-scale strategy.

So far, there have been several discussions on the purpose of currency internationalisation, but the most common allure of it comes from the historic fact that it will demonstrate power, facilitate domination of trade and financial transactions in foreign exchange markets. China’s move to internationalise the renminbi is especially important to the country, because as the Jamestown report pointed out, the country is ‘particularly exposed to exchange rate risks as the world’s largest importer of oil’—a US dollar-denominated commodity. 

It is not that reason alone that is encouraging China to become currency-denominated. Another fact is: Chinese companies and state-backed projects generate bills that are US dollar-denominated. For example, the Belt and Road initiative is one of the largest foreign investment projects in history. In another example, the country is spending billions of dollars in Africa’s infrastructure construction to expand its global footprint. The progress has, somewhat, pushed the Trump administration to impose restrictions on activities of Chinese payments services like Alipay and WeChat Pay on the pretext of national security concerns. For real, it could also be an attempt to stop China from internationalising the renminbi, observed financial experts. 

For now, the degree of internationalising the renminbi, is anyone’s guess. If there is a coherent story to be told here, it might be that China’s economy is slowing, policymakers are facing a dilemma in the internationalisation of the currency—and yet it is rapidly expanding its footprint into East Asia and Europe one way or another.

The post Where does China stand with the yuan? appeared first on International Finance.

Last month, foreign purchase of Asian stocks at $17.5 billion was the highest in over several years. That said, the inflow of cash into regional bond markets reached $15.2 billion.

Net equities inflow amounts to $34.1 billion in year to date, while net bonds inflow outside China are only $1 billion. Nader Naeimi, head of dynamic markets at AMP Capital, told the media, “It won’t happen in a clear smooth line and there will be volatility. But some fast money seems to be getting interested again.” 

It is reported that India and South Korea have been preferred markets for investors and their benchmark indexes have scaled to highest levels. The large shifts in Asian currency markets can be attributed to equity and bond flows, resulting in multi-year highs. 

Last month, South Korea bond sales inched up from the previous month amid increasing interest rates. The value of bonds reached $63.1 billion, up from 1.8 trillion won from a month earlier, according to Korea Financial Investment Association data.

The post India, South Korea equities at record highs with Asian cash surge appeared first on International Finance.

Algorithms, also known as algos, are used at an estimated 10 percent to 20 percent of daily global spot trading.  The Bank of International Settlements in its annual report said “The impact on market functioning will depend on many factors, including the direction in which EAs (execution algorithms) evolve, their market share, how well their risks are understood and managed, and how they interact with other developments in financial markets.” 

In fact, foreign exchange execution algorithms are basically automated trading programmes. They are specifically designed to purchase or sell a predetermined amount on the basis of a set of instructions, media reports said. 

The Bank of International Settlements has also warned that too many internalised trades could lower turnover on primary venues. This is in extreme situations. That said, market participants will be able to benefit from banks matching trades internally. 

A statement released by the Bank of International Settlements wrote that “Central banks and market participants must have access to the necessary data, skills and tools to allow them to assess the opportunities and risks of evolving markets.”

It is reported that execution algorithms change the way market participants access the foreign exchange market and the manner in which trades are executed. But they are also prone to give way to additional challenges.

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The data is released by the Central Bank of Kenya. The data also shows that remittance inflows in the country stood at $260.7 million in September compared to  Sh29.7 billion and  Sh29.9 billion in the previous two months. 

“Low gasoline prices should help boost forex reserves. There’s also less demand for imports,” money markets expert and financial adviser Benson Ndehi tweeted. “Unless the fiscal indiscipline ceases, the slide is inevitable. I don’t have a timeframe though.” 

Kenya has been struggling to keep the shilling afloat in the recent years. More recently, the Kenya regulator has granted a licence for Pepperstone, forex and contracts for differences (CFDs) broker, which has been seeking to expand its presence into the Kenya forex market. 

Pepperstone has been granted a non-dealing Foreign Exchange Broker Licence by the Capital Markets Authority of Kenya. The licence is for the company’s locally established subsidiary Pepperstone Markets Kenya. 

Pepperstone Kenya CEO Sahil Patel said in a statement “We’re extremely excited by the opportunity to bring world-class trading platforms, execution, and pricing to the vibrant retail and institutional forex market in Kenya.” Recently, the company had secured a Dubai Financial Services Authority licence and two other European licences to continue its European operations following Brexit.

