Populism again casts shadow over booming eurozone
For months, the outlook for the eurozone economy has brightened thanks to a series of electoral defeats for populist parties in key states like France. Now, following votes in Germany and Austria and the uncertainty over the Spanish region of Catalonia, concerns are growing again about the potential impact of euroskeptic politics.
The euro has edged lower in recent weeks despite data showing that the eurozone economy is enjoying one of its strongest periods of growth since the global financial crisis exploded a decade ago. On Monday, it was down 0.3 per cent at $1.1785, having been above $1.20 at the end of August for the first time in two years.
One of the reasons relates to the electoral success of populist forces, first in Germany in late-September when the antiimmigration Alternative for Germany received almost 13 per cent of the vote and won representation into the country’s parliament for the first time. Though the centre-right Christian Democrats came out on top, the authority of Chancellor Angela Merkel was somewhat undermined by AfD’s relative success and she has still to forge a new coalition.
The populist tide was further evidenced in Sunday’s Austrian election, which saw the rightwing Freedom Party come second with around 27 per cent of the vote - enough to possibly become part of a government led by the People’s Party and its 31-year-old leader, Sebastian Kurz.
The impact of a coalition involving a party that has sought to downplay the country’s Nazi past could hinder efforts to further integrate the economies of the 19 countries that use the euro, as advocated for by new French President Emmanuel Macron.
“Even though Austria is highly integrated and depends on the eurozone’s structure and openness, a new Austrian government will make the eurozone’s life harder, trying to push through self-interests,” ING economist Inga Fechner said.
Also of potential concern to the unity of the eurozone is the uncertainty surrounding Catalonia following its disputed independence referendum earlier this month. On Monday, there was still a lack of clarity as to whether the region’s leader, Carles Puigdemont, has declared independence following the vote that Madrid has deemed illegal.
The Spanish government of Prime Minister Mariano Rajoy has repeatedly said it’s not willing to negotiate with Puigdemont if independence is on the table, or accept any form of international mediation. The government has threatened to activate Article 155 of Spain’s Constitution, which could see Madrid take temporary control of some parts of Catalonia’s self-government.
All these signs of populism come at a time when the European economy is enjoying one of its most sustained upswings for a decade. A run of economic indicators have shown that the recovery, especially among those countries that use the euro currency, has been gaining momentum through 2017. The recovery, which has also seen unemployment come off highs, has prompted speculation that the European Central Bank will start to ease back on some of its emergency stimulus measures in the coming months.