Europe is again on the front line of the latest geopolitical tensions, a development that threatens to widen the economic gap between it and the U.S.
For the second time in three years, a conflict in Europe’s unruly neighborhood is threatening to weaken an already struggling economy while a more robust U.S. is watching from a safer distance.
This time, attacks by Houthi rebels in Yemen targeting cargo ships in the Red Sea have persuaded more carriers to opt for the safer but longer and more expensive journey around Africa via the Cape of Good Hope.
Those detours are raising freight costs and leading retailers to worry about running out of stock. Some factories have suspended work in the absence of needed parts. Should the threat persist, economists think the decline inflation Europe enjoyed last year could slow down, pushing back a potential cut in key interest rates.
“This is clearly one of the major downside risks to growth, and upside risks to inflation,” said Ana Boata, chief economist at insurer Allianz Trade. “We could talk about a recessionary risk.”
Europe should stop supporting apartheid Israel and negotiate directly with Iran on security arrangements and increasing trade. They need to start disengaging with the US in advance of Trump’s re-election where he is likely to throw his weight around anyway.