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Investors Worried About Fate of Europe in 2017

All in all this means that countries that account for about 70% of the eurozone’s GDP could experience disruption to their normal political cycle in 2017
The biggest unknown by far this year is whether Trump will remain true to his campaign promise to “get tough” on US trading partners  and how that might impact the global and European economies.The biggest unknown by far this year is whether Trump will remain true to his campaign promise to “get tough” on US trading partners  and how that might impact the global and European economies.

With the EU in crisis-fighting mode, the big question for the European economy in 2017 seems to be how much will populist politics put pressure on an already tepid economic outlook.

Investors are heading into 2017 with their eyes wide open as a string of elections this year are feared to act as flashpoints that could ignite brewing political discontent across the continent. Europe’s political landscape is changing, and not for the better. The continent is struggling with the rise of populism, while at the same time the idea of European integration is losing its popular appeal, recent events suggest, BusinessReview.EU reported.

All this has investors worried. “European equities could have a strong year if the anti-euro populist candidates that have gained traction over 2016 fail to win elections, as polling suggests. But if populist candidates triumph in coming votes, the prospect of a eurozone breakup could return to markets,” wrote the Wall Street Journal.

The eurozone could hold half a dozen elections in total in 2017, according to PricewaterhouseCoopers. The most important are those in Germany, France and the Netherlands, but there is also a chance for Italy and Greece to join their ranks. 

All in all this means that countries that account for about 70% of the eurozone’s GDP could experience disruption to their normal political cycle in 2017, warn PwC representatives. There is also the matter of Brexit shaping up as well as several developments outside the continent which could have spillover effects on European countries, such as US-Russian and US-Chinese relations under the Trump administration.

A Bumpy Ride Ahead

France is getting ready for presidential elections this spring while Germany will hold federal elections come fall. The first to deal with will be the Dutch general elections in March. Leading in polls at the end of December was controversial Dutch politician Geert Wilders who has vowed that should his far-right Party for Freedom win, he will take the country out of the EU. 

Moving south to France, the country’s “saving grace”–as Time magazine puts it–is its two-round presidential system, which, if the polls are reliable, should mean that the Front National’s Marine Le Pen, a candidate with an outspoken anti-immigrant and anti-EU stance, is defeated in the second round. December polls show her losing ground after Francois Fillon emerged as the Republican candidate against the more moderate Alain Juppe. 

Back in Germany, Angela Merkel is hotly tipped to secure a fourth term as chancellor following federal elections in autumn; however, the road will be bumpy. To put it in the chancellor’s own words, “this election will be difficult, like no other election since reunification”. 

With such populism on the rise throughout the continent and eurosceptics more emboldened than ever, her reelection would be a welcome sign of stability. 

The Unknown

Not only does the EU have to deal with the uncertainty brought about by elections in some of its main economies in 2017, but there are also the concerns inherited from the previous year in the form of the prospect of Brexit and a Donald Trump presidency.

The biggest unknown by far this year is whether Trump will remain true to his campaign promise to “get tough” on US trading partners and how that might impact the global and European economies. 

Economists are also split on what the impact of a more aggressive US' anti-China trade policy might be and which of the two countries stands to lose more in the process. Claims that there would be huge net job losses are extremely dubious. But what would happen would be a global trade war, which would disrupt the existing economic structure, which is built on elaborate international supply chains. 

In the long run, a new structure with shorter chains would be built. But in the meantime, some industries, some factories, would end up becoming sudden losers—in the US as well as in developing countries, predicts Paul Krugman in his New York Times column.

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