Politics and International Relations professor Matthew Goodwin discusses political trends in Europe and the US, with a market perspective from Henderson Multi-Asset.
The rise of populist anti-establishment parties poses a major challenge to Western liberal democracies. Such parties are often rooted in diverse ideological currents but they tend to be united by their strong opposition to immigration and multiculturalism, their populist critique of the established parties and their authoritarian stance on issues of law and order.
In Europe, parties such as the National Front in France, the Danish People’s Party and the Freedom Parties in Austria and the Netherlands have been relatively permanent features on the political landscape. Led by charismatic leaders they have launched strident campaigns against the EU and the euro single currency.
In more recent months, the debate over what is often referred to by academics as the ‘populist radical right’ has also widened to encompass Donald Trump in the United States, who some analysts view as articulating the same nativist, authoritarian and populist positions as the European radical right.
Rise of radicalism
Contrary to conventional wisdom, the current popularity of the radical right is not a new phenomenon. Nor is it rooted simply in the post-2008 Great Recession. For nearly 40 years and throughout very different economic cycles these parties have become cemented in European party systems.
Their votes have come primarily, though not exclusively, from particular groups in society: the economically disaffected, less well educated working-classes, the financially precarious lower middle-class, and self-employed voters who feel deeply pessimistic about their future prospects.
With lower incomes, fewer qualifications and less social mobility, such voters have struggled to adapt amid a rapid transition to a service-based economy, the collapse of traditional industry and increased competition, whether from migration, or Europe’s single market and free movement of workers. Such voters also seem poorly equipped to respond to the growing digital economy.
This partly explains why the radical right has inflicted particular damage on social democrats who were once founded to represent workers but have in more recent years devoted attention to winning votes from the so-called ‘new left’ professional middle-classes.
The failure of the established parties to respond to these concerns has created ample room for the radical right in Europe to appeal directly to the economically ‘left behind’ and for Donald Trump in the United States to make a similar pitch to disillusioned industrial workers.
Both movements have connected with groups that feel cut adrift from the mainstream political consensus and culturally under threat from rapidly rising rates of ethnic and cultural diversity, which are perceived to challenge their values and ways of life.
This is partly because the increasingly important issues of migration and national identity have cut across the traditional left-right divide.
There are some subtle differences between Trump’s and Europe’s radical right, however. Whereas the American billionaire is critical of illegal migration he is broadly at ease with the multicultural history of his nation, whereas parties in Europe oppose both migration and the rising ethnic diversity of their societies.
There are good reasons to expect the radical right to remain stubbornly persistent, with evidence that the issues agenda will remain favourable.
There is also evidence of ongoing and perhaps increasing public opposition to the EU. According to the most recent survey of public opinion by the Pew Research Center only 51 per cent of people across 10 European countries now hold a favourable view of the EU.
The fact that 42 per cent also want to see powers returned from the EU to their national governments reveals how the Union now faces three inter-related crises: a lingering financial crisis, an ongoing migration crisis and a crisis of legitimacy, whereby public opinion is gradually eroding the perceived legitimacy of the EU from below.
Looking ahead, there are some useful indicators to watch. The US presidential election later this year will test the electoral appeal of the populist radical right there. National elections in France, Germany and the Netherlands in 2017 will also provide a litmus test, coming after a Brexit vote that has emboldened radical right, Eurosceptic parties.
Unless there is radical change, they will almost certainly witness strong results for Marine Le Pen in France, the Alternative for Germany party and Geert Wilders in the Netherlands, all of whom are working to mobilise public opposition to the EU while linking the refugee crisis to a perceived terrorist threat.
In 2019, the entire continent will head to the polls to vote at elections for the European Parliament, which may well push Europe in another sharp, rightward turn.
Matthew Goodwin is Professor of Politics and International Relations at the University of Kent and Senior Visiting Fellow at Chatham House
Nick Watson – Fund Manager, Henderson Multi-Asset Team, comments:
Unexpected developments in the political sphere come at a challenging time for markets, given underwhelming macroeconomic momentum. Investors are less likely to invest in riskier areas of the market if they see few catalysts to support economic growth, especially if new leaders’ approaches to monetary and fiscal policies are markedly different from prior incumbents.
One unifying theme that crosses geographies is the increased engagement of those sections of society who feel ‘left behind’ in the process of industrial globalisation. This has translated into stronger protectionist and insular campaign rhetoric; we see this as having negative implications for global economic activity.
Our view is that market volatility will persist in 2016 as election cycles play out and the UK deals with the outcome of its June referendum. Although it may feel unsettling, this backdrop should provide opportunities for global multi-asset strategies. Our cautious investment approach during the first half of the year – holding relatively higher cash levels – has helped cushion our portfolios. This has also provided the means to tactically adjust our positioning across asset classes, sectors and styles to where we see value opportunities.