The Week Ahead

The Week Ahead

Iranian presidential election pits incumbent against hardliners. Trump travels to Saudi Arabia in first foreign visit of presidency. Swiss renewable energy referendum could cut nuclear power. EU Eurozone finance ministers to discuss the sustainability of Greek debts as the IMF demands answers. All in The Week Ahead.

Iranian presidential election pits incumbent against hardliners

This Friday, Iranians will head to the polls for the first vote for president. The elections pits incumbent Hassan Rouhani against conservative candidates Mohammad Ghailbaf and Ebrahim Raisi (there are several other candidates who are not expected to receive more than 5% of the vote). Current polling suggests that President Rouhani will end up with the lion’s share of the initial vote, though may not receive a majority of the vote to prevent an automatic runoff election.

As for who might follow him to a runoff, polling between the two more hardline candidates Ghailbaf (the current mayor of Tehran) and Raisi (current chair of the Astan Quds Razavi and former Attorney General and Deputy Chief Justice) has recently converged for the two at around 23 percent each. Raisi and Ghailbaf are largely ideological allies, so it is likely that the majority of votes for one candidate would transfer over to the other in the event of a runoff.

Both have criticized President Rouhani, particularly over economic impact of the sanctions relief of the Iran nuclear deal, though neither has crafted a comprehensive approach for what a replacement deal would look like. Rouhani has tried to walk a delicate line between appealing to the reform elements of Iranian society (through criticism of the Revolutionary Guard), and not defying Iran’s power infrastructure. Raisi has painted a dim view of Iran’s economy, which could help elevate his status for those in Iranian society looking for a more substantial economic boost following the reduction of global sanctions.


Trump travels to Saudi Arabia in first foreign visit of presidency

This week, Trump will travel to Saudi Arabia to meet with senior Saudi officials to discuss ties between the U.S. and the world’s largest oil producer, which may include the finalization of a substantial sale of U.S. weapons to Saudi Arabia. He will also travel to Israel and will later meet with Pope Francis. The trip may also include the formal announcement of plans by the Saudi government to invest upwards of $40 billion in U.S. infrastructure projects.

The president’s trip will represent the first trip abroad since his January inauguration. It also represents the first time in more than 30 years that a president’s first foreign trip was not to either Canada or Mexico (2 of America’s top three trading partners). Each stage of the journey will be fraught with challenges and represent the most significant official test of his presidency thus far: Saudi Arabia will likely press for a firmer line against the Iranian government (particularly after the administration fiercely criticized the Iran nuclear accord but also confirmed the country was in compliance with the agreement). In Israel, his previous commitments to move the U.S. embassy from Tel Aviv to Jerusalem will likely receive attention, particularly as the administration recently walked back the idea. International players will look for whatever mistakes Trump makes and whether his administration intends to move away from previous alliance commitments.


Swiss renewable energy referendum could cut nuclear power

This Sunday, Swiss voters will head to the polls to vote on the Energy Strategy 50 plan by the Swiss government, which would gradually phase out the use of Switzerland’s 5 nuclear reactors (which in previous years have accounted for nearly 40% of Switzerland’s domestic electricity production) starting in 2019 while promoting the use of wind, solar, and other forms of alternative renewable energy. This would not remove the ability of Switzerland to import energy from other countries that may supply their energy through nuclear power (France, for example). The left and centrist parties have come out in support while the right wing has taken a stand against the bill.

A move by Switzerland to eliminate the use of its nuclear power plants (the plan was proposed in light of the Fukushima nuclear incident) would bring the country more in line with Germany’s nuclear phase out energy policy. Although support still appears to be sufficient to prevail based on recent polling, the possibility of abstention and the role of political independents could make the election results closer than projected or possibly lead the proposal to fail. Should this occur, it would be a blow to the government, and would likely necessitate making some changes to bring more Swiss businesses on board with the campaign. Since the Fukushima incident, several countries with longstanding nuclear energy programs have moved to curtail or eliminate production, which has led in some places to substantial shifting of energy consumption both to renewable and non-renewable energy sources. In some cases, this has led to unforeseen consequences like a rise in carbon emissions.


EU Eurozone finance ministers to discuss the sustainability of Greek debts as the IMF demands answers

Eurozone finance ministers will meet this week. It is likely that the sustainability of Greece’s debt program will be discussed, as the IMF has made clear that its support for Greece’s debt relief program was contingent on some form of debt relief (this has butted against the views of the German government and several northern European countries that have balked at the idea without firm, long-term policy commitments). A deal is supposed to be agreed by next Monday between the IMF and EU, but IMF President Christine Lagarde has indicated they cannot offer an agreement without a sufficient understanding of what the EU’s position regarding debt relief really is.

The main sticking point currently is how long the Greek government should maintain its primary surplus at 3.5% of GDP, with a current range of 2 to 10 years. The Eurozone has increasingly shifted to a recognition that debt relief at some point will be necessary to maintain the long term growth potential of the Greek economy, and the IMF has increasingly pushed for answers on actual debt relief, but with German elections coming up in September, there is also substantial domestic pressure in several countries to not give the impression that Greece is being let “off the hook.”

 

The Week Ahead provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, The Week Ahead presents a series of potential upside/downside risks, shedding light on how political decisions affect economic outcomes.

This edition of The Week Ahead was written by GRI Analyst Brian Daigle.

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