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This past week saw several critical issues come to a head in Britain and Europe. As Theresa May took one step after another towards the impending Brexit invocation of Article 50 set for this coming week, the EU leaders huddled together in Rome, Italy to commemorate the 60 year anniversary of the signing of the Treaty of Rome that set the European Union into motion.
Cracks in EU unity were evident everywhere, none more so than in host nation Italy. The Italians have suffered from nearly a decade with little to no growth and are on track to vote in their own populist leader in the form of Beppe Grillo, head of the Five Star Movement. Analysts are already calling this the most likely devastating crisis facing the single market and currency.
Meanwhile in France, National Front anti-euro, ultra nationalist candidate Marine Le Pen continued her march towards finishing in the top two contenders of the final round for the May 7th French Presidential election. The latest polls show her basically tied for first place finish in the first election round with Emmanuel Macron. Economists this past week revealed their consensus that a Le Pen victory would mean a 10-15 percent plunge in the euro, down to parity with the dollar or even lower.
The geopolitical cracks and financial markets challenges are increasingly obvious. Now more than ever, gold makes sense in an IRA.
PM Theresa May Prepares Britain the “Unstoppable Force” for Official Brexit Trigger
As Scotland maneuvered for another Scottish independence referendum, British Prime Minister Theresa May took steps to put down (or at least delay) Scottish First Minister Nicola Sturgeon's efforts this past week by declaring there would be no referendum until after Brexit is successfully concluded in 2019.
May continued these efforts today by heading to Scotland where she will convey this message as spelled out in excerpts from her speech released by the prime minister's office:
“As Britain leaves the European Union, and we forge a new role for ourselves in the world, the strength and stability of our union will become even more important. When this great union of nations– England, Scotland, Wales, and Northern Ireland — sets its mind on something and works together with determination, we are an unstoppable force.”
On Wednesday, the Prime Minister will send in her Article 50 triggering letter to the EU block. Thursday will see her lay out the proposal for bringing literally thousands of EU regulations under British control. She is publishing plans in the form of a Great Repeal Bill on Thursday. This law will convert European Union laws into British laws to give much needed stability and continuity for the subsequent months as Britain prepared to exit the single market.
Along with these many plans, Prime Minister May is looking abroad for continued foreign investment and trade deals. A massive combination of official and business leader delegates featuring 400 individuals from Qatar are gathering in London today in anticipation of a Qatari Emirate announcement of significant new investments in Great Britain.
Yet the struggle with Scotland will not be an easy one for May. Even as May declares now to be the wrong time for a Scottish vote on leaving the United Kingdom, Scottish First Minister Sturgeon declared her plans to make an overseas trip of her own to California and New York in order to seek out United States' investment in Scotland and to raise Scotland's profile with:
“Following the U.K.'s vote to leave the EU and the U.K. government decision to leave the single market, I want to reassure investors and visitors from the United States that Scotland is an outward looking, welcoming country and remains open for business.”
The tension is rife not just between the United Kingdom and the still stung European Union, but also within the U.K. itself. This instability between the worlds largest trading and economic block and the sixth largest economy in the world is yet another reason to hold onto your gold.
EU Celebrates 60 Year Anniversary of Treaty of Rome In Euro-Skeptic Italy
This last weekend, the 27 remaining EU countries (minus the United Kingdom) gathered together in Rome, Italy to celebrate the 60 year anniversary of the Treaty of Rome. The pomp and circumstance-heavy ceremony was overshadowed by the populists gaining ground in recent Dutch elections, the imminent triggering of Brexit in Article 50 of the Lisbon Treaty, and the impending elections in France and Germany.
Yet these are not the worst of the problems plaguing the European Union at the moment. Even as the Europeans were reveling in their unstoppable march towards a single European superstate, polls in the Italian host nation showed that Italy is on track to vote into power the ultra-nationalist, anti-Euro, populist party Five Star Movement, led by former comedian Beppe Grillo.
Italy is now the weakest link of the major European trillion dollar economies. The nation has barely recovered from its longest recession in modern history and boasts shockingly high unemployment rates which are two times those of Germany. Most alarming for the EU is that the Italian voters are fed up with ponderous and distant EU institutions.
While the euro area as a whole posted a solid growth rate of 1.7 percent, Italy's economy only marched forward by .9 percent. Italian unemployment stands at 11.9 percent. Look at this chart which singles out Italy as the one eurozone country to watch its per-person GDP drop in the years from 1998 to today:
The recently conducted European Union poll showed Italy to be second only to Cyprus for euro-skepticism among all eurozone nations. A mere 41 percent of Italians believe that the single euro currency is “a good thing.” This compares to a 56 percent average satisfaction with the currency among the other 18 nations of the euro zone area as this chart demonstrates:
The reason this is such devastating news for the European Union and future of the euro in particular is the elections in Italy will be held in a year or less. Tuesday's Corriere della Sera poll showed the Five Star Movement (and its promised referendum on keeping or discarding the euro) to have a record high 32.3 percent support. This puts it significantly ahead of currently ruling Democratic Party led by Prime Minister Paolo Gentiloni the summit host.
Just as the Bank of Italy Governor Ignazio Visco stated at a conference held earlier this month in Rome:
“Sixty years after the signing of the Treaties of Rome, the risk of political paralysis in Europe has never been greater.”
Indeed Bloomberg Intelligence analysts state there are good reasons for the euro to be so hated in Italy. It has held back growth in productivity, caused imbalances between Italy and other trading partners, and greatly harmed the financial crisis recovery in Italy. That is why they call the ongoing crises in Greece and the upcoming French elections a side show to the real danger facing the single market and currency. The real danger for Europe is Italy electing the populists under Beppe Grillo and him winning a referendum to go back to the Italian lira currency.
Marine Le Pen Potential Victory Seen Crushing Euro to Parity With Dollar
Speaking of the French elections heating up, the near term danger to the value of the euro could not be greater with the very real possibility of an anti-euro Marine Le Pen victory hanging over markets. Le Pen continued her march towards top placing in the preliminary presidential poll in April by reassuring French voters that she will wait until after the German elections are over before she starts her much-touted talks to withdraw France from the euro. Le Pen declared ominously at her Sunday rally and in a three page newspaper exchange:
“The European Union will die because the people do not want it anymore. The time has come to defeat globalists… The euro will be the final step because I want to wait for the result of the German election. I don't want chaos.”
Yet chaos in the exchange rate value of the euro is exactly what economists are calling for if she wins. Twenty-three out of 38 economists polled see the common currency plunging to parity with the U.S. dollar or even lower on the day after her would-be victory. Five of them believe the drop will be to under 95 American cents. This chart says it all:
Fear is in the air since Le Pen promises not only a referendum on euro membership, but also to redenominate the French debt in francs. Pundits continue to call her final May 7th election victory unlikely, as polls are still predicting her rival Emmanuel Macron will defeat her 61.5 percent to 38.5 percent.
Yet an unprecedented number of French voters remain undecided and angry. A computer model (much like the one that correctly predicted U.S. President Donald Trump's election victory over a month before the American election last November) has declared a much closer French race that will quite possibly see Le Pen ultimately triumphing.
Remember too that the pundits who see her losing are the same ones who incorrectly called the Brexit referendum and the U.S. presidential election. Its time to brush up on how to invest in gold. You can find a list of IRA approved gold coins and bars here.