The economics for populism no longer exist in Europe

Last night I was listening to the German news and came across this quote at the Left Party party congress from Sahra Wagenknecht, co-leader of Die Linke in the Bundestag:

“Die Linke would immediately elect a German Jeremy Corbyn as Chancellor; It is not, unfortunately, in our power to make Martin Schulz into a Jeremy Corbyn.”

My immediate reaction was: “You’re fighting a losing battle.” While the economy in the UK was favourable for Corbyn last week, I don’t think the economics support populism elsewhere in Europe right now. Everywhere you look, the populists are in retreat in Europe – both on the left and on the right. And that will give the EU breathing room to put some reforms in place. Let’s see if they do.

The defeats of Geert Wilders in the Netherlands and Marine Le Pen in France in the general elections there were expected. Back in February, I wrote that defeat of the two populists is what we should expect. But I also wrote that the defeats of Wilders and Le Pen augured good things for populists in Italy. Here’s how I put it:

“For people who want radical change in Europe, seeing both Wilders polling first and getting defeated and then Le Pen polling first and getting defeated is going to make you feel like the system is ‘rigged’. If you are an eligible voter in Italy who wants to overthrow the status quo and you see Wilders and Le Pen fail even after polling first, that’s going to give you a big incentive to make sure you vote for Five Star because — in Italy — Five Star will definitely wield power if it comes first. I haven’t seen any scenarios in which the Five Star Movement wins the popular vote and doesn’t at least have a powerful voice in shaping how Italy moves forward.

“So while everyone is focused on Le Pen and France, they really should be focused on Five Star and Italy, because Italy is where the future of the euro will be decided – economically and politically.”

I want to take a step back from that view though, because the economy has turned up enough to change the calculus. Just this past weekend, we saw Five Star lose in all the major city elections it contested including Genoa where Five Star front man Beppe Grillo comes from.

Now, political pundits are saying Five Star governments in Rome and Turin have not been as good as expected and have put caution into voters elsewhere. Maybe. But I think populism has peaked for now. The EU economy has turned up enough to blunt its march forward. And in Germany, where the next big elections are being held, Merkel will be boosted by this.

I still believe that Italy is where Europe will be decided politically and economically given its laggard status within the eurozone. However, the likelihood that something dramatic happens there in the next several months is as low as it has been for years. With Macron set to receive a parliamentary majority, this sets Europe up for a unique opportunity to reform its institutions before the populists come back.