COVID-19: assessing the political fallout

Click here for full report and disclosures

●  A watershed event: The COVID-19 pandemic and the ensuing mega-recession may shape political debates and choices for a long time. Crises of such a scale can make or break leaders. In this report, we offer some tentative observations about potential global consequences and the political outlook in key countries of the advanced world.

●  Peak populism? The pandemic is taking a particular heavy toll on countries whose overconfident leaders trusted their political instincts more than sound advice, at least initially. Some countries with a calmer and more science-based response are faring better. This may make it more difficult for populists to peddle their fact-defying slogans in the future. However, the costs of the recession fall heavily on less skilled service workers and new entrants to the labour market. This may cause new problems.

●  A leaderless world: All of the major global players, the US, China and the European Union, got their initial response to the crisis partly wrong. So did many second-league players, such as the UK and, much more badly, Russia and Brazil. An even more fragmented world could be a more dangerous place, especially if the US continues to weaken global institutions, as well as its own soft power.

●  Advantage Biden? In the US, President Donald Trump is no longer the favourite to win the election on 3 November. If Joe Biden makes it into the White House instead, he may pursue a more centre-left policy agenda as the Democrats would have a good chance to win a majority in both houses of Congress. The resulting mix of more domestic regulation with a calmer foreign and trade policy may sour the economic mood in the US but still come as a relief to other parts of the world.

●  Risks to the cohesion of Europe: With a belated decision to promote a generous €750bn recovery fund, Germany may be helping to rein in the surge in anti-EU sentiment in parts of southern Europe. However, the future cohesion of the EU looks a little less secure now as the initial impression of insufficient solidarity in the critical months of March and April may linger.

●  After Merkel: Thanks to luck and a deft policy response by Germany’s centrist coalition, the risk that a Green-left-left coalition could take over in Berlin in late 2021 has receded a little. But it has not vanished. The weakness of the small liberal FDP, which may struggle to stay in parliament, could be a bigger factor than the rise of the right-wing AfD, which has stalled.

●  Political risks have risen in France. We still believe that Macron’s earlier reforms have strengthened the French economy significantly. But his reform momentum has stalled. We now see a risk that the reforms may not suffice to deliver a golden decade for France in the 2020s. Political risks remain elevated in Italy and Spain.

Holger Schmieding

Chief Economist

+44 7771 920377

[email protected]

Disclosures

This material is intended as commentary on political, economic or market conditions for institutional investors or market professionals only and does not constitute a financial analysis or a research report as defined by applicable regulation. See the "Disclaimers" section of this report.

The commentary included herein was produced by Joh. Berenberg, Gossler & Co. KG (Berenberg). For sales inquiries, please contact:

Phone: +44 (0)20 3207 7800
Email: [email protected]

BERENBERG
Joh. Berenberg, Gossler & Co. KG
Neuer Jungfernstieg 20
20354 Hamburg
Germany

Registered Office: Hamburg, Germany
Local Court Hamburg HRA 42659

For Berenberg the protection of your data has always been a top priority. Please find information on the processing of personal data here.
Any e-mail message (including any attachment) sent by Berenberg, any of its subsidiaries or any of their employees is strictly confidential and may contain information that is privileged or exempt from disclosure under applicable law. If you have received such message(s) by mistake please notify the sender by return e-mail. We ask you to delete that message (including any attachments) thereafter from your system. Any unauthorised use or dissemination of that message in whole or in part (including any attachment) is strictly prohibited. Please also note that any legally binding representation needs to be signed by two authorised signatories. Therefore we do not send legally binding representations via e-mail. Furthermore we do not accept any legally binding representation and/or instruction(s) via e-mail. In the event of any technical difficulty with any e-mails received from us, please contact the sender or [email protected]. Deutscher disclaimer.

Click here to unsubscribe from these emails.