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The economic tumult of the last ten days has been immense. Labour’s tax and spend budget, the election of Donald Trump with the prospect of tax cuts and import tariffs, and a reduction in borrowing costs on both sides of the Atlantic are still being digested.
There has been a surge in stock prices in New York with the S&P 500 index, the broadest measure of US stocks, 50 percent above its long-term average and trading at a notable earnings per share of 25 times.
This, as the Congressional Budget Office predicts that by 2027 the US public debt will exceed the record levels seen immediately after World War II.
In fighting form: the implications of Donald Trump’s victory are being absorbed
Bond markets in New York and London have been spooked by debt levels. Both the Bank of England and the Federal Reserve will take a breather before rushing into deep cuts to official interest rates.
In the midst of all this, it went almost unnoticed that the Berlin government had fallen following a dispute in the ruling coalition over a violation of German debt legislation.
The European Union faces stormy months ahead with its driving economy in crisis and suffering political stagnation, with the threat to moderation coming from the right-wing Alternative for Germany (AfD) party.
Adding to the disruption, the Dutch government has to apologize to Israel after masked gangs attacked and hospitalized Maccabi Tel Aviv fans attending their team’s match against Ajax.
Israel’s Jerusalem-based Holocaust memorial site, Yad Vashem, described the anti-Semitic violence as a pogrom.
Germany’s political crisis was triggered when Chancellor Olaf Scholz fired his Finance Minister, Christian Lindner, of the Free Democratic Party (FDP).
Row broke out over how best to fund a £10bn black hole in next year’s budget. A problem not unlike that discovered at the Treasury (and not reported to the Office for Budget Responsibility) when Rachel Reeves arrived as Chancellor.
Lindner proposed curbing debt by freezing social spending, cutting some taxes and diluting the country’s ambitious climate change goals.
Scholz favored changing the debt rule to continue funding social benefits and defense spending for the war in Ukraine.
If we add to these difficulties the possibility of a trade dispute with the United States due to tariffs and the drop in automobile production, Germany and the EU find themselves in a very difficult situation. All of this suggests a fiercely uncertain period lies ahead for global markets. The euphoria on Wall Street that accompanied Trump’s election victory will be difficult to maintain.
flying by
Shares of British Airways owner IAG are increasing thanks to buoyant transatlantic traffic. But it’s not all sunshine for passengers.
Routes to fast-growing destinations in the Middle East, such as Bahrain, are being eliminated due to capacity shortages.
Instead of offering better service to premium passengers traveling to North America, it has done away with little things, such as invigorating shakes for red-eye arrivals at Heathrow.
Investors still have reason to rejoice. In the middle of the pandemic, when air traffic died, they could never have imagined the prospect of full-year operating profits of £3.1 billion or a share buyback of £292 million.
A message, however, for IAG CEO Luis Gallego: travelers deserve better, too.
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