THE SLEEPING GIANT OF WESTERN POLITICS

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Wesley Porter
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1 THE SLEEPING GIANT OF WESTERN POLITICS José Maria Brandão de Brito Global Interdependence Center Conference Fundación Rafael del Pino, Madrid, 3 rd October

2 Introduction: Sleeping Giant ( ) the pro-anti EU orientation, despite its apparent irrelevance for political behavior, constitutes something of a sleeping giant that has the potential, if awakened, to impel voters to political behavior that (because of its orthogonality with left-right orientations) undercuts the bases for contemporary party mobilization in many, if not most, European polities Cees van der Eijk and Mark Franklin, The sleeping Giant: Potential for Contestation on European Matters at National Elections in Europe, 2001 The crux of national politics in Western countries has been shifting from the left-right binomial to a debate centered on supranational issues, such as diplomatic and military activism, trade agreements, financial regulation, migration and terrorism. 2

3 The Giant Has Awakened Source: The Telegraph, (online edition) 29 September

4 Why Now? A Supply-Side Issue OLD MOTIVATIONS Migration, terrorism? Yes, sure, but there was a lot of that before! Effects of the economic crisis? Yes, sure, but the hollowing out of the middle class has started long before in Europe and in the US! MARKET FAILURE In Europe, the political establishment snubbed the outcome of national referenda; The European Parliament is toothless; In the US there used to be a bipartisan consensus on international affairs, geopolitical or economic. Matter of time until the supply side of the market for political ideas filled the void. Like em or not, people like Farage or Trump sniffed the opportunity that the incumbents failed (or didn t want) to identify. 4

5 What Awoke the Giant... In Europe? EVEN HOPING HAS BECOME HARD Jan-00 Jan-03 Jan-06 Jan-09 Jan-12 Jan Youth unemployment rate - euro area (%) Source: Datastream; Millennium bcp 5

6 What Awoke the Giant... In Europe? WHAT DO YOU THINK ARE THE TWO MOST IMPORTANT ISSUES FACING THE EU AT THE MOMENT? Immigration Terrorism Economic Situation Unemployment Source: Eurobarometer; Millennium bcp 6

7 What Awoke the Giant... In Europe? DO YOU TRUST THE EUROPEAN UNION? Tend to trust EU (%) Source: Eurobarometer; Millennium bcp 7

8 What Awoke the Giant... In Europe? INTEREST RATES TOO LOW FOR SAVERS, TOO HIGH FOR DEBTORS 4,5 4,0 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0,0-0,5 Jan-15 Mai-15 Set-15 Jan-16 Mai-16 Set-16 German 10-year government bonds yield Portuguese 10-year government bonds yield 4,5 4,0 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0,0-0,5 Source: Datastream; Millennium bcp 8

9 What Awoke the Giant... In the US? UNSUSTAINABLE IN DEMOCRACY Source: Murray, Charles; Coming Apart: the State of White America, ; Kindle edition, 2013; page 49 9

10 What Awoke the Giant... In the US? WHITE MEN NOT MAKING A LIVING Upper class Lower class Source: Murray, Charles; Coming Apart: the State of White America, ; Kindle edition, 2013; page

11 What Awoke the Giant... In the US? TWO WORLDS APART Upper class Lower class Source: Murray, Charles; Coming Apart: the State of White America, ; Kindle edition, 2013; page

12 What Awoke the Giant... In the US? DANGEROUS TRENDS Upper class Lower class Source: Murray, Charles; Coming Apart: the State of White America, ; Kindle edition, 2013; page

13 What Now? Centrifugal Forces The anti-establishment sentiment is spinning ever faster in Europe & US. The Brexit campaign shows that elites have lost their clout with public opinion in the West. Anti-EU sentiment is already shaping European matters at national level (e.g. Merkel v Renzi on banks). The Litmus test will be the next recession for which there ll be no economic policy cushion. SOME PEOPLE HAVE SOME GREAT SENSE OF HUMOR (SATYAJIT DAS) Grexit Departugal Italeave Czechout Oustria Finish Slovaknockout Latervia Bygium Looks like only Remainia will stay! 13

14 Should We Worry? Things fall apart; the centre cannot hold; ( ) The best lack all conviction, while the worst Are full of passionate intensity William Butler Yeats, The Second Coming 14

15 Life After Brexit in the UK: It Could Be Worse... RE-PRICING, NOT COLLAPSE Jan-16 Mar-16 Mai-16 Jul-16 Set-16 1,50 1,46 1,42 1,38 1,34 1,30 1,26 Footsie 350 Stock Index USD/GBP Source: Datastream; Bloomberg; Millennium bcp 15

16 Life After Brexit in the UK: It Could Be Worse... NO PANIC FOR NOW Jan-16 Mar-16 Mai-16 Jul-16 PMI Manufacturing PMI Services PMI Construction Source: Datastream; Bloomberg; Millennium bcp 16

17 Life After Brexit in the UK: It Could Be Worse... NEWS OF THE DEATH OF UK S HOUSING MARKET A BIT EXAGGERATED Jan-16 Mar-16 Mai-16 Jul Consumer Confidence (GFK) House prices index (Halifax) Source: Datastream; Bloomberg; Millennium bcp 17

18 Architect s Hand? THE PROBLEM IS LACK OF GROWTH = SLOW PRODUCTIVITY US Real GDP (yoy, 10yma) US Productivity - nonfarm business (yoy, 10yma) We ve stretched the current industrial model to its limits, that s why productivity is slowing despite the internet We re on the verge of the 4 th industrial revolution based on advanced robots and 3D printing Labor costs will be replaced by proximity and flexibility as the main location drivers Globalism will give way to Localism The unraveling of the globalist super-structure will (perhaps) fit like a glove on the new industrial paradigm. That would be just perfect! The revival of local manufacturing in the Western world will generate many jobs, albeit requiring totally different skills, which in itself requires another revolution Source: Datastream; Millennium bcp 18

19 This information is not an offer to sell or a solicitation to enter into any particular deal or contract. It consists of data compiled by or of Opinions or estimates from Banco Comercial Português, S.A. and no representation or warranty is made as to its accuracy or completeness. This information is merely an auxiliary means of analysis to be used by its recipients, who will be solely responsible for its use, including for any losses or damages that may, directly or indirectly, derive from it. Its reproduction is not allowed without permission from the BCP group. The data herein disclosed are merely indicative and reflect the market conditions prevailing on the date they have been collected. Thus, its accuracy and timing must absolutely be confirmed before its usage. Any alteration in the market conditions shall imply the introduction of changes in this report. This information / these opinions may be altered without prior notice and may differ or be contrary to opinions expressed by other business areas of BCP group as a result of using different assumptions and criteria. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. 19

Euro Zone: An Alarming Slowdown

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