Are anti-euro sentiments brewing in Austria?

Last weekend in Austria, "Team Stronach", a newly-founded political party which aims to abolish the euro in its current form, did quite well in two regional elections, winning 9.8% in the state of Lower Austria and 11.3% in the state of Carinthia.

The party was founded by Austro-Canadian billionaire Frank Stronach (pictured) who wants eurozone countries to have their own currencies whose value would fluctuate in line with their fiscal and financial strength (while toying with the idea of keeping the euro as a parallel currency). Although Stronach reacted by saying that "you always expect more", the party "passed the litmus test", according to David Pfarrhofer of the ‘Market’ polling institute.

This year, it's Superwahljahr (Super Election Year) in Austria with two more regional elections coming up in Tirol and Salzburg, and general elections on 29 September, with Stronach stressing that he is "very optimistic". Unsurprisingly given that he named the party after himself, he confirmed he'll be its leading candidate with the aim of becoming Austrian Chancellor. Currently his party is polling at around 10%.

Team Stronach already has a faction in the Austrian Parliament, composed of MPs which defected from other parties to join. This provides the party with some public funding in addition to the reported €26m Stronach himself has contributed. Speculation that he would attract Arnold Schwarzenegger, another successful Austrian expat to his party, has been denied by the latter. Stronach is one of the most prominent business people in Canada, where he emigrated to at the age of 22. His party has been accused of populism but unlike Austria’s established far-right, it is not opposed immigration.

Combined with support of around 20% for the far-right FPO party, which supports a Northern euro, around 30% of Austrians seem to support parties which favour an end to the common currency, and unlike in Germany, it seems people are actually willing to vote for parties which explicitly support this objective.  Stronach has a solid organisation and apart from shaking up Austrian politics, the signals he's sending out could spill over to that one country which more than any other holds the fate of the euro: Germany.

A Dutch election primer

Emile Roemer, leader of the Dutch Socialist Party

On 12 September, elections will take place in the Netherlands. Due to the country's traditional role as an ally to Germany in monetary affairs, they will be watched with close attention (and by coincidence the German Constitutional Court is due to rule on the ESM Treaty the same day).

What do the opinion polls say?

The latest opinion poll shows that caretaker Prime Minister Mark Rutte’s right-of-centre-liberal VVD party and the EU-critical left-wing Socialist Party would get the most votes, with each obtaining 34 seats in Parliament. Sniffing around third place are four parties: the social democratic PvdA (21), the Christian democratic CDA (16), Geert Wilders' PVV (14) and the left-liberal D66 (13). The Christian Union, which sits with the Tories in the ECR-group in the European Parliament, would get around 7 seats, and GreenLeft 4.

What are the coalition options? 

There are broadly two possibilities:

- Firstly, a centrist coalition might emerge from the VVD, PvdA and CDA. However, the polls suggest this currently falls a few seats short of the necessary majority. This coalition could be expanded to include D66, which would make for a eurofederalist formation, but this might not be convenient in the face of an EU-critical, although disparate, opposition composed of the Socialist Party and Wilders' PVV.  Alternatively, the seats of the moderately EU-critical Christian Union might be sufficient but then the government would only have a narrow majority, if the current poll results materialise.

- A second option, the preferred solution of the Dutch social democrats (PvdA), would be a government with the Socialist Party, CDA, and GreenLeft. This would only narrowly obtain a majority and probably also need the support of D66. While the CDA would need to be convinced, it is questionable whether a government led by what many consider a far-left party is a viable political option in the Netherlands. The Socialist Party started off as a Maoist formation (a bit like the current European Commission President) but has moderated its tone and could now be described as left wing populist. Its current leader, Emile Roemer, who vehemently opposes the fiscal pact, has repeatedly warned that he won't pay any EU fines for breaching budget deficit limits, saying he would "put his body on the line".

Other options are theoretically possible, but unlikely: the divisions between the VVD and Socialists look too deep, while it's unlikely that the VVD would choose a new deal with Geert Wilders, after the previous  Dutch government fell due to Wilders' opposition to austerity. The most likely outcome remains some kind of centrist government, possibly after several months of negotiation (last time around, it took four months to form a government).

What are the campaign themes?

