A number of political developments are likely to trigger volatility in 2016, especially around the month of June. However, and according to Maxime Alimi, Economist – Euro area at Axa Investment Managers, the real risk lies in the longer term. For the first time since the 1950s, EU-scepticism is threatening the European project not just to stall, but to step back.
In Alimi’s last paper titled “Political risk in Europe: the short and the long view,” the strategist mentions that amongst the issues that may resurface around June are:
- The UK’s Referendum
- The possibility of elections in Spain
- The relationship between the IMF and Greece
- Portugal’s budget implementation review
More serious however is the EU-scepticism. Alimi mentions that “Europe has always been the subject of debates in terms of the political direction it should take: more or less pro-market, more or less social policies, more or less federal integration. But things are different today as Europe is challenged on two distinct fronts: first, the legitimacy of Europe as a relevant level for policy-making; second, confidence of Europeans in the reliability and trustworthiness of their peers. Europe is challenged as a relevant level for policy making. The line of argument is the inability of Europe to deal with the challenges of today and the ‘one size fits all’ policies: Europe has been unable to protect populations against a double crisis; Europe has been unable to lay out a policy response to international threats.”
The sovereign crisis, the QE programme and negative interest rates, as well as the terror attacks and refugee crisis of 2015 have provided further fuel to this dynamic of mutual distrust. “For the first time since its creation, one pillar of the European project – the Schengen agreement – was suspended as governments were no longer trusting their neighbours to enforce borders controls.” The risk Brexit brings is that for the first time since the project was initiated in the 1950s, Europe could not just stall but step back. “Building scenarios around a European disintegration is difficult and highly uncertain, but its impact would certainly be large,” he concludes.
You can download the full report in the following link.