Fra Commerzbank:
Increasing numbers of people are turning against the political establishment, not only in the US but also in the EU.
In Italy, the Five Star Movement might produce the next prime minister if the referendum on Senate reform on 4 December should fail.
In the Netherlands, Geert Wilders’ PVV is expected to emerge as the strongest party in the next post-election parliament. The advance of this anti-establishment movement is creating a climate in which politicians are less able to introduce reforms, and the ECB continues to clear up the mess on the monetary front.
Euro zone – anti-establishment rather than right-wing populist In Germany, Trump, Le Pen and the AfD are widely regarded as right-wing populists, but this doesn’t really fit the bill. For one thing, traditional parties have populist positions, too, as the rise in unfinanced pension liabilities shows. For another, rejection of the political establishment exists on both sides of the political spectrum. Greece’s Syriza or Spain’s Podemos, for example, are decidedly left-wing.
Yet like France’s Front National, they oppose a free market economy and free trade, which is why we prefer to describe them as an anti-establishment movement. In the euro zone, mounting support for this movement comes from a number of sources: • Financial crisis: First, there is the destructive impact of the financial and economic crisis of 2008/9, which shattered people’s faith in a market economy right through to the middle classes. • Losers from globalisation:
Even in export champions such as Germany, not everyone has reaped the benefits of globalisation. The integration of many millions of Chinese into the world economy, for example, has undermined the competitive position of lower-qualified workers. From 1993 to 2007, gross pay for the lowest paid 10%, after adjustment for price increases, fell by 40% (chart 1). • Dysfunctional EU: In the EU, no lasting solution has been found for either public debt problems or the refugee crisis. An increasing number of people are coming to regard the EU as dysfunctional, and are thus rejecting it outright.
This view played a major role in the UK’s Brexit vote. The already-strong forces opposed to the political and economic establishment are going to inflict even more damage on the traditional parties after Trump’s victory in the US elections. In order to stay in government, the traditional parties are increasingly having to enter into coalitions, which blurs the distinctions between them and further weakens them all. In this environment, it will become increasingly difficult to push through unpopular reforms which are inevitable in order that the EMU economy recovers and for the continued existence of the monetary union.
As a result, many problems remain untackled, raising pressure on the ECB to cover for them with a lax monetary policy.
Italy – euro-sceptics soon to be in charge? A textbook example of an unpopular but urgently needed reform is the revamping of the Senate planned by Italian Prime Minister Renzi. Until now, all draft legislation has had to be approved by both the Senate and the Chamber of Deputies. The two houses have often sent the drafts – with their amendments – back and forth. Renzi’s Senate reform would put an end to this paralysing ping-pong game and finally create an efficient parliamentary decision-making process, which is also a prerequisite for the passage of economic reforms.
But the Italians are disappointed with their politicians and might use the referendum on Senate reform as a plebiscite against the government. After all, those opposed to the Senate reform are slightly ahead in opinion polls. Prime Minister Renzi has threatened to resign if the referendum does not produce the desired result. If there really were a general election, Renzi’s Partito Democratico (PD) and the Five Star Movement (M5S) led by Beppe Grillo would fare best.
Polls suggest that in a second ballot, which would probably be necessary, M5S would emerge as the clear winner and, thanks to the ‘bonus’ seats incorporated in the new electoral system, could form a new government in the lower chamber with an absolute majority (54%) (chart 2, page 2). The M5S programme could well trigger a serious crisis. The party is euro-sceptic, and would prefer to transform the EU from within, into a transfer union. It also questions Italy’s membership of NATO. The clear pro-Russian and US-sceptic stance of M5S will probably give rise to conflict within the EU and also in NATO.
Netherlands – Geert Wilders’ PVV strongest force in parliament The Dutch are unhappy about other EU members’ failure to stick to the rules, especially since the Netherlands as a donor country is the fourth-largest net contributor to the EU and counts as one of the most stable euro zone countries. This is evident, for example, from the path of publicsector deficit reduction, which in the wake of the financial crisis of 2009 rose to 5½% of GDP and fell to 2½% within four years, and has remained on a steady consolidation course ever since. Many of its EU partners, however, have not followed this course, even though Jeroen Dijsselbloem, Chairman of the Euro Group, advocates budgetary discipline.
