World reacts to Castro’s death. Italy holds referendum. South Koreans protest. Trump picks team. All in The Week Ahead.
Italy faces major referendum, with political and economic instability looming
On Sunday, Italy will vote on whether or not to approve a series of institutional reforms pushed by the Renzi administration that would reduce the power of the Senate and the regions, and increase the power of the Assembly. Prime Minister Renzi has indicated that he intends to resign the premiership should his referendum fail. This could usher in significant political instability as the Five-Star Movement gains momentum (particularly following its success in winning the Rome mayoral elections). The Prime Minister has admitted that threatening to resign may have been a mistake as it turned the election into a referendum on his administration, but has not backed off from his pledge to resign from office.
Should the No vote prevail and Renzi resign, a major banking crisis could ensue, as major Italian banks in need of support (especially the Monte de Paschi di Siena) in the weeks ahead could end up not receiving private sector support due to the political instability this would unleash and prompt government response (in particular given the open question of who would be finance minister in the technocratic government that is likely to follow). Although there is some chance the referendum may pass, the average of polls heading into the election has shown the No side up 11 points on average. If the banks are unable to secure major funding, this could also have knock-on effects for the Euro and No vote could further embolden politically extreme groups in Italy and across Europe (especially following the Brexit and Trump elections).
World calibrates to Castro death
This week, world leaders and populations will adjust to former Cuban President Fidel Castro’s death. Although he stepped down from the presidency a few years ago to be replaced by his younger brother Raul, Castro’s death will assuredly lead to questions over Cuba’s economic reform and foreign policy position moving away from the Castro years. Some question the significance of this event as Raul is largely viewed as continuation of Fidel’s presidency, though with a bit more openness to market forces and pragmatism but maintaining the strict security and surveillance of the state.
Psychologically, though, this could be marked as the end of the hard leftist era of Latin American politics: with the loss of leftist and left-leaning politicians in Brazil and Argentina, the collapse of the PSUV in the Venezuelan Assembly, and struggling leftist parties in Central America, the death of Fidel may be seen as a bookmark to Latin America’s 21st century Pink Tide. In the U.S., Castro’s death could alter U.S. geopolitics slightly: the strength of the Cuban-American vote in Florida has propelled strongly anti-Cuban government politicians to the U.S. House and Senate. Without Fidel as a rallying point, Cuban-American voters may become less reliable Republican voters. Any policy through the Trump administration could upend U.S.-Cuba relations as well, and Trump’s newly-minted chief of staff Reince Preibus has indicated Trump could reverse the re-opening of relations with Cuba that Obama began in 2016.
Protests against South Korean president likely to continue
Following revelations last month that a close friend of South Korean President Park Geun-hye may have illegally influenced state affairs and held improper influence to support her businesses, hundreds of thousands of South Koreans took to the streets last weekend calling for the resignation of the President. Although President Park has apologized for the improper influence, she has resisted calls to step down. But given her 5 percent approval rating, this answer is not particularly sufficient for many.
The threat of political paralysis as opposition parties call for President Park’s resignation has had economic ramifications, with consumer confidence falling to its lowest level since 2009. The Korean Constitution mandates that should the President step down, the Prime Minister would take her place. However, in early November, President Park sacked Prime Minister Independent Hwang Kyo-ahn, which means that the presidency would fall to a series of cabinet ministers. But given the Park shakeup, it is difficult to see how anyone becoming president after holding an executive appointment for only a month would gain the legitimacy of either the people (who would likely balk at a person with a 5% approval rating choosing her own successor) or the Assembly.
It is somewhat difficult to find comparisons, but the chaotic succession crisis for U.S. President Richard Nixon and the removal in office of Brazilian President Dilma Rousseff, are somewhat comparable and both very messy. This is further complicated by the fact that the largest party in the Assembly, the Minjoo Party, is on the left end of the spectrum while President Park’s Saenuri Party sits on the right. Should she appoint a conservative to succeed her by establishing him or her as prime minister and then resigning, it could set off a political fracturing between the president and legislature.
President-Elect Trump likely to continue cabinet selections
After announcing his pick last week for Education secretary and UN ambassador, as well as previous selections for CIA director, Attorney General and senior advisors, President-Elect Trump is likely to continue naming nominees for other Cabinet positions. The main three, Treasury, State, and Defense, remain a bit of a mystery. Some names, like 2012 presidential candidate Mitt Romney, have been floated as Secretary of State, though given the persistent rumor mill (likely established by the Trump team) surrounding these positions, most of these names should be taken with a grain of salt. Liberal Democratic congresswoman Tulsi Gabbard was floated as UN ambassador and former DC school chief Michelle Rhee had been considered for Education, but both ultimately were not chosen and the far more conventional candidates Republican Governor Nikki Haley and Michigan conservative activist Betsy DeVos were selected as UN ambassador and education secretary, respectively.
Two of the consistent themes of his selections thus far have been 1) a strong attention to loyalty, and 2) extreme conservative ideology. The idea that a Trump administration would constitute a form of stability is far off the mark; in virtually every policy field, Trump has suggested a wide deviation not just from established U.S. policy (such as the privatization of Medicare and repeal of Obamacare) but from global norms as well (in particular the revocation of the Iranian nuclear deal and the Paris Climate Accords). If his attitude towards the Republican National Committee’s party platform is any indication, Trump will likely allow those who are most invested in certain policy issues to take free reign of the policy, meaning the most extreme Republican position on virtually every issue will prevail.
The Week Ahead provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, The Week Ahead presents a series of potential upside/downside risks, shedding light on how political decisions affect economic outcomes.
The Week Ahead is written by GRI Analyst Brian Daigle.
