Key points:

• Media coverage is already ramping up on the series of elections Western Europe faces over the next year. A lot is at stake here because various populist parties have been polling strongly and they advocate fundamental changes to economic policy, notably repeating the UK’s Brexit vote to leave the European Union and also replacing the Euro with national currencies. As the Euro is one of the lynchpins of the global financial system and the Euro-zone would have difficulty surviving the exit of a big country like France or Italy, the issues could not be much bigger.

• While populist parties have tapped into widespread voter disenchantment with politics and the European Union across Western Europe, we do not think they will be able to translate that into winning government and implementing their policies. Financial markets seem to agree with that assessment – while the Euro has depreciated and bond rates have moved up in France and Italy, the changes are nothing like what a Euro-zone break-up would be expected to produce. Opinion polls show strong populist party support in some countries but it does not seem enough to get them over the line in France or the Netherlands. Italy is more of a worry but EU exit faces constitutional hurdles there and the populist vote in Germany is much lower.

• These political trends bear watching – Euro-zone collapse is a low probability-massive impact scenario and while populist parties have not yet the numbers to do what they want, their support is high and might increase if things don’t improve in Europe.

For further details, please see the attached document:

• Euro 2017 Elections:  What you need to know (PDF, 484kb)