After seven years of continuous crises within Europe’s byzantine political structures, American observers can be forgiven if they’ve become fatigued and lost interest. However, 2017 is set to be the year when Europe either confirms the end of its 70-year period of deepening regional integration, or the year it abandons the idea of fragmentation as a solution to its woes. As a result, an update on the evolving political risk factors is in order.
Despite these risk factors, we expect the major negative outcomes to be avoided, and even see opportunity for greater European integration with positive impacts on European asset markets. The simplest rationale for this perspective is that in each case listed above, the most disruptive outcome is unlikely. However, 2016 demonstrated how fraught an exercise it is to predict elections based on polling data. We instead have developed a different thesis: the factors which propelled anti-Europe candidates no longer exist.
It is easy to become overwhelmed by negative headlines, but it’s clear to us that the two factors which propelled Eurosceptic politics to the forefront have subsided. We therefore expect their success to subside, and with it the threat of European fragmentation. Instead, the major political forces on the continent will be empowered with fresh mandates to forge the policy reforms necessary to ensure the long-term stability of the European Union and Eurozone, a prospect which would have major positive effects on European asset markets and the global economy.
John Forlines, III
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