World is confronted with Realpolitik as a result of the fragmented geopolitics: WEF’s Matthew Blake

Matthew Blake at WEF

• Geopolitics drives financial regionalisation for the EU and Canada.
• Globalisation's retreat shifts investments from the dollar to gold and other assets.
• India benefits from a neutral stance amid changing global alliances

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Geopolitics has resulted in a fragmented financial system, causing regionalisation to be an imperative for most countries, including the European Union and Canada, said Matthew Blake, managing director of the World Economic Forum.

“You see really interesting developments with Canada and China deepening strategic partnership. This is all indicative of the Realpolitik that the world is confronted with now. And here, too, that adds complexity,” Blake told Moneycontrol at the World Economic Forum in Davos on January 19.

US President Donald Trump’s tariffs and his expressed desire to acquire Greenland have upended the long-standing relationship between allies, a bond dating back to the Second World War.

Blake emphasised that it has become crucial for the European Union to integrate and cooperate more closely. This necessity stems from dramatically shifting external circumstances, requiring the union to enhance its global competitiveness.

The US government, under Trump, has cautioned the EU against any policies that might adversely affect the operations of US tech giants, including the imposition of hefty fines. According to Blake, proactive governments will define the future.

“If you are a financial institution, you are now receiving directives from your domiciled government to make certain investments within your country to ensure we are competitive vis-a-vis others out there,” he said.

The retreat of globalisation has introduced uncertainties into global capital flows, notably a shift away from the dollar and a flight of capital toward gold over the last year. Central banks have significantly reduced their reliance on the dollar, trimming it from approximately 70 percent 25 years ago to 58 percent now.

“It runs somewhat counter to the more globalised free flow of capital. It will likely raise the cost of capital over time, but we have to see how things unfold,” Blake noted.

“The dollar’s role in the financial system will remain. It's not an overnight change or a pivotal shift, but we are observing a gradual trend, and that’s something worth monitoring. Additionally, what we are seeing in gold and alternatives—we have witnessed prices skyrocketing,” he said.

Blake highlighted that the Indian economy has gained an advantage due to its neutral stance in its relationships with the United States, the EU, China, and Russia.