Has Covid-19 killed off populism in Europe?
Has Covid-19 killed off populism in Europe?
The Covid-19 crisis has changed many aspects of day to day life for billions around the world. As many struggle with restrictions, healthcare issues and the economic fallout, people’s preferences and priorities are changing.
In recent times in parts of Europe, especially those that have experienced low growth and high unemployment since the Global Financial Crisis, centrist parties have been voted out in favour of radical populists. Even in better performing economies, liberal centrists have been challenged and put under pressure. Many voters were ready to take a gamble and give populist parties a chance to do things differently. However, it now appears that Europe may be close to peak populism. Priorities are re-aligning as voters favour competence and safe hands over untested idealists.
In this note, we examine how the political landscape in Europe has changed since the start of the year for the four largest EU member states plus the UK, and the likely fallout for investors in the order of upcoming elections.
Next election date: by October 2021
Most elections in Europe are still some time away, but Germany will be first of the major countries, with its next federal election due between August and October 2021. At the last election in September 2017, the old guard of the Christian Democratic Union and Christian Social Union (CDU/CSU) coalition and the Social Democratic Party (SPD) held on to power, but not without suffering a bloody nose. Chancellor Merkel’s CDU/CSU lost more than 8 percentage points of the popular vote, while the SPD saw its worst result since the Second World War.
Despite never being represented before, voters helped make the far-right Alternative for Deutschland (AfD) the third largest party in the Bundestag. The Green party also performed well, campaigning on environmental issues which the governing coalition was criticised over.
Since the election, the Green party has seen its support surge. This is partly in reaction to the climate change emergency, but also as it gained credibility as an alternative to the mainstream parties that does not suffer the stigma of the AfD. The Greens overtook the AfD and SPD to move into second place around October 2018.
Just as the Green party was on the rise, Merkel announced that she would step down as leader of her party, but remain Chancellor until 2021. Following the party election, Annegret Kramp-Karrenbauer was made party leader, only to shortly after announce that she would not run for the Chancellorship, following a blunder over freedom of speech ahead of parliamentary elections. Even now, the CDU does not yet have a candidate to stand in the next election. Meanwhile, the Greens continued to make gains, and by July 2019, they were polling slightly ahead of the CDU/CSU.
At the end of February and before Covid-19 took its hold on Europe, opinion polls showed that the CDU/CSU coalition was about four percentage points ahead of the Green party, and another 10 points ahead of the AfD. Since then, and based on the last five opinion polls, the CDU/CSU coalition has gained over 9 points. Meanwhile, the Green party has lost about four points, the AfD has lost couple of points, all while the SPD picked up a point (see chart 1).
The change in voter preferences appears to be related to the pandemic, with most preferring to stick to the parties they know well, rather than opt for an alternative. The nearly 18 point lead that Merkel has opened up against the Greens puts the party in a very comfortable position, and has reinvigorated Germany on the international scene – as it played a commanding and vital role in the creation of Next Generation EU (EU recovery fund) to help bail out struggling EU member states in the south. The key challenge for the government will be to elect a likeable and dependable candidate to stand for Chancellor at the next election, which will certainly be the beginning of a new era after Merkel’s 16-year tenure comes to an end.
Next election date: April 2022
The next French presidential election is not until the second quarter of 2022 and as a result, polling data is very poor. The two round process does not lend itself to regular polling, but there is some information available for us to take the political pulse.
Emmanuel Macron stepped in to fill a void in 2018 as the old centre left and right parties lost the public’s confidence, while far right candidate Marine Le Pen was threatening to take power.
Macron, the former cabinet minister under Prime Minister Valls and President Hollande quit his role and formed his own party, En Marche, later renamed La République En Marche. He then ran as the pro-European alternative to the old guard, but also the antithesis of Le Pen and the Front National, now known as Rassemblement National (National Rally).
The last poll before Covid-19 was conducted by Ifop and published in November 2019. It showed Macron and Le Pen as the top two candidates in a first round contest, but Macron is slightly behind with 27%, compared to 28% for Le Pen. However, the second round poll shows Macron being ahead by 55% to 45%. The latest two polls which were both conducted in early July still show the two candidates as the main contenders, but Macron now has an average four point lead in the first round, and a 16 point lead in the second – a significant improvement (see chart 2).
Looking at the difference between only a handful of polls is very dangerous due to the small sample sizes. Another source to examine is Macron’s approval rating as president. These polls have been conducted regularly for many years. Interestingly, Macron’s approval rating picked up sharply at the start of the March, again as the virus spread through Europe (chart 3). It dipped back through April and May, but picked up again through the summer. This was as case numbers have increased, but also in reaction to the creation of the EU recovery fund, which Macron was a key figure building the consensus for its creation.
Next election date: by May 2023
In 2018, the majority of Italians were fed up with the sorry state of the economy and the migrant crisis caused by several civil wars in the Middle East and North Africa. The voting population bifurcated to the far left or far right. It seemed impossible to have another centrist government. Change was demanded by the population, especially the young who were sick of high unemployment rates and never-ending austerity.
The election resulted in a major defeat for the incumbent centre left coalition led by the Democratic Party (PD). It finished third, giving way for an odd coalition to be agreed between the far-left Five Star Movement (M5S) and a right wing alliance led by the far-right Lega Nord (now rebranded Lega) – the so called “government of change”.
However, their shared euroscepticism and common interest for shaking up Italian politics was not enough to keep this unorthodox government together. Just over a year later, Lega broke away in the hope of triggering another election. It had one eye on opinion polls in which it had pulled away from M5S. However, M5S along with other more centre left parties, agreed to form a new coalition with the PD, which had leapt over M5S in opinion polls to be the second most popular party.
