Predictions of populism's demise were premature

Predictions of populism's demise were premature
© Stefani Reynolds

Not so long ago, many commentators saw the election victories of French President Emmanuel MacronEmmanuel Jean-Michel MacronNew photo of Trump with Kim Jong Un hung in the White House Protests storm Champs Elysees after Bastille Day parade Democrats' policies hurt those they claim to help MORE, German Chancellor Angela Merkel and Dutch Prime Minister Mark Rutte as a sign that the "populist advance" had come to an end.

That turned out to be premature. Now, five out of the 10 largest economies (the U.S. China, India, Brazil and Italy) in the world, which jointly account for two-thirds of the global economy, are led by populists or, in China's case, an autocrat.  

The as yet non-populist five

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The other five economies all face considerable problems. Japanese growth has been low for decades, the country has humongous debts, and its population is ageing at speed. On top of this, some fear that PM Shinzo Abe will eventually prioritise his nationalist disposition over Japan's economic needs.

Germany's Angela Merkel is on her final lap as chancellor. Her intended successor will not initiate any revolutionary shifts, which is dangerous in itself. Together, the two traditional mainstream parties are weaker than ever.

Economic growth is slowing significantly, and quite a few economists have warned that politicians have become complacent in recent years instead of addressing the weaknesses of the German economy.

The U.K. is fighting a multi-headed dragon in Brexit. British businesses are feeling the pain of constant uncertainty, and important reforms have fallen by the wayside.

The Tories are deeply divided. Labour is also at odds with itself. Its leader, Jeremy Corbyn, with his left-wing populist ideas, is the business sector's worst nightmare.

Meanwhile, 90 percent of the population thinks that Brexit is being handled in a way that humiliates the country. The protracted divorce drama does nothing for the U.K.'s reputation or for Europe's political clout.

In France, the "yellow vest" protests have undermined Macron's position.

Canadian PM Justin TrudeauJustin Pierre James TrudeauTrudeau rips Trump over attacks on Democratic lawmakers: 'That is not how we do things in Canada' Sarah Sanders hits Ocasio-Cortez over criticism of Ivanka Trump's G-20 appearance Macron's office 'didn't anticipate the reaction' after sharing Ivanka Trump video clip MORE has been the favorite of progressives, but he is now part of a scandal that creates the impression that the PM may have been trying to stop an investigation into the corrupt practices of a large Canadian company.

Wobbly Europe

One half of the world's largest economies are led by populists or autocrats while the political mainstream leaders are under attack.

When it comes to Europe, despite major problems and dissatisfaction among many voters, so far Italy remains the only one of Europe's largest economies that is governed by populist parties. Yet, populists enjoy success in many other European countries.

The political shifts in Europe are triggered by a combination of immigration, globalization, neoliberalism and European integration. These developments have fostered a sense of uncertainty as the contrasts within countries increased.

The jobs-for-life notion and the reassuring familiarity of one's own village, church and largely homogenous country are mostly long gone.

Simultaneously, technological developments and increased individualism have meant that political movements and parties cater more to the wishes and preferences of very specific groups. The upshot has been divided societies and political polarization.

We have even seen a tendency toward authoritarian leadership in a number of Central and Eastern European countries, leading to a decline of the EU's democratic values from the inside.

No short-lived hype

National-populism is clearly not a fleeting hype, it turns out. Matthew Goodwin and Roger Eatwell think that four factors are determining the success of the populists:

  • Aversion to the administrative elite and democratic institutions;
  • fears that the domestic culture will be undermined and destroyed;
  • a sense of getting less than others in the context of a crumbling welfare state, growing inequality and unfair burden-sharing; and
  • a widening gap between voters and the traditional parties.

Mainstream politicians are trying to remove whatever fuels populism, but they tend to go into shock if populists are successful before simply expounding that the populist politician in question is a danger to democracy.

Or, they opt for populism-light policies, which carry the risk that voters will start to disregard them as a watered-down version of the real thing. At the same time, such surrogates can undercut the democratic constitutional state. Voters may also view capitulation of the mainstream politicians as a legitimization of hardcore populism. 

Populism as recipe for happy markets?

Yet, populism does not need to have a negative impact on the financial markets in the first instance. Look at how the S&P 500 has performed under Trump and Brazil’s Bovespa Index, following Bolsonaro's election victory.

It very much remains to be seen whether investors will respond in a similar way in Europe — if populism continues to advance — as they did in Brazil and the U.S.

European countries are too small to take a hard line against great powers like America and China. Collaboration is imperative, but populists take a stand against European integration. If Europe weakens further, Beijing and Moscow will be more than happy to reap the benefits. They are already playing countries against each other.

The elections for the European Parliament (EP) at the end of May will likely provide the financial markets with additional reasons to doubt the prospects for Europe.

The center-right European People's Party (EPP) and the center-left Socialists & Democrats (S&D) will remain the biggest parties, but for the first time they will not be able to gain a majority together.

The Europe of Nations and Freedom (ENF) may well turn out to be the largest winner of the elections. Next, together with other Eurosceptic groups, ENF will be able to frustrate the performance of the EU.

Therefore, it seems unwise to assume that Europe will be able to follow in the footsteps of the U.S. and Brazil in the sense that populist success will translate into strongly performing stock markets.

Also some of the successful European populists combine a right-wing social-cultural stance with a left-wing social-economic course. Add to that the weakening global economic climate, which will hurt Europe relatively hard since it depends heavily on trade. 

Many think that Europe is heading in the wrong direction. Most feel populist politicians will be unable to usher in the desired turnaround. The change they bring will not imbue the European economy and markets with new life.

Andy Langenkamp is a senior political researcher at ECR Research and ICC Consultants. Follow him on Twitter: @AndyLangenkamp.