A (Non-Brexit) Look at European Politics

Nowadays, the words “European politics” seemingly mean “the latest in Brexit talks.” But other things are happening! In Greece, Italy and Sweden, recent developments again show widely feared European populism isn’t threatening. Rather than radicals upending the status quo, Continental gridlock reigns.

Greece’s Lesson in Moderation

While Greek government theatrics perked recently, they resolved just as fast—and to little fanfare—likely ensuring leftist-firebrand-turned-economic-liberalizer Alexis Tsipras and his Syriza-led government stay in power at least a few more months. Last June, Tsipras negotiated an agreement with Macedonia—Greece’s northern neighbor—to change its name to North Macedonia, but his government splintered over Friday’s parliamentary vote. Since Yugoslavia broke up, Greece has called Macedonia the Former Yugoslav Republic of Macedonia, or FYROM, and the naming dispute has prevented it from joining NATO and the EU. Part of Greece’s objection rests on historical grounds,^[i] but Greek leaders have also long pointed out that using “Macedonia” implies a claim on northern Greek territory that was also part of ancient Macedonia and retains the name. Perhaps supporting this claim, (now-North) Macedonian leaders once gave a presentation with a map of their country in the background—with the southern border enveloping Greek territory. Greece, for obvious reasons, didn’t enjoy the symbolism. But both sides accepted renaming Macedonia/FYROM as North Macedonia, which implicitly recognizes there is a southern portion of ancient Macedonia outside of its control. However, Syriza’s coalition partner, the nationalist Independent Greeks party, quit the government January 13 in protest. Tsipras survived the ensuing no-confidence vote January 16, but if Parliament didn’t approve the deal, it likely would have triggered snap elections. In the end, Parliament approved it last Friday, 153 – 146 with 1 abstention, avoiding a snap election before October’s regularly scheduled contest.

This saga underscores how much Tsipras has confounded expectations since taking office in 2015. Syriza’s campaign platform rejected austerity and Greece’s EU/IMF/ECB bailout terms, and Tsipras held a referendum to reject them—Grexit. Yet when voters did, Tsipras flipped, an extreme example of sitting politicians moderating. Since then, he has quietly led a quicker privatization effort and hewed closely to his creditors’ terms while emerging as an international statesman in the Macedonian talks. Ironically, these populist radicals so many feared four years ago seem like a source of stability—a lesson investors should heed elsewhere.

Italy Follows Suit

Tsipras and Syriza’s evolution has echoes in Italy, where the resolution to a long-running bank saga shows its supposedly radical government (again) moderating. On January 2, the ECB took over Italian regional lender Banca Carige after it was unsuccessful raising capital late last year, leaving it out of options for its pile of bad loans. While an Italian bank’s implosion may seem problematic, this is a special case. Banca Carige has struggled for years, making markets well aware of its problems. Its stock price has plunged since 2011—hitting cents on the euro after a 2016 accounting scandal—as investors anticipated its bankruptcy. It would have been more surprising if regulators hadn’t taken over Banca Carige.

But it was surprising when Italy’s populist coalition acceded to Banca Carige’s request (under ECB supervision) to issue state-backed bonds. On the campaign trail, both members—The League and Five-Star Movement—were staunchly anti-bailout. Their U-turn shows how political expediency tempers radical parties once in power. This follows their climbdown from an EU budget fight, reaching a modest compromise. Populists seeking to remain in power usually want to avoid upsetting the electorate, which typically inspires moderation once in office—underscoring the need for investors to watch what populists do, not what they say. Italy’s government was already unlikely to do much, given coalition members’ opposing ideologies. But moderation shows that even what they do agree on isn’t exactly assured to happen.

Gridlock Also Reigns (and Reins) in Sweden’s Government

Sweden is another case-in-point showing populism’s supposed threat is a tad overrated. Nearly five months ago, Sweden held inconclusive elections. The populist and anti-immigration Sweden Democrats made huge gains, seizing 17.5% of the vote. However, echoing the Netherlands in 2017, no other political party would govern with them, prompting on-again, off-again coalition talks among mainstream parties. In the end, these groups kept the Sweden Democrats out of government.

Stefan Löfven, leader of the center-left Social Democratic Party—which garnered 31.1% of the vote—returned as prime minister after cobbling together a hodge-podge coalition January 21. It includes center-right parties—the Center Party and Liberals^[ii]—along with the Social Democrats and Green Party. Even this didn’t give the coalition enough parliamentary support—only 167 of 349 seats (48%). But Sweden’s constitution allows a minority government to take power if enough parliamentarians abstain from voting against it. Hence, Löfven sought—and got—the quasi-communist Left Party to abstain. Like Germany and Italy, the coalition is at ideological odds. Add in the Left Party’s threat to revoke its abstention—and reject any policy it deems too far right—and you have deeply entrenched gridlock, defying the widely feared populist threat, likely bringing relief to stocks.