The Coming Right Wing Explosion

from Bloomberg

As Europeans assess the fallout from the U.K.’s Brexit referendum, they face a series of elections that could equally shake the political establishment. In the coming 12 months, four of Europe’s five largest economies have votes that will almost certainly mean serious gains for right-wing populists and nationalists. Once seen as fringe groups, France’s National Front, Italy’s Five Star Movement, and the Freedom Party in the Netherlands have attracted legions of followers by tapping discontent over immigration, terrorism, and feeble economic performance. “The Netherlands should again become a country of and for the Dutch people,” says Evert Davelaar, a Freedom Party backer who says immigrants don’t share “Western and Christian values.”

Even Europe’s most powerful politician, German Chancellor Angela Merkel, is under assault. The anti-immigrant Alternative for Germany (AfD) party has drained support from Mrs Merkel’s Christian Democrats in recent state and local elections, capitalizing on discontent over Germany’s refugee crisis. In Austria the far-right Freedom Party has a shot at winning the presidency in balloting set for Dec. 4, after an election in May that the Freedom Party narrowly lost was annulled because of irregularities in vote counting. The populists are deeply skeptical of European integration, and those in France and the Netherlands want to follow Britain’s lead and quit the European Union. “Political risk in Europe is now far more significant than in the United States,” says Ajay Rajadhyaksha, head of macro research at Barclays.

here’s a second test of populist muscle on Dec. 4, when Italy holds a referendum on constitutional changes proposed by the government of Prime Minister Matteo Renzi. Five Star is the leading opposition to the government’s plan to cut the number of seats in Parliament’s upper chamber and limit its powers, a move Mr Renzi is seeking to speed action on economic reforms. With the prime minister threatening to resign in the event of a “no” vote, growth-enhancing measures such as a corporate tax cut and help for Italy’s fragile banking system could be off the table. “You might end up having a political crisis on top of an economic slowdown and a banking mess,” says Bloomberg Intelligence economist Maxime Sbaihi. “Suddenly, stars could align for the worst.”

Recent polls show the “no” forces narrowly ahead. If they prevail, an interim government would take over until elections could be held, probably in 2017, says Wolfango Piccoli, co-president of Teneo Intelligence, a political advisory firm in London. “The big winner would be the Five Star Movement,” which could increase its 14 percent share of parliamentary seats, he says. Five Star probably wouldn’t gain sufficient backing to form a government but would have enough seats to deny any other party a solid majority.

That scenario underscores what may be the biggest risk of the nationalist groundswell: increasingly fragmented parliaments that will be unable or unwilling to tackle the problems hobbling their economies. True, populist leaders might not have enough clout to enact controversial measures such as the Dutch Freedom Party’s call to close mosques and deport Muslims. And while the Brexit vote in June helped energize Eurosceptics, it’s unlikely that any major European country will soon quit the EU, Morgan Stanley economists wrote in a recent report. But they added that “the protest parties promise to turn back the clock” on free-market reforms while leaving “sclerotic” labour and market regulations in place. France’s National Front, for example, wants to temporarily renationalise banks and increase tariffs while embracing cumbersome labour rules widely blamed for chronic double-digit unemployment. Such policies could damp already weak euro zone growth, forecast by the International Monetary Fund to drop from 2 percent in 2015 to 1.5 percent in 2017. “Politics introduces a downside skew to growth,” the economists said.

Here’s a Rundown on the Upcoming Elections:

Italy
Dec. 4 referendum

Prime Minister Renzi wants to curb the power of Parliament’s upper house and has said he’ll resign if there’s a “no” vote. That could plunge the country into crisis, likely leading to an interim government followed by national elections in 2017.

The “no” side is slightly ahead, but at least a quarter of voters remain undecided. Mr Renzi’s base is divided on the referendum, prompting him to offer concessions to appease party members who’ve opposed his plan.

Netherlands
March 2017 general elections

Voters will choose members of the national Parliament, where the Liberal Party holds the most seats and heads a coalition with the Labour Party.

Recent polls show Geert Wilders’s anti-immigrant, Eurosceptic Freedom Party running neck and neck with the Liberals. But even if the Freedom Party gets the most seats, it’s unlikely to find a coalition partner. Improving economic numbers could benefit mainstream parties, and Liberal Prime Minister Mark Rutte may shore up his support by boosting spending on health care and security.

France
April-May presidential elections

Voters will choose a president through a pair of primaries, followed by a first round of voting in April and a runoff in May. Bordeaux Mayor Alain Juppé, a pro-European, business-friendly former prime minister, is the front-runner in a November primary of center-right candidates. The Left has its own primary in January; François Hollande, the deeply unpopular Socialist president, hasn’t said whether he’ll seek reelection. A wild card is Emmanuel Macron, a former economy minister under Mr Hollande who’s created his own political movement but hasn’t said whether he’ll run.

The first round of presidential voting will pit the primary winners against Marine Le Pen, head of the far-right National Front, and candidates from smaller parties. Polls show Ms Le Pen would win as much as 30 percent of the vote in April, enough to advance to a second round. But surveys show she’d lose a runoff to any mainstream candidate. In parliamentary elections in June, the party that wins the presidency is likely to gain enough seats to form a government. Despite Ms Le Pen’s popularity, the National Front holds no seats in the 577-member National Assembly and failed to gain control of any regional governments in elections last year.

Germany
September parliamentary elections

Chancellor Merkel faces stiff criticism within her coalition over her handling of the refugee crisis and hasn’t said whether she’ll seek reelection after 11 years in office. With her party convention set for December, she’s expected to signal her intentions soon. Low unemployment, rising wages, and slow-but-steady growth, along with broad support from the business community, would favor a fourth-term bid. Mrs Merkel’s government plans a €6.3 billion ($6.9 billion) income tax cut starting next year.

Following its recent state and local successes, the populist AfD could win seats in Parliament for the first time. But other parties would likely band together to deny AfD any power in government. And Mrs Merkel has a 54 percent approval rating—more than most of her European peers—while her CDU-CSU bloc still leads comfortably in opinion polls.