Unavoidably, Europe is high on the list. The last government fell over EU-imposed austerity and it is no surprise that Socialist leader Roemer has raised it as an issue. Roemer has also warned that any transfers of power to the EU would need to be agreed by referendum (in a similar vein the UK's 'referendum lock'). Things have been moving in a more EU-critical direction for a few years now. Only 58% of Dutch voters are currently in favour of EU membership, a stunning drop from 76% in May 2010. Two thirds of Dutch voters want to see less of their cash going to the EU budget. Last, but certainly not least, there is general discontent about the eurozone bailouts, with  at least half of Dutch citizens saying in May that they wanted to see a stop on money being sent to Greece and a majority opposing the eurozone's permanent bailout fund, the ESM.

Another important issue is pensions, following reports that cuts very likely will need to be made. Dutch pension rules are also under threat from upcoming EU initiatives such as Solvency II, which are being fiercely opposed by the Dutch government.  

Economic policy is, as always, high on the agenda. Dutch PM Mark Rutte entered the campaign this week, promising tax cuts in order to reward those who work, in a bid to present his party as the alternative to voters who are scared of the SP and draw left vs. right battle lines.

What's the political context?

Much of what's happening in the Netherlands today is still seen in the light of the murder of Pim Fortuyn in 2002. The Pim Fortuyn List, certainly started to break down the consensus in Dutch politics on issues such as immigration and the EU. Of course, a lot of has happened since: a range of unstable coalition governments, the no-vote in the referendum on the European Constitution in 2005, the rise and influence of Geert Wilders.

The sluggish Dutch economy also appears to have become somewhat decoupled from the German economy. There is particular concern about the housing market.

What will be the consequences for the EU and the euro?

Dutch daily De Volkskrant ran an article earlier this month noting that the current Dutch government has increasingly been playing EU hard-ball behind the scenes, under the headline "European patience with the annoying Dutch is almost up". An EU diplomat was quoted as saying, "the problem is not that the Netherlands is obstructing, the problem is that the Netherlands is almost always obstructing".

Given that around a third or more of the Dutch electorate now seem prepared to vote for more or less EU-critical parties, that isn't going to change anytime soon. Still, it will make a big difference whether the Socialist Party will make it into government or not, and perhaps more symbolically, whether it will become the biggest party in the country. Both remain uncertain.

However, it is clear that the consequences could be far reaching, especially for Chancellor Merkel if one of her most loyal allies starts to make things even more politically fraught at the level of the eurozone.

Meanwhile, in Italy...

Italian daily La Repubblica had an interesting story over the weekend. Apparently, Italian Prime Minister Mario Monti and his team are trying to win support for watering down the EU's deficit and debt rules.

Italy is suggesting that 'virtuous investments' (i.e. public spending aimed at boosting 'growth') should not be counted when calculating a country's deficit and debt under the EU's budget rules (3% deficit, 60% debt-to-GDP ratio). The same exception should be applied to the re-payment of money currently owed by the various public administrations to private firms - some €70 billion in Italy's case.

The always well-informed Marco Zatterin - Brussels correspondent for La Stampa - writes on his blog that Italian Europe Minister Enzo Moavero Milanesi has already been talking to EU Commissioners for Internal Market (Michel Barnier), the Budget (Janusz Lewandowski), and Industry (Antonio Tajani, Italy's man in the Commission) over the past few days. EU Economics and Monetary Affairs Commissioner Olli Rehn is reportedly willing to consider the proposal. The Monti government hopes that EU leaders will discuss the proposal at the European Council at the end of June.

These exceptions, Italy's reasoning goes, would make the fiscal treaty "more sustainable" once it comes into effect. But is this really a good idea? As we pointed out before (see here and here), the fiscal treaty already has some serious credibility issues and has already been watered down.

Allowing for some debt to be swept under the carpet doesn't exactly inspire confidence. Do people remember how we got here in the first place?

