Hope – once again

The last few days have brought a slight easing in the situation with regard to the greatest political risks for the global economy. In the UK, the immediate threat of a no deal brexit on 31.10.2019 seems to have been averted for the time being. In Italy, a cooperation between the Social Democrats and the 5-star movement was agreed, ruling out the possibility of rapid new elections and a possible march-through of Salvini’s Lega for the time being. And finally, the USA and China will at least again agree on meeting dates, which is also a step forward in view of the disagreement of the last few weeks.

These developments have already been received with great relief on the financial markets. Yields on German government bonds have recovered somewhat from their low, and prices on the stock markets have also risen. Italian government bonds also benefited significantly.

However, the relief could be premature and soon make way for disappointment again. As far as Brexit is concerned, the „hard“ option seems by no means to be out of the question. It could even threaten as late as 31 October if new elections are held quickly and Boris Johnson gets the majority. In Italy, too, the new government constellation faces major challenges and could fail early. Despite considerable ideological differences, it must agree on a draft budget for 2020 and conduct the difficult negotiations with Brussels.

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