With national elections scheduled in France, Germany, the Netherlands and possibly Italy in 2017, politics is never likely to be too far from the minds of investors in European assets in 2017. Below we provide a current update on the state of play on near term events in the Netherlands, France and Italy.
The Netherlands – Minority government looks most likely
The first election this year is set to take place in the Netherlands where PM Mark Rutte’s Liberal VVD party is expected to take around 24 seats in the March 15 election compared to its haul of 40 in the last election in 2012. The VVD’s coalition partner the Labour party is also expected to underperform compared to 2012 meaning that at this stage it looks unlikely the existing government combination will be returned. Much of the focus of the election has been on the likely performance of the right wing ‘populist’ PVV party led by Geert Wilders which is advocating a Dutch withdrawal from the European Union.
At this stage polls suggest that the PVV party could claim up to 28 of the 150 seats up for grabs, capping its best ever performance in a national election. However, the other main parties have pledged not to enter government with the PVV owing to its strong anti-immigrant views. Therefore at the time of writing a minority government looks the most likely result and if the VVD party manages to win the popular vote then Rutte appears to be in the ‘box seat’ in heading up such a government.
France – Looks like Le Pen and AN OTHER in Presidential Election second round
In France polling in the first round of the Presidential election is very even with Marine Le Pen (Far Right, National Front) just out in front on around 25% closely followed by Emmanuel Macron (Centre Left, En Marche) and Francois Fillon (Centre Right, Republican Party).
As with Wilders in the Netherlands, Le Pen has campaigned for a referendum on French membership of the EU and for France to reintroduce a new national currency. Therefore many equate a victory for her as a death knell for the EU and euro. In reality any move towards an EU referendum in France will be complicated, even if Le Pen wins. She will need a constitutional amendment in France to have a referendum on EU membership which is unlikely to be backed by the French house of Parliament where the National Front’s representation is miniscule.
So what about Le Pen’s chances of landing the Presidency? Given pollsters’ lack of success in predicting events last year, there is understandably some investor nervousness around the result. The National Front’s voter base has increased rapidly in recent years – for example its vote in the 2015 regional elections tripled compared to 2010. However for her to secure the Presidency it is likely she would have to make further outsized gains again which may be too much of a tall order. However as we found out last November, in a two horse race you can never be too sure……
Italy – 2017 election looks slightly less likely
It’s been a busy few months in Italy. Following the defeat of the Italian referendum in December and the resignation of Matteo Renzi as Prime Minister, Paolo Gentiloni was tasked with heading up a caretaker government until the next scheduled election in the spring of 2018.
In January Italy’s constitutional court ruled in favour of a slight change to how national elections should be run, thereby inching more towards a form of proportional representation. This could marginally weaken the hand of the populist Five Star movement in Italy. On foot of this Renzi unsuccessfully sought approval from his party to seek a national election in June, leading to his resignation as party leader.
The fact that a PD party leadership contest will now take place (which in all likelihood Renzi will figure) means that an election in Italy is less likely over the next few months. In our view if Renzi were to be elected as PD leader over the summer, there is still a possibility of an election in Q3/Q4. However overall it looks more likely that an election won’t happen until early next year.
Tom McCabe, BoIPB Global Investment Strategist – 16 February 2017