I’ve spent a lot of time brow-beating no one in particular about markets’ apparent lack of preparedness for what could very well turn out to be a series of black swan landings across Europe.
The fraught political landscape in the EU has left the door wide open for the ascension of populist candidates hell-bent on whipping their respective electorates into a nationalistic frenzy that conjures uncomfortable memories of the 1930s.
Consider the following excerpt from Foreign Policy (note the mention of Frauke Petry, who I personally believe may be the most dangerous politician in all of Europe):
Among all of Germany’s political parties, the AfD was alone in cheering Trump’s surprise victory. The cover of Der Spiegel on November 12 depicted Trump’s head as a fiery meteor on course to destroy Planet Earth. Chancellor Angela Merkel’s first remarks on the U.S. election results included a lecture on the very definition of democracy. But the AfD, whose dramatic rise over the past two years has been fueled by much the same anti-immigrant, anti-Islam and anti-establishment elements that elevated Trump to power in the United States, saw the real estate mogul’s win as a good omen for their controversial movement to make nationalism popular in Germany again—for the first time since World War II.
“This election result gives courage for Germany and Europe,” read AfD Chairwoman Frauke Petry’s statement on November 9. “Just as the Americans did not believe the manipulations of their mainstream media, citizens in Germany also have the courage to make their decision in the election booth themselves and not to remain resigned at home.”
If early projections are borne out, Petry’s AfD will become the third-largest political party in Germany following next year’s elections. Foreign Policy goes on to underscore a point I’ve been attempting to drive home for some time: namely that if Donald Trump can win the US election, populist parties can triumph in Europe as well.
Owing to this general perception, despite the AfD’s growing support, it was not treated as a serious threat to Merkel’s leadership—much like Trump wasn’t considered a serious threat to Hillary Clinton. That is, not until recently, now that the swelling support for the party has become impossible to ignore.
I suggest you read the piece in its entirety, but the point I want to make here is simply that the geopolitical ground is shifting beneath our feet and if the past 12 months have taught us anything, it’s that anything is possible. “All’s fair in politics and war,” to modify an oft-repeated refrain.
Incidentally, a quick look at equity flows does suggest that markets are pricing in some of the turmoil that may await investors in the new year…
… and the European EPU index corroborates that assessment…
Finally, for those who want to stay ahead of the game, here’s a full 2017 schedule of important events in Europe via Goldman:
(Table: Goldman Sachs)