20180618-NATIXIS-Will_pragmatism_prevail_in_the_end__6页_682kb

Flash Economics Summary

Core Content

This document, titled "Flash Economics" and dated 18 June 2018, explores the impact of ideological versus pragmatic decision-making on economic growth and financial markets. It argues that while ideological positions can lead to negative consequences, pragmatism is more likely to result in sustainable outcomes for countries and regions involved in global economic dynamics.

Main Questions

The document presents four key questions that illustrate the tension between pragmatism and ideology:

• Will Donald Trump maintain his protectionist policies despite their negative impact on the U.S. economy?
• Will Germany support greater solidarity and risk-sharing mechanisms in the euro zone?
• Will the Italian government abandon its expansionary fiscal policy to avoid a financial crisis?
• Will the UK and EU maintain free trade in goods after Brexit?

Key Examples and Analysis

1. U.S. Protectionist Policies

• The Trump administration imposed tariffs on various goods, increasing uncertainty and risk aversion.
• U.S. imports are not price elastic, meaning tariffs raise prices without reducing volume.
• Pragmatism would suggest lifting these tariffs to benefit global growth and financial markets.

2. Germany's Stance on Euro-Zone Solidarity

• Germany has historically resisted risk-sharing mechanisms in the euro zone.
• This stance has contributed to repeated crises, including those in Italy.
• Pragmatism may lead Germany to support initiatives like a euro-zone IMF, budget, and deposit insurance to prevent future crises.

3. Italian Fiscal Policy

• The new Italian government proposed an expansionary fiscal policy with tax cuts and increased public spending.
• This could push the fiscal deficit to over 6-7% of GDP, leading to higher interest rates and potential contagion.
• Pragmatism would lead the coalition to focus on corporate underinvestment and stagnant productivity instead.

4. Trade Relations Post-Brexit

• The UK's industrial facilities are deeply integrated into European supply chains.
• Free movement of goods is essential to avoid industrial collapse.
• Pragmatism suggests that the UK and EU will maintain free trade despite political tensions.

Main Viewpoints

• Ideology can be detrimental: Governments that prioritize ideological goals over economic pragmatism may face adverse consequences for their economies and financial markets.
• Pragmatism leads to stability: The document suggests that pragmatic approaches are more likely to prevent crises and promote sustainable growth.
• Global implications: The decisions of individual countries can have wide-reaching effects on international trade, financial markets, and economic stability.

Synthesis: Pragmatism Should Prevail

• The document concludes that ideological policies are likely to backfire, and that pragmatism is the more viable path for long-term economic health.
• It predicts that Trump will eventually abandon protectionism, Germany will move towards greater euro-zone solidarity, Italy will scale back its fiscal policy, and the UK and EU will maintain free trade post-Brexit.

Disclaimer and Legal Information

• The document is intended for professional and qualified investors only.
• It is confidential and cannot be disclosed without prior written consent.
• No liability is accepted for the content or its use.
• The views expressed are those of the authors and do not necessarily reflect those of Natixis or its affiliates.
• The document is not a personalized investment recommendation and does not constitute a financial analysis.
• It is subject to regulatory restrictions in various jurisdictions, and recipients must comply with local laws.

Regulatory Information

• Natixis is supervised by the ECB, authorized by the ACPR in France, and regulated by various authorities in the UK, Germany, Spain, Italy, and Dubai.
• In Australia, it operates through a subsidiary with a financial services license.
• In Hong Kong, it is for professional investors only.
• In the U.S., it is distributed to major institutional investors and not to the general public.

This summary highlights the document's focus on the importance of pragmatism in economic policy and the potential risks of ideological rigidity.