Countries move to deescalate tensions between North Korea and the United States. UK may further signal its Brexit intentions with Ireland amid customs position papers. EBRD and Egypt to sign funding deal. All in The Week Ahead.
Markets tense as world moves to deescalate tensions between North Korea and the United States
This week, diplomats from South Korea, the United States, China, Japan, and Russia are likely to meet in established back channels to discuss deescalating tensions between the United States and North Korea. President Trump has offered a number of provocative statements and tweets which have swiftly escalated the situation. North Korean dictator Kim Jong Un has continued to raise the ante, threatening to launch missiles on Guam, a U.S. territory with two military bases and a key lynchpin for America’s Pacific military operations.
Both the political and economic worlds have been on edge as the two countries approach conflict; Republicans and Democrats in Washington have been nervously watching mixed signals from members of the administration, with Trump and some advisors indicating even tougher rhetoric and action might be necessary, while others like Secretaries Tillerson and Mattis have indicated a more measured response and a defensive rather than offensive posture.
Stock markets from Europe to Asia to the United States have all dipped down in response to the rise in geopolitical risk, and the Japanese yen, Swiss franc, and gold have all picked up in value as safe havens for investment. This upcoming week will be crucial as either a dimming down of tensions or further escalation. Any suggestion of future unrest will likely cause further market selloffs and shifts to safer investments.
UK signals Brexit intentions with Ireland amid customs position papers
This week, the UK government is expected to unveil its position papers for two of the thorniest issues of the Brexit negotiations: the UK customs arrangement post-Brexit, and the border resolution with Northern Ireland and the Republic of Ireland. The complexity of these issues can hardly be understated, particularly the latter. In terms of customs issues, the UK government has still not yet articulated the level of engagement it wants to have with the EU post-Brexit. There have been rumors of a Norway-esque arrangement, but this would immediately run afoul of desires by hard Brexit supporters to claw back as much sovereignty as possible to the UK.
It is currently thought that the UK government will seek a transitional arrangement between the formal conclusion of Brexit and the post-Brexit world. However, without a unified vision from the UK government of what the final arrangement will look like, it will be difficult for the EU to agree to such an arrangement. From a negotiating position, the EU has no incentive to provide the UK with a transitional arrangement, particularly without a vision of what the final arrangement would look like.
On the Ireland front, both the EU and UK are unsure how to effectively move forward. No option presented thus far has proven likely to be accepted by both sides and prevent conflict in Northern Ireland; one of the major underpinning components of the Good Friday agreement has been the free movement of people and goods seamlessly across the border.
Should the UK present a credible, serious offer on both issues, it may head into September and October talks with a strengthened hand. If not, the EU is likely to resist concessions so long as the UK government appears uncertain of what it actually wants and what it is willing to accept.
EBRD and Egypt to sign funding deal
This week, the Egyptian government and the European Bank for Reconstruction and Development (EBRD) will sign a deal to expand an ongoing investment arrangement in renewable energy programs. The $60 million deal to finance private projects is part of a larger $500 million deal to invest in renewable Egyptian programs. The EBRD and several other major development banks have undergone a substantial transformation in energy project investments, increasingly moving from non-renewables (in particular coal-fired power plants) in favor of renewable energy projects.
This move has also mirrored a move by developing countries in favor of renewable energy projects. China’s consumption of renewable energy has gone up substantially with over 2.5 million Chinese workers in the solar industry alone, and even Saudi Arabia, the world’s most powerful oil producer, has invested over $30 billion in renewable projects.
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 Senior Analyst Brian Daigle.