The post Low dollar demand underpins Kenya’s forex by Sh760 mn appeared first on International Finance.

Now Applied Derivatives has become the first broker to distribute Trading Technologies platform in South Africa, media reports said. With that, the latter’s clients will be able to access the Johannesburg Stock Exchange for trading  equity and currency derivatives. This will even include futures and options, media reports said. 

Steve Stewart, Managing Director, Sales EMEA at Trading Technologies, told the media, “We are very happy to be bringing the TT platform into South Africa for the first time through this partnership with Applied Derivatives. They are leaders in the region, with a focus on providing their services to large financial institutions, hedge funds and other professional trading organizations. We look forward to expanding our reach in this important part of the world through this collaboration with the Applied Derivatives team.” 

In July, BCG Partners had extended their partnership with Trading Technologies to implement Order Management System for order management and post-trade allocation. Now Applied Derivatives will be able to access Trading Technologies preconfigured execution algorithms, Autospreader and ADL, mobile trading, FIX services and API development.

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The amount was injected through the BDC operators. Since  the middle of March, naira was being devalued on the back of the protracted coronavirus pandemic. In an attempt to ease the currency devaluation, the Central Bank of Nigeria adopted a single exchange rate over a multi exchange rate policy to stabilise the value of naira.

The apex bank seeks to boost the value of naira and subsequently strengthen the Nigerian economy. A few weeks ago, the World Bank reported that Nigeria’s economy necessitates stronger forex action. 

Hit by a severe shortage of dollars, the country had stalled its weekly interbank foreign exchange sales in March. The coronavirus pandemic and stringent lockdown measures across world economies have resulted in weaker oil prices, further hurting the economy. 

World Bank country director, Shubham Chaudhuri, told the media, “The Azura case is just one example of the difficulties that a number of established foreign and domestic private firms in Nigeria have had in accessing the forex to meet their business and contractual obligations.”

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The Central Bank of Kenya said in a statement, “This meets the CBK’s statutory requirement to endeavour to maintain at least 4 months of import cover, and the EAC region’s convergence criteria of 4.5 months of import cover.”  It appears that interest demonstrated by international investors has strengthened the shilling value.

Yields from Kenya’s eurobonds reduced by an average of 21.4 basis points last week, media reports said. In fact, strengthening of the shilling is expected to ease inflation on import bills.

In May, World Bank approved a $1 billion loan to help Kenya bridge its budget deficit and tackle economic complexities as a result of the pandemic. The World Bank said in a statement, “Its approval is timely, since it will help fill the financing gap generated by the severe, ongoing shock to Kenya’s economy.”

It appears that budget deficit has increased to 8.2 percent of GDP in the financial year, media reports said. The increase in percentage is higher compared to the initial forecast of under 7 percent attributed to reduced tax collection and lost revenue from VAT and income tax cuts, media reports said.

The post Kenya’s forex reserves reach Sh$9.26 billion appeared first on International Finance.

Forex brokerage Axiory’s representative office in the UAE will help it build a large clientele and actively engage with them. 

The representative office will operate out of premises in Business Bay with a workforce of 10 members. This marks the firm’s first move into the region. Also, it will first cater to GCC countries and gradually shift to other Middle East and African states, the local media reported. 

Axiory Global largely caters to private and corporate traders with forex and CFD products. CEO of Axiory Global, Roberto d’Ambrosio, said in a statement, “UAE is an optimistic and a dominated market with great players, Axiory’s unique selling point is that we look at the human part of the business and by that, I mean we are the traders and investors ourselves. We focus on educating our clients according to our learning or understanding the situation.”

Previously, the forex brokerage had conducted many workshops and seminars across the world. It plans to do the same in GCC and develop a new approach to directly interact with the people. 

Axiory Global’s  UAE forex brokerage offers an array of accounts and trading platforms to help with currency trading, indices, commodities and other CFDs, according to media reports. However, the core business is directed toward online brokerage services  for both private and corporate traders. 

The post Axiory Global taps UAE forex market with Dubai operations appeared first on International Finance.

The Euro-area, wonderland of economic growth and competition?

