Year of the Rooster: Why didn’t other nations leave the EU?

AsianInvestor looks back at our Year of the Rooster predictions made in early 2017. Today, why didn't any countries follow the UK’s decision to leave the European Union?
Year of the Rooster: Why didn’t other nations leave the EU?

Back in the beginning of 2017, the world was still struggling with the idea of the UK opting to leave the European Union, and with a set of important elections across the region set to take place during the year, there were some real fears of it not being the only one. 

That led AsianInvestor to ask the following question

Will more countries vote to leave the European Union?

Answer: No

While the answer to this question might appear obvious in retrospect, back in early 2017 many economists and political analysts were pointing to some worrying pressure points during the year. The Netherlands was set to have its general election in March, with France due to follow in May and then Germany in the autumn. 

Of these, only the German elections appeared a sure thing. Holland had seen its own version of far-right populism arise with the Party for Freedom (PVV), while in France the nationalist and anti-European Marine Le Pen had given the National Front party a more respectable edge, and threatened to make inroads, possibly even winning the run-off to become the country's president. 

Twelve months ago very few would have given thought to the fact it would be the German election result that caused the most upheaval. 

In the Netherlands, the PVV, headed by the 'Dutch Trump' Geert Wilders, did very poorly in the country's general election, with centre-right Prime Minister Mark Ruttee able to form a new coalition government without him. Then in France, Le Pen was soundly beaten in the presidential election by newcomer Emmanuel Macron, whose newly created party En Marche! went on to take the majority of seats in the following parliamentary election.

Nationalist populism had failed in both, although it must be noted that the Netherlands saw new and smaller far-right parties get votes, while the fact Le Pen ended up in the presidential run-off suggested that a large minority of the French population harbour nativist, anti-European feelings of their own. 

But while these results pleasantly surprised, the Christian Democratic Union party of German chancellor Angela Merkel had less happy results. In the months running up to the September election, Merkel had been expected to waltz into a fourth term. But it seems that her controversial decision to throw Germany's borders open to over one million refugees the year before had upset many voters. 

The result was no clear majority for the Christian Democrats, which left Merkel in the unedifying position of having to barter away some of her political power in order to form a coalition government. It was no easy task; indeed it was only revealed on Wednesday (February 7) that an agreement had been hammered out with the centre-left Social Democrats after months of horse-trading. Merkel remains in charge, but will have to cede key cabinet positions to her political rivals.  

Yet the fact remains that the UK, as we predicted, is still the sole EU nation to decide that it is better out than in. However, the ramifications of that decision are still being played out today. The Conservative government managed to bafflingly muck up a snap election that it had called in May, losing its majority and being forced into its own unpleasant power-sharing agreement with Northern Ireland's Democratic Unionists.

Following that the government has spent most of its time seemingly under the sway of hardline Brexiteers and right-wing newspapers, and yet aware that their dreams of a complete cut from the EU would inflict enormous pain on the UK economy. The result has been a lot of squabbling and very little progress. The UK government appears unable to internally decide on exactly what sort of deal it wants, and how much pain it is willing to inflict on the economy to get it. And at this point it has barely over one year left to decide. 

That's having an impact on its economic prospects. The UK's economic growth rate is broadly predicted to slow this year from last year's disappointing 1.8% — and this at a time when the global economy is growing in broadly synchronised fashion and Europe is also doing well. 

The investment outcome is that, globally exposed UK firms aside, the nation's assets do not particularly appeal. The sterling exchange rate remains relatively weak, although recent US dollar weakness has put some gloss onto it. While long-term real estate investors may see this as an opportunity to snap up some London property, for regular investors one of the world's largest economies has made itself an unappetising bet — at least until it can work out what it wants and get its largest trading bloc partner to agree. 

Previous Year of the Rooster articles:

Will the Bank of Japan be forced to re-think its 10-year bond yield target?

How many US rate hikes will the Fed make this year?

Will Donald Trump start a trade war with China?

¬ Haymarket Media Limited. All rights reserved.