Euro elections likely to see strong vote for anti-EU parties

Economic growth

SHARE THIS STORY

JUUGS May14Its now nearly 2 years since the head of the European Central Bank (ECB) said he “was ready to do whatever it takes” to save the euro, and brought down interest rates in the weakest PIIGS economies (Portugal, Ireland, Italy, Greece, Spain).  As the chart shows, this statement had a remarkable effect in financial markets:

  • Interest rates today (green column) for the PIIGS are far lower than at their peak in 2012 (blue)
  • And rates in 4 of the 5 PIIGS are lower than before the 2008 financial crisis began (red)

The reason for this remarkable turnaround is not hard to find:

  • Investors believe that Germany will be happy to pick up the bills for the problems in the PIIGS
  • This, of course, is wishful thinking – Germany will not, and cannot, afford the cost involved
  • Thus in reality the potential break-up of the Eurozone has only been delayed by the ECB’s bluff, but not avoided

Even more worrying is that the impact of the lower rates is not not even being felt amongst businesses in the PIIGS.  As the blog noted last September, lending in the PIIGS has been sharply reduced.  And as the New York Times reported last week,  the banks in countries such as Portugal simply don’t want to lend.  As a result, interest rates for even a small €100k loan ($138k) are now at an unaffordable 10% level.

Thus although the ECB claims its policies have “worked”, they have not solved the two core problems of the European economy:

  • Unemployment in the Eurozone remains at 12%, whilst almost 1 in 5 young people under 25 are unemployed
  • Pension age is still around 65, even though life expectancy has now reached 80 in most countries

The end result is that economic growth is far below its potential, slipping back in Q1 to just 0.2%.

Equally disturbing is the failure of the major political parties to address these core issues in this week’s EU-wide elections.  As a result, voters are disillusioned, and turning to alternative anti-EU parties in record numbers.

Greece, the initial cause of the Eurozone crisis, presents a particularly worrying example.  A year ago, the blog worried that the financial crisis had led to 90% cuts in the supply of pharmaceuticals.  Now the Financial Times reports that Greece’s neo-Nazi Golden Dawn party is winning votes and credibility by becoming a major provider of medical services, replacing the collapsed state system.

This is just one example of way in which Europe’s social stability is being undermined by the focus on monetary policy.   It is wishful thinking to imagine that today’s lower interest rates in the PIIGS are a sign of economic recovery.

But politicians prefer to hide behind the veil of monetary policy.  They refuse to show leadership as this would mean addressing the real questions about jobs, pension promises and medial services that matter to ordinary people.

The result is that fringe parties such as UKIP in the UK, the National Front in France, Golden Dawn in Greece and many others are filling the gap.

The result is that this week’s Euro elections will probably show at least 20%-25% support for the anti-EU parties.  It could well be higher.  And contrary to consensus opinion, these parties will not then allow ‘business as usual’ to continue in the European Parliament.  Why should they, when their purpose is to destroy the EU?

It is not yet too late to change the direction of travel.  Europeans are desperate for real political leadership, and for leaders who are prepared to have an honest dialogue about the hard choices that now have to be made.

Hopefully Sunday’s election results will  act as a wake-up call to centre politicians.  The majority of Europeans do not want to see parties such as Golden Dawn in power.

But desperate times can create desperate outcomes, as we saw in the 1930’s.

PREVIOUS POST

London house price bubble hits the record books

20/05/2014

The UK no longer leads the world in soccer, as next month’s World Cup will...

Learn more
NEXT POST

China auto sales depend on lending and property bubble

22/05/2014

The above chart is the blog’s simple guide to forecasting China’s au...

Learn more
More posts
The Fed’s stock market bubble is at risk as China bursts its real estate bubble
24/10/2021

The US stock market bubble just keeps rising. And every investor “knows” that the US Fed...

Read
EU patience starts to run out as UK threatens to break the N Ireland Protocol
17/10/2021

Unsurprisingly, it turns out that Brexit still isn’t “oven-ready”, despite the UK ...

Read
An end to the China bubble would risk a Minsky moment
05/10/2021

My letter in today’s Financial Times warning of the risk to Western financial markets from the bur...

Read
Xi aims to “bring order out of chaos” by bursting China’s property bubble
03/10/2021

China is at the start of its biggest economic shake-up since 1978, when Deng Xiaoping launched his p...

Read
Housing markets face long-term downturn as central banks abandon stimulus
05/09/2021

Last month saw the beginning of the end for the central banks’ 20-year experiment with stimulu...

Read
Businesses set for transformation as supply chain chaos combines with Net Zero targets
15/08/2021

‘Business as usual’ seems a most unlikely outcome as we look forward over the next 6 months....

Read
Auto industry provides a model for the transition to Net Zero
25/07/2021

Flooding in China and Europe, record temperatures in the USA, wild fires – all these are signs...

Read
Europe’s Green Deal will transform its economy, as floods confirm urgency of tackling climate change
18/07/2021

The floods raging in Germany and Benelux highlight the scale of the Climate Change challenge ahead....

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more