Bad month for Western Europe, says East Capital’s Svedberg

The slide towards populism and fragmentation in Western Europe is not good news for anyone, warns Marcus Svedberg, Chief Economist at East Capital.

 

May is turning out to be a bad month for the political establishment in Western Europe. The ruling political elite has been humiliated at home and abroad. Eastern Europe is faring much better and the slide towards populism and fragmentation in Western Europe is not good news for anyone.

However, the choice of a pro-European president in the Ukrainian elections should provide some comfort.

 

 

Political uncertainty increasing in Western Europe. . .

The results of the European elections created shock waves in much of Western Europe, after right wing parties came out on top in France, Denmark and the UK and made large gains in Sweden, Finland, Holland and Austria.

The populist wave was expected after the economic crisis but nevertheless took many of the incumbent governments by surprise and is increasing the risk of policies that are not market friendly being pursued going forward. 

The vote in Eastern Europe was much less dramatic, with the mainstream parties receiving the most votes in all countries. Greece was a notable exception, where left-wing populist Syriza became the largest party and far-right Golden Dawn came third.

But the fact that the government coalition did not do as badly as feared should give them enough support and legitimacy to continue. 

. . . but is decreasing in Ukraine

The much anticipated presidential election in Ukraine on the same day as the European elections was relatively uneventful. The fact that frontrunner Petro Poroshenko won a decisive victory  in the first round reduced a lot of political uncertainty and should help Ukraine to move closer to Europe.

That is good news for Ukraine, as is the filling of the vacuum following the toppling of former president Viktor Yanukovych.

The low turnout in the Donbass region – partly due to separatists blocking the vote – may cause some legitimacy concerns for Poroshenko but it also depends on how Russia responds to the election.

A comforting sign is that Ukrainians – in a stark contrast to Western Europe – did not take the populist route, as neither Svoboda nor the Right Sector got much more than 1% each of the vote.

Russia triumphs over Europe

That Russia managed to seal important energy deals not only with China but also with European energy majors during the past few weeks must only add salt to the wounds of the political establishment in Europe.

Russian President Vladimir Putin managed to close a 30-year gas supply deal with China worth USD 400bn during a trip to Beijing in mid-May after more than ten years of negotiations.

The price China will pay for the gas was not revealed but was most likely favourable to the Chinese, underscoring the deal’s strategic – as opposed to financial – importance.

The fact that a large number of Western business leaders not only participated in the St Petersburg International Economic Forum despite US pressure to stay home and also signed deals with Russian energy majors can only be seen as a victory for Russia over the US and EU.

British firm BP signed a USD 300m deal with Rosneft, whose CEO Igor Sechin is on the US sanctions list, and French company Total signed a joint venture with Lukoil.  

 Conclusion

Western European voters are clearly dissatisfied with the incumbent leadership and big business is blatantly defying their policy on Russia.

This is a crisis of leadership and Europe clearly needs new ideas as neither Western nor Russian populism is the way forward. That leadership should increasingly come from Germany and Poland.

These two countries do not only have the strongest economies, but Berlin and Warsaw are also the unofficial voices for Western and Eastern Europe respectively.

And the mainstream German and Polish parties did well in the EU election. We may also get a German president of the Commission and a Polish foreign policy chief come Autumn.

 

 

 

 

 

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