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How the 2017 European Elections Will Affect Global Financial Markets and Your Wallet

January 30, 2017 Europe / France / Germany / politics / UK

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The Pillars of the Eurozone: German and French Election 2017

2016 was a rocky year for politics, economics and investments. Brexit and American elections caused dramatic climbs and falls in stock markets and dramatically affected the buying powers of several currencies. Many experts believe that we still haven’t seen the full effects of these votes, and anticipate a rocky 2017 because of it.

However, 2017 will also have its own set of elections that could continue to rock the economic boat (and potentially set the stage for the crumbling of the European Union). Europe as a whole is going through major changes socially and politically, which will affect the economy.

Here is what you need to know about the current state of European elections and how they will affect global markets in 2017.

Despite this political uncertainty you are always guaranteed great exchange rates, low fees and 24/7 customer service with CurrencyFair to help you through any market volatility.

How the 2017 European Elections Will Affect Global Finance

The top two votes that come to mind when discussing the future of the Euro are the French and German presidential elections. While many believe German Chancellor Angela Merkel has a high chance of winning reelection, the rise of Marine Le Pen’s right-wing party in France raises questions about how the two countries will work together.

“The EU is threatened by the growing chasm in the Franco-German axis, so integral to the project,” Nina Schick writes at CNN. “The different directions into which Paris and Berlin are moving will make any kind of strategic long-term vision for the EU almost impossible to agree. France is turning inward, leaving Germany to lead the EU alone — a task made even more difficult due to the fact that the Brits are leaving.”

There have been several social changes in France over the past few years, especially in the wake of recent terrorist attacks. The November 2015 attacks in particular have given rise to anti-islam and anti-immigrant sentiment with many French voters.

“Given that France is one of the two pillars of the eurozone along with Germany, there’s an argument that what happens in that nation’s upcoming presidential election, potentially featuring a showdown between a center-right former president and a far-right-wing leader, could have greater implications for the continent than what happens in Italy,” Elena Holodny writes at Business Insider. “Interestingly, [analysts] drew a parallel between how (some) voters saw Hillary Clinton and Trump versus how voters might see France’s former president Nicolas Sarkozy and Le Pen.”

Some people worry that a win by Marine Le Pen would be another sign of unhappiness with the European Union and could further put the group of countries at risk of splintering.

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The Long-Term Effects of Germany’s 2017 Elections

Germany is also dealing with election issues — even if Angela Merkel’s seat is relatively secure. This election highlights a bigger shift in power among the parties, which could make it difficult for the chancellor to rally support and enact initiatives designed to boost the German economy and help struggling EU countries.

“Previously, Ms Merkel was able to agree to eurozone rescue operations as well as bailout programmes for Greece, Ireland, Portugal and Spain because there was no effective opposition,” Wolfgang Munchau writes at the Financial Times. “That will change from 2017 because the government’s majority is likely to shrink, and the opposition will be hostile … Germany’s elections thus matter a great deal.”

However, these rising political parties in Europe don’t just stem from conservative right-wing factions. The left is also experiencing a period of segmentation that limits the power of currently leading parties.

“Young left-leaning parties are now part of the ruling coalitions in Greece and Portugal, and they have taken significant numbers of seats in Italy and in Spain,” Ian Mount writes at Fortune. “… The upstart parties roiling Europe are anything but uniform. And, if anything, the rising political movements reflect each member nation’s mounting frustrations with the European Union.”

With faith in the European Union and faith in existing German political parties being tested, some believe Russia is also looking to undermine the whole electoral process (much as they did in the United States) and use their influence to put key Russian allies in power.

“With elections due for next year, government officials now fear that Russian President Vladimir Putin has trained his sights on Chancellor Angela Merkel, one of the most visible critics of Russia’s involvement in Syria and Ukraine, as the next target for a Kremlin misinformation campaign,” Janosch Delcker writes at Politico.

“A broad campaign of misinformation and leaks of stolen information, observers say, could be used to weaken trust in government institutions and strengthen pro-Russian, anti-establishment parties such as The Left (Die Linke) on the far Left, and the far-right Alternative for Germany (AfD).”

The 2017 German elections will have ripple effects across the European Union, across NATO and across the world.

We looked at the 2017 German elections in a blog post here.

When European Countries Mimic American Politics

Of course, questionable Russian involvement isn’t the only similarity between American and European elections. Holland could be seeing a major shift in political thought that seems to line up with Trump’s America.

“Political expert Tom-Jan Meeus said euroscepticism is booming in the traditionally liberal country and predicted that right-wing candidate Geert Wilders could become its next leader,” Nick Gutteridge writes at Express. “Over the last 40 years Dutch politics has overwhelmingly followed a similar path of that of the US, with voters turning to the left or right in sync with those across the Atlantic.”

Wilders is strongly in support of a “Nexit” and promotes the idea of the Netherlands following in Britain’s shoes to leave the EU. Interestingly, Wilders’ rise shows how closely economic and social issues are intertwined, as many social views (such as immigration) result in dramatic economic reform.

“Like other populists, Wilders — who was recently found guilty of ‘public insult and incitement to discrimination’ after making strident remarks about reducing the number of Moroccans in the Netherlands — has been profiting from a new climate in which identity concerns among voters have become far stronger,” Matthew Goodwin writes at VICE.

“According to a recent large-scale survey by Ipsos-MORI, almost half of voters across 22 countries agreed with the statement that ‘immigration is causing my country to change in ways that I do not like.’”

American views don’t necessarily reflect the rest of the world’s beliefs, but the election has empowered certain conservative groups to speak up and fight to make their belief systems more mainstream.

