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January 2015 - Burning Issues in 2015

Hannah Arendt, the German-born philosopher who became an American citizen, emphasised that “only in a world in which nothing of importance ever happens could the futurologists’ dream come true”. The seventeen targeted murders committed by three French Islamic fundamentalists on the 7 and 8 January 2015, with the aim of sowing out-and-out terror, provoked an unexpected display of emotion and unity. Low self-esteem, and the mockery of those peddling a theory of national decline gave way to a mass awakening on 11 January, as the nation refused to be cowed and reaffirmed the fundamental tenets of the French republic. This is an important turning point - perhaps a historic one - as it shows an acknowledgment of the most precious features of France’s and Europe’s cultural and political heritage.
At first glance, mundane economic issues would seem to have little to do with these political events, and attempts to establish a link between the two might appear inappropriate. Unless, that is, the French begin to imagine a brighter future in which they as individuals can play a fuller part, now that they have tapped into a source of renewed self-confidence.
Across a united Europe, the business environment will be affected by nine sets of election in 2015. These include Greece, which will not leave the Eurozone nor have its debt erased, but its repayment schedule will probably be extended; and the still-United Kingdom, where close parliamentary election results on 7 May will lead to the Conservatives and Labour forming a “national” coalition government. Although the economic climate will remain extremely clement, the government will have to decide whether or not to organise an “in/out” referendum on Europe, something David Cameron hopes will resolve once and for all the tensions within his own ranks over EU membership, an issue on which the Conservatives face fierce competition from the populist UK Independence Party to their right. The Bank of England will not raise interest rates between now and then.[2]
The Eurozone could see a gentle upturn, riding on the common currency’s exchange rate, which should work in favour of exports, and an oil price that is expected to stay low for several months due to increased production on the Arabian peninsula and North America, and reduced demand from emerging economies. Despite the reluctance of six ECB board members, the Eurozone might also benefit from the introduction of quantitative easing sometime between now and March. Is there any alternative when inflation is stuck at 0.3%? The ECB’s goal is to boost investment in conjunction with the Juncker plan, whose effectiveness will be judged by whether it proves a springboard for a genuinely European industrial policy.
Due to strong economic growth in the US, the Federal Reserve is planning the opposite; its San Francisco’s Chair suggested that the Fed will raise base rates in June. Discussions between the two central banks can only result in the realisation that they have no choice but to bolster economic recovery in Europe and that the Fed must allow the dollar to appreciate.
The conflict between Russia and Ukraine has had a real impact on European countries, as they have had to apply sanctions to enforce international law (German exports to Russia fell by 20% in 2014), yet the issue of borders of the autonomous Donbass region has proved a serious stumbling block in negotiations between the two presidents. Unless Ukraine forges closer ties with NATO (something that both Berlin and Paris oppose), the tensions between the two states will ease in 2015, although local clashes will continue to occur in a now largely static conflict. It will fall to the major EU diplomacies, along with the European External Action Service, to reboot the unfinished task of defining a framework for relations between the EU and Russia, which is in the obvious interest of both parties.
Among other geopolitical situations with an economic impact, it is worth mentioning a probably non-agreement/ non-aggression settlement of indefinite length with Iran, allowing business to pick up again; dynastic succession in Saudi Arabia; continuing Western military assistance to Baghdad but no boots on the ground; and the extension of French military operations in the northern Sahel, without any fresh military intervention in Libya. A rising China will face domestic development challenges and increasing demands from civil society. Modi’s India will follow on its heels.
In 2015 the impact of geopolitical tensions on economic development, so evident in 2014, will be coupled with the increasing effects of domestic political change in established and emerging powers on public policy.

Michel Foucher
Senior Advisor

[1] Article paru en français dans l’hebdomadaire Option Finance, vous pouvez le retrouver sur le site,
[2] Conversation with Sir Peter Ricketts, the United Kingdom’s ambassador to France on 12 Nov 2014 (summary available on CFJC Investments website).