Wednesday 20 September 2017

The key dates and potential flashpoints investors can't ignore

Donald Trump
Donald Trump

Ian Wishart

If 2016 was full of political surprises, this year has the potential to deliver even more.

Later this month, Donald Trump will take over as US president, with all the uncertainty that will bring.

In Europe, March will set the tone. It's the month the Dutch head to elections that could score a win for the anti-establishment Party for Freedom led by Geert Wilders; the UK will formally trigger the process to leave the European Union and Chancellor Angela Merkel will get a sense of how furious Germans are over the refugee crisis in a state poll that could presage trouble in the coming general election.

To discern which events investors cannot afford to ignore, above is a calendar and some insights on what analysts, including Bloomberg Intelligence, are on the lookout for.

"March will be the first real political hurdle for Europe in 2017," said Maxime Sbaihi, an economist at Bloomberg Intelligence in London.

Brexit is key, but for him the Dutch elections are almost more important.

"The fact that the eurosceptic party is currently polling first makes the Dutch vote one of the most risky of 2017," he said. "Contrary to the United Kingdom, the Netherlands is a euro member and a pioneer country of European construction so shaky politics there could have more significant consequences for the region than the Brexit vote in 2016."

Things then start hotting up in the euro area's biggest economies. In France, the National Front's Marine Le Pen is in second place in the contest for May's presidential election.

Whatever way the votes go, her campaign will shape French policy into next year. In Germany, Merkel will face re-election in the autumn.

In Italy, a snap vote at any point will give the populist Five Star Movement an opening.

Eurasia Group analysts led by Mujtaba Rahman see a Le Pen victory as the single biggest risk and assign it a probability of 30pc. In a note to clients, Eurasia wrote that her win "would push France's euro membership to the precipice if markets lose confidence in the conditional nature" of the European Central Bank's bond-buying program.

ECB President Mario Draghi, who in 2012 committed to do "whatever it takes" to preserve the single currency, is bracing himself for the worst. At a briefing of leaders at a December summit in Brussels, he singled out the unusual number of elections as one of the biggest challenges for the EU this year.

Not all the inflection points are European in nature.

Turkey's unpredictable political trajectory, Russia's Vladimir Putin flexing his muscles and what exactly Donald Trump will do as president all have the potential to unnerve the region from outside.

With so much depending on the kind of relationship Putin and Trump will strike, Europe will be the setting for some of their most interesting interactions. The two men have yet to meet face-to-face and it might just happen in May at an ancient Greek theatre on the island of Sicily where Italy hosts the G7 summit.

Irish Independent

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