Robert Peston: “Could the world turn its back on America?”

Despite having reported on many major crises throughout his career, including the 2007/8 financial crash, Brexit turmoil and the Covid pandemic, today’s world “feels more uncertain than any I’ve lived in before,” he said. And there’s one critical difference to previous crises: “The really fundamental things are changing”.

Peston warned of very dark clouds on the horizon for the global economy, noting that “there is the chance of genuine fiscal disaster” from President Trump’s approach to politics and the economy.

The President’s signature tax bill alone is projected to increase US debt by $2.4 trillion over ten years, he noted. This, combined with an overriding strategy of “deliberate chaos” is making international investors extremely nervous about the Trump administration. Many overseas investors are already selling dollar assets “over fears for what is happening” – a highly unusual move for the world’s reserve currency.

“It raises the spectre – although we’re not in crisis territory – of at some point the world simply turning its back on America and saying it won’t fund this level of fiscal recklessness. We’re not there yet but this is a risk that we absolutely have to be aware of,” he said. He warned that a “Lizz Truss-style crisis in America” would lead to an almighty financial crisis of a scale far greater than what occurred in 2007/8.

On Europe, Peston struck a more optimistic tone, saying that “this could and should be Europe’s decade”. With instability in the U.S., investors are “shifting much more of their money to the UK and Europe,” he noted.

“But we need to get more of it” and to capitalise on this, UK and European institutions need to improve the efficiency of the capital markets, free up regulation and encourage cutting edge businesses to flourish. “There’s a lot to do, but there’s a growing awareness among the leaders of Europe that this is an opportunity.”

Insurance and risk takeaways:

• A major fiscal crisis in the U.S. cannot be ruled out;

• Investors are shifting capital from the U.S. into the UK and Europe;

• Turmoil in America opens up opportunities for Europe.