Politics often plays a major role in influencing global economies and financial markets. Because of the size of its economy, the US takes the lead in political influence, and in seven days the most significant event in American politics, the election of the next president, takes place.

One of the main tenets of any American presidential campaign is the creation of jobs by improving the economy. These days the campaigns seem to resort to three economic pillars – and a xenophobic one.

The first economic pillar is taxes, and whether to cut them, allowing the private sector to keep more of the profits and stimulate job creation that way. Or to increase them and allow the government to have a larger budget for fiscal expansionary policy.

The second pillar is the actual structure of any fiscal expansionary policy, in particular which industries will be supported. The third pillar is trade, revolving around the argument of whether or not freer trade helps or harms American job creation.

The xenophobic pillar is immigration and its effect on jobs.

As we come up to the last days of the election campaign, the global markets are reacting to whether Hillary Clinton is likely to win, something that investors, traders and analysts see as a positive thing, or whether Donald Trump has a chance of winning, a negative for the markets. Based on market commentary, it seems that the markets are not interpreting any policy proposals by the candidates, but are focused solely on one dimension – the sanity of the candidates. The effect of public policy on fin­ancial markets is not restricted to the US. In Saudi Arabia, deputy crown prince Mohammed bin Salman has been marketing to the world his economic vision for transforming the Saudi economy to be more diversified and resilient to oil price movements.

World leaders, the media and many financial analysts were extremely sceptical. But when it came time for the people with the money to vote, they voted strongly in favour of the deputy crown prince’s plan – Saudi Arabia’s debut US$15 billion bond issuance was oversubscribed. With investor orders of $67bn, Saudi in the end issued $17.5bn in bonds, the largest emerging market bond issuance in history. The people with the money clearly believe in the policy initiatives in Saudi Arabia.

This brings us back to the most troubled market, politically and economically, and that is the European Union. In a previous article I wrote about how the market had probably overreacted to concerns about Britain’s prospects after Brexit. I now would like to make the case that EU 1.0 is close to dead and that if handled competently, EU 2.0 could provide a global engine for growth.

Briefly, the EU was initially created as one way to avoid any more European wars, in particular on the scale of the First and Second World Wars. The EU currently comprises 28 member states. The first crack in the EU’s structure as an actual union was the abhorrent mishandling of the Greek crisis and, in particular, the treatment of Greece, a sovereign nation, like a child and insisting on punishing it. That never bodes well, especially when it is shrouded by the idea that rules must be followed blindly. The response by the EU to the Brexit vote has been horrifying. The president of the European Commission, Jean-Claude Juncker, has actually been quoted as demanding punishment for Britain for wanting to leave the EU.

The message to member states is absolutely not that being part of the EU is a good thing – that is simply Mr Juncker’s fan­tasy. Any rational person would see two member states being bullied and wonder when they will be next. Oh wait, Angela Merkel, Germany’s chancellor, has rejected Italy’s requests to allow the government of Italy to restructure some of its banks. Mrs Merkel pointed out that there were rules and they had to be followed. Never mind that America successfully bailed out its banks through intervention.

What Mrs Merkel doesn’t understand is that Italy now holds an ace in the hole. If it even signals that it is considering leaving the EU, the collapse of the euro will be instant.

But Italy does not have to destroy the EU just because it is broken. It can build EU 2.0 and it can do that by teaming up with Britain.

Let us return to the fantasy that London will stop being a financial centre and look at how ­human beings act. The decision-makers of all these financial services firms are all in their 50s and above, and tend to be fluent in English only.

Do you know who makes the decision as to move or not? The wife. Do you think the wife wants to uproot from London where her children, grandchildren and friends probably live? No. London’s masters of the universe are going to do what their wives tell them – and that is to stay put.

So let’s say Italy announces EU 1.0 is not working, time for EU 2.0 and it leads the way in bilateral talks with Britain. First one to strike a financial market and passporting deal with Britain wins after all. Italy enters into trade deals with Britain. The dam will break.

Breaking up the EU is in nobody’s interest. Remaining in denial that it is broken and disintegrating doesn’t help either. If regulations and policy are not working, it is time to review them and from an economic and financial perspective – this needs to be done urgently.

Perhaps a push by America, say preferential treatment for EU 2.0, might help things along.

This article was originally published in The National.