The possibility of populist eurosceptic parties winning the upcoming elections in France, Germany, the Netherlands, and possibly Italy will “keep eurozone break-up risks in the headlines this year”, said AMP Capital chief economist Shane Oliver, however these fears “may be exaggerated”.
While populist political candidates and ideas have taken root in the US and UK, Mr Oliver cautioned that the eurozone differed from these countries in several ways, notably in that the inequality that drove support for populist platforms was not present in Europe to the extent it was elsewhere.
“Our base case is that the eurozone stays together, but there are two main risks around this,” Mr Oliver said.
“Firstly, if the migration crisis ramps up again or terrorist attacks escalate which could drive broader based support for populists. Secondly, weak centrist coalition governments risk turning the populist eurosceptics into the main opposition and leave their countries vulnerable to a populist take over the next time there is a significant economic downturn.”
Putting these risks aside, Mr Oliver said election related break-up fears are likely to spur periods of short-term volatility that will present investors with opportunities to buy, “just as we have seen since the eurozone debt crisis began in 2010”.
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