Editors’ Note: MarketMinder Europe doesn’t favour any political party or politician in any country. Worldwide, we think political bias is blinding and leads to investor error. We assess global politics solely for their potential market and economic impact.
In our view, world politics have hit a relatively quiet stretch this month so far. There haven’t been major elections. Big legislation? Little to speak of. There is, of course, talk—a constant. However, the lack of landmark action doesn’t necessarily mean there aren’t developments worth noting. Here is a quick collection of some things we are watching, featuring the UK, Canada and Spain.
It seems to us like Brexit once again demonstrated its capacity to cause divisions last week, when prominent centrist lawmakers from both of the UK’s main parties declared their independence, literally, forming a splinter group called the Independent Group. Presently, there are 11 of them—8 from Labour and 3 from the Conservatives. (One additional Labour Party member quit the party Friday but hasn’t joined the Independent Group at this time.) Their collective rallying point is Brexit, with the ex-Labour Members of Parliament (MPs) annoyed with Labour leader Jeremy Corbyn’s seeming ambivalence toward Brexit and the former Conservatives peeved at eurosceptics’ influence within their party. All 11 favour remaining in the EU and that, plus some nice-sounding rhetoric about hating polarisation, is what appears to be binding them together.
We have seen a lot of discussion about what this means for Brexit in our review of financial media. It may be behind Corbyn’s decision to have Labour officially endorse a second referendum on leaving the EU, which seems to be a bit of a reversal, considering media’s long record of his apparent personal antipathy toward the EU. It may also be behind the 100 Conservative MPs who warned Theresa May that they plan to back a measure calling for a Brexit delay if a no-deal scenario looks likely. However, we doubt the party defections change the calculus much. We have observed MPs in both parties defying party leadership on Brexit, and the “delay Brexit” momentum slowly snowballed well before they handed in their resignation letters. In our view, Brexit uncertainty was elevated before last week, and it remains elevated now.
Of perhaps longer-term concern is what this means for Prime Minister Theresa May’s government. She heads a minority administration that is able to stay in power solely because of the Northern Irish Democratic Unionist Party’s (DUP’s) support. On paper, losing three of her own MPs doesn’t look great. But it also doesn’t wipe out the Conservatives and DUP’s combined edge. Moreover, it isn’t clear to us that the Independent Group would vote against May in a no-confidence vote. None are reportedly great fans of Corbyn, and we doubt they want to risk triggering a snap election that could hand him the keys to 10 Downing Street. Said snap election could very well cost them their own seats, as we think party affiliation tends to matter more than individual candidates’ platforms in parliamentary systems. All would likely end up running against new candidates from their old parties, and the odds would probably not be in their favour. So, whilst this new party might make some noise, we don’t think it materially ratchets up political uncertainty or reduces the government’s likelihood of survival. In our view, it likely just throws sand in the gears, extending political gridlock and keeping legislative risk low—fine for markets, which we think are generally happy when politicians can’t rock the boat.
Spare a thought for Spanish Prime Minister Pedro Sánchez, who called a snap election earlier this month after he was unable to pass a budget. He has led Spain’s government for less than a year, since he managed to horse-trade his way to a minority government after former Prime Minister Mariano Rajoy and his Popular Party were felled by voters’ increasing frustration over various scandals. Rajoy’s downfall didn’t trigger elections. Rather, after he lost a confidence vote, Sánchez cobbled together enough support from sitting lawmakers to take power.
Doing so required him to form a rather eclectic coalition, which gave each of the two Catalan separatist parties veto power over any legislation. For some time, this worked. We think Rajoy’s downfall stemmed partly from what many saw as his overly harsh treatment of the Catalan separatists, so Sánchez scored easy points by taking a more conciliatory tone. But the détente was short-lived, as his government eventually went ahead with highly publicised prosecutions of Catalan separatist leaders involved in the recent independence referendum, which the constitutional court ruled illegal. In our view, this is all sociology, but for investment analysis purposes, what matters is that Sánchez needed the Catalan votes to pass his 2019 budget, and after all the drama, they were pretty obviously a no. This basically forced Sánchez to call a snap vote, in our view.
Spaniards will hit the polls in late April, and—refreshingly—we don’t see media hyping the populist jitters that are otherwise commonplace in Continental Europe these days. There is a fledgling Andalusian populist party called Vox, but it is tiny. The other upstart parties we have seen many label “populist”—the leftist Podemos and center-right Ciudadanos—mostly behave like any other traditional parties at similar points on the ideological spectrum, in our view. We don’t see any big anti-euro movement. Therefore, we think new elections are likely to produce more of the same—i.e., gridlock—without posing risk to eurozone unity. Spain has done great with this status quo, consistently posting some of the eurozone’s fastest GDP growth rates.[i] Hence, we think more gridlock is likely a-ok for this southern European powerhouse.
When young and photogenic Canadian Prime Minister Justin Trudeau first took office, global media generally swooned, based on the coverage we commonly encountered. He was The Future! But it seems to us times have changed. As time has passed, we think more people see the former star as just another politician, with gaffes and scandals nipping at his heels. A big one is nipping right now, with the next general election looming in October.
The short version: A Canadian construction company was under fire for fraud and corruption allegations, and a Canadian newspaper alleged that Trudeau’s people tried to cajole the former attorney general into going easy on said company. That attorney general has since resigned and hired a former Supreme Court judge to represent her. Trudeau’s principal secretary, a gentleman named Gerald Butts, also resigned unexpectedly as a result, and news outlets somehow overlooked the low-hanging fruit of a good “Butts Out” headline.
Now, whether Trudeau at all played a role in this is a matter of sheer speculation, and we shall stay above the fray. If you are curious about the House of Cards level drama, plenty of other sites have the goods. But based on the latest polls, it seems to us voters are perhaps a wee bit leery of even the perception of shenanigans, perhaps recalling the scandals that have plagued Trudeau’s Liberal Party in the past. It is anyone’s guess whether this leads to a new government taking power in October—the race looks tight. [ii] But at the very least, we suspect this leads to even more gridlock in advance of the contest, as Trudeau likely makes every effort to avoid further alienating voters. That doesn’t mean Canada is without political uncertainty, in our view, as Alberta’s provincial government has been stirring the pot with oil market intervention, but it likely keeps legislative risk from escalating further.
[i] Source: FactSet, as of 25/2/2019.
[ii] “First Post-SNC-Lavalin Polls Look Bad for Trudeau Liberals,” Éric Grenier, CBC News, 21/2/2019.
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