Meanwhile, mayoral elections took place in Italy over the weekend (we understand if you didn't notice given everything else that was going on during the eurozone's 'Super Sunday'). Still, a couple of interesting facts are worth flagging up:

• Candidates from Silvio Berlusconi's People of Freedom party did not make it to the second round in any of the bigger cities where elections took place (Genoa, Palermo, Parma and others). Following the results, the party's Secretary General, Angelino Alfano, said that backing for Monti's government continues, but no more 'mini-summits' with the centre and centre-left leaders supporting Italy's technocratic cabinet in parliament will be held from now on. This could have an impact on Monti's ability to push through his reform agenda, especially since he has no electoral mandate to fall back on when things get tough;
 

• Lega Nord, Berlusconi's former ally, also did quite badly in the wake of the scandals that forced its leader Umberto Bossi to step down last month. Lega Nord managed to keep Verona, but lost several towns traditionally considered strongholds in the Lombardy region;
 

• Turnout was about 67% - almost 7% lower than in the previous local elections;

• The Movimento Cinque Stelle (Five Star Movement), led by Italian stand-up comedian Beppe Grillo (in the picture) came out as the real winner. Its candidates achieved double-digit percentages in a couple of important cities (including Genoa, Beppe Grillo's home town, and Parma, where the Five Star Movement's candidate Federico Pizzarotti made it to the final run-off, with 19.5% of votes). A political maverick, Grillo has been campaigning for the need to clean up Italian politics, for instance by barring convicted people from running for the Italian parliament. Most interestingly, he has recently been claiming that Italy should drop the euro (but remain in the EU) and refuse to pay back at least part of its public debt. 

The general elections will be a different ballgame altogether, but it's interesting how the Italians, too, are now looking for something different.

The beginning of the end game in Greece?

At some point you have to wonder if Greece just enjoys the limelight…

This weekend’s election was expected to be relatively predictable with the largest parties forming a coalition and eventually adhering to the latest EU/IMF bailout package. Most eyes were on the French Presidential election and its impact on the Franco-German axis. Unfortunately, as we predicted, there were still a few surprises in store in Greece. Here’s the (almost) final result:

New Democracy – (18.86%) 108 seats

SYRIZA – (16.77%) 52 seats

Pasok – (13.18%) 41 seats

Independent Greeks – (10.6%) 33 seats

KKE (Communist party) – (8.48%) 26 seats

Golden Dawn (far-right) – (6.97%) 21 seats

Democratic Left – (6.1%) 19 seats

The biggest surprise is clearly the huge rise in SYRIZA’s share of the vote and the drastic fall in Pasok’s share.

In our post in the run up to the elections we laid out three scenarios: a stable ND-Pasok coalition, an unstable coalition leading to new elections where ND win a majority and an unstable coalition which falls leading to a cycle of elections where no-one can win a clear mandate. Those three scenarios clearly still hold, but the probabilities have definitely changed. Previously, the likelihood ran in order, however, now the second and third scenarios are looking increasingly probable.

ND and Pasok only hold 149 seats, short of the 151 majority they need. The Democratic Left has ruled out joining a three-way coalition. This makes new elections (probably in June) essentially inevitable as there is no stable coalition to be formed.

However, given the showing in the elections it is hard to imagine ND, or any party, gaining a clear majority. Given the strength of the anti-austerity feeling in Greece it is unlikely that these results would be a one-off. The anti-austerity parties only look likely to gain ground in subsequent elections, making a stable coalition less likely. This analysis suggests that a cycle of elections looks increasingly probable in Greece.

What does all this mean for the eurozone?

More uncertainty, that’s for sure. Germany and the EU have already both come out to reiterate the need for Greece to maintain its commitment to the latest bailout packages, stress that keeping Greece in the euro requires strong participation from both sides (rather ominous if you ask us).

Unfortunately, this looks unlikely, even if by some miracle ND and Pasok manage to form a workable coalition at some point. ND leader Antonis Samaras has already come out saying that he will “modify the memorandum [of understanding]” with Greece’s creditors to focus on growth. This can probably be seen as the start of his next election campaign but will still send shivers down the spines of German politicians.

A renegotiation of some form looks on the cards and will not be well received. Samaras would still be the EU’s preference given his history of strong rhetoric but then still signing up to the bailout programme. The alternatives are not appealing from eurozone leaders’ perspective: either there is a cycle of elections leaving no government in place to implement the reforms or the anti-austerity feeling grows so strong that a SYRIZA led government of some form comes to power, signalling the end of the bailout programme for good.

