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Global markets breathed a collective sigh of relief last week when it became clear that Geert Wilders’ anti-European Party for Freedom (PVV) did not win the most votes in the March 15 Dutch election.
But did populism lose? Is the populist wave over? Not so fast. Prime Minister Mark Rutte adopted some populist and nationalist rhetoric during the campaign –remember that he ran ads this past January in all major Dutch papers telling immigrants to “act normal or leave.”
Hollowing out Europe’s political center
We continue to see the hollowing out of the political center across Europe. In the Dutch elections, both the main center-left and center-right parties lost seats while fringe parties picked up ground. This fragmented result followed an election with a record high of 28 parties on the ballot.
Furthermore, the center-left in Europe appears to be an endangered species. They have not been able to offer voters alternative economic policies since the global financial crisis necessitated fiscal austerity. The Dutch center-left was truly decimated, falling from 35 seats to only 9 in last week’s election.
What about France?
The upcoming French elections remain a key focus for markets. In keeping with the hollowing out trend, the two mainstays of French politics, the Socialists on the center-left, and the Republicans on the center-right, have been pushed aside by rising support for alternative parties. If the most likely scenario unfolds, neither of the two main parties will even make it past the first round vote on April 23. Instead, centrist Emmanuel Macron of the new En Marche! party and Marine Le Pen of the far-right National Front will likely advance to the second round on May 7.
If polls are right and Macron wins, markets are likely to breathe an even larger sigh of relief at the defeat of LePen’s anti-euro push. Intra-eurozone government bond spreads over Germany would likely tighten as investors perceive reduced risk of currency redenomination in France or a broader eurozone breakup. We would likely see markets flip from worried to optimistic about the prospect for reinvigorated pro-EU leadership under France’s Macron and Germany’s Angela Merkel or Martin Schulz (German election September 24).
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