Brexit: Is it Europe's turn in 2017?

If you thought 2016 was one of the craziest years in political history. 2017 could be getting even crazier as some of Europe's key economies will show if they too have been bitten by the populism bug. 

2016 may well go down in the history books as “year zero” or “big bang for populism” but we will have to wait and see in 2017 if Europe is equally susceptible to rise of right-wing populist movements. The Netherlands General Election (March 2017), French Presidential Election (April-May 2017) and German General Election (October 2017) are all taking place. Plus the Italian Prime Minister standing down earlier in December means that an Italian General Election in 2017 is almost certain. National and local election results indicate that the National Front in France, Alternative für Deutschland in Germany and PVV in The Netherlands are breaking out from just being a protest vote. Even if the greatest fears of a populist far-right rising fail to materialise, they have already managed to pull the centre to the right. Shifting the debate and having the status-quo parties ape their policies will be the greatest form of flattery for the right-wing, but the long-term policy implications could well outlive this populist rising and have far reaching consequences.

The rise of populist movements undoubtedly makes the results in all these national elections highly unpredictable. But the battlegrounds of the national debate will be strangely familiar. Migration and ‘how much you want the EU in your life’ are going to be the dominate issues. The latter means the EU will be facing its greatest existential threat. If incumbents prevail and the populist rising fails, the EU may feel more enamoured and call for greater union to combat Brexit. However, if the status-quo is smashed in these key EU economies then the future of the EU project will be called into question. This is why there are now calls for the EU to start acknowledging and adapting to this populist threat regardless of the outcome of the elections. However, the EU does tend to show the nimbleness of a turning oil tanker.

As I have argued in a previous blog, the outcome of these continental elections will in-directly and directly impact UK’s Brexit negotiations. If the centre and public debate shifts on the continent towards greater border control and protectionism, the UK’s negotiating position won’t just be underpinned by UK citizens, but by EU citizens as well. The EU has continued to talk tough on Brexit, calling for quick negotiations and not allowing the UK to cherry pick. However, facing their own existential threat, would the EU continue to be so hardnosed? Are they going to be the band who continues to play while the Titanic sinks or will desperate times melt the EU’s hard position? 

The UK Government may also start to take this tough talk at face value. The people who are talking tough may not be there in a year’s time. In fact, they could even find themselves in the shocking prospect that Marie Le Pen could be sat next to them calling for ‘Frexit’. Nonetheless, a change in personnel could result in a change in diplomatic tact. It certainly would create a natural pause in Brexit negotiations and give either side a chance to reassess and regroup. The UK Government may just want to wait and see the outcome of some these elections. Don’t be surprised if the March deadline for evoking Article 50 is missed, with legal challenges becoming a convenient excuse.

To offer a counter to the points above, the argument that what happens on the continent has domestic ramifications also cuts both ways. What happens in the UK can also impact continental elections. This will be most pertinent when it comes to economic performance. All the economic evidence to date not only suggests the UK economy has remained stable but has in fact grown. Brexiteers are gleefully using this as evidence that the ‘economic doomsayers’ in the referendum were wrong. But what if there was a lag-time on the referendum result?

What if the UK economy was like Wile E. Coyote when he runs off a cliff? He continues to run in thin air for some time but once he notices he is in thin air, he starts to fall. What if in the first half of 2017 we start to see some worrying signals? What if house prices fall and the buy-to-sell market stagnates? What if financial services start offshoring? What if inflation not only continues, but starts accelerating?

Poor economic news from the UK could be just the ticket continental incumbents are waiting  for, or even praying for. Could this result in the EU negotiators doubling down on their tough Brexit negotiating position? Time will tell but betting the house of UK economic demise would be foolish, bordering on suicidal. Economic circumstances in the UK will have to be extremely dire to cut through elections that will be introspective in nature.

If things do start to take a turn domestically there is good chance that Euroscepticism in the UK will rise, not fall. People are not great at blaming themselves. Equally the pro-Brexit papers will certainly not be blaming themselves. This means the most likely target will be the EU and therefore arguments around “soft-Brexit” may dissipate as the UK public starts to call a speedy and total departure from the EU. It certainly would dent Parliament’s attempts to have a say on the outcome of negotiations.

However, things will have to get considerably worse before economic news increases UK Euroscepticism or impacts the outcome of national elections on the continent. Current economic indicators would suggest that the bottom is not going to fall out just yet, with economic forecasters admitting that their own predictions are probably overly pessimistic due to little information or certainty they can input to their modelling. Nonetheless, don’t underestimate how much EU leaders are pouring over our economic news as much as we are their election polling.   

2016 was the year the UK forced the rest of Europe to play the diplomatic game of ‘Brexit’. 2017 will be the year that the rules are decided and teams are picked. Bizarrely, 2017 could also be the year that certain members of the continent decide they want to play on the same side as the UK.

Douglas McIlroy

Hill & Knowlton Strategies Search