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Europe Watch - March 2018

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January’s presidential election in the Czech Republic marked another populist victory in a series of polarised elections across Europe. The incumbent Czech president Milos Zeman - a Eurosceptic and pro-Russia politician – was elected, beating his more liberal and pro-European opponent with 51% to 49% in the second round. The presidential election outcome is hardly surprising in light of the October 2017 parliamentary election which swept Andrej Babis, a populist oligarch, who is facing corruption charges for illegally obtaining EU subsidies, into power. As we will investigate later, markets’ reaction to the December outcome has been fairly muted. Babis now has a second chance at forming a government across smaller non-establishment parties. His first attempt was shot down by the mainstream parties who refuse to partner up with someone under criminal investigation. Should Babis, and his ANO “yes” party manage to form a government it would represent a shift away from the liberal and strongly pro-European stance of the preceding government. One potential outcome, although low probability, would be for ANO to partner with the far-right anti-EU SPD party. The SPD openly support exit from the EU and would call for a vote on EU membership. Keeping in mind that 60% of the population does not think that “being in the EU is a good thing” suggests that ‘Czexit’ would be a likely next step if a referendum vote is pushed through. While we are still far from calling that a plausible outcome, the situation in Czech Republic does adds to EU’s headache and the threat of populism that already includes the more aggressive and ideological Eurosceptic Poland and Hungary.

Source : CBRE Global Investors

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