A dry-run for the French elections?
But markets will still take notice of the election results in the Netherlands. If an openly anti-euro, anti-immigrant party like the PVV comes out on top in a country known for its internationalist, liberal attitudes, this will “raise fears that Marine Le Pen’s Front National party might also do well in France,” notes Cosimo Marasciulo, Head of European Fixed Income at Pioneer Investments.
“Conversely, should the PVV’s support fail to materialise in the Dutch elections, it could signal that European voters are unwilling to fully embrace the anti-populist mood, thus reducing market fears about a Le Pen victory in France,” he added.
With the PVV projected to win less seats than was expected when Donald Trump gained power, and unlikely to enter a coalition government, the Dutch elections could actually be the start of a bounce-back of pro-European political movements.
“Polls in Europe are suggesting that, in contrast to the UK moving away from Europe, that we will have a more united Europe in three to six months’ time,” David Roberts, head of fixed income at Kames Capital, said at a roundtable in London on Tuesday.
“If Emmanuel Macron and Martin Schultz win elections in France and Germany this year, as some polls suggest, that would result in a strongly pro-EU Franco-German axis,” he added.
Such an outcome could lead to a reduction of the European equity discount. French and Italian government bonds, which have seen yields rising significantly on the back of rising political risk in the past year, could also benefit.
However, even if this ‘dream scenario’ comes true, many downside risks will remain. The weakness of the European banking system and, of course, Brexit, are just a couple of those.
