Remember, yesterday Macron and Carney tried to get in front of this by framing this economic performance divergence with the U.S. as a regime change in the world order — brought about by the greed and immorality of hegemonies (China and America), not by their own failures.
That framing effort doesn't seem to have worked.
It doesn't help their case that Mario Draghi, the former Prime Minister of Italy and President of the ECB, wrote a paper a little over a year ago that highlighted the exact failures and vulnerabilities of the European economy that have been exposed over the past year.
On that note, we've talked the economic fragility of Europe that was exposed once Trump's "burden sharing" strategy was rolled out.
Remember, this "burden sharing" is from (now Fed governor) Stephen Miran's blueprint on restructuring global trade. It's about requiring allies and trading partners to pay for access to safety (U.S. security guarantees), stability (the dollar and U.S. capital markets), and markets (U.S. consumers).
Europe's response has been big spending promises (on defense, and AI investment).
The question then, and the quesion now: Where will the money come from?
More deficit spending. More debt.
But as we've also discussed along the way, for any large scale fiscal spending plan to work in Europe, without triggering another sovereign debt crisis, the ECB will be forced back into action — with more central bank backstops to tame the bond yields of the fiscally vulnerable countries.
And that ECB backstop works only if its major global central bank peers support it (namely the Fed). We should expect Trump to use that as leverage when his hand selected Fed Chair takes office.
