2019: tough times for Europe?

2019 is starting to look like it might be the perfect storm for Europe. 

The ECB has pulled back on and will completely cease its massive asset purchase scheme in early 2019. Markets expect Draghi to raise rates in the last months of his term. We’re at -0.40%, so not a lot of wiggle room in any case. 

Brexit is looming. We’ll know more after December 11, but whatever happens it’ll be a massive disruption. Except for an about-turn to continued membership, all alternatives look fairly poor. Including the prospect of a “democratic socialist” government under Corbyn. 

Italy’s debt crisis is accelerating. The country is probably already in recession and banks and companies are having trouble refinancing themselves. 

German lenders (and tax payers) will be left holding the bag. Deutsche Bank, which never recovered from 2008, is looking particularly vulnerable. A money-laundering raid of its HQ this month didn’t help. 

Populist discontent is growing. It has spilled onto French streets and is changing politics in multiple other countries. Expect more unrest. This is a key theme in European politics, pitting elites against the middle classes. Dissatisfaction stemming from inequality of economic opportunity, but with a particular focus on failed immigration policies and multiculturalism, will be a defining factor of European politics for the next decade. 

The electoral win of AKK as the conservative party’s chairman to replace Merkel communicates clearly: the elites don’t get it (yet). Germany’s politics will fragment further - expect Greens and AfD to become the largest parties, leading to a similar polarization as in the US. 

The schism between Western and Eastern Europe is widening. The EU is one to two more Brexit type events from total stasis, if not (informal) dissolution. And it doesn’t look like Merkel/Macron will be able to heal that divide. There needs to be a policy alternative to “ever closer union” and centralization. 

Trump has declared a temporary truce with China (markets have caught on that it really may be temporary). But he’s not a politician who operates without an enemy. 2019 is looking like it will be tough for him domestically. Look for the rhetoric to switch to Europe - Germany’s car industry leadership has already bent the knee. But I expect him to push on further on trade and NATO and dial up the rhetoric. 

And then there’s the wildcard of Russia. Ukraine is volatile to the point where both parties may find it beneficial to escalate the conflict. 

None of this matters for startups per se. Europe’s travails will be a rounding error in the narrative of successful founders. But economic volatility spooks capital and the contagion is psychological above all. Europe may well be the crucible for global recession in 2019. 

It’s not quite RIP Good Times 2.0. 

But raise your next round while you can and bunker down to keep building the future.