Why weak politicians are good for markets
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If you think British politics is in a mess, take a look at what’s going on elsewhere in Europe. The latest shenanigans in France and Italy, for example, make Blair’s government look like a model of good sense.
In France, open warfare has broken out between prime minister Dominique de Villepin and Nicolas Sarkozy, his number two and likely rival in next year’s presidential election. De Villepin is accused of ordering an investigator to dig for dirt on Sarkozy (see page 28). De Villepin denies it, but given the breakdown in trust, it’s hard to see how they can work together.
Still, at least France still has a government – unlike Italy. A month after the knife-edge election, Silvio Berlusconi has just conceded defeat. The winner, Romano Prodi, is already struggling to hold his shaky coalition together. It took four attempts to get his man elected speaker of the Senate. With parliament still to elect a new President, it could be weeks before Italy gets its new government.
Europe is suffering a crisis of political leadership – and at its heart lies a single problem: globalisation. None of Europe’s political elites have a clue how to respond. Industries are shutting down, jobs are disappearing, tax revenues are dwindling, populations are ageing and economic migrants are flooding in to fill the gap. Anxious voters demand action, but politicians find the simple solutions no longer work. They dare not raise taxes or hit firms with new regulations for fear that more businesses will close and foreign investors will stay away. And they’re frightened to stop the migrants coming because many firms depend on cheap labour to stay afloat.
For investors, this is all very good news. Strong politicians are a menace. Look at Belarus or Venezuela. In contrast, feeble politicians may prove Europe’s salvation. True, there are big decisions to be taken. How will we fund pensions? Should we build new nuclear-power stations? But, generally, weak governments find it harder to buck the markets – and businesses thrive on stability. That’s why Europe’s markets are soaring even as its political elites squabble among themselves. The economic outlook for the continent has not looked this rosy in more than a decade, with Germany, another country with a fragile coalition government, leading the way. European cross-border trade and investment is soaring, industries are consolidating and corporate profits are rising. It’s when European politicians start getting their act together that investors want to start counting the spoons.
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