Italian Elections and German Government Talks Could Spark Financial Crisis

The Dow Jones seems determined to not return to the 26,400-point high it reached last January. It’s as if there’s a barrier that investors aren’t ready to cross. It’s not surprising; even the most stubborn of bulls are having to recognize that the stock party is over.

The risks set from the tax cuts and internal politics in the United States could already be leading to a financial crisis. But the political winds blowing in Europe could deal the final blow, triggering a deep stock market crash.

Europe is afraid. So should be the United States, and not because of the new armaments and missiles that Russia’s President Vladimir Putin has announced he would not hesitate to use, should anyone attack Russia or its allies (which includes Syria, Iran, China, and Venezuela). The key date to look for is March 4. The events of that day in Italy and Germany could trigger significant and negative reactions in the financial markets.

Yet, if the internal risks to the U.S. economy—including the risk of a major stock market crash—weren’t scary enough, there are two major risks from Europe.

Why Care About Europe, You Ask?

A simple reason to care about Europe is that the European economy, in the sense of the eurozone, is the world’s second-largest and richest by far. China is the world’s largest economy. In 2016, its gross domestic product (GDP) was $21.3 trillion. The EU followed at $19.2 trillion. The United States was third at $18.6 trillion. The EU and China combined produced almost 34% of the global economic output in 2016. (Source: “What Is the World’s Largest Economy?” The Balance, October 25, 2017.)

What happens in the rest of the world is a crucial U.S. concern, especially if President Donald Trump wants to fuel U.S. economic growth, increasing exports.

Two elections are threatening stability in Europe in 2018. One of these is the German election, which was held in the fall of 2017, yet the results were so uncertain that no party won enough votes to lead by itself. The fact that a far-right party, Alternative for Germany (AfD), enjoyed a little too much electoral success for many Germans’ taste is forcing unlikely allies into a difficult coalition.

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