namestrap anna charles

There has been a significant increase in popular support for anti-establishment political parties over the past few years.  Currently, these parties are not part of the government and are unable to set the political agenda. This could change in the coming 12 months with elections in major euro area economies. After the recent referendum in Italy and the presidential elections in Austria, Charles St Arnaud and Anna Titareva look at the next three political events to shape the European political agenda.

Netherlands elections (15 Mar 2017)

The elections for 150 members of the House of Representatives (Tweede Kamer), the lower house of the Dutch bicameral parliament, will take place on 15 March 2017. Following the general election in 2012, which was triggered by the withdrawal of support by the Party for Freedom (PVV) following disagreements over the budget discussions, the Tweede Kamer currently consists of 15 parliamentary groups and is governed by a coalition between the right-wing People's Party for Freedom and Democracy (VVD) and the centre-left Labour party (PvdA), which hold 40 and 36 seats respectively. The government is led by VVD Prime Minister Mark Rutte, while the Finance Minister and the President of the Eurogroup, Jeroen Dijsselbloem, belongs to the PvdA.  

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Similar to the other Eurosceptic parties across the region, the PVV, led by Geert Wilders, favours fiscal austerity and a European free market, while taking a hard line on anti-crime, anti-terrorism and anti-immigration.  Furthermore, following the UK's decision to leave the EU Geert Wilders said that in the case of his election as a Prime Minister, he will also call for a referendum on Dutch membership of the EU.

The key question going into this election is whether the Brexit vote and the election of Donald Trump in the US could boost PVV support enough for it to capture a majority in the government.  Looking at polls since the previous election, the highest level of support for the PVV has been 26%. Since seats in parliament are distributed proportionally, it currently looks highly unlikely that PVV will be able to capture a majority in the 2017 elections.

While gaining a majority of seats seems unlikely for the PVV, recent polls suggest that PVV is likely to make strong gains in the election and could even emerge as the main party in parliament. As things stand, the probability of the PVV becoming a single ruling party or a member of the coalition appears low. However, the latest polls suggest a very fragmented lower house, with 80% of the seats tightly split between six parties. This is likely to result in a prolonged period of post-election coalition negotiations, where informal support from the PVV, as was the case in 2010, cannot be ruled out.

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French Presidential elections (April to May 2017)

The first round of the French presidential elections will take place on 23 April 2017 with the two top candidates' run-off on 7 May 2017 for the second round.  The Presidential elections will then be followed by the French legislative elections in Jun 2017, determining the composition of the National Assembly. The outcome of the Presidential elections is usually a good indicator of the power split in the forthcoming legislative elections. However, while the President of the Republic appoints the Prime Minister, who then forms a government, the National Assembly (Lower House) is able to overthrow the government through a confidence vote. As a result, the Prime Minister and cabinet need to come from a party that has won the legislative elections. While periods of cohabitation, where the President and the Prime Minister are from different parties, are rare historically (there have only been three such occasions in France), they usually run the risk of deep political disagreement with a significant slowdown in the legislative process.  

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According to the polls, support for the Front National (FN) remains very elevated with about 25% of the popular vote. This suggests that Le Pen is likely to easily win the first round (23 April 2017) and pass to the second round. The question is whether she can win the second round on 7 May 2017.

What should make a difference here are the voters that would have normally supported a candidate from the left. Given the choice between a centre-right candidate and a far-right candidate, it is likely that they will mostly choose the candidate from the centre-right and avoid the election of Ms Le Pen. This is what the recent polls suggest, with Ms Le Pen losing against François Fillon from Les Républicains, who she could face in a second round, with a difference of close to 30%.  

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However, the presidential election is not the only election in France next year. There are also legislative elections to determine the composition of the Assemblée Nationale. Current polls show that the FN has between 20% and 25% of the popular support. This is likely to translate into relatively big gains in terms of seats, with some estimates that the FN could win between 58 and 64 of the 577 seats. This would make the party the third biggest group in the Assemblée Nationale, but unlikely to drive the agenda.

German General elections (Aug to Oct 2017)

Since the post war period, the power in the Bundestag has remained in the hands of the two major groups – the centre-right Christian Democratic Union (CDU/CSU) and the centre-left Social Democratic Party (SPD). At the federal election in 2013 the CDU/CSU union secured its position as the largest parliamentary group for the third consecutive time, with 310 seats (out of 630), followed by the SPD with 193 seats. The remaining seats were split between smaller fractions of the Left (64 seats) and the Greens (63 seats).

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Assuming the Bundestag majority continues to be held by a moderate government, a rise in the Eurosceptic movement across the region that has also spilled over into Germany currently looks unlikely to change political trends in Germany dramatically. However, with the next elections moving closer and with the two major groups continuing to lose support marginally, the CDU and SPD’s attempts to regain voters will come into focus. The latter will also be important in the context of the significance of the German stance on fiscal discipline across the region and, in particular, potential Greek debt reductions.

 

For full details of our FX and Rates strategy based on this analysis, download the full report here and listen to Anna's podcast discussing the economic implications in her podcast with Bilal Hafeez, Head of Fixed Income Research, EMEA.

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