A Political Roundup Beyond America’s Borders

Editors’ note: In the US and internationally, MarketMinder is politically agnostic, favoring no party or politician. Our assessments here focus solely on political developments’ potential economic and market impact—or lack thereof.

With America’s election hogging attention, it could be easy to miss political developments elsewhere globally. But the world hasn’t stopped. To help you keep tabs, here is a quick roundup featuring Italian regional elections, scandal-plagued Canadian Prime Minister Justin Trudeau reopening Parliament and UK Chancellor of the Exchequer Rishi Sunak unveiling a new COVID fiscal response.

Italian Center(-Left) Holds

Italy held seven regional elections and a constitutional referendum last week, which should reduce political uncertainty. In short, a right-wing coalition led by Matteo Salvini’s League party (which isn’t presently in Italy’s government) added two regions—Marche and Val d’Aosta—giving it control over 15 of 20 regions. But the big question heading into elections was whether the League could take Tuscany as polls seemed to indicate—and potentially trigger a snap national election. Tuscany is traditionally a stronghold of Italy’s center-left Democratic Party (PD), which currently governs Italy with its coalition partner, Five Star Movement (M5S). It if lost Tuscany, some thought PD leader Nicola Zingaretti may have been forced to step down, fracturing the coalition and giving the League a shot at power. But in a 48.6% to 40.5% vote with strong turnout (notable, given the pandemic), the PD prevailed. This suggests a League comeback on the national stage isn’t imminent.

Whenever the next election comes—at the latest by May 2023—voters will elect fewer members to parliament. A referendum to slash national parliamentary representatives by a third—an initiative M5S championed with broad support across the political spectrum—passed in a landslide. By an overwhelming 70% to 30% majority, Italy voted to reduce its lower house membership from 630 to 400 and its upper house from 315 to 200, while allowing no more than 5 senators-for-life from presidential appointment (there are 6 currently). Italian leaders and political experts in general have long cited the oversized legislature as one contributing factor to the country’s history of difficult government formation, fractured coalitions and general instability. Together with a 2015 reform automatically awarding bonus seats to the party winning 40% of the national vote, reducing lower-house headcount should make it somewhat easier to form a stable government. However, we doubt it is a game changer for the next contest at least—particularly with popular support divided between M5S, PD and the League.

Canada’s Legislative Reset

After suspending Canada’s Parliament last month,^[i] Trudeau reopened it with his “Throne Speech” last Wednesday,^[ii] setting out a new legislative agenda for the country. With a COVID reset in mind, Trudeau pitched big-ticket initiatives like a national prescription drug plan and universal childcare. Whatever you think of these plans, the ability of Trudeau’s Liberal minority government to enact them is likely limited. The first hurdle: Pass a confidence vote, or the government falls. The Liberals hold 154 of 338 House of Commons seats. They need the support from at least one of three opposition parties—the Conservatives with 121 seats, the Bloc Québécois with 32 or the New Democratic Party (NDP) with 24. Last Friday, NDP leader Jagmeet Singh agreed (rather tentatively) to lend support—so, it appears Trudeau will avoid snap elections.

However, Singh’s support seems lukewarm. The NDP is talking up maintaining emergency benefits for workers who lost income due to COVID closures and the temporary expansion of paid sick leave nationally. The NDP may support Trudeau’s other plans, but Singh hasn’t committed to it. Meanwhile, Trudeau is also under an ethics investigation—the third in his five-year-old government—over his family’s relationship with a charitable organization. The cloud over the Cabinet, plus the fragile nature of Canadian minority governments—of the 13 prior to Trudeau’s in 2019, only 3 lasted more than a couple years—doesn’t suggest much legislative action will be forthcoming.

New UK Job Support Scheme

In the UK, Sunak unveiled an emergency unemployment support plan last Thursday. The six-month support program’s main component: a partial replacement of the current furlough scheme set to end in October, which paid up to 80% of non-working employees’ compensation. The new scheme provides for employees working at least a third of their normal hours—for hours not worked, the government and employer will each pay a half of the rest. This could be less generous to workers though. The government’s per-employee subsidy will be capped at £700 per month, a big reduction from £2,200 under the furlough scheme. That may help some out-of-work Brits get by, and it is a plus in that regard. But we don’t see it as critical for growth to continue.

Many think dwindling assistance will hobble growth, especially with renewed lockdown measures amid COVID flare-ups. But this seems akin to the US’s CARES Act expiration—when additional $600-a-week unemployment benefits ended in July—and subsequent executive order authorizing more limited payouts since.^[iii] Critics thought running off the cliff edge then would doom the recovery, but growth continued. Similarly, we don't think the UK economy is on life support, needing extra fiscal injections to keep going. New COVID restrictions might slow growth, but the likely economic impact seems far smaller than feared. Besides, the furlough scheme’s end is hardly surprising—it has been known since its July 1 phase-out announcement. In our view, this is one less thing likely to knock markets.