There have been several political developments in Europe to note. Although the immediate market impact seems modest, these developments will help shape the ongoing policy response to the financial crisis.
First is the Catalonia election. Many financial journalists look at the results and see the votes that went to nationalist parties was around 2/3 and they conclude that secessionist forces carried the day. We are less convinced and note that many of the Spanish papers ran headlines suggesting Mas' gambit failed. Mas' CIU remains the largest party, but it lost nearly