The main argument for adopting a common currency is so countries in the Euro-area can achieve greater economic performance thanks to increased stability and competition, which will ultimately benefit Euro citizens as they enjoy a higher standard of living. Indeed, as explained by Robert Mundell in his famous 1961 paper ‘A Theory of Optimum Currency Areas’, sharing a common currency in an integrated trading area fosters economic growth thanks to lower transaction costs due to the elimination of exchange rate fluctuations, increased price transparency, and competition.

Has the promise of greater economic performance been delivered over the past 20 years? Based on the recent report published par the European Parliament in January 2019 entitled ‘Euro project, 20 years on’, the Euro-area member countries have clearly enjoyed the longest period of steady economic growth since the establishment of the Euro despite the sovereign debt crisis.

As stated, “since the establishment of the Euro and until the subsequent recession in 2011, GDP grew by 30 percent”. Nonetheless, the steady growth came at the price of a relatively lower level of economic growth as in the previous expansion where ‘GDP had grown by 40 percent,’ according to a London School of Economics study. Turning to data on wage per capita as a way to capture the situation of Euro citizens, they tell the same story as the GDP data: the volatility of wage per capita has been significantly less volatile over the period, but the growth of wage per capita has been comparatively lower. If we had not had the 2007 financial crisis that subsequently led to the sovereign debt crisis in the Euro area, the Euro could have been looked at as a success for its members as they began to deliver steady growth and economic stability through major economic integration.

The Euro, the sovereign debt crisis, and the rise of nationalistic parties

The sovereign debt crisis has been the starting point of the strong criticisms addressed to the European Commission and to the ECB that have been accused of making the population worse off. Since 2011, the GDP growth has globally flattened and countries bailed out have clearly suffered from a decrease in their GDP.

It is hard to say whether Euro-members could have performed better outside of the Euro area; countries bailed out included. Indeed, countries bailed out were characterised by structural weaknesses that have not resisted the global recession after the 2007 financial crisis. In the case of Greece, it can even be argued that its membership to the Euro delayed the crisis as investors kept buying Greek government bonds as a perfect substitute for any other Euro-member government bond in the belief that Euro-members would rescue any country in financial trouble sharing the burden. As it happens, this was a wrong assumption as no rules had been clearly written. It does not come at a surprise that feelings of discontent occur when the bad times come and choices need to be made. As long as economic growth was steady, everyone was more or less benefiting from economic prosperity. When came the time of recession, resources became tight, choices had to be made, and population discontent started to spread.

The main discontent regarded the inability of governments to pursue their own public spending agenda due to the existence of the stability pact capping government deficit and debt – even if in reality the limits have all been bypassed during the worst of the economic recession – and prohibiting the monetisation of government debt. The incapacity of countries to recover was attributed to the inflexibility of the European Commission and the ECB. The situation would have improved if governments could have spent as much as much it took to restore economic activity printing money and devaluating in order to stimulate exports. The reason for the prolonged recession was essentially due to the lack of governments’ empowerment.

Printing money is never the solution

The rise of nationalistic parties across Euro member countries is a straightforward illustration of that belief. Unfortunately, economics does not work that way. Spending by printing money has never brought any restoration of economic growth as some countries in South America or Africa have experienced again recently; it is usually the road to economic chaos. Most of the time, countries that have come under pressure with the spread of sovereign debt crisis are countries that have suffered from structural problems that had not been addressed during booming times. This had been the case especially in Portugal, Spain, Greece, Italy and France. Taking a different angle, it is even possible to say that countries struggling with long-lived structural issues have mainly benefited from the Euro until the sovereign debt crisis because economic prosperity hid their internal problems.

To conclude we can ask ourselves if the situation of the euro-member countries would have been that different if we had not had the Euro? The answer is clearly no since the Euro brought more stability to some countries thanks to the delivery of a more credible and stable currency compared to their national counterparts (just think about the devaluation of the Italian Lira, the Spanish peseta or the French franc during the time of the European Monetary System!).

If we take a look around the world, we can see that demand for nationalistic policies are far from exclusive to Euro-area countries. Let’s start with the election of Donald Trump in the US and the trade war he has started with China! As theorised by the economist Rodrick, governments are now facing the impossible trilemma where democracy, national sovereignty, and global economic integration are mutually incompatible, just two of the three are mutually compatible. National sovereignty is indeed hardly compatible with democracy and economic integration.

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