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Three months ago, the Netherlands held a general election … and the country still doesn’t have a government. That isn’t anywhere near the record, but it does illustrate the political gridlock entrenched across the developed world, which lowers legislative risk—beneficial for stocks, in our view. Here is a look at some of the latest developments on this front.
Netherlands’ Parliament Finds Going Dutch Is Difficult
One month ago, after the Dutch Parliament tapped Labour Party member Mariëtte Hamer to lead the negotiations, the main party leaders called for a speedy resolution to coalition talks. Since then, it has largely been crickets until this week, when longtime party stalwart Pieter Omtzigt left the Christian Democrats (CDA). Omtzigt was instrumental in one of the factors contributing to the prior government’s downfall and caretaker Prime Minister Mark Rutte’s recent difficulties rounding up support for a new coalition: the exposure of a childcare benefits scandal and Parliament’s subsequent vote to censure Rutte.
If you think about this development at a purely mathematical level, it might seem to throw sand in the gears of government formation. The CDA is the natural coalition partner and longtime ally of Rutte’s People’s Party for Freedom and Democracy (VVD), so having one less seat will make it that much harder for the VVD, which won a plurality in March’s election, to cobble together a majority. But CDA leader Wopke Hoekstra disagreed with that viewpoint on Monday, making the (obvious) observation that the playing field was already quite splintered. It takes 76 seats to form a majority in the Dutch Parliament. VVD has 34, CDA has 14 and former coalition partner D66 has 24, leaving this triumvirate (presuming they continue trying to stay together) 4 seats shy of the mark. That deficit was three seats last week, before Omtzigt’s departure, and given how fractured Parliament is, the hurdle is about the same now. Heck, one could argue things might get a smidge easier now that Rutte’s chief rival is out of the negotiating room.
Political matters like this defy prediction, so we won’t try speculating on where things go or how long the process takes from here. We will simply say that whether a government forms sooner or later (or a lot later), gridlock will likely continue, given the deep ideological rifts among the potential coalition partners. They may find common ground on broad measures like the disbursal of EU rescue funds, but that is probably about it.
A New Prime Minister for Israel
Meanwhile, Israel finally formed a government Sunday, when an eight-party bloc narrowly won a confidence vote. Replacing Benjamin Netanyahu as prime minister is Naftali Bennett, leader of the right-wing Yamina party, which holds just six seats. As part of the coalition agreement, he will switch places with Yair Lapid, leader of the centrist Yesh Atid party, in two years—presuming the government survives that long. That may be a tall order, given the coalition includes parties with a host of competing ideologies and priorities.
For now, though, Israel should benefit from the twin headwinds of falling uncertainty, as the election merry-go-round finally stops, and gridlock. Currently, Bennett appears to be focusing on getting small wins in areas the parties sort of agree on, including transportation and education policy. COVID relief probably remains at the top of the list as well. But beyond that, gridlock probably reigns, giving markets less to worry about on the legislative front. (Note that we are deliberately staying away from all the sociological matters dominating coverage of this agreement, as markets regularly look beyond such things, and tuning them out is key to avoiding political bias, in our view.)
Will Suga Go for the Gold in Japan?
Rounding out the pack in the developed world is Japan, where Prime Minister Yoshihide Suga survived a no-confidence vote this week as rival parties sought to capitalize on his falling popularity amid Japan’s latest brush with COVID and slow vaccine rollout. The survival isn’t surprising, given his Liberal Democratic Party (LDP) and its coalition partner, Komeito, have a huge majority in the lower house. But it does hint at the chinks in Suga’s political armor, which may be behind Japan’s other recent big political news: widespread rumors that Suga will call a snap election just after the Tokyo Olympics wrap in early August.
That isn’t terribly early, considering an election is due by October 22. But the LDP holds leadership elections in September, and there are fresh-faced challengers in the wings. In a recent Nikkei poll asking voters who the next prime minister should be, Suga took sixth place at just 4%. Topping the poll was Taro Kono, a cabinet minister in charge of reform, with 24%. Former Defense Minister Shigeru Ishiba was second at 16%, and Environment Minister Shinjiro Koizumi took third with 14%. If that name sounds familiar, it is because Koizumi is son of the wildly popular former Prime Minister Junichiro Koizumi and the star of many adoring Internet memes. It wouldn’t surprise us if Suga hopes to enter this contest with a fresh mandate in hand in order to shore up support within his party.
But new leader or no, we doubt much changes in Japan for the foreseeable future. Economic reforms took a backseat years ago, and COVID has only compounded that long-running trend. In Japan’s case, less gridlock might be positive if politicians used their power to pass much-needed reforms to labor laws and all the other widely discussed structural weaknesses. But the absence of a positive isn’t a negative, and Japanese stocks have long since learned how to live with the status quo—especially the largest multinationals, which don’t depend on domestic demand.
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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.