EU and CEE Facing Growing Uncertainty
The good thing about current American policy is that it is working to end the war in Ukraine. Probably 750,000 people have died, most of them Russians, but it is an incredible bloodletting.
The Americans’ motivation is less pleasing. It is not human suffering, nor is it the territorial integrity of Ukraine.
The USA no longer wants to bear the costs of the war – Trump massively exaggerates the financial costs of the USA, which are significantly lower than those of the European community of states – but facts are of no interest).
Moreover, Trump has correctly recognised one thing: it is damaging, also for the US’s claim to be and remain the leading nation, if Russia is released into a one-sided embrace with China.
I think it was a serious mistake on the part of European policymakers not to court Russia at the turn of the millennium. At that time, Putin would probably have been happy for Russia to join the EU and Europe would have been spared the developments that followed. It is hard to imagine what it would mean if Russia were part of the EU today. Access to raw materials and an incredible increase in security could have been the result. At the time, the Americans played a massive role in ensuring that this did not happen, because Europe, together with Russia, would have become a threat to the US. Today, Trump is entangling Russia for two reasons:
He wants to cut Russia off from China, which is not so difficult because China is an economic, technological and military threat to Russia.
Trump’s policy is inflationary – the only thing that helps him counter this effect is low energy prices. Keeping Russia’s energy supply permanently off the Western market is disruptive to this goal.
It is foreseeable that Israel will also attack Iran, which is responsible for many aggressions in the Middle East, in the interests of the US – with the benevolent connivance of Saudi Arabia, which is also a thorn in Iran’s side. Iran is not the biggest player in oil and gas – but a conflict could drive up oil prices, which is why Russia’s return to the market also provides the timeframe to force a regime change in Iran. There is little talk of this in the mainstream media today, but those who are concerned about it have a point.
CEE – Currencies Stand to Benefit From Weaker USD
I first noticed 20 years ago that the zloty weakens against the euro when the euro weakens against the USD (i.e. the zloty is very weak against the USD). Conversely, the zloty strengthens when the euro appreciates against the USD. We have seen this again in recent weeks. This correlation also applies to some extent to the forint, but to a lesser extent to the CZK.
EUR/USD has ‘breathing space’ to 1.11 EUR/USD in the short term, after which a consolidation is expected, coinciding with an aggressive US trade policy. A correction is possible in the autumn, but by then it should have become clear how serious the US really is about a Mar-o-Lago deal, which Scott Bessent presented a few months ago as a solution to reduce the US trade deficit.
I think that the CEE currencies will soon reach a temporary peak and only – possibly – strengthen further in the autumn.