The Dutch indicated their feelings in April this year, when a referendum on a treaty of association between the EU and Ukraine was decisively rejected. Yet dissatisfaction among the Dutch populace is also having further-reaching consequences. Opinion polls suggest that in the election on 17 March 2017 the euro-sceptics of Geert Wilders’ freedom party PVV will emerge with a fifth of the seats in parliament, making it the strongest faction (chart 3). This means that PVV’s influence on Dutch policies is likely to increase, even though it will no doubt remain in opposition. This constellation would produce a weak government as at least five parties would have to join forces to form a majority government against PVV in opposition.
France – Marine Le Pen calls her troops to arms In France, Marine Le Pen and her right-wing populist party are focussing their manifesto on national identity, limiting immigration and security. And with this combination, the Front National (FN) has evidently touched a raw nerve with the electorate. Many people in France feel that immigration and globalisation are steadily making people poorer. In addition, the economy is still in a parlous state.
Growth is below the long-term average, and unemployment has hardly fallen over the past four years. In September, it still stood at 10.2%. Many French people feel that the present government is incapable of solving the country’s problems. Surveys show that President Hollande is the most unpopular head of state in recent French history, with only 15% satisfied with his work. This widespread dissatisfaction plays into the hands of Marine Le Pen and her Front National ahead of the presidential and parliamentary elections due next spring. Both she and her party could do very well in the first round of voting in both instances and easily obtain the largest percentage of votes.
In the runoff, however, they are likely to lose out – as in the regional elections in late 2015. Opinion polls put Le Pen well behind her conservative opponents in the second round of voting scheduled for 7 May. In the runoff for parliament, too, supporters of defeated parties are more likely to give their votes to opponents of the Front National, so that in the end the FN can at best expect just a few representatives in the National Assembly. Nevertheless, the widespread support for the FN is already forcing other parties to adopt a more EU-critical and nationally oriented policy.
Austria – an anti-European president Austrians are also unhappy with their economic situation and the inability of the grand coalition, that has been in power for some years, to change things. Economic growth is falling steadily behind the euro zone overall, and unemployment has reached its highest level since the financial crisis, and is still rising. Austrian taxes and social-security contributions are among the highest in the EU, but income is stagnating.
Many Austrians feel left behind. In addition, the large influx of refugees is widely viewed with scepticism. All this explains the success of the right-wing populist FPÖ party, which is taking a clear contrary stand with its motto ‘Austria first’. On 4 December, the party’s candidate Hofer could win the repeat runoff for Austrian president versus the independent van der Bellen; the latest polls show him slightly ahead with 51%.
The election for the national council, due by autumn 2018, will probably be more decisive. The polls show the FPÖ gaining over 30% of the votes, making it the strongest force (chart 4, page 3), while for the first time in the history of the Second Republic the Social Democrats (SPÖ) and the Conservatives (ÖVP) together would be unable to form a majority. The FPÖ’s success is already influencing Austrian politics, forcing the grand coalition to be more restrictive in admitting refugees. Its influence would of course be even stronger in the next government, especially since it would no doubt then also appoint the chancellor.
There is already intense discussion among the current government parties about a coalition along these lines after the next election.
AfD to gain in the German federal election Many voters in Germany reject the Chancellor’s immigration policy and many people with conservative political leanings no longer feel at home within the CDU (Mrs Merkel’s Christian Democratic party), which has shifted towards the left in the past few years. After good results in several federal state elections, the right-wing populist “Alternative for Germany” party (“Alternative für Deutschland”, AfD) therefore has a good chance of achieving a double-digit result in the German federal election in September 2017. Recent polls are indicating around 12 percent.
But the AfD has no chance of entering government as it is strongly rejected by all other parties. Even so, the rise of the AfD means that the traditional parties have to move ever closer together to ensure they can form the requisite majorities. This weakens their profile and strengthens the AfD even more.
