Europe-wide Political Uncertainty Gives Way To More Stable Conditions

AISLING DODGSON, Head of Corporate Treasury at INVESTEC, on reasons to be cheerful …

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A bit brighter but still chilly! That’s how the water cooler/Irish weather chat is presently framed as we head into summer proper – a fitting synopsis which seems to have striking similarities with the current European political landscape. Working in the Corporate Treasury division of a bank, we have been fortunate enough to be seated front and centre at some of the more volatile market events over the last few years. As the after-shocks of the Global Financial Crisis and the European Debt Crisis subsided, the Brexit vote of last year heralded the return of geo-politics to the financial markets.

As such, in the aftermath of the shock Brexit and Trump outcomes of 2016, the fear was that mainland Europe could be heading down the same right-veering, isolationist route in 2017. With the Netherlands, France and Germany (in that order) all going to the polls this year, there was the possibility of some seriously dark days ahead. A move to the far right in the Dutch vote might have been manageable but a Marine Le Pen victory in the French elections or a combination of both would have been the defining bodyblow that called into question the very existence of the entire European project in its current format.

As is the norm in global financial markets, the sharp chill of uncertainty is omnipresent. That cold front is most definitely sitting atop the UK as they navigate a fourth crucial vote in as many years. Never far from the news in recent months, Prime Minister Theresa May, with approval ratings at record levels, called a snap election. As I write, the Conservatives are currently well ahead in the opinion polls so the election will likely see an increased Tory majority, in turn increasing the likelihood of Brexit.

As a net exporter to the UK, a strong British economy and a robust Pound will always be in Ireland’s interest. Post referendum, it’s been an extremely tough few months for Irish business, dealing with a significantly weaker sterling, and the overhanging concerns surrounding potential trade and border issues have been less than ideal. Although leaving the Single Market is priced in, there does seem to be some understandable confusion as to the reasoning behind Mrs May’s call for a general election. As a “dyed-in-the-wool” pro-European, she knows well that a rock-hard Brexit would not only wreak havoc on the British economy but it would also decimate her government. She wants the power to smack down any back-bench calls for a hard exit and no better time to build on an already strong footing than when your approval ratings are at record levels. With this election out of the way this month, we feel the newly formed UK government will adopt an infinitely more conciliatory approach to what can only be some difficult negotiations ahead, ultimately paving the way for a much smoother, softer Brexit deal.

Summer Economic Forecast:

Global geopolitical landscape still crucial.

Macron victory = EZ (short term) stability.

Brexit uncertainty still to the fore.

Aisling Dodgson is Head of Corporate Treasury, Investec. For further information please visit www.investec.ie or call 01 4210 000.

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