EU could face another challenge later in the year
The forthcoming Dutch election is, in some ways, a very significant test for the Eurozone, and yet perhaps not, says Paul Brain, Head of Fixed Income at Newton Investment Management (BNY Mellon).
The leader of the PVV party Geert Wilders has been very anti the EU and the Eurozone. Given that his party has been leading the opinion polls this poses a risk to the establishment in Europe. That being said, he doesn't appear to be able to gain a sufficient majority of the vote to lead without the support of other parties. Here is where the risk could subside as most of the other parties have so far refused to contemplate a coalition that includes the PVV. The risk that the market doesn't appear to consider is that excluding the biggest party (by share of vote) from forming a government could be very divisive for the country as a whole. At the very least, Paul Brain, Head of Fixed Income at Newton Investment Management, would expect the new coalition to take notice of the anti-immigration sentiment and also to be tougher on closer integration of Europe.
In France there is also a risk that the market is too complacent. Here too the chances of the Anti- establishment party making it to a position of power seems to be limited if the others are able to group together for the second round. The only risk to this is if they are too fragmented. For now the likes of Fillon and Macron need to take shots at each other to win support. If this goes too far, or if they are too tarnished by scandal, then it may be hard for them to form an alliance against Le Pen in the second round.
For the time being the likely scenario is that both of the 'danger' candidates in both elections do not make it into power. That being said their influence on ongoing policies will be greater and the EU could face another challenge later in the year.