I was on RT’s Capital Account with Lauren Lyster last night talking about what else, Europe. As I have been saying, the present European policy response to its sovereign debt crisis is deflationary and it has caused the economy there to go into recession. With private debts high in Europe, there is the potential for a systemic banking crisis. In the periphery in particular, the events are driving politics to the extremes, a predictable outcome.
Dylan Grice of SocGen wrote last April:
Many smaller eurozone countries have seen extreme political parties now either on the fringes of – or set to enter – coalition governments (e.g. the Netherlands, Austria and Finland). But the trend is growing. A recent article in ‘The Economist’ reported that a Catalonian politician, Xavier Garcia Albiol who is running for mayor in Badalona, just north of Barcelona, is gaining local support and national notoriety for his hard-line stance. He told the newspaper, "When people stop me in the street, 80% of the time it is to do with immigration or crime."
I think Dylan is onto something. Nationalism is rising throughout Europe, not just in the periphery as we are expecting far-right parties to now enter parliaments in greece and france to add to the fringe parties in Finland, Austria and the Netherlands. In Germany, the Piratenpartei, another fringe party more geared to government transparency and without overt nationalist tendencies, is also poised for huge gains. These changes could make the politics of Europe unpredictable if the economy continues to suffer and therefore increase the likelihood of worst-case outcomes.
That said, of the politicians coming on the scene, it is actually socialist Francois Hollande who could change things the most – and to the degree he moves Europe toward growth, it could be for the better. I am not optimistic about Europe, but I am still hopeful.