Strategist: The Alliance at the Core of the Global Economic Order Has Deteriorated

The divergence trade runs deeper than you think.

The Hollow Alliance of the United States and Europe

Divergence between the U.S. and Europe goes far deeper than currency values or interest rates, according to Eurasia Group.

"We've never seen the relationship between the United States and Europe—the most important and foundational alliance for the world's economic system—so weak since the end of World War II," said President Ian Bremmer during an interview on BloombergTV. "This is not a relationship that we've seen, and it's so critical to maintain stability not only for global markets but also for the hot spots that we're looking at."

As tensions and turmoil in the Middle East mount, the influence of the trans-Atlantic alliance—the driving force behind major international institutions and agreements such as the North Atlantic Treaty Organization, the Bretton Woods accord, the United Nations, the World Trade Organization, the International Monetary Fund, and the World Bank—continues to wane.

In a report detailing the top risks for the year ahead, Bremmer and Chairman Cliff Kupchan discussed why this "hollow alliance" will be a huge theme for 2016.

This multi-continent marriage is by no means over, but the parties are clearly sleeping in different beds. The alliance has drifted apart for three key reasons, according to Bremmer and Kupchan:

  1. The rise of emerging markets—particularly China—in the global economic and geopolitical orders; 
  2. The U.S. tendency to go it alone in international affairs; and
  3. Europe's economic and political quagmires.

The deterioration of this relationship is evident by its lack of inclusion in the U.S. political agenda, according to Eurasia Group.

"And yet when you have a 2016 presidential election which is increasingly about foreign policy, because everyone knows it's going badly, this relationship is not being discussed—not in one debate—precisely because it's not really there," contends Bremmer.

Sluggish economic performance in Europe, meanwhile, has fostered a rise in the popularity of populist parties, which may be accentuated by the influx of refugees onto the continent:

Eurasia Group

Europe's major powers have been responding to these pressures largely by forging their own paths on the world stage in ways that speak to their "weakness and insecurity," according to Eurasia Group.

Britain has strengthened economic ties with China; France's relationship with Russia has grown tighter in light of the latter's direct military involvement in Syria, and Germany has moved to support Turkey in bearing the costs associated with millions of refugees.  

As such, disagreements over Russian sanctions and how to resolve the Syrian civil war are likely to become pronounced and crystallized in 2016, the strategists predict.

"The world is not being driven by the Americans and Europeans—certainly not being driven by them together—and that creates an enormous amount of conflict," concludes Bremmer.

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