There is a confluence of factors here which increases the prospect of a Greek exit from the eurozone. The broader feeling in Greece although still in favour of the euro is shifting strongly against austerity – how this tension will play out is unclear but the usual fall-back of broad public support for the eurozone looks shakier than it has ever been.

Since the last round of poisonous bailout negotiations the eurozone and financial markets have been preparing for a Greek exit, if not publicly than definitely behind the scenes. The stance against any renegotiation and flexibility on reforms has hardened from eurozone leaders. Furthermore, Greece is approaching a primary surplus, the point where an exit and a full default look slightly more attractive as the country could (at least in theory) survive without access to financial markets or direct support.

Greece’s future will not be decided in the next few days but the coming weeks and months could well settle its place in the eurozone once and for all. This election may not provide many answers, as we expected, but it could mark the beginning of the end game in Greece.

Greek elections unlikely to yield any answers

The Greek elections are almost upon us. Much of the attention (including ours) has been focused on the French election, possibly rightly given the potential impact on the Franco-German axis and the austerity approach to the eurozone crisis. The lack of attention may be down to Greece-fatigue following the intense start to the year with the Greek restructuring, or the fact that with a bailout and strict programme in place the room for flexibility with the new government is severely limited. That said, the Greek elections have the potential to be almost as important.

Despite the well documented rise of fringe parties and the strong talk from New Democracy (ND), a coalition between Pasok and ND looks to be the most likely outcome. Combined the parties may gain around 35% - 40% of the vote. The largest party (likely to be ND) gets an extra 50 seats under Greek electoral rules, meaning that the coalition would be the largest combined group in the Parliament and may just scrape a majority. This position will be aided by the fact that all the other parties are fairly disparate and unlikely to form any cohesive opposition.

However, even if this coalition is formed there numerous ways in which it could play out:

1)      Stable coalition – ND and Pasok manage to gain and hold a majority in the Parliament. They set about attempting to implement the EU/IMF bailout package. May be some talk of renegotiating elements of the package, particularly to boost growth. If anyone is to have success on this front it would be this coalition as it has at least some experience and knowledge of negotiating with EU/IMF.

Impact on the eurozone: This added stability would likely be positive for markets and the eurozone in the short term. Ultimately, it will not make much difference since Greek debt still looks unsustainable and implementing the necessary reforms will be a massive challenge on the ground even if they are pushed through parliament. There is less chance of external financing being cut off anytime soon, since the government will at least try to adhere to the programme.

2)      Coalition breaks up, new elections where ND wins a majority – The coalition fails to gain a full majority in Parliament (possibly due to Pasok defections after the deal is struck) or fails after a very short time due to lack of cohesion between parties (especially if ND leader Antonis Samaras feels he could gain a full majority in new elections). Elections delay implementation of EU/IMF package but once ND government comes into power the implementation continues, although calls for growth policies will grow louder.

Impact on the eurozone: Ultimately, depends on how long the coalition lasts and the policies which ND uses in the new election to gain a majority (potentially shift further right if there is growing disillusionment with the EU/IMF austerity).  ND unlikely to push for euro exit or full renegotiation of EU/IMF package so that adds certainty, but the inherent problems with the package (mentioned above and covered in detail here) still hold true. The turnover between elections could be important. Any delay in implementing the package will not go down well with the EU or IMF and could reduce its effectiveness even further.

3)      Coalition breaks up, new elections fail to deliver suitable replacement leading to an election cycle – Coalition breaks down as mentioned above, but this time the new elections fail to deliver a clear winner, possibly with an even greater move towards the far left and far right parties. This would likely trigger a series of unstable coalitions and probably more elections. Once this cycle has begun it will be hard to break, particularly with Greece’s economic situation seemingly only getting worse.  

Impact on the eurozone: This would be the worst of all outcomes. The EU/IMF package would fall by the wayside due to lack of willingness or a government to implement it. If a cycle of elections does take hold it could feed anti-euro sentiment, although anger has, for now, been largely directed at the austerity bailout rather than euro membership more generally. This would eventually result in funding being cut off and Greece probably having to exit the eurozone. This is unless such a threat galvanises the population to vote a single party supporting the euro into power.

