Yet another euro crisis?

23 May 2019

3 minute read

This week’s European elections, traditionally a fairly low octane event, have been billed as the summer blockbuster for the populist uprising - are we witnessing the end of the European project?

Who's it for? Confident investors

What you’ll learn:

  • Why the European Parliamentary elections are interesting this time
  • Whether the polls are to be trusted
  • What the populists can achieve

As the European Parliamentary elections take place, the bloc is looking decidedly short of friends, both among its traditional allies, and indeed its voters on the evidence of the latest polls. Meanwhile, the economy is limping, struggling to bounce back from a series of one-off blows over the last year. This week’s elections, traditionally a fairly low octane event, have been billed as the summer blockbuster for the populist uprising - are we witnessing the end of the European project?

Why are European Parliamentary elections interesting this time?

In practice, cooperation between the main centre-right and centre-left blocs of the parliament has historically ensured a high degree of policy continuity. There have always been populist parties represented in parliament. However, in the past, they have tended to struggle to speak with a coherent voice. This may be about to change. There are attempts afoot to create an alliance between right-wing, anti-immigration, anti-Islam, nationalist parties and left wing, anti-austerity parties.

Are the polls to be trusted?

The polls suggest a remarkable level of unpredictability in voter preferences. Of the 50% who say they will vote, almost a third say they haven’t made up their mind. Of the remainder, there is still a strong majority (70%) who say they are tempted by other parties.

In the background, the other interesting trend in public opinion since the UK’s EU referendum is a surge in support for the EU from its citizens. Four out of five Europeans support continued membership of the EU. When asked: “Is your European identity as important as your national identity?”, sizeable majorities in almost every EU country answered “yes”.

What can the populists achieve?

In the context of the shifts in public opinion, many populist parties have changed tack significantly from their previous message. Now, many are repositioning themselves as pro-European, just a different Europe with higher barriers to immigration among other things.

In any case, the European Parliament does not hold legislative powers to the same degree as the UK Parliament or US Congress for example. Nonetheless, it does have significant ability to block and frustrate further attempts to consolidate and centralise national sovereignty.

Investment conclusion

Some argue that support for populist causes in Europe still seems primarily to come from the older, whiter and more rural voters, whose influence will naturally fade and does not currently look likely to be replenished by other segments.

For the time being, there are still various constitutional checks and balances designed to keep citizens safe from the lure of these populist parties. So far these safeguards have held up reasonably well at the national level; we may be about to find out how they fare at the EU level.

From the perspective of the economy, we expect growth and inflation to pick up a little over the summer. The better tone to China’s data should filter through with a lag to the rest of the world. There is the potential for the trade war to more directly encompass the continent in coming months, but the region has some ability to digest higher tariffs in autos without slumping into recession.

None of this is enough to get us excited about European shares at current levels, nor indeed bonds. However, neither is it sufficiently worrying to change our belief that both have a place in a diversified fund aimed at the long term.

Where to invest?

The Barclays Ready-made Investments are just one example of a range of diversified funds which allow you to select the level of risk you are most comfortable with. These multi-asset funds invest across a range of asset classes and regions, offering a globally diversified one-stop solution for investors.

You should only be thinking about holding these investments for at least five years as they’re designed for the long term.

All of these investments can fall in value as well rise; you may get back less than you invest.

These are our current opinions but the future, as ever, is uncertain and outcomes may differ.

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The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances. Smart Investor doesn’t offer personal financial advice. If you’re not sure about investing, seek independent advice.

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