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Europe’s New Future To Begin This Sunday – Seeking Alpha

It may be time for Europe to begin a new era.

On Sunday, Angela Merkel is expected to win her fourth term as the Chancellor of Germany. If she wins, only one German politician would have served a longer term: the legendary Otto von Bismarck.

Even though Ms. Merkel will be faced with forming a coalition government, she is expected to become a more predominant force, not only in Germany but in Europe and in the world.

The interesting thing is that other events have been moving to enhance this position.

First, in the Europe itself, the election this spring of Emmanuel Macron as the president of France has been a very positive factor for Europe and Ms. Merkel because he moved immediately to exhibit his support for the European Union and for Ms. Merkel.

The ensuing optimism resulting from these movements was reflected in the immediate strength of the Euro as the value of the European currency soared right after his election. For example, the week before the election, it took only about $1.08 dollars to acquire one Euro. Now, one Euro is costing around $1.20.

In conjunction with this, new US President Donald Trump has talked of withdrawal from world trade as he attempts to “protect” the sovereignty of the United States.

As a consequence, whether Ms. Merkel wanted it or not, more of the leadership of the western world seemed to move onto her shoulders. She has not backed away from the responsibility.

Furthermore, in January, Xi Jinping, president of China, immediately responded to Mr. Trump’s withdrawal comments by asserting that China would move into the gap vacated by Mr. Trump in the future of world trade and globalization.

Mr. Xi has followed this up by working to strengthen ties with Ms. Merkel and the European community.

Now, Mr. Macron is now moving to provide the format for a “new” Europe, one that is more consolidated politically as well as economically. This vision is expected to be presented in a speech on the future of the European Union to be given next Tuesday.

The speech is “intended to boost the chance of a political accord between Paris and Berlin on an overhaul (of the EU) by the end of the year.”

The timing of the speech is coordinated with the negotiations that are to take place next week in Germany concerning the forming of the coalition government. The hopes are that Mr. Macron’s speech will “fuel public debate and force Angela Merkel and other German party leaders to take a stand on the plan during negotiations on forming the next federal government.”

Some of the major issues contained in the speech are for the greater political union, a separate eurozone budget along with other eurozone reforms that would allow Europe to speak with one voice on important issues.

Mr. Macron will accept that this may take some time and may require that various parts of the proposal to be “phased in” to meet German concerns.

Mr. Macron has “received encouraging signs from Ms. Merkel” and so has proceeded to present some kind of coherent form to the ideas.

Having this all done by the end of the year may be a little aggressive on Macron’s side, and overall, he may be “setting his sights high” but as one French diplomat said, “Better to put everything on the table, even if it’s not accepted.”

Picking up on the optimism reflected in the strength of the Euro, Didier Saint-Georges, managing director at Carmignac, a French asset manager, argues that with a Merkel-Macron push to build up the European community, the Euro could actually begin “to challenge the US dollar as the dominant reserve currency again.”

The events of the past year, he writes, “have been more than enough to reverse the relative strategic status of the Euro versus the dollar.”

“This turning point is hugely important because while the US trade deficit keeps growing, the eurozone’s current account surplus is cruising above 3 percent of the gross domestic product. An era of sustained performance of the single currency may open up if the Franco-German axis is able to deliver on this opportunity to cure the eurozone of its doubts.”

I have constantly been writing about currency reserves leaving the US ever since the presidential election results came in last November.

All this, Mr. Saint-Georges continues, also helps the Chinese and China’s currency. And going further, he argues that this rearrangement also has been “a boon for gold…whose price is breaking out from the declining trend that began after its 2011 peak.”

There is no question about the rise in optimism for Europe and for the Euro.

Still, a lot must be done for this optimism to be rewarded, but for the first time in years, people are looking to Europe with some hope.

Adding to this, the economies of the eurozone appear to be picking up strength and positive feelings about the future.

And, there is even hope that the Italian election in the Spring of 2018 will add to this momentum. Ms. Merkel and Mr. Macron would love to have the third largest economy in the European Union join them in pursuing their dream of a more unified and stronger community.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Europe’s New Future To Begin This Sunday – Seeking Alpha

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