Overall, a ND-Pasok coalition looks likely but it will probably be far from stable. It is definitely hard to see it serving a full term. The most likely outcomes (1 and 2 above) may deliver some short term certainty but problems loom large for Greece over the medium to long term. The EU/IMF package still looks unachievable for Greece and will not solve its debt sustainability problems, while there is surely a tipping point where the Greek population withdraws its support for the euro more. At the moment this is still some way off. These elections will certainly not deliver a definitive answer to long term issues in Greece and there is still a chance that an uncertain outcome could worsen Greece’s situation.

The End of the Road?

Nicolas Sarkozy officially announced his candidacy for re-election during a televised appearance broadcast on TF1 last night. The decision hardly came as a surprise. UMP officials had kept tight-lipped about the President’s schedule, but his recent foray into Twitter and lengthy interview in Le Figaro on Sunday fuelled well-founded speculation in Paris. Sarkozy had hoped to delay the announcement until March, but it is believed that party officials’ exasperation and his unpopularity in the polls forced his hand. As Francois Hollande, election frontrunner and Socialist candidate slyly commented on Tuesday morning, “it seems [that the announcement] comes earlier than expected, don’t you think? Perhaps he believed it was a matter of urgency”.

What are his chances?

According to the latest polls by IFOP-Paris Match published just before the interview last night, Francois Hollande leads with 30%, followed by Sarkozy with 25.5%. Marine Le Pen, far-right candidate for the Front National ranks third place with 17.5% of voting intentions.

Historically, French presidents up for re-election rarely experience a boost in the opinion polls following the announcement of their candidacy. Valery Giscard d’Estaing, Francois Mitterrand and Jacques Chirac each experienced slight increases in opinion polls, which were short-lived and generally failed to change the course of the election. Polling experts believe that Sarkozy would be lucky to experience a boost, since his announcement had been widely expected. As Jean-Marc Lech of polling institute Ipsos remarks “for the announcement to create an effect, it ought to surprise the electorate. But nothing [last night] was surprising, other than the exact date and the location of Sarkozy’s interview”.

Rivals for the Elysee dismissed the event. Le Pen called it a “non-event…of no political importance” and centrist candidate Francois Bayrou slammed Sarkozy’s time in office “his record speaks so much louder that anything he can say”, mocking the incumbent’s analogy of a captain refusing to abandon his ship, “when a captain has steered his ship onto rocks, it’s time for change”.

But historical precedents need not necessarily apply. In 2007 Sarkozy proved himself to be an expert campaigner, able to inject dynamism into the Elysee race, and capable of appealing to wide sections of the electorate. Recent positive figures on French growth (0.2% in the last quarter of 2011, compared to recession in the rest of the eurozone) could bolster the incumbent’s argument that he has the experience to lead an embattled France through the economic crisis.

On the whole though, this looks unlikely. Sarkozy has led an erratic unofficial campaign since January. The proposal to introduce reforms to the sclerotic French labour market last month was widely perceived as an electoral mistake. It is unpopular with the French, and is ill-timed, if necessary. Angela Merkel’s endorsement of his re-election was awkward, as it came weeks ahead of Sarkozy’s official announcement, and jars with his recent decision to appeal to Le Pen’s anti-euro, anti-German supporters. In addition, his pledge last night to “put work at the heart of everything” was too similar to his undelivered 2007 campaign promises.

It's argued that Sarkozy's real chance in re-election lies with Le Pen. If the FN candidate fails to secure the 500 mayoral nominations needed to present herself at the ballot, Sarkozy will benefit from a boost in support. Despite his pro-Euoprean stance, it is likely that far-right supporters will be wooed by promises of referendums on the rights of immigrants and the unemployed. This is something Sarkozy is aware of: tellingly, he refused to back Bayrou’s plea for a reform of the nomination system. A poll published earlier this month found that Sarkozy and Hollande would equalise in the first round if Le Pen did not run in the election. However, although this would provide Sarkozy with a boost in the first round, it wouldn't make a difference to his second round chances, where he continues to trail behind Hollande with 43% compared to the Socialist candidate's 57%. In all likelihood, Le Pen will not make it to the second round, so her inability to run on the ballot won't change Sarkozy's chances. Looks like Nicolas needs to try harder to win over the electorate.