Europe Caught in Headlights as Populists Hinder ‘Radical’ Changeby
Pressure from left and right risks paralyzing governments
Leaders can’t tackle fundamental cause of discontentment
Votes in Italy and Austria say little about whether populist parties will sweep elections elsewhere in Europe, but they do spell more political paralysis.
Both were widely watched as indicators of whether the anti-establishment upsets of Brexit in the U.K. and President-elect Donald Trump in the U.S. will continue through a bumper year of major European elections in 2017. The answer was hardly comforting for investors or centrist parties.
Sunday’s defeat of a far-right presidential candidate in Austria and of a constitutional referendum in Italy suggest pressure from the extreme left and right continues to grow, just not as a post-Trump wave of election victories fated to sweep the continent, said Wolfango Piccoli, co-president of consultants Teneo Intelligence. That risks discouraging Europe’s leaders from tackling the fundamental economic reform that might address the root causes of the popular discontentment.
“The question isn’t so much whether the populists win -- they are here to stay, they will impact politics,” said Piccoli. “You have to look at each set of local conditions separately.”
The National Front’s Marine Le Pen remains highly unlikely to win the presidency in France next year, while the anti-EU Alternative fuer Deutschland party is even less likely to unseat Chancellor Angela Merkel in Germany, said Piccoli.
The problem is that while Europe badly needs structural reform and Merkel is the only one who can drive it, her ability to play that role will be “very limited,” Ian Bremmer, president of New York-based political risk consultants Eurasia Group, said on Bloomberg Surveillance.
The messages from both of Sunday’s votes were conflicting. In Austria, the pro-European candidate for president, Alexander Van der Bellen, beat Norbert Hofer of the Freedom Party by 51.7 percent to 48.3 percent, excluding mail-in ballots. That was a significantly wider margin of victory than in the original vote in May, which Hofer challenged and forced a rerun. Hofer had celebrated Trump’s victory, trying and ultimately failing to leverage it during his campaign.
Van der Bellen’s win avoided the prospect of Austria becoming the first country in the history of the European Union to elect an ultra-nationalist as head of state. That’s no small thing: The Freedom Party was founded in 1956 by a former Nazi SS officer and Austria’s president has the power to appoint and dismiss governments and dissolve parliament.
Notably, however, neither of Austria’s traditional mainstream parties even made it into the runoff -- Van der Bellen was backed by the anti-establishment Green Party. The nation remains divided and its coalition government precarious.
Italian Prime Minister Matteo Renzi’s thumping defeat by 60 percent to 40 percent in Italy’s constitutional referendum was widely seen as a win for the populist Five Star Movement and a vote against Europe.
Yet that, too, is misleading after Renzi essentially made it a vote on his leadership, said Charles Grant, director of the Center for European Reform in London. Opponents also included Mario Monti, a former technocrat Italian prime minister and European commissioner for internal markets.
“It’s true anti-EU people jumped on the bandwagon, but when you have people like Monti also voting against in the referendum, you can’t call it a vote against the EU,” said Grant.
Nor will it necessarily lead to early parliamentary elections. The ascent of the Five Star movement to govern, let alone call its planned referendum on whether to leave the euro is still less likely, explaining the relatively muted response in financial markets to the scale of Renzi’s defeat and subsequent resignation. The euro was up 0.7 percent against the dollar.
Again, that doesn’t make the result benign. Referendums have now cost two prime ministers from Group of Seven nations their jobs in a year -- U.K. Prime Minister David Cameron, when he lost a vote to stay in the EU, and now Renzi.
As a result, European leaders are even less likely to risk embarking on the big structural or treaty changes needed to fix either the euro, the EU or their national economies, said Grant.
Instead, they are more likely to nibble at the edges of reform and make concessions to ease populist sentiment on issues such as immigration.
“The paradox is that the EU needs radical surgery to make it more appealing and attractive,” said Grant. “But European leaders won’t do it, because that requires referendums and big changes.”