Voters everywhere are fed up – and that’s bad news for investors

published 25 September 2017

17-9-25-Merkel-634 — Angela Merkel won on the night, but she knows the voters aren't happy

Prime Minister Theresa May's Brexit speech in Florence on Friday was like pretty much everything else about her government so far disappointing and light on content.

But then, we should have learned by now not to expect too much. Governments have grown used to looking to the electorate (or the front pages, at least) for guidance. They never give us what we want but they do like to know which particular lies they should be telling.

Today, no such guidance is forthcoming. May governs an electorate that is divided and grouchy. There's probably only one thing that the British people agree on right now. We don't know what we want. But we do know that this isn't it.

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It's little wonder that this confusion is reflected in government policy. Or lack of it.

May's one consolation is that pretty much everywhere else in Europe is exactly the same.

As German chancellor Angela Merkel has just discovered.

Britain is far from being the only country with political problems

Reading through the post-Brexit papers, it's easy to get the impression that Britain is uniquely politically challenged.

We're the useless numpties with a lame duck government, a struggling economy (where unemployment just happens to be at a 42-year low), rising inflation (which every other central bank in the world is actively trying to achieve), and a hideously intolerant underbelly of (whisper it) dreadful lower-class people who voted to leave the EU, while at the same time coining it in by churning out fake food poisoning claims against innocent Spanish hotel operators. The irony!

The reality, of course, is that everywhere else in Europe (and the world, for that matter) is undergoing a similar political upheaval.

Take yesterday's German elections. They were meant to be the most boring in Europe, and that was seen as a good thing. And really, they were pretty boring by recent standards. Angela Merkel is coming back into her fourth term as chancellor.

However, no election these days is complete without a populist upsurge. In this case, Germany saw a far-right party Alternative fr Deutschland (AfD) gain seats in the Bundestag for the first time since the war.

Now, I don't know enough about German politics to give you an informed view of the AfD and its policies. The point is, they weren't expected to get this level of support, and on a more general level, a swing by some voters to both far-left and far-right parties means that Merkel's CDU suffered its worst result since 1949.

As a result, she'll be tied up forming a coalition between now and the end of the year. That rather throws a spanner in the works of the idea that she and Emmanuel Macron in France are going to join forces to drive the European project forward now that Britain has finally chosen to leave.

What's interesting is that again this is happening against a sunny economic backdrop. Germany has not fared at all badly since the financial crisis. Like Britain, unemployment is at multi-decade lows, and unlike Britain, Germany's national debt is at manageable levels and it's also running a chunky budget surplus in other words, the government spends less than it receives in taxes (helped by the weak euro let's hear a big "Danke" for Italy and Greece!). And that's not to mention the fact that interest rates are so low that even stolid, thrifty Germany is now having a property boom.

I don't know what the German is for: "You've never had it so good". But even if it's not true right now, it can't be far off it.

Voters don't know what they want, but they don't want this

Electorates are miserable everywhere else too. On the topic of Macron another populist upstart, although one from a different political lineage to Marine Le Pen he's been seen as France's great reformist hope. But nobody likes him.

We often hear about US president Donald Trump's historically low approval ratings. Macron has exactly the same problem. In August, notes the New Statesman, his approval ratings hit "an all-time low for any modern president's first 100 days". That's worse than Franois Hollande, the man who finally managed to make adultery look tawdry even in France.

Macron's approval ratings have picked up a little since, but yesterday he took a battering in Senate elections.

Then there's Spain. Right now, the Spanish government in Madrid is taking some pretty heavy-handed measures to prevent what it describes as an "illegal independence referendum" taking place in Catalonia on 1 October. I'm struggling to think of a better way to encourage people to vote for independence, and I'm coming up blank.

And of course, Italy, widely viewed maybe rightly, maybe wrongly as the weakest link in the eurozone. It's like Greece with clout an economy with terminal structural problems, and a desire to slip the shackles of the euro without paying the massive price in terms of lost purchasing power that a return to the lire would entail. The battle between those conflicting interests will be played out in a general election sometime between now and May 2018.

In short, no one's happy. And no one really knows why.

Be prepared for a hostile new era

My gut feeling remains that people just generally feel insecure. The global financial crash rattled faith in everything from capitalism to politics to the nature of money itself. And no one really got the blame for that.

So it's hard for people to go back to a mental framework of "business as usual". Particularly as the main culprit for much of the sense of instability historically low interest rates and radical monetary policy are still firmly in place.

But politicians aren't about to take on central bankers. There aren't many votes in that because most people barely understand their role in all this. Instead, politicians can only pander to the biggest special interest groups, whoever they may be. They also need to be seen to be doing something. Anything.

So expect attacks on popular targets. The wealthy. Big corporations. Free flows of both capital and labour.

This can happen gently a slowing of the pace of globalisation, until everyone feels that they are back in control. Or it can happen more drastically a reversal of globalisation and far more draconian rules on capital controls and labour movement and taxation.

However it goes, it's worth being mentally prepared for a new era in which governments are more hostile towards private wealth.

John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.