By David McWilliams
In global economics and finance there is a phenomenon called a “super cycle”. This is a large structural shift in the world economy that can go on for a long time. Unlike normal business cycles, which last approximately seven or eight years, super cycles can last decades. A good example of these super cycles is what is happening in world markets right now.
The emergence of China in the 1990s as an economic powerhouse is one super cycle because it is a one-off event that prompted a shift in global production from West to East. China’s ferocious demand for raw materials drove up the prices of commodities all over the world, enriching countries like Russia, Brazil and Chile that supply raw material to China.
This super cycle has now come to an end and the collapse in commodity prices from oil to copper is the result of the end of the super cycle, which has been signaled by China’s economy – eventually after 35 years of growth – slowing down. It’s not likely that the world will experience such a huge shift again for another generation.
In politics there are also super cycles. These are once-in-a-generation events that dictate the pace and direction of politics and policy. We are at the end of two major super cycles right now and our new government, whoever that is, will have to deal with the fallout that will have huge consequences for Ireland.
The first super cycle is the ending of the last 30 years of EU expansion and integration. This project is now fraying at the seams. As the EU comes under threat both from the migrant crisis and Brexit, the natural reaction of the Eurocrats will be to lurch for deeper integration. They always do this.
This reaction will involve more pooling of sovereignty and this means that the ongoing battle between Brussels and Apple over Ireland’s tax policies is likely to become a red line issue for the next government. These moves will bring an end to the other 25-year, super cycle whereby Ireland managed to hold onto its corporate tax polices in the face of further European integration. This is ending now.
During the course of the next Dáil, the relationship between Ireland and Europe is likely to change profoundly from a geo-political and a financial perspective.
Let’s examine first the European political super cycle, which began in 1989 and is now ending. Starting with the fall of the Berlin Wall in 1989, the EU has been in expansion mode. In 1990, we had German unification, followed by the single market in 1992, the EU’s drive to the East in the mid- to late-1990s, the accession of the central European states, the adoption of the euro and, ultimately, the Schengen Agreement allowing for the free movement of people within the EU’s border