US-European Threat Perceptions Diverge

The trajectories of the monetary policy at the Federal Reserve and the European Central Bank are diverging.  It is the keystone of our anticipation of further euro weakness in the year ahead. In addition to this monetary divergence, there is a geopolitical divergence that will be of growing significance. 

At the heart of the geopolitical divergence lies asymmetrical threat perceptions.  Simply, if crudely put, the US perceives a greater threat from Russia’s actions than many in Europe. It is not just Russia’s activity in Ukraine, and Crimea, which it annexed, but also its ongoing harassment of its neighbors airspace and waters, and its occupation of parts of Georgia and Moldova. The US also sees that China’s state-directed economy gives it unfair competitive advantages that need to be checked. 

That Europe does not seem as threatened by Russia or China as the US is not new. What is new is that both are going to come to a head of sorts in the first half of the new year. The outcome will likely impact companies and industries.  

The sanctions on Russia, implemented into order to force it to fully implement the Minsk peace treaty with Ukraine were set to expire at the end of January. European officials have agreed to extend them through July. The unanimity of the decision should not be confused with the level of commitment.   

Indeed, a number of EU members want to re-engage the Russia. Just like French President Hollande argued after the Paris attack that the security pact trumps the stability pact, so too does the reinvigorated war on ISIS overshadow Russia’s activity on its borders.   

Recall that even after Russia’s little war with Georgia in 2008, and its occupation of a province, both Germany and France agreed to sell advanced weapons and training systems to Russia.  They were only rescinded after a Ukraine civil aircraft was shot down and after international pressure was brought to bear. 

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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