Week 15: The Changing Face of Politics in Europe


Week 15

The Changing Face of Politics in Europe

Clearly 2016 will go down in history as a watershed moment for global politics

A year when the people stood up and voted for wholesale change. Arguably the only thing upstaging 2016’s propensity for shocks, is 2017’s potential to deliver more of the same, and possibly on an even bigger scale.

So, has the defeat of Geert Wilders, a staunch anti-EU campaigner in the Dutch election, given us reason to be optimistic? On the 23rd of April, France went to the polling stations to decide who will succeed the current French President François Hollande. Looking at this spread of popularity, there will almost certainly be a second-round vote between the top two, which at this point in time looks like a Le Pen vs. Macron run o .

Historically, the second round has always been between the two centre parties, but as we can see, the two centre parties do not hold anything close to a majority, and this is the source of all the speculation.  e French elections are far from concluded, however Macron proved to the French people he has what it takes to govern France, despite his age, and more importantly keep France in the EU.

What has our attention on the ip side of the coin is the risk of France being governed by a radical (Le Pen) who wishes to take the country out of the single currency. Should this occur, economists believe the single currency could well collapse and thus herald the unwinding of the Eurozone project which will, in all likelihood, force a run on European markets. Having said that, we do see this as a secondary outcome in favour of a pro EU leader coming out on top in the second round.
When it comes to Germany, relatively speaking we can catch our breath. is one is widely expected to be the least volatile of the 2017 Europe elections.

With the rise of populism still being felt in Germany, it is noticeably quieter than its French and Italian cousins. Polls are indicating that for the  rst time in 60 years the Bundestag will compromise of six parties with Mrs Merkel’s ‘Christian Democratic Union’ having the majority.  is is the volatility dampener – with six parties in the Bundestag, the risk of populist, anti-EU, anti-immigration sentiment making its way into German policy is negligible. A Merkel victory would be taken as business as usual for markets.

The Italian government is listing and leaderless in the middle of a nationwide bail out of their banking system. As a result, the political spectrum in Italy remains of great concern with the prospect of snap elections being viewed as a very disruptive force on markets. e populist vote that unseated Prime Minster Renzi appears to be collecting around the anti-EU rhetoric of ‘Beppe Grillo’, leader of
the ‘Five Star Movement’.

The party’s anti-establishment label has risen in popularity as they push for a return to the Italian Lira through an immediate referendum on remaining in the EU, should they be elected. is is most certainly the silent assassin of all European power shi s, primarily because a formal election has yet to be announced and if it is, it should attract a significant amount of trepidation from markets on the prospect of another major European power breaking away from the single currency.
How will all of this impact our investment strategy? With dropping unemployment, an increase in both private and corporate lending, a return to both price and wage inflation and the end of QE in sight, the Eurozone project is showing serious signs of life. Should we come through this political mine eld unscathed, Eurozone markets will be one of the growth leaders in 2017 and 2018.