Holding the centre

In his poem The Second Coming, WB Yeats wrote “Things fall apart; the centre cannot hold; Mere anarchy is loosed upon the world.” It was written in 1919 as an allegorical description of the state of European politics in the wake of World War I. It is an apt description of where we are today. Over recent years I have consistently made the point that the failure of western governments to be honest with their electorate about the scale of the economic challenges they face will ultimately be to their detriment. We have seen this writ large in the form of the Brexit referendum and the election of Donald Trump but it has also been seen in the strong performance of populist parties in Dutch, French and German elections this year. It is thus interesting to look at the vote shares of populist parties over recent years to assess the scale of the problem.

The Swedish think tank Timbro notes that the share of the European populist vote, whether to the left or right of the political spectrum, rose from around 8% in 2004 to 20% today (chart). As the authors of the study point out “in the 33 countries included in this index, there are a total of 7843 seats in national parliaments …  representatives of illiberal and/or anti-democratic parties today hold 17.5% of all seats within European national parliaments.” It is popularly believed that populist parties advocate right-wing solutions – low taxes, smaller government and opposition to immigration – but as Timbro points out, there has been a resurgence of so-called radical left parties, particularly in those southern European countries so badly affected by the euro zone crisis.

The flip side of the rise of radicalism, of course, is that centrist ideas are squeezed out. To the extent that this has proven to be the bedrock upon which the economic successes of the past 70 years have been based, this has to be a cause for concern. Moreover, political extremists do not have to hold office in order to wield influence. In Germany, for example, votes gained by the AfD ate into the SPD’s vote share and prompted it to stand aside from the coalition government, raising the likelihood that the FDP will form part of the government. To the extent that the FDP does not necessarily share Angela Merkel’s future vision of the EU this could have a major bearing on whether Emmanuel Macron’s ideas on European reform will find acceptance in Germany.

We see the same forces at work in the UK. UKIP has had very little success in securing parliamentary representation yet it was one of the prime grass roots motivators behind the Brexit referendum. The wider consequences of the Brexit vote have yet to be realised but as Simon Nixon pointed out in the Wall Street Journal last week, whilst the Brits may have voted to leave the EU, they did not vote for a revolution. But in effect, that is precisely what they have got. In his words “what makes Brexit so destabilizing is that it shares two features common to revolutions. First, it has created a parallel legitimacy, pitching the supposed ‘will of the people’ expressed in the referendum against the traditional sovereignty of Parliament … Second, it has created a power vacuum … [Brexiters] shook the economic order but without a coherent plan as to what to put in its place.”

This resultant power vacuum at the heart of the UK government is a major problem, for it is diverting energy away from the most pressing issue of the day – how to ensure that Brexit does not tip the economy over the cliff. Instead, we hear a constant stream of press stories suggesting that ministers are fighting amongst themselves. Such is the apparent disarray that the prime minister, who would like to see some form of transitional agreement with the EU, cannot get her colleagues to fall in line. David Davis, the UK’s chief negotiator, has thus been allowed to hold to his hard line in the negotiating chamber with the result that at next week’s summit, the EU27 will almost certainly decide that “insufficient progress” has been made during phase 1 of negotiations to allow discussions on a trade deal to begin.

Most people in business are increasingly worried about the implications of where the Brexit negotiations are headed as pessimism mounts. There is also some evidence to suggest that voter preferences have changed, with the share of those believing that voting to leave the EU was the wrong choice now sharply higher than in the spring (chart). This may have something to do with the fact that Brexit is not the easy option which voters were promised. It is also a warning to those who are seduced by the simple policy prescriptions of populists. If something were that easy, it would have been done already. Now, Mr Trump, about that wall …