Gulf needs to plan for future as Europe risks mount

Europe, which has long struggled to bridge its divides over a host of issues ranging from immigration to nationalism and budget discipline to national security, is now confronting a lonelier future, while its growth outlook is clouded by Brexit risks.US President Donald Trump has forecast the unravelling of the European Union, sowing division among member states and cheerleading for the UK exit. And Brexit, the “biggest jolt since the fall of the Berlin Wall” that had erased about $3tn from global equity values on a single day in 2016, should be a longer-term concern. The twin issues are heightening economic risks for the eurozone, the European Commission said on Monday. Gross domestic product in the 19-nation region will grow 1.6% this year, slower than the 1.7% expansion last year, it said.The EU, sure, is bracing for more troubled times with a new US president that has taken a more protectionist trade stance and with the next two years set to be dominated by Brexit negotiations with the UK. Europe’s governments are also struggling to shake off the effects of the debt crisis nearly seven years since Greece’s first bailout and work out their response to an aggressive Vladimir Putin to its east and south.Faced with the biggest influx of migrants since World War II, Europe’s leaders have also failed for two years to make a unified response as nationalists profited and the pillars of EU integration wobbled.As for the Gulf countries, in a wider sense, stakes are crucial, especially on the economic front.Gulf Co-operation Council sovereign wealth funds have invested heavily in Europe, which together with Japan account for an estimated 50% of the total GCC imports. Total assets acquired by GCC private investors and SWFs in the EU is estimated at more than €400bn as of 2015, making them one of the largest foreign investor groups in Europe.Gulf investors have been prolific buyers of British assets in the past decade, too. The Qatar Investment Authority has at least $7bn directly invested in equities traded on the London Stock Exchange, in which it also holds stake of over 10%. Qatar’s total investments in Britain are worth around £30bn ($44bn), according to a 2015 estimate.Sure, Gulf investors have had enough time to cover their positions in Europe as the troubles have been unfolding for quite some time. But the investments are mainly keeping line with the futuristic strategy of economic diversification. Longer term, continued crises in Europe and a consistently weaker euro, will weigh on the valuation of GCC assets in Europe as well as on capital returns.As for European nations, a gradual end to Pax Americana is on the cards. The superpower, which until now has bought their goods, accounted for their security and ratified their values, has suddenly become an uncertain partner. But a largely inward-looking and unilateralist Trump administration, or any country for that matter, may eventually find that there are inherent values in long-term commitments based on trust and mutual respect.