Role Reversal: Now Europe Looks Stable and the U.S. Volatile

For a decade, Americans have looked across the Atlantic with anxiety, fearing that the rolling crises of the euro zone would wreck the world economy. The roles have suddenly reversed. Europe has bounced back and is looking more confidently at its future -- with a wary eye to the west, as many assume the biggest threat to the European recovery could well come from America.

The short-term peril facing Europe is already visible in the financial markets. Investors are losing confidence in the ability of U.S. President Donald Trump to deliver on his promise of tax cuts. In the absence of looser fiscal policy and with inflation still subdued, the Federal Reserve could well turn cautious about the prospect of a new rate increase this year. The dollar, which had appreciated steeply after Trump’s election, is now in free fall, and on Tuesday pushed the euro above $1.20 for the first time since early 2015, before paring back some of its losses. The risk that a strong single currency will make European companies less competitive abroad is already weighing on stocks and may soon hamper growth.