Trump And Draghi May Bring A Return Of The “European Solvency Crisis”: Barclays
Since Drahi’s infamous “whatever it takes” warning in the summer of 2012, European bond yields have been a one way street lower, and until the recent Trumpflation rally, had tumbled to all time lows, in many cases well below 0%. There are two catalysts, however, that may be ending Europe’s QE-driven free ride, and according to a recent report by Barclays, their names are Donald Trump and Mario Draghi.
First, when looking at the impact of Trump, Barclays notes that his election as US president may have created an additional burden on European budgets: defence spending.
The president-elect has suggested that European NATO members should reach the 2% GDP military spending target, as pledged under the NATO treaty. In 2015, the 22 EU countries that are also NATO members spent on average only 1.4% of GDP on defence, or 1.3% excluding the UK, while the US spent 3.6%. This is a shortfall of USD94bn, or 0.7% of the total GDP of EU-NATO members.
This post was published at Zero Hedge on Nov 27, 2016.