Rise of Populism in Europe a Threat to EU Businesses

The rise of populism in Europe is a far greater threat to the continent’s stability than Britain’s decision to leave the EU, the global chairman of KPMG, one of the world’s top four biggest accounting firms, has warned.

A majority of European business chiefs believe the Brexit vote could damage their business, with some reviewing their plans to invest in the UK, according to recent surveys, Business Insider reported.

However, John Veihmeyer, said Brexit is not the biggest threat facing the EU or the global economy next year.

In an interview with Business Insider, he said: “The elections (in Europe) and the decisions (that are going to be made in 2017), like what will happen in France, could be very impactful for the rest of Europe–especially if we begin to see a trend or more similar activity in the Netherlands and other countries.

“It could threaten the (European) union. It would mean a disruptive period for years especially since there will be a focus more on Brexit.”

“I wouldn't underestimate the concern I have for the health of the global economy and how this can become the biggest impediment of growth. The world is facing a lot of major uncertainties.”

The anti-establishment tide that voted to sweep the UK out of the EU and Donald Trump into the White House is rising steadily across the continent.

Election Concerns

A string of high-stakes elections in France, Germany and the Netherlands–along with possibly Italy–could bring even greater uncertainty to the bloc in the year to come.

Earlier this month, David Cameron warned the euro could be plunged back into crisis and added the election of France’s far-right leader Marine Le Pen would be a “big body blow” for Europe.

French former Socialist prime minister and presidential hopeful , Manuel Valls, previously said “Europe could die” in the face of “attacks from the populists”. Meanwhile, Wolfgang Schauble, German’s finance minister, has warned of the scourge of “demagogic populism”.

Policy Normalization

The European Central Bank has not discussed ending its asset-purchase program, ECB Executive Board Member Benoit Coeure told a German newspaper, though he said that would have to happen at some point, Reuters reported.

"There is no plan to cut back the purchases to zero. That wasn’t even discussed by the Governing Council. A discussion will be needed about normalization of monetary policy but it needs to be initiated carefully," he told daily Boersen-Zeitung in an interview published on its website on Friday.

He said there were still risks from uncertainty in Europe and abroad, which could cause economic damage by holding back investment and consumption.

"Outside the eurozone, major changes are expected in US economic policy, with a stronger focus on fiscal policy. These changes will reverberate across the global economy, with both positive and negative implications which are still difficult to assess," the paper quoted him as saying.

Capital Bar

Deutsche Bank AG, UniCredit SpA and eight other European Union banks would fall short of the European Central Bank’s capital demands on Banca Monte dei Paschi di Siena SpA based on stress-test results, highlighting potential objections to the plan.

The ECB told Monte Paschi it needed enough capital to push its common equity Tier 1 ratio to 8% of risk-weighted assets in the adverse scenario of the stress test, the Bank of Italy said in a statement late on Dec. 29. That’s well above the legal minimum of 4.5%. This year’s health check had no pass mark, but in 2014 lenders were held to a CET1 ratio of 5.5%.

Monte Paschi was the worst performer in the stress test’s adverse scenario with a CET1 ratio of minus 2.4%, followed by Allied Irish Banks Plc with 4.3%. The Italian government is planning a bailout of Monte Paschi. Under European Union law, state aid can be given to solvent banks to cover a stress-test shortfall, but the absence of a hurdle means the size of the gap could be disputed when Italy seeks approval for the rescue from the European Commission.