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World politics have hit a relatively quiet stretch this month so far. There haven’t been major elections.[i] Big legislation? Little to speak of. There is, of course, talk—a constant. However, the lack of landmark action doesn’t mean there aren’t developments worth noting. Here is a quick roundup of some things we are watching, featuring the UK, Canada and Spain.
The UK Gets a New Party, Sort of
Brexit once again demonstrated its capacity to cause divisions this week, when prominent centrist lawmakers from both of the UK’s main parties—the governing Conservative Party and opposition Labour Party—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.) Ostensibly, their rebellion is all about Brexit, with the ex-Labour Members of Parliament (MPs) annoyed with Labour leader Jeremy Corbyn’s ambivalence toward Brexit and the former Conservatives peeved at euroskeptics’ influence within their party. All 11 favor remaining in the EU and that, plus some nice-sounding rhetoric about hating polarization, seems to be what is binding them together.
There is a lot of chatter about what this means for Brexit. It may be behind Corbyn’s decision to announce his goal to push a second referendum on leaving the EU, which is a bit of a U-turn considering his long record of 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. MPs in both parties haven’t been shy about defying party leadership on Brexit, and the “delay Brexit” momentum was slowly snowballing well before they handed in their resignation letters. Brexit uncertainty was elevated before this 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 that the Independent Group would vote against May in a no-confidence vote. None are great fans of Corbyn, and they likely don’t 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 Party affiliation tends to matter more than individual candidates’ platforms in parliamentary systems. All would end up running against new candidates from their old parties, and the odds would likely not be in their favor. So, while this new party might make some noise, it likely doesn’t ratchet up political uncertainty or reduce the government’s likelihood of survival. Rather, it likely just throws sand in the gears, extending political gridlock and keeping legislative risk low—fine for stocks, which are generally happy when politicians can’t rock the boat.
Spain’s Prime Minister Learns Governing Is Hard, Calls Snap Election
Spare a thought for Spanish Prime Minister Pedro Sánchez, who called a snap election last week 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 a while, this worked. 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 publicized prosecutions of Catalan separatist leaders involved in the recent independence referendum, which the constitutional court ruled illegal. This is all sociology and inside baseball, 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. Budget legislation is make or break in many European nations, basically forcing Sánchez to call a snap vote.
Spaniards will hit the polls in late April, and—refreshingly—the contest doesn’t appear to come with the populist jitters that are otherwise commonplace in Europe these days. There is a fledgling Andalusian populist party called Vox, but it is tiny. The other upstart parties once thought populist—the leftist Podemos and center-right Ciudadanos—mostly behave like any other run-of-the-mill parties at similar points on the ideological spectrum. There is no big anti-euro movement. Therefore, new elections look 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. 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. He was The Future! But times have changed. The former Boy Wonder turned out to be just another politician, as boy-wonder and girl-wonder politicians do, with gaffes and scandals nipping at his heels. A big one is nipping right now, with the next general election looming in October.
The Reader’s Digest 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 headlines somehow overlooked the low-hanging fruit of a good “Butts Out” zinger.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 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. But at the very least, we suspect this leads to even more gridlock in advance of the contest, as Trudeau makes every effort to avoid further alienating voters. That doesn’t mean Canada is without political uncertainty, as Alberta’s provincial government has been stirring the pot with oil market intervention, but it likely keeps legislative risk from escalating further.
[i] There was one election scheduled in Nigeria that was surprisingly delayed last weekend and rescheduled for Saturday, with officials citing a litany of reasons why, leading to accusations of meddling. But this is a Frontier Market, Emerging Markets’ less-developed brethren, which often see electoral oddities. For example, this vote already featured accusations the incumbent, President Muhammadu Buhari, is actually dead and was replaced by a Sudanese doppelgänger named Jubril, a plot reminiscent of the Hollywood flick Dave. For the record, we think this tale is beyond far-fetched.
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