The Covid-19 pandemic has not had the same large impact on opinion polls in Italy as it has in other member states. Opinion polls show a very small fall in support for M5S, and a similar gain for the PD (chart 4). Lega has lost about five points since the pandemic hit Italy, but much of that support has shifted to the Brothers of Italy party – which have similar right-wing tendencies.
It may be that the blurred lines between populists and centrists mean the “flight to safety” we often see in politics is harder to achieve in Italy. Or, it may be that having just faced off with Europe in an effort to secure bail-outs, the Eurosceptic tendencies of the populist parties still attracts support.
Next election date: by December 2023
In Spain, the centre left Spanish Socialist Workers party (PSOE) and the centre right People’s Party (PP) continue to dominate politics. However, the rise of populist parties in recent years such as far-right VOX and far left Podemos have weakened the establishment, forcing governments to work more with fringe parties in order to secure supply and confidence.
As the PSOE minority government effectively lost the ability to govern in the spring of 2019, the government called a snap election in April. Supply and confidence arrangements were not working, and so a fresh mandate was required, especially as the PSOE had wrestled power away from the PP after its minority government collapsed in the wake of a corruption scandal.
The snap election in April produced a very split outcome and despite intense talks, the country was forced to hold a second election in November. Eventually, an agreement was reached between the PSOE and Unidas Podemos – the left wing coalition including Podemos, the United Left and other smaller left wing and far left parties – to form the first coalition government since the Second Spanish Republic (1930’s).
Since the start of this year, opinion polls suggest that support for PSOE has largely remained stable, but support for the PP is up about three points, compared to a two point drop for VOX and a three point drop for Podemos (chart 5).
Spain, like Italy, has not seen large shifts in preferences, but the two centrist mainstream parties continue to attract most support, and it appears that the Covid-19 crisis has only helped solidify this position.
Next election date: by May 2024
Opinion polls in the UK have certainly shifted in recent months, but perhaps for slightly different reasons than just Covid-19. As the virus arrived and spread in March, polls initially showed a little bounce for prime minister Boris Johnson and the Conservative party. However, by late April, momentum waned and polls started to narrow versus the opposition Labour party. The average from the last five polls shows just over a single point lead, compared to a huge 24-point lead at the start of April (chart 6).
What could be behind the collapse in the Conservative party’s lead? There are several potential factors to consider. First, the government’s response to the Covid-19 health emergency has come under significant criticism. From appearing to seek herd immunity, to then locking down the country for a far longer period than the rest of Europe. Confusion over whether people should go to work or not, along with whether masks should be mandatory to wear. The fiasco over the grading of students finishing high school and sixth form college (without exams) would have severely damaged its reputation, while more recently, problems accessing Covid-19 tests, and the failure to introduce a “world beating” track and trace system have not helped either.
The second factor is the changing dynamics of the two parties. After calling an election to secure a strong enough mandate to force through Brexit, the Conservative party won a huge majority in December 2019, leaving the Labour party to comes to terms with its worst result since the Second World War.
Under Jeremy Corbyn’s leadership, the party had shifted its policies to the extreme left, including mass nationalisation of utilities, transport and some industries, along with the use of quantitative easing to pay for public services. These policies sound less extreme in today’s Covid-19 climate, but at the time, comparisons were being made with the Labour party of the late 1970s and even with Venezuelan president Nicolás Maduro, who Corbyn reportedly admires. The party’s stance and leadership had arguably made it “unelectable”.
The defeat prompted Corbyn’s resignation, making way for Sir Kier Starmer who was elected as the new Labour party leader in April (coinciding with the tightening in polls). The more moderate Starmer hopes to show that Labour now occupies the centre ground of UK politics, as the Conservative party has slowly drifted to the right.
Under pressure from the Eurosceptic UK Independence Party, the Conservatives have gone from being a pro-EU party, to being run by hard-line Brexiteers. The large majority achieved at the last election has meant that Johnson has been able to squash pro-EU rebels, and install like-minded and loyal Brexiteers in key cabinet positions. The recent threat to “over-ride” the EU Withdrawal Agreement highlights the degree of power the government has, with little opposition remaining.
Finally, the poor progress made in EU trade negotiations could also be a factor. Openly threatening to unwind parts of the EU Withdrawal Agreement has been condemned by all sides of the House of Commons, and a number of senior political and civil service figures have resigned in protest. Such contempt for international law may also have shifted voter preference.
Although the swing in opinion polls will not please the government, the reality is that Johnson does not need to worry about another election until late 2023/early 2024. Especially given the large majority he commands in parliament.
Conclusions: populism is not dead yet
It may be too soon to declare the death of populism in Europe, but the Covid-19 pandemic appears to have focused minds and re-aligned the priorities of households, leading to a fall in support for populist parties and a return to more familiar centrists.
In countries like Germany and France, it allows their governments to focus on enacting the best possible measures to help support their population survive the crisis. However, just being the government of the day is not enough to win public support. Competence in managing the current situation is also a requirement, as seen in the UK.
Finally, it is worth remembering why these populist parties have done so well in recent years. Poor economic growth, rising inequality and a sense of a lack of representation, especially at the EU level, are all ongoing issues that are likely to be exacerbated by the crisis. If liberal centrist policy makers do not take advantage of the bounce they are enjoying, then populists are likely to return in greater force.
Unstructured Learning Time
- China’s new growth target: what does it mean for markets?
- Climate Progress Dashboard: will 2021 be the year of decisive change?
- The Zero: Why zero rates are increasing the appeal of private assets
- Will rising commodity prices prompt a shift for equity investors?
- Which lockdown habits could last a lifetime?
- The US minimum wage debate: mission impossible or mission critical?