Voter Anger and Business Risk in Europe

By Krišjānis Kariņš, former Prime Minister of Latvia, now Senior Advisor at KREAB Brussels

Since the results of the US presidential election, a lot of analysis has been devoted to what the incoming Trump administration could mean for European business. Although many decisions by the US administration will ultimately affect European business, I believe that it is equally important to step back and look at a broader issue unfolding right here in Europe: the fact that election after election, what is referred to as the “far-right” has been making headway in European countries. The agenda that they are bringing to the table will affect business in Europe directly.

Break with “business as usual”

Just as Trump is heralding a break with “business as usual” regarding how the US will develop its relationships with both friend and foe, a similar voter anger-fuelled movement is unfolding in Europe that will make it ever more difficult to predict what kind of policy to expect from European governments in the foreseeable future. The plain fact is that the traditional centre of European politics is currently crumbling. Although the new (centre-oriented) European Commission has been elected by a (bare) majority of centrist parties in the European Parliament (EP), the Commission is not a lawmaker. That is up to the EP and individual European Union (EU) governments.

In country after country, the traditionally big centre-left and centre-right parties have been losing considerable electoral ground to what not so long ago were considered “fringe” parties, most notably from the far-right. Herbert Kickl of the FPÖ in Austria is the latest far-right politician to be given a chance to form a government in Europe. Since the general election last summer in France, Macron’s centrists have lost the majority in parliament. In Germany, the far-right AfD is currently polling second and is slowly continuing to gain ground in the run-up to the federal elections next month. If it feels like a political insurrection, that is because it in effect is one.

If the incoming Trump presidency poses a serious risk of a tariff war between the US and the EU, the far-right political parties that are or are coming into power in Europe pose a risk to the predictability of policy within the EU. Specific policy areas such as security, climate change, an migration (workforce availability) could be particularly effected.

Security implications

In Europe, most far-right politicians have an affinity with “strongmen” such as Russia’s Vladimir Putin. This is unfortunate, since Putin’s war of aggression in Ukraine poses a very real security risk for all of Europe. If more and more governments include or are headed by far-right parties (or have implicit support from them), European governments, and hence the EU, could begin to have serious difficulty in maintaining a coherent common security strategy, especially concerning Ukraine and Russia. If Europe’s policy towards Russia should begin to wobble, the knock-on effect would be higher levels of anxiety among large parts of society, which in turn would directly negatively affect business sentiment on the continent.

Climate policy

Although climate change is viewed as a fact by centrist parties in Europe, the far-right is not convinced that concerns of climate change should trump short-term economic benefits of continuing to use (or increasing the use of) fossil fuels. In particular, parties from this political spectrum make the case for renewing energy trade with Russia, which again has security implications. While it is clear that the European Commission is not planning a massive rollback of climate policy, the political shift in national governments means that climate policy will become less predictable. Political deals may have to be made that roll back some aspects of the current legislation, particularly the pace at which climate neutrality is to be attained.

European climate policy has had a very clear and predictable trajectory for at least the past years, which in turn has created a sound environment for investment. In the coming years, business will have to take into account the possibility that some elements of this policy could change. Again, less policy predictability will most likely mean some delayed decisions in investments. This could also negatively affect some companies that already made investment decisions based upon the clarity of previous climate policy.

Migration

The third big policy area where the far-right is already influencing parties from the centre is migration. The call from these parties is to fully stop all illegal migration and deport those who have entered the EU illegally. Indeed, this is a growing general sentiment across a large portion of the European electorate. Such strong views on illegal migration could well spill over into legal migration as well, by emotionally lumping together all “migrants” into one grouping.

Given that Europe’s population is declining, for better or worse, it needs immigration to maintain economic growth in the future. Quite fiery debate is to be expected in both national governments and the EU as to how to properly manage the situation. Once again, this rethink of migration policy will most likely to some degree affect workforce availability in Europe, which business must take into account looking ahead for at least the next few years.

A resolution to voter anger

My observation is that political sentiment among the electorate is forever moving back and forth in a pendulum-like manner. For many reasons, the current mood among many voters is anger and a rejection of the status quo, which seems to be emanating from a combination of factors, including the 015 migrant crisis and the large influx of newcomers, the hotly disputed Covid restrictions and mandatory vaccinations of 2020-2021, and the surge in inflation which from Russia’s all-out attack on Ukraine in 022 and the ensuing energy crisis.

The mood among the electorate will change if and when either (1) the centrist parties regroup and successfully address what really concerns voters, (2) after a period where the far-right sets the political agenda and voters eventually realise that what self-assured populist opposition voices promised somehow falls short on delivery, as strong conviction butts up against actual responsibility, or (3) Russia’s aggression starts to visibly spill outside of Ukraine’s borders and gives everyone in Europe a huge wake-up call. Regardless of how voter anger is eventually resolved, European business should expect less common European policy predictability in the coming years.