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The custodians of the euro scheme and EU policy are worried by the growth of populist parties. Some want more spending and borrowing by the state. Some want more tax cuts and higher wages which also means higher state borrowing. Some want to place controls on migration and remove the freedom of movement policy from the EU. Germany in particular sees this as a threat to the whole project. Germany was only persuaded by France to go with the euro on the basis that there would be very strict controls over public sector spending and borrowing in each of the member states. It had premonitions that German taxpayers would be expected to rescue spendthrift administrations, and sought to make clear from the outset that would not be allowed. Germany also holds a deep fear of inflation from its experiences in the 1920s and wants the European Central Bank (ECB) to be severe in curbing inflation by running a tight money policy. Much of the rest of the zone is finding these strictures more and more difficult to reconcile with the wishes of their electorates. Several of the big traditional parties of the centre right and left, the Christian and Social Democrat parties, have been badly damaged electorally by the results of Euro policy by the populist challenge.

This week the President of Italy, Sergio Mattarella, tried again to form a government from the recently elected Parliament. He has to start with either Luigi Di Maio, the leader of the anti-establishment Five Star movement, as the largest single party, or to Matteo Salvini, the leader of the Lega, the highest polling party within the centre right coalition. The Coalition and 5 Star between them polled 60% and have a clear majority in the Parliament. Things are not as easy as the numbers imply. The second best performing party in the Centre right was Silvio Berlusconis Forza. Sgr Di Maio refuses to do a deal with Sgr Berlusconi, but so far Sgr Salvini acts for the whole Centre Right coalition and not just for Lega.

There has been an agreement between Lega and 5 Star over the choice of Special Committee chairman, showing that if Lega was willing to detach from Berlusconi a deal is possible. Any such government would be keen to break the EU budget rules and to push for very different economic policies for the Eurozone, based on a mixture of tax cuts, a more generous social policy and some criticism of the EU migration policy. The EU establishment will not be impressed, and would probably like the Centre left which lost the election badly to be willing to be involved in government again, or failing that new elections to see if they could get a better answer from their point of view. The challenge the electors threw down to the Eurozone is plain to see, but the muddle of results in a multi-party proportional system has so far impeded the Parliamentary expression of the public dislike of current euro policy.

The challenge to EU policies in Hungary was even stronger in the popular vote than in Italy, leaving a clear election winner with a majority governing position. Fidesz won 134 seats in a 199 seat Parliament and will be able to govern with considerable power. They disagree with EU freedom of movement and migration policies, and attribute some of their electoral success to high fence they constructed along 109 miles of the Serbian border to keep migrants out.

In Germany the collapse of the vote for both the CDU and the SPD left Mrs Merkel much weakened. The new government she has formed entailed the gift of more important Cabinet posts to rival parties. Perhaps more importantly, the main Opposition party in the German Parliament will now be the AFD. This anti migrant party which is very critical of the euro will have the right to make the first response to all government statements in Parliament, and to lead the budget debates. They will doubtless use this platform to highlight a series of populist issues, seeking more controls over migration, fewer bail outs and transfers of German cash to help the euro, and a more sceptical line on EU integration. Some of this will chime with Mrs Merkels CSU coalition partners, who came close to leaving her coalition given the damage her policies has done to their voting base.

Germany has in practice given much ground already over the Euro scheme. German surplus balances are lent on at zero interest to the deficit countries through the mechanisms of the ECB. The ECB itself is continuing with a huge programme of money creation, originally opposed by the Bundesbank. Mrs Merkel will now be under pressure to move leftwards on money and borrowing policies by Mr Macron and the rest of the Eurozone, at exactly the same time as the AFD highlight the traditional dangers to Germany of more borrowing and money creation at EU level. Share markets dislike challenges to the euro scheme, even when they come from a position of wishing to promote more growth. Until we have a new Italian government, and until the new Hungarian government has set out exactly how far it wishes to go with its enhanced power and mandate, markets will be cautious about these risks.

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