Trump's frontal attack on Draghi leaves a deep impression
| Reading time: 4 minutes
Mario Draghi, top Euro Guardian, has surprisingly promised even more cheap money. This calls on the US president, who suspects a banned euro devaluation. Trump's ranting is revealing in several ways.
DOnald Trump has already claimed many titles. The most powerful man in the world is not content to just be the president of Earth's largest economy nation and supreme commander of the US Forces. Rather, the former real estate mogul has long been a top banker and trade warrior.
Since Tuesday, the ECB observers have also gone under. That is, the species that specializes in following the European Central Bank (ECB) critically and examining every statement from the executive floors of the ECB's skyscraper about its impact on the financial markets.
Four times, Trump spoke on his favorite Twitter medium to express his displeasure at the recent statements by ECB President Mario Draghi. At a central bank conference in Sintra, Portugal, he sent a clear signal for interest rate cuts in the euro zone, sending the euro down the dollar and boosting the European stock markets.
“Mario Draghi has just announced that there could be more stimulus, prompting the euro to fall immediately against the dollar. That makes it unjustifiably easier for Europe to compete with the US, “Trump quipped. “They've come away with this scam for years, as have China and others.”
Just an hour later, he added, “The European markets have gone up following the Draghi comments – which are unfair to the US.” And when that was obviously not enough, he sent out a third and fourth message. For example, the US president complained that the ECB saw interest rate cuts as the means of choice to stimulate Europe's economy. And finally stated in an exasperated tone: “The German stock index rose after the comments of Mario Draghi. Very unfair to the US! “
A hint on Trump's worldview
The ranting via short message service is very informative in several ways. On the one hand, once again the world picture to which the US President attaches becomes clearer. After that, the world is a zero-sum game in which one player can only win at the expense of another. So adding European stocks is, according to Trump's world view, automatically a disadvantage for US titles.
At the same time, markets can rise in unison. And a comparison of the stock performance on both sides of the Atlantic shows that there is nothing to complain from the US point of view. While the German stock market index Dax has gained 19 percent since Trump's inauguration, the US barometer Dow Jones has risen by 57 percent, close to the all-time high.
On the other hand, the Twitter tirade also reveals much about Trump's mindset regarding the trade conflict he has instigated. In these disputes, the US president obviously sees not only tariffs but also currencies and interest rates as instruments of power.
An interest rate cut in Europe can only be seen as an affront to the United States. What Trump misjudges is that Europe may only resort to loose financial conditions, because the global trade dispute is just worsening the economic outlook.
“Whatever it takes” 2.0
However, not only was Trump surprised by Draghi's comments. Several euro-guardians are said to have irritated by reports from Reuters on the far-reaching announcements Draghi have shown. These had not been discussed. However, in view of the difficult political situation, there is no reason to expect much opposition to Draghi's plans at the forthcoming ECB meeting in July.
“The whole thing is reminiscent of a kind of 'Whatever it takes' 2.0 speech,” says Peter Schaffrik, economist at RBC Capital, recalling Draghi's powerful pledge amid the euro debt crisis in the summer of 2015. At that time, the ECB president pledged that the ECB will do whatever it takes (“Whatever it takes”) to rescue the euro. And, like now, that far-reaching commitment had not been agreed in advance with the rest of the councilors.
With his anger at Draghi's new promise, Trump proves once again that he has the right feel for important issues. Even before many a professional ECB observer, the US President realized very shortly after Draghi's speech very clearly that this time it was not just a normal conference speech, but commitments, with which Draghi once again pretty much leaned out of the window Has.
That certainly has an impact on the euro. Measured by fundamentals, the common currency against the dollar is heavily undervalued. According to the purchasing power model of the OECD, the common currency would have to be one-fifth more expensive, that is, more than $ 1.30. Even the Big Mac index of the British business magazine “Economist” sees the fair value of the euro there about. The analyzes are also based on a purchasing power comparison of the currencies.
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