James Trescothick

With more than 20 years of experience in financial service industry, James is our Senior Global Strategist and the co-producer and presenter of easyMarkets educational videos. When he is not working on educational programs or preparing webinars, you can find him with the easyMarkets team giving seminars around the world.

The United Kingdom’s decision to leave the European Union (EU) was more than a one-off; according to political analysts, it may have sowed the seeds of regional disintegration.

The pan-European project will be put to the test this year as several EU countries head for elections. France, Germany and the Netherlands are all set for a political showdown as far-right nationalist parties gain momentum. Uniting these nationalist fronts is a deep Eurosceptic outlook.

In France, National Front leader Marine Le Pen has promised to free France from “tyranny” as a result of globalization, the European Union and terrorism. Le Pen recently announced her bid to become the next French president.[1] In the process, she outlined a full manifesto, which included a plan for leaving the EU.

Her program entails “giving France its freedom back” through 144 “commitments” which include leaving the euro area, holding a Brexit-style referendum now dubbed the ‘Frexit’ and instituting a tax on foreign workers.[2]

Election jitters have already taken the wind out of European stocks, which declined sharply on Monday as markets turned cautious amid growing political risks. The Stoxx Europe 600 Index declined 0.7%, with all major bourses finishing firmly in the red. The benchmark European index has barely moved this year, and is lagging a 2.4% gain in the U.S. S&P 500.[3]

The market got a taste of what EU disintegration looks like last June when the UK voted to quit the single market. That single decision triggered the biggest equities sell-off in history, with a staggering $3 trillion wiped from the global financial markets in a matter of days. [4]There’s reason to believe that a ‘Frexit’ or similar outcome in Germany and Italy (which is due for elections next year) may result in another major global meltdown.

Brexit forced the hand of the Bank of England (BOE) to ease monetary policy for the first time since the financial crisis. The new stimulus measures were accompanied by a sharp downgrade to economic growth. The vast majority of researchers, analysts and nongovernmental institutions believe the UK will be worse off after Brexit is fully implemented.

From a financial market perspective, a fragmented EU could would trigger unprecedented uncertainty about the region’s future. Uncertainty usually leads to volatile outcomes for stocks, currencies and the bond markets.

2017 is shaping up to be a potentially volatile year for global finance. With UK Parliament recently voting in favour of the Brexit process and several high-profile elections in the pipeline, uncertainty may create a difficult investment climate. Complicating matters is an increasingly isolationist United States under President Donald Trump which has many investors concerned about a global trade war between East and West.

In terms of timetables, the UK government will begin the Brexit process by the end of March 2017. Sticking to this timeline means the UK should officially leave the single market no later than April 2019.[5]

Meanwhile, general elections in the Netherlands are planned for March 15.

The first round of the 2017 French presidential election will be held on April 23, with a second round scheduled for May 7 in the event no candidate secures a majority.

Germany, Europe’s largest economy, will hold its federal parliamentary election on September 24 and it too faces the growing tide of right-wing populism in the form of the AfD party, which has already scored huge upsets in local elections.

[1] Al Jazeera (February 6, 2017). “Can Marine Le Pen win the French presidential election?”

[2] Russia Today (February 4, 2017). “Leave euro & vote Frexit: Le Pen unveils National Front manifesto.”

[3] Blaise Robinson (February 6, 2017). “European Stocks Drop on France, Italy as Political Risks Sharpen.” Bloomberg Markets.

[4] Nicole Bullock (June 27, 2016). “Global markets lose record $3tn since Brexit vote.” Financial Times.

[5] Michael Wilkinson and Robert Midgley (January 25, 2017). “What is Article 50? The only explanation you need to read.” The Telegraph.

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