European Elections
Pfäffikon SZ, Switzerland – Last week, The Netherlands broke the ice with the elections. The turnout was remarkably high, where the VVD (Liberals) of Prime Minister Mark Rutte drew the longer straw. The elections in the Netherlands may be a harbinger of what awaits Europe. It is, therefore, not surprising that the international press was settled in the lowlands of Europe.
France
After the Netherlands, France is up, followed by Germany. In 2018, there are also elections in Italy. All these countries are among the founders of the European Union (EU). It is striking that in all these countries political parties may come to power who are against the EU. Encouraged by the Brexit and victory of Donald Trump in the U.S. election they smell their chance. In the background, of course, the financial crisis of 2008 plays a role, as this crisis is far from solved yet. However, politicians do their utmost to let you think otherwise. Additionally, issues like immigration, terrorism, and refugees affect Europa. No one says it out loud, but the similarities with 100 years ago –unfortunately– are the case a little too often.
Trading Blocks
In all these European elections more than thought is at stake. A hardening and coarsening of the political landscape can put relationships quickly on blast. Also, the financial consequences of an unstable Europe are difficult to estimate. In the background, Europe has distinctive trade agreement with approximately 60 countries. These agreements are relatively easy to convert if indeed another country would leave the EU. For the major trading blocs such as the U.S., China, and Japan this is not the case. In a further disintegration of the EU, this can have a negative effect on each single European country.
Stumbling Block
After the Dutch elections, France is perhaps the biggest stumbling block for the EU as a whole. Should the French choose for a Frexit, the EU again would lose one of its largest economies within a year. It is striking that in France –just like under Trump– it revolves around the regions representing the old industry. Uber, car-sharing or flexible work is hard to find in these regions. Globalization might underlie job losses in these areas, which is grist on the mill for the National Front.
In any case; nationalism is more rampant in Europe. Should a country leave the EU due to elections, a domino effect might be the result. A project of more than 60 years would be brutely fall apart in such a scenario. However, the Netherlands has sent a strong signal that it will not come to that.
It remains for me to wish you a good weekend.
Jan Dwarshuis is CIO at Thirteen Asset Management AG. Dwarshuis writes his columns in a personal capacity. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in above mentioned shares and has no intention of doing so in the next 72 hours.
