Earlier this week, one of the Obama administration’s top diplomats, Samantha Power, claimed that Russia was responsible for the stunning Italian election outcome, hinting that anyone who dares to point out or discuss the social and economic woes of Europe’s grand experiment – and certainly Europe’s “refugee problem”- is a Russian operative. In that case, Deutsche Bank must be the Frankfurt office of the KGB, because, in an overnight note, the German lender reported something especially troubling for Europe’s future and viability: populism has risen to the highest level since World War II.
Commenting on the recent Italian election, Deutsche Bank’s Jim Reed writes that relative to other political events in recent years, Italy’s general election over the weekend was a relatively calm affair for markets, despite the uncertain outcome. Which was to be expected: in previous political events, the ECB forcefully stepped in and vowed to intervene if turbulence emerged.
However, as Reid adds, “it’s hard to get away from the fact that the overall result was another resounding vote for populism. Indeed over 50% of votes submitted was for a populist party, including of course the party with the largest percentage – the Five Star Movement – and a possible kingmaker in subsequent coalition talks – the Northern League.”
Making matters worse for the “globalist” establishment, arithmetically the anti-establishment alliance between Five Star and the Northern League has an outright majority, and While it’s difficult to see such an alliance forming, this shows the power of populism in recent years which has followed a vote for Brexit, President Trump and strong performances for the likes of the National Front party in France and the Alternative for Germany party in Germany.
The chart below shows Deutsche Bank’s populism index updated for the Italian election result. The chart shows that the percentage of votes for populist parties on a population-weighted basis is around 32% – a level its largely held since the Trump inspired surge in 2016. In fact, you have to go all the way back to the WWII period to find the last time that populism had such support.