Investors are alert once again to the threat of the euro-zone breaking up, due mainly to the growing tide of support for nationalist parties opposed to the euro – and even membership of the European Union (EU) – across the Continent.
These worries have persisted, despite the result of the Dutch election on March 15, when Prime Minister Mark Rutte saw off a challenge from the far-right Partij voor de Vrijheid (PVV), or Freedom Party, of Geert Wilders.
With many commentators seeing the Dutch vote as a litmus test for the strength of the anti-establishment vote ahead of elections elsewhere in Europe later this year, the relief of EU officials was palpable.
Stand-off in France
Investors, however, remain concerned and the euro-zone faces its next big test on 23 April, when France goes to the polls to choose between presidential candidates. Should none secure a majority, as seems virtually inevitable, a run-off election between the top two will be held on 7 May.
Opinion polls suggest the candidates of both the Socialist and right-of-centre Republican parties, which have dominated French politics for most of the post-war period, are likely to be eliminated in the first round. That would likely leave the National Front candidate Marine Le Pen to battle against the centrist candidate Emmanuel Macron in the final round of voting.
Le Pen has said that, if elected, she would launch a referendum on France’s EU membership within six months in order to give the country control back over its currency, debt and trade policy.
However, while she may win the first round, it seems unlikely Le Pen will be able to draw sufficient votes from the defeated first-round candidates to gain the presidency. Polls suggest Macron would comfortably defeat Le Pen by a margin of around 60:40 in a two-way run off. Moreover, around 65 per cent of French voters are happy to keep the euro, although whether that changes if Le Pen were to get in remains to be seen.
Close calls in Germany and Italy?
Meanwhile, polling for September’s federal election in Germany indicates the race between Chancellor Angela Merkel’s Christian Democratic Union and the resurgent Social Democrats is too close to call. Much attention has focused on the anti-migrant Alternative für Deutschland party, which polls suggest could harvest around 10 per cent of the votes; enough to give it several seats in the German parliament. However, it is expected to be shunned by establishment parties and locked out of talks to form a governing coalition.
Further political uncertainty in the euro-zone could be triggered if Italy holds an election this year, as seems increasingly likely. Italy's largest parties are both calling for a vote by the summer, about a year ahead of schedule.
Both the 5 Star Movement, which leads opinion polls, and the far-right Northern League, have floated an exit from the single currency. Meanwhile, former Prime Minister Silvio Berlusconi’s centre-right Forza Italia, which is fourth in the polls, has proposed a new parallel currency. Only the ruling centre-left Democratic Party is willing to defend euro membership.
However, while it is understandable financial markets should be nervous, it’s unlikely the far-right will assume control in France, Germany or Italy. Indeed, talk of the euro collapsing appears unduly alarmist. The euro-zone is certainly not going to break up imminently, even if doubts over the euro’s long-term chances of survival remain as valid as ever.