For many, the start of the year has brought on a case of deja vu as Brexit, trade wars and the rise of right-wing European politics are once again the key themes dominating the headlines.
On the latter, we have seen a significant development within the Italian political landscape this week, as regional elections in central Italy saw a big win for the far right.
Brothers of Italy Gain A Seat
The elections have been viewed as a key indicator ahead of European parliamentary elections in May. The results saw the Brothers of Italy party candidate (a tiny far-right party backed by none other than former PM Silvio Berlusconi) win in the Abruzzo region.
Marco Marsilio of the Brother of Italy won 48% of the vote to become the new governor of the mountainous Italian region, replacing the former center-left governor.
In contrast, the Five Star Movement which last year was the star of Italian politics, experienced a strikingly poor performance, winning just 20% of votes. The Five Star Movement currently governs at the national level in a collation with The League.
5SM Losing Support
This latest result will likely deepen the view among some members of the Five Star Movement that the party has been losing support following its joining of a coalition with The League in June 2018.
The coalition has not been particularly cohesive, with both parties clashing over many key issues. Indeed, there have been rumours that Matteo Salvini, head of the Five Star Movement, could look to leave the party and form his own far-right group following the European polls coming in May. However, Salvini has denied these reports, saying instead that the coalition is strong and will remain as it is.
The rise of right-wing politics was clearly seen in European regional elections last year. Such a strong result at a regional level in Italy this year shows that such sentiment is alive and well.
This is particularly worrying for the future of the eurozone given the developments we have seen in recent years. The UK is now on course to officially leave the EU in March, and there remains the sporadic threat of countries such as Greece, and recently Italy, crashing out of the eurozone due to debt defaults.
Italian Budget Saga
Indeed, we recently saw the cohesion of the eurozone challenged once again. The Italian government clashed with the European Commission over its budget plans, bringing the question of national sovereignty and EU uniformity into the spotlight once again.
While the Italian government eventually passed a revised budget in line with the EC’s recommendation, the issue highlighted the ongoing challenges facing the eurozone. Once the UK has officiallyleft the bloc, these instances could start to become more common and more damaging to investor sentiment.
European Parliament Elections In Focus
Indeed, the upcoming European Parliament elections in May will be closely watched to see if the far right is able to gain any proper ground there, which could start causing bigger problems for the eurozone.
While the market impact of such results is limited in the short term, if the far right starts to make any further political gains, especially in key areas such as Germany and France, this could start to take on greater relevance in the minds of investors. This will translate into a weaker EUR, and weaker European assets in general.