Present context is an opportunity for the EU (Bernard Keppenne)

Chief Economist with CBC Banque & Assurance since 2010, Bernard Keppenne thinks the current context “couldn’t be more peculiar”. The election of Donald Trump, Brexit and the upcoming elections in France and Germany are all developments which could impact the global economic environment. If the election of Trump opens an “unprecedented era of instability,” Bernard Keppenne sees here an opportunity for the European Union (EU) to undertake a role commensurate with its real economic and political weight. As for Belgium of which UK is the fourth largest trade partner, it has in priority to support the growth of its SMEs concluded Keppenne who answered Cyceon’s questions below:

Version française disponible ici.


After many years in the banking sector which enabled him to approach the financial markets from every angle, including significant time spent on the trading floor, Bernard Keppenne was appointed Chief Economist in 2010. He holds this position within CBC Banque & Assurance, a Walloon subsidiary of the KBC group. Bernard Keppenne regularly publishes articles in the Belgian press and is frequently solicited by the media to shed light on major economic trends.

The Interview

1) In a video that you broadcasted on your blog on January 30, 2017, you spoke about “a context that couldn’t more peculiar.” Can you explain why, and to what and how individual investors should prepare for?

B.K.: The year 2017 begins, in a very peculiar context, as it will be marked by three major political factors that could have geopolitical and economic repercussions. First of all, the arrival of Donald Trump at the White House upsets all the codes. His first moves have already brought a lot of uncertainties, something which the financial markets hate above all.

The second element is of course the beginning of the talks within the framework of the Brexit sought by Great Britain and imposed on the other member countries of the European Union. Theresa May’s willingness to engage in a “hard Brexit” poses significant risks to trade between former partners. And the last element that will mark this year is the electoral calendar in Europe that could witness a rise in populism encouraged by the victory of Trump and the Brexit. At this time, uncertainty is total in France and the elections in Germany will be extremely delicate for Angela Merkel.

2) European Council President Donald Tusk and most European political leaders introduced the new Trump administration as “a threat to the European Union.” From an economic and financial viewpoint, can this beginning of “divorce” be an opportunity for the EU? How could the EU get ahead?

B.K.: The start of the new Trump administration, like the Brexit, is an unexpected opportunity for the EU, at least if the EU decides to seize it. It is clear that the EU will have to learn to cope without the United States, to undertake its role as a major economic power and to establish its political existence. Given Trump’s wish to denounce multilateral trade agreements, the EU has indeed a real opportunity to develop new trade relations with the Asia-Pacific region and China in particular.

It must seize this opportunity by accelerating the process of convergence between the different EU countries and definitively putting an end to intra-regional competition in terms of taxation, VAT and social standards. It is also an opportunity if the EU finally has a single representative for all international bodies.

3) In this global context in which major groups (the United States, China, India, Russia, Europe) are working hard – and confronting with each other – what should be the priorities of Belgium and its economy to defend its commercial interests and continue to prosper in the future? How can one be economically efficient in the face of “giants” when one is “smaller”?

B.K.: Taking into account its outward-oriented economic model, Belgium must work to seek “more Europe”. As a founding State, Belgium must take up this role. It is obvious that our country is particularly penalized by inward-looking attitudes in today’s world and especially in the case of hard Brexit. Great Britain is indeed our fourth largest export market and some sectors would be severely penalized in the event of an increase in customs barriers.

However, Belgium benefits from a network of small and medium-sized enterprises that are extremely efficient and innovative in their field and that are more flexible than large groups. Belgium’s priority is therefore to support this network of SMEs and to encourage their growth by facilitating their development abroad.

4) Donald Trump is upsetting the consensus on trade policy. Faced with Mexico and China, can he succeed in achieving his objectives? While the Dow Jones is reaching new highs, does the US economy seem strong enough to you in the event of a sudden rise in volatility and commercial warfare?

B.K.: The danger of Trump’s confrontation policy with China and Mexico, among others, is that it can cause a currency war. To compensate for the increase in tariffs, these countries could then let their currencies run against the dollar, which could more than offset the increase in taxes.

Even if the US economy is strong, the biggest danger of a protectionist policy is that it will lead to higher prices and thus inflation that would force the Federal Reserve (Fed) to increase rates more quickly than expected. The whole paradox of Trump’s policy is therefore that its isolationism leads inevitably to this rise in inflation, which itself would risk eroding households’ buying power. Yet more than 70% of the growth of the US economy stems from household consumption.

For economists, and for other analysts elsewhere, such US policy opens up an era of unprecedented instability that disrupts all certainties, even if very few remained already.