The Week Ahead: 9-15 September

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by Global Risk Insights , September 10, 2018

EU Commission presidency election ramping up. Sweden struggles to form a coalition. UK interest rates. All in The Week Ahead.

EUROPEAN UNION: The fight for European Commission president heats up, with Socialists and EPP jockeying and others planning

• Last week, the EPP was the first to move, with leader of the EPP Manfred Weber announcing his intention to contest the EPP spot for the European Commission presidency. Others, including former Finnish prime minister Alexander Stubb and lead Brexit negotiator Michel Barnier, have indicated a possible interest in running but none have formally come out to contest Weber’s position.
• An opportunity could open up depending on how the EPP, through its Commission presidential candidate, responds to Victor Orban’s, Jaroslaw Kaczynski’s, and Matteo Salvini’s parties in the EPP. Weber has tried to strike a balance, indicating a need to “find compromises” with these parties, though this may not be sufficient for certain wings of the party that have advocated taking a much firmer stance against the EPP parties under scrutiny for anti-democratic practices in their home countries.
• One of the big questions remains whom French President Emmanuel Macron will support for the Commission presidency; should Michel Barnier opt not to run on the EPP side, this could free up Macron to support a different candidate (he has shown an interest in Competition Commissioner Margrethe Vestager).

GRI take: A split between Germany and France over the EPP presidency could create complications, and a German president would likely lead to pressure from France to secure a different high-level position. The absence of the UK political parties will likely impact both major coalitions, though the Socialists in particular will likely suffer due to the strength of the UK Labour Party. Key developments to watch out for are any announcements of candidates to contest Weber’s attempt to secure the EPP position, as well as any dark horse candidate (like Vestager) who may be able to secure the support of one of more major European heads of state.

UK: Following last month’s interest rate decision, Bank of England likely to maintain interest rates

• This Thursday, the Bank of England will issue its interest rate decision for the month of September. Since last November, the BOE has raised interest rates twice, the first in November from .25% to .50%, and the next last month from .50% to .75%. It is now at its highest level since March 2009.
• Most economists expect the BOE to maintain interest rates at .75%, due to the fact that they had just raised rates, Governor Carney has not signaled a new hike is coming this month, and economic indicators in Britain were mixed over this past month.
• However, any statements from the Bank or Governor Carney could be interesting as the UK inches closer to its March 2019 departure from the EU. Governor Carney has already ruffled Brexit feathers by predicting a vote to withdraw from the EU would trigger a recession, and leading Brexiteers like Jacob Rees-Moog have indicated they believe he should resign.

GRI take: If anything, Governor Carney may extend his stay further: last week he indicated he would be willing to remain beyond his self-selected departure date of June 2019 in order to support a smooth transition post-Brexit. While there are indications that the government may support this extension, they have not yet issued a firm decision one way or another, and extending Carney’s stay could embroil the Conservatives even further in pro- and anti-Brexit turmoil.

SWEDEN: Swedish center-left and center-right parties will struggle to form a government following strength of Swedish Democrat vote

• This week, both the Swedish Social Democratic and Moderate parties will likely struggle to form any sort of coalition government after the Sweden Democrats were able to secure 19% of the vote in Sunday’s parliamentary elections. While votes are still being tallied, the Social Democrats, Moderates, and Green Party all appear to have hemorrhaged support to the Sweden Democrats, a far-right group that, among other things, calls for Sweden’s withdrawal from the European Union, a severe curtailment of immigrants, and a “tough on crime” approach to criminal justice in Sweden.
• The Greens appear to have barely scraped enough support to maintain the 4% threshold necessary to gain seats in the Riksdag, and the Social Democrats and Greens combined would probably be the largest bloc in parliament.
• However, those numbers do not appear to be sufficient, meaning Social Democrat leader and Prime Minister Stefan Lofvan will have to work much harder to bring together a governing coalition. Both the Social Democrats and center-right Moderates have indicated they will not bring the SD into their coalitions, meaning it will be much more difficult to form 50% of the Rikstag with only approximately 81% of the seats to work with.

GRI take: Should the left and right-leaning parties each remain unable to form a majority coalition, the largest of the two may attempt to run a minority government, as Prime Minister Lofvan has done. While not impossible, the growth in popularity of the SD could cause the center-right parties to reconsider some of their policy positions to avoid losing further support, making any minority government more difficult to actually govern the country.