The populist surge and the problem of migration

The US heads for a Biden/Trump re run with plenty of misgivings, while the recent Dutch and Argentinian elections send shockwaves across the globe.

| 9 min read

The indications from this week’s Dutch election are a big surge in support for parties that want less migration, with the biggest minority party in a split Parliament being the Freedom party. Their leader Mr Wilders has strong views on migration and a wish to leave the EU. The other parties may try to form a wide-ranging coalition to exclude the Freedom party from government, but they will not be able to ignore the demands for more control over migration.

The new centre party that also did well, coming from a standing start, and also had cutting migration as the most memorable of its core policies. Some think Mr Wilders will moderate his views and form a government with the New Social Contract party and the Peoples party, who between them may have at least 76 seats for a majority. All three parties want lower migration.

On both sides of the Atlantic many voters think their countries are too welcoming to economic migrants, whilst accepting the need to help genuine asylum seekers fleeing violence. The EU’s Mr Barnier has called for a rewrite of EU law and the European Convention on Human Rights to allow countries to limit numbers, and in the meantime wants his native France to develop an independent national “constitutional shield” as they “learn from Brexit”. He fears the popularity of National Rally, the Le Pen party.

President Biden who opposed Trump’s building of border walls to keep out migrants is now allowing another 20 miles of wall to be built, just as he supported President Obama’s construction of border defences. US Border patrols have arrested more the 2 million people along the south west border this year in an effort to keep numbers down.

These currents of opinion will continue to influence voting patterns and change governments, as on both sides of the Atlantic countries wrestle with problems of providing enough housing and public service to cater for fast rising numbers.

Shock waves in Argentina

The western establishment was also astonished to see a radical outsider romp home to take the Argentinian presidency. Winning with 56% of the vote against the Finance Minister, Javier Milei who stood on a programme of closing the central bank, axing a large number of government departments and civil service jobs, and adopting the American dollar as Argentina’s new currency.

Called El loco, the madman, by some of his opponents, a majority of the voters decided they had had enough of their establishment. They want to try something different as they are suffering under current policy, administered by a government that has lost control of inflation and spending, and by an IMF that is trying to provide some discipline whilst lending to stave off bankruptcy. The money supply has rocketed. Inflation hit 142.7% in October and is widely forecast to surge to 200%. At these levels of inflation living standards get badly squeezed, savings in local currency are undermined and the peso plunges.

Over five years the peso has fallen from 37 to one US dollar to 350 pesos to the dollar.

Time will tell if the new president can translate startling campaign slogans into working policy. He will not have a ready Parliamentary majority to back him and he will need to negotiate with creditors and world institutions. He could look to the Ecuador model, as that country scrapped its own currency the sucre in 2000 and adopted the US dollar as the official currency in similar circumstances to Argentina today. There are 11 countries (as well as various US dependencies) that use the US dollar as their official currency, including Zimbabwe, El Salvador and Panama. Argentina’s future is relevant to investors mainly because Argentina needs substantial support from the IMF and the World Bank, and because what it does to curb runaway inflation could have a wider impact on the current debates about central banking and the causes of inflation.

The US heads for a Biden/Trump re run with plenty of misgivings

In the US President Biden celebrated his 81st birthday on Monday 20th November, reminding everyone he will be 82 come the next presidential election and 86 by the end of the next presidential term. This is becoming more of an issue for US voters who worry over various press reports suggesting more lapses of age are creeping into the president’s public performances.

Whilst his opponent Mr Trump is only four years younger, he is not attracting the same criticism over age. He remains preoccupied by the blizzard of court cases against him which so far have not lost him support with many Republicans though shock his critics. Recent polls are not kind to either potential candidate for the presidency with more people disapproving than approving of both candidates.

President Biden’s own ratings are around 40% approval, a low rating for a US President seeking re-election. He has lost ground recently with young voters and with Democrat voters, with many of them thinking his stance on the Middle East has favoured Israel too much. As is often the case, the US public is less in favour of US military support for wars than their politicians. Republicans are cooling on support for Ukraine against Russia and many Democrats are not keen on military support for Israel. In an election year it seems likely the president will be increasing the use of his influence with allies to ease conflicts and to explore diplomatic solutions more seriously. The US has been stressing to Israel the need to avoid civilian casualties in Gaza and helping the intermediaries who want more humanitarian aid to be supplied. This entails pauses in fighting and has led to the current negotiations over a temporary suspension of hostilities to exchange prisoners for hostages.

We are now much closer to the early primaries to choose candidates for the presidency. The remarkable thing is how constant the high polling figures for both Trump at around 60% and Biden at around 75% have been. Neither party has found a serious challenger yet to the front runners. The early impact of Ron de Santis has waned. De Santis is still the most popular of the Trump rivals, with a percentage rating stuck in the teens. A brief flowering for Ramaswamy has subsided to just 3%. Nikki Haley, one of Trump’s biggest critics, has reached 13% after a struggle to get into double figures. In the Democrat camp Marianne Williamson, formerly an independent, has reached 12%. The polls over who might win if there is a rerun of Biden against Trump remain too close to call, with Trump currently a little ahead.

EU polls show troubles for governing parties and leaders

In the EU the issue of the economy remains difficult for the incumbent governments. A combination of high inflation and no growth is not popular. An important concern of voters is often the high levels of migration, which is helping parties that target this issue in the polls. Recent polling in France for the European elections next year puts National Rally, Le Pen’s party, ahead of President Macron’s party. In Germany a July poll for the same elections put the anti-migrant AFD ahead of the chancellor’s SPD . More recent German national polls also show a stronger AFD. In the Netherlands the general election this week saw the end to Rutte’s government and a big change in priorities of the electorate. In France President Macron’s personal ratings show 69% disapproval, whilst the German government also faces similar low popularity ratings. All this increases the pressure on the EU and member states to tackle the scale of migration and to see what they can do to ease the squeeze on their economies.

There is always plenty of political noise in the news. The things that matter to markets are when changes of government actually lead to substantial changes of policy and direction, or when the political debate starts to change the way the central banks and treasuries think about their roles and their actions. So far it is more noise than policy change but watch this space. Governments will be looking for ways to reflate economies.

The arguments over the future of the Argentine peso and how to cure a serious level of inflation have wider interest.

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The populist surge and the problem of migration

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