“Trump’s victory gives fresh hope to a swath of populist parties across Europe that have been able to boost membership by exploiting issues including the refugee crisis, immigration and lagging economies,” Eleanor Beardsley writes at NPR.

“These parties are surging in a way that hasn’t been seen since before the Second World War … [and] could alter the entire political and economic landscape of Europe.”

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How Italy’s Constitutional Referendum Changed the Political Landscape

In December 2016, the Italian people rejected a referendum that would end Italy’s “perfect bicameralism,” where electors need to receive approval from both the Chamber of Deputies and Senate to pass — a concept that was originally created to prevent any other fascist leaders from taking power in the country.

“Over time, however, this system also reduced the efficiency and effectiveness of legislation while also increasing government instability,” Fabrizio Carmignani writes at SmartCompany. “Matteo Renzi invested his entire political capital in the reform, to the point that the referendum itself was seen as a vote for or against the Prime Minister. Approximately 60% of Italians voted against the reform (and the Prime Minister).”

The failure of the referendum lead to Matteo Renzi’s resignation, suddenly opening the country up to elections in 2017.

“What is more significant about Italy’s rejection of the constitutional changes are concerns over its impact on the future of the European Union and eurozone,” Huileng Tan writes at CNBC. “With Renzi leaving, Italy likely faces early elections next year, raising the prospect of a new political combination in power.”

Italy has its own anti-establishment parties that are gaining steam in smaller elections, causing some to worry about the possibility of electing a prime minister who will support fracturing the European Union. To add another element to this election, whoever steps in will be inheriting an Italy on the brink of an economic bank crisis.

“Italian stocks have been trading significantly lower than the rest of Europe (partly because of referendum concerns) while many Italian banks are on the brink of collapse under 360 billion EUR in bad loans,” Miranda Wadham writes at the Investment Observer.

Interestingly, while this financial state has the potential to devastate the country, many investors are actually saying this is just an Italian problem. “Whilst the referendum is undoubtedly an important decision for the country, it seems that, for now, investors don’t expect it to have repercussions outside of Italy.”

This problem has the potential to quickly become an external problem if Italy seeks bailout help from Germany and the rest of the EU. Tempers flared over Greece’s bailout in 2015, in which both sides called for dramatic solutions ranging from kicking the country out of the EU to refusing any bailout funds whatsoever. While Italy is no Greece, its economic troubles can quickly become the EU’s economic troubles.

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Social Issues and Their Economic Impacts

Despite the rise of populist and anti-immigration politicians across Europe, the EU is still widely divided on how its member states should be handling various social issues, and in some cases nations are pushing back.

“In most countries, a majority still supports membership of the EU and its currency,” Marcus Walker and Anton Troianovski write at the Wall Street Journal. “According to an EU survey in May, the most recent, 54% of Italians, 69% of Austrians and 73% of Germans want to keep the euro. Only about one in three, though, said they had a positive image of the EU.”

However, not all countries are moving toward more conservative governments that favor immigration limitations and oppose the Euro. In December 2016, the people of Austria voted against the anti-immigration Freedom Party candidate in favor of Alexander Van der Bellen, leader of the Green Party.

“Austria’s economy largely escaped the Great Recession, but the influx of asylum seekers from the Middle East during the last two years created a political crisis, particularly among non-urban working class voters whose standards of living, like those in the U.S., has stagnated,” John B. Judis writes at Talking Points Memo.

“Austria’s Chancellor Werner Faymann initially joined German Chancellor Angela Merkel in backing open borders for the migrants. … Faymann reversed course in the spring and closed Austria’s border, but the political damage was done.”

While many people are dissatisfied with how the EU has handled issues such as immigration, terrorism and the economy, there’s still a strong belief that splintering the organisation and dissolving the eurozone would do more harm than good.

“An eventual fracturing of the common currency would likely be a calamitous event for financial markets,” Georgi Kantchev writes at the Wall Street Journal.

“Widespread capital controls would be needed to prevent destabilising rushes of money from countries deemed likely to have a weak post-euro currency to those expected to have a strong one. Huge swaths of financial infrastructure, including derivatives markets and common banking systems would need to be disaggregated.”

What European Politics Means for the UK and the GBP

While it’s easy to get caught up in big-picture ramifications of political theatre, economic shifts are often the most devastating in small ways.

“The price of imported food and other goods is rising because of sterling’s depreciation,” Ben Chu writes at the Independent. “And the price of raw materials for UK firms, which tend to be priced in dollars, is also increasing pretty rapidly.

“… These increases will ultimately be passed on to customers in the form of higher prices. The Bank of England thinks consumer price inflation will spike above its 2.5 percent target by the beginning of 2018.”

This will continue to hurt families and low-income consumers who can’t afford major increases in the price of food. However, for some people, there is a silver lining for all of this European instability: It’s boosting the value of the pound against the euro.

In previous months, just after Brexit, the pound had struggled against most currencies, making it more expensive for people traveling to the continent.

“An argument for buying euros now is that the pound has enjoyed some breathing room between the referendum vote and the inevitable volatility that will arise as decisions are made about the UK’s future,” James Connington writes at the Telegraph. “The euro weakened following the Italian referendum, and next year’s planned parliamentary elections in France, Germany and the Netherlands could further harm the currency.”

The European Union and the issues that surround it are built like a tightly-woven quilt: A decision by one country has the power to send shockwaves through the rest of the continent that will social, economic and financial effects. The 2017 elections will either help EU stabilise through a year of populist uprisings and exit plans, or continue to drive wedges between these nations.

images by: ©paulgrecaud/123RF Stock Photo, PeterDargatz, Mariamichelle, ©tomas1111/123RF Stock Photo

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