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Trade distortion and protectionism

Is the Euro the biggest threat to the global trading system?

Published 17 July 2019 | 2 minute read

The European Union (EU) is positioning itself as a champion of the multilateral trading system, yet the single European currency has resulted in notably lopsided trade and economic growth.

As a result, the very “Euro project” that was designed to facilitate trade and reduce frictions between countries is now posing a major threat to the sustainability of the multilateral system. This is increasing the likelihood of a wholesale rejection of market orientated economic policies.

Germany and the Netherlands have been running perennial current account surpluses of a size that would embarrass even the most mercantilist of Asian countries. At the same time, the currency union’s sub-optimal nature has been a major contributor to income stagnation, high unemployment and deflationary pressures in southern Europe. These have promoted political populism and disillusionment with the market economy and free trade.

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Stewart Paterson

Stewart Paterson is a Research Fellow at the Hinrich Foundation who spent 25 years in capital markets as an equity researcher, strategist and fund manager, working for Credit Suisse, CLSA and most recently, as a Partner and Portfolio Manager of Tiburon Partners LLP.

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