The Netherlands. France. Italy. Germany. As if the markets did not already have enough political risk to deal with in Europe, they now have one more thing to worry about.
British Prime Minister Theresa May has called a snap general election, with the country set to go to the polls on June 8. Anyone hoping that the political upheavals across the continent would settle down, and that they could get back to valuing markets and companies on metrics such as profits and growth, is in for a disappointment. Politics looks set to dominate the agenda right through the summer.
The U.K. is likely to be different from the others, however. The election is likely to turn very quickly into a re-run of the Brexit referendum, with the arguments over whether Britain should stay in or leave the European Union thrashed out all over again. In the end, May’s Conservatives will be returned decisively to power.
And that fresh mandate will strengthen her hand in negotiating an exit deal — and will ultimately lead to a better deal for the U.K. There will be some inevitable turbulence ahead. But very soon it will become apparent that an election can only be good news for sterling
and the FTSE 100 index
Also read: FTSE slides as May calls snap election
May won’t be getting any marks for consistency today. She had insisted repeatedly that she wouldn’t be calling an election before her term expired in 2020. On Tuesday, that turned out to be just hot air. Her predecessor, David Cameron, introduced fixed-terms parliaments, so she no longer has the power to call an election by herself.
U.K. prime minister calls for an early election(1:55)
British Prime Minister Theresa May announced Tuesday that she would call an early general election on June 8. Opinion polls suggest May would significantly increase her parliamentary majority of 17 in an election, which could allow more freedom to maneuver in Brexit negotiations.
But she is asking for a vote in the House of Commons. She will need Labour Party support to get the two-thirds majority that requires. But the Labour Party has indicated that it will support that — and it is very hard to see how any opposition party can oppose going to the polls without admitting that it is terrified of facing the electorate. The election now seems set for the early summer.
There are plenty of matters the U.K. could be usefully debating. The state of its heath service, for example, its over-reliance on debt to sustain its economy, or the reforms of its education system. But we already know the debate will be dominated by one issue. Brexit.
May is, in effect, looking for a mandate for her conversion of the Conservative Party from a pro- to an anti-EU party. And to secure electoral support for her version of leaving — which involves prioritizing control of immigration and the restoration of sovereignty over access to the Single Market and membership of the Customs Union.
All the signs are that she will cruise to a crushing victory. The latest polls have the Conservatives at around 20 percentage points or more ahead. Labour’s far-left leader Jeremy Corbyn is scoring some of the worst figures ever seen by the party, and has fumbled around for any kind of consistent argument on the EU. He is in favor of leaving, but against May’s version of it, even though it is clear little else is on offer. It is a shambles.
The Liberal Democrats have a clear, and perfectly honorable, position of reversing the referendum result. The anti-Brexit forces — and they remain considerable — are likely to rally behind that banner. Even so, unless there is a miracle, it is hard to see them getting much more than 10% to 15% of the vote. By June, May is likely to be returned to government with a substantial majority, and the opposition will be in even more disarray than it is now.
That can only be positive. In reality, an election will do two things.
First, and most importantly, it will settle the argument. The U.K. remains bitterly divided over leaving the EU. May’s plans were being fought in the House of Commons, the House of Lords, through the courts, and on the streets. A hardcore of Remainers insist that the referendum campaign was twisted by half-truths and outright lies — as if that made it any different from every other election campaign ever staged.
More significantly, they argued that people didn’t vote for May’s version of Brexit. If she is returned to power, then surely everyone can agree that the argument is settled. It is perfectly respectable for people to argue for re-joining the EU some time in the 2020s — but there can surely be no more arguments that the British clearly want to get out.
Second, it will strengthen May’s hand in the negotiations. The leadership in Brussels, Paris and Berlin has clung to the belief that the U.K. might come to its senses, that it will re-think its decision, and, even if it does not stay in the EU, will agree to stay in the Single Market, and pay whatever price is demanded for that. It could play on the fact that May was an unelected prime minister with no definitive support for her line on Europe.
Those were both weaknesses. After an election, which is when the negotiations will start to get serious, it will be absolutely clear that she has the support of her voters, which is probably more than can be said of the people on the other side of the table. That can only help the U.K. to get a better deal. The EU’s talk of punishing Britain will look even more mean-spirited.
By June 9, the U.K. will have achieved two things. It will have a secure and stable government for the next five years — which is increasingly rare in the developed world. And it will have the space to get a respectable exit deal from the EU, with only, at worst, modest barriers to its exports to the rest of the continent.
In a world where political turmoil is ramping up all the time, that should make it one of the most stable countries in the G-20. If that is not good for sterling, and for British equities, it is hard to know what might be.