Dr Thomas Gitzel is the chief economist at VP Bank, headquartered in Liechtenstein, which has had a subsidiary in the grand duchy since 1988 VP Bank

Dr Thomas Gitzel is the chief economist at VP Bank, headquartered in Liechtenstein, which has had a subsidiary in the grand duchy since 1988 VP Bank

Already in its January outlook for 2020, VP Bank had outlined a best-case scenario for the year, including a stabilisation of the economy and de-escalation of trade wars, as well as a worst-case scenario--a more precarious geopolitical environment, recession and lack of investor confidence, to name a few. 

Of course, that was all before the Covid-19 pandemic. 

But the bank's chief economist Thomas Gitzel is hopeful that if Joe Biden were to oust sitting US president Donald Trump, “we will see friendly financial markets, and the reason is actually that Biden is handling trade issues in a [more] diplomatic way.” He sees Biden as basically sticking to current trade issue stances, but nevertheless doing so in a more “conciliatory” fashion. 

Moreover, “Joe Biden will really stick to its European partners in a tight way, and this is defintely a good message for all European countries.”

Further weakening of US dollar 

Gitzel joined the bank in 2011 as its senior economist before taking on his current role. He’s one of some 110 staff for the bank, which has had a Luxembourg subsidiary since 1988. 

And Gitzel thinks that, no matter what the outcome of this year’s US election, the US dollar will further weaken against the euro. “The reason is based on an economic issue,” he says. “The budget deficit in the US is widening on record levels, and at the same time the US economy has a current account deficit…[There’s] a quite tied correlation between the twin deficit and poor dollar development.”

It’s a trend he sees continuing over the long term. However, there’s one risk event Gitzel sees which could cause “a more significant weakness of the dollar” immediately after the election--that being “if Donald Trump would not accept the outcome of the election.” In that specific case, the weakening would be more due to an erosion of trust in the system. 

Moreover, if Trump were re-elected, it would be his second and last term, which in Gitzel’s opinion could mean a no-holds-barred push forward with his programmes, including the possibility that “Trump will be even more aggressive against China…[and] if companies see trade tensions, this is a burden for investment growth, because companies do not have a clear base for planning its investments, and this is quite negative for future growth rates.”

Trump: better for Luxembourg?

The US election results could influence whether there is a hard or soft Brexit, says Gitzel. 

A January retrospective by Luxembourg for Finance revealed that “over 70” financial outfits had decided to set up post-Brexit hubs in the grand duchy, which is in line with what Gitzel is hearing from fund managers in his network.  

“Donald Trump was supporting Boris Johnson to leave the EU, and Luxembourg is actually benefitting from Brexit” due to that investment flow, Gitzel explains. 

“If Joe Biden would win, Boris Johnson [would] not have [the same] support anymore from the American side,” he says. “Luxembourg is benefitting from the moment from the hard-Brexit scenario.”

A US Elections Debate event, organised by Paperjam Club and Delano magazine, will take place on 21 October. Register for the event here.

For more perspectives in our "2020 US election stakes" series click here.