EU migration, populism and investment risks
Investors need to factor in how immigration concerns in the European Union could fuel the rise of populist parties, potentially increasing the political risk premium.
Market focus can rapidly snap back to underlying political risks after long periods of calm. If refugee flows stay high (or even intensify), the prospect of disruptive political clashes between member states and the EU remains ever-present.
Every six months the European Union (EU) asks its citizens about their worries, hopes, fears and dreams in the ‘Eurobarometer’ survey. Citizens of every single member state now identify tackling immigration as one of their top two concerns for the EU.
Respondents in 20 out of 28 countries see immigration as “more of a problem than an opportunity.” We try to unpick why this is the case, why anxiety over immigration is likely to continue and how it will affect investors.
The consequences for financial markets are tied up in the potential political fractures associated with immigration. Populist movements across the continent have exploited the perceived economic, social and cultural threats posed by immigration to win votes and influence. They typically combine worries about immigration with antipathy (or outright opposition) towards the institutions of the EU, often pushing moderate parties in similar direction.
Eastern Europe contains a number of examples where such movements have been successful in gaining power. A similar tipping point has now been reached in Italy where the new government has placed tackling immigration at the heart of an anti-European agenda. Repricing the political risk premium in the EU could have a profound impact on financial markets as they factor in a fundamental challenge to the prevailing institutional architecture.
Does the EU have an immigration 'problem'?
Despite immigration’s prevalence as a political issue, the proportion of the population born overseas (i.e. first generation migrants) is actually quite low in Europe relative to other parts of the world.
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