Feel free to slap on some shiny leggings and grab a hairbrush to belt into. Sprinkle in dramatic disco moves as you see fit.
Kept thinkin’ I could never live without you by my side
But then I spent so many nights thinkin’ how you did me wrong
And I grew strong, and I learned how to get along
By now you should have learned that I can crowbar a classic dance hit into almost any topic. This week is no exception.
I don’t think it’s a stretch to liken the situation in which Europe (and many other trade partners and allies) finds itself to what Gloria Gaynor described back in 1978. An initial disbelief and outrage paralysis, followed by an empowered pivot driven by lessons learned and (re)found self-confidence.
In a recent opinion piece in FT, the chief economist from BNP Paribas, Isabelle Mateos y Lago, listed some ways that Europe could grow economically strong on its own.
The first one is to increase trade within EU. Since EU is already its own largest trading partner it would only take an increase of 2.4% of that trade to make up for a 20% decrease in exports to the US.
While the required trade increase might be small, it would take some putting-your-action-where-your-mouth-is because currently the different VAT rules within EU are estimated to effectively work as a 45% tariff on goods and 110% on services.
The second one is to increase trade between EU and the UK. Since the divorce (Brexit) in 2020 and the whole custody battle over the border between the Republic of Ireland (EU member) and Northern Ireland (part of the UK) this has been a sore subject between the exes.
What could easily make it a little less touchy is to increase the de minimis threshold for customs collection from the current EUR 150 to EUR 750.
And yes, if you think you’ve heard about the mini-mes lately, you are right. There’s been a lot of back and forth about the current threshold of USD 800 on foreign goods entering the US.
The third one is to regulate for growth. That is already a tagline to boost the UK economy, and it could be used in the EU as well. The EU rules and regulations have—rightfully or not—a reputation for being bureaucratic and self-purposed.
A fourth way would be to lower the barriers for both retail and institutional investors to put their money all over the EU. Using your savings account to invest in financial products outside of your own country is currently impossible, though it has been on the wish list for a long time.
And while banks, like the one Ms. Mateos y Lago is from, can package up their loans and sell them on, there are hefty fees on that for both the issuer and investor. That means only 1.9% of outstanding loans in the EU are securitized (2024), compared to 7% in the US.
The last suggestion is to increase public spending within the EU countries, a tried and true way to get the economic wheels, or rather tank tracks, rolling. However many mixed emotions the prospect of strengthening European defense brings up, it seems to be the time to do that.
Hey, hey
(Cue the strings)
Regitze Ladekarl, FRM, is FRG’s Director of Company Intelligence. She has 25-plus years of experience where finance meets technology.
This article is part of the FRG Risk Report, published weekly on the FRG blog. To read other entries of the Risk Report, visit frgrisk.com/category/risk-report/.