Staying in Iberia, the final election to consider this year is the October 4 vote in Portugal. During the summer, as ‘Grexit’ fears reached a crescendo, the International Monetary Fund published its thoughts on the country. Never one to mince its words, it noted deficit reduction issues that risked spilling over into the broader economy.
In spite of such fears, it is notable that the realities of pay and pension cuts, tax increases and reduced public services in Portugal have not resulted in the rise of a major radical party like Syriza or Podemos. The election is a straight fight between the centre-right governing coalition and the socialists, who are roughly neck and neck, raising the prospect of a minority government – which does not sound conducive to a particularly strong government taking difficult decisions.
In summary, the upcoming elections in Greece, Catalonia, Spain and Portugal are highly unlikely to presage a front-page European crisis but are quite likely to usher in weak governments and potentially fan regional-level tensions.
At a time when the requirement is for decisive government committed to difficult decisions to help boost European competitiveness and growth, this is not particularly good news. Insightful investors should note this and adopt suitably discriminating strategies towards all European assets and investments. Politics may only have a weak correlation with stockmarkets over the longer term, but at the moment, the election frenzy in Europe matters.
Chris Bailey is European strategist at Raymond James
