The Brexit Boon to Europe and the US
More than four years after the Brexit referendum, the United Kingdom has finally left the European Union, and the timing could not be better. With Britain gone, Europe has nothing preventing it from adopting a new economic-policy model that is better equipped for contemporary conditions, not least a strengthening euro.
STANFORD – Most Europeans are happy that Joe Biden will be the next president of the United States. Whether they realize that Biden’s economic policies will put the euro and Europe in a bind is another matter. The new US administration will want the euro to remain strong against the dollar in order to keep the US economy humming.
With the goal of boosting spending on the pandemic response, the environment, and infrastructure, the Biden White House will undoubtedly pressure the US Federal Reserve to keep the value of the dollar low, regardless of how much more fiscal stimulus it can coax out of Congress. And having done so many favors for Donald Trump, the Fed chair, Jay Powell, will be in no position to refuse Biden. In this context, it was a stroke of genius for Biden to appoint Janet Yellen to serve as Secretary of the Treasury. As Powell’s predecessor at the Fed, she still has significant influence there. For good reason, Wall Street is betting heavily against the US dollar for the next year or two.
The expected Biden policy approach will have a dramatic effect on the European economy, which remains heavily reliant on exports. In 2019, exports accounted for 46.9% of Germany’s GDP, 31.8% of France’s, and 31.5% of Italy’s. Europeans cannot afford to sit idly by and watch the euro strengthen to the point that it strangles their exports.