The MasterBlog: The harsh reality of an unraveling #eurozone confronts Europe at large, while #China tries to control the markets
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Wednesday, July 8, 2015

The harsh reality of an unraveling #eurozone confronts Europe at large, while #China tries to control the markets

Stratfor's Third Quarter Forecast 2015

Stratfor
said at the beginning of 2015 that this would be the year when Europe
would be knocked out of complacency. The third quarter is when the harsh
reality of an unraveling eurozone confronts Berlin and the eurozone at
large. Germany will act tough while a divided camp of creditors press
Berlin for a deal for fear of setting a dangerous precedent with a
"Grexit." Germany needs a deal with Greece and can negotiate one, but it
will come at a price that threatens the credibility of its leadership
in the eurozone. The Greek government under Syriza is likely to fall,
either from a banking crisis or from a rebellion within its own ranks
upon signing a deal. And any deal struck between Greece and its
creditors will be doomed; Greece will be unable to implement deep
reforms, and Germany will be unwilling to release funds under these
circumstances. There will be a great deal of commotion this quarter over
face-saving measures to avoid a Grexit. Beneath the speeches, the path
to a Grexit is already being paved.



But this is not the only
crisis afflicting Europe. The standoff between Russia and the West will
become more visible as Russia and the United States engage in
conventional military posturing on the Continent. Russia's tightening
relationship with China will meanwhile be on display as the two advance
joint initiatives to develop economic alternatives to the West.



China
will not be immune to financial jitters either, as Beijing, for lack of
better options, intervenes to prop up its stock market to avoid the
political, social and financial consequences of an outright collapse.
Beijing has the tools to manage a decline in its volatile stock market,
but any moves it makes in the short term to tame the market without a
reliable investment alternative come with the long-term consequence of
slowing private consumption growth and thus upsetting its strategy to
rebalance the economy amid a wider slowdown.



In the Middle East,
the United States will be juggling three tasks: seeing through a
negotiation with Iran, reassuring its Sunni Arab allies and preventing
countries such as Turkey from adopting a renegade foreign policy. As the
Syrian rebellion gains momentum, so will talk of a post-al Assad
power-sharing arrangement. Divisions on the battlefield and among rebel
sponsors, however, will prevent any such negotiation from coming to
fruition.



Between a deepening European crisis, potential increases
in oil output from major Persian Gulf producers and high summer demand
in the United States and China, supply and demand in global oil markets
do not point to any major swings in price. Venezuela will still be under
deep financial strain as it feels out a negotiation with the United
States and offers limited concessions to the opposition in hopes of
finding economic relief. Mexico will stay on course with its energy
reforms, taking its first big step in auctioning off shallow-water
offshore exploratory blocks while taming challenges to restructuring
from the Petroleos Mexicanos labor union. To the north, Canada will
further its commitment to link its energy resources to global markets if
the British Columbian parliament votes as expected to approve Petronas'
NorthWest liquefied natural gas venture, Canada's first LNG export
facility. With Canadian national elections in October, campaigning is
fixated on how far Canada should go in cementing its place in the energy
world.



Read the whole forecast here: Stratfor's Third Quarter Forecast 2015 | Stratfor



Related Links

Stratfor's Annual Forecast 2015

Stratfor's Second-Quarter Forecast 2015

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