Europe: Anti-establishment politics a risk for western developed world - AmpGFX

Greg Gibbs, Director at Amplifying Global FX Capital, notes that anti-globalization type policies are taking hold in many other parts of the world, particularly in Western developed countries. 

Key Quotes

“Politicians around the world are seeing the Trump victory as a sign that they too must now appeal to their own middle-class workers that feel squeezed out by immigrant workers and government policies that pay too much attention to international commitments.”

“This policy agenda, unfortunately, lends itself to nationalist parties that appeal to racists and generate conflicts across ethnic groups within countries.  Trump appeared to gain support from fueling these ‘Alt-right’ ideals which have little merit in promoting a stronger more productive economy.  And in fact may undermine economic growth by generating distrust, distracting people from productive pursuits, hardening enclaves and promoting even less international cooperation.  This trend towards support for Alt-right parties is occurring in many countries and may be seen as a further threat to globalization and growth.  This threat is rising particularly in Europe.”

“At the other end of the scale, is a shift in support to left-wing parties.  This support arises from a similar concern over globalization having gone too far and favoring big business over the middle-class.  It has been described as an anti-establishment mood.  Bernie Sanders campaign for the Democratic Party nomination was more successful than many people expected (even though he lost).  That he was able to do so well in the USA where unemployment was relatively low, sends a potent message for the Eurozone where in many countries, including Italy, Spain, and France, unemployment remains high.  Parties at this end of the spectrum may not appeal to Alt-right bigotry, but they are also against trade and want governments to be more domestically focused.  Mainstream parties are reacting more urgently to these pressures from their electorates and this is likely to be a factor slowing and diminishing globalization.”

“Immediate threats in Europe include the 4 December (next Sunday) referendum in Italy.  A No Vote on constitutional reform will be seen as a victory for anti-establishment parties that threaten to pull out of the Euro.”

“It is hard to quantify the effect on investor confidence and the broader implications for the stability of the Euro. But it will represent a further significant blow to globalization and European integration.  It might be expected to weaken the EUR exchange rate and European asset prices.  This might have some broader negative consequences for global risk appetite.”