The election frenzy in Europe matters

This article is part of
Autumn Investment Monitor - September 2015

Elections: 2015 has been full of them. Who could forget the surprise win of the Syriza party in Greece in January, or the drama of the Conservative party’s victory in the UK in May?

But the European election cycle is not over by a considerable distance, and the elections of late 2015 are going to help shape the debate over Europe and the eurozone for the rest of this decade.

First up is Greece, with a surprise second general election this year. Actually, maybe not so much of a surprise, given the passions and fervour stirred up by the interventions of ‘the institutions’ into the Greek economy, which drove January’s victorious prime minister Alexis Tsipras to seek further legitimacy via a new vote scheduled for September 20.

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While the result is unknown at the time of writing, any Greek election currently becomes a referendum on eurozone cohesion and, judging by the recent opinion polls, a patchy pro-euro multi-party coalition is the only political structure to have any hope of success. The read-through from Greece’s second general election is that the eurozone is not under break-up pressure currently, but the patchwork quilt of interests and periodic bailouts required to keep it moving forward mean economic sclerosis remains a reality.

A week after the Greek general election, there is a regional election in Spain, which could raise nationalistic fervour akin to Scotland’s surprisingly close referendum on continued membership of the UK last year.

Catalonia has for a long time had a nationalistic, pro-independence streak, but in September’s regional elections, all the main pro-independence parties have agreed to run for the first time in a single unified fashion with the aim of turning the vote into a referendum on independence.

If events in Greece suggest that the eurozone is not currently under pressure from a country-level break-up, a majority for the pro-independence Catalan parties would put pressure on the national boundaries of one of the eurozone’s larger members. The parallels with the Scottish referendum are notable: the result looks closer than initially expected and the feeling that, irrespective of the outcome, the genie cannot be put back into the bottle is likely to persist. In the context of Spanish political life at a time of economic challenges, the upcoming Catalan vote just adds to the pressures.

And just as with the UK election a short while after the Scottish referendum, the impact on Spain’s general election some time in late 2015 is likely to be very apparent.

Spain has been Club Med’s star economic pupil for the past year and a recovering economy – albeit from a very low base – has bolstered support for the ruling centre-right coalition. Better times have boosted the attraction of electoral orthodoxy, with the Syriza-esque Podemos party in sharp electoral decline. As potentially with the UK, the pressure in Spain is more regional than economically radical. Unfortunately, that also suggests clarity of decision-making is under greater pressure.