Rising populists
One sobering thought for investors is that this time next year the world could be preparing for the inauguration of President Donald Trump (one of five people TIME shortlisted for Person of the Year). This is possible because the demagogue has led Republican polling for six months and he sometimes beats presumed Democrat nominee Hillary Clinton on match-ups.
No matter how outrageous are his comments on Mexicans, Muslims, immigrants, women or the disabled, or how stupid or absent are his policies, Trump appears immune from damage. In fact, the more Trump is slammed by the political elite and mainstream media, the more popular he becomes.
While common sense says that Trump won't prevail due to the moderate nature of most voters, that's no solace. Someone else will exploit the viral populism that is raging in the U.S., fuelled by inequality, insecurities spawned by globalisation, social upheaval, polarised politics, fear of terrorism and concerns the U.S. is waning as a world power.
Even if Trump fades away, he has already damaged U.S. politics. To name but two ways, firstly, he has pushed the Republican Party to the fringe. The second is that he makes other dangerous populists look reasonable--even those who want to put the U.S. dollar back to the gold standard, restrict the Federal Reserve's power to change monetary policy or even, in some instances, abolish the Fed.
Across the Atlantic, politics is even more troubling for investors because populists are already grasping power and shaping policy. The seven-year-and-counting depression in the Eurozone is nourishing anti-elite populist nationalistic parties that generally reside on the right side of politics.
In 2015 in national or state elections in Austria, Denmark, Finland, France, Italy, Poland, Switzerland and the U.K., anti-immigration, nationalistic right-wing parties achieved the biggest gains and sometimes made or helped form national governments (Finland, Poland, Switzerland).
In other elections, anti-austerity leftist governments came to power in Greece and Portugal and the emergence of a leftist, anti-austerity and another more-centrist party cost Spain's ruling pro-austerity right-wing party its parliamentary majority, left parliament paralysed and is likely to lead to a fresh election in coming months.
Noteworthy too is that a Danish referendum unexpectedly rejected closer EU integration on justice legislation, an unelectable leftist populist (Jeremy Corbyn) became leader of the U.K.'s Labour Party, secessionist movements persisted in Catalan and Scotland, the U.K.'s push to leave the EU gained strength and Hungary's right-wing government became more autocratic.
The immigration crisis and the terrorist attacks in Paris in November prompted countries including Denmark and Sweden to reintroduce border controls, and in the case of Hungary and Slovakia, to build border fences.
Basically, the political consequences of economic hardship, spiced with terrorism, are remaking Europe to the disadvantage of investors.
While the U.K. vote on EU membership is to be watched as it's now deadlocked, perhaps the biggest menace to monitor is Marine Le Pen's National Front. In the first round of voting in French regional elections in December, the anti-immigration, anti-EU but pro-welfare-state party came first in six of the 13 regions and won the largest share of the national vote (28%).
The party failed to win any provinces in the second round but this might be to its advantage--governing is the antidote for populist parties for it usually exposes them as charlatans and fools.
Le Pen's goal is to win France's presidential elections in 2017 and the polls say she will make it to the second round of two contenders and lose. It would prove devastating for the Eurozone if such a nationalist and protectionist were to win.
Le Pen presents almost all the ills of France as being tied to the euro. She has pledged to make reintroducing the franc her top priority, a decision that could shatter the EU as well as the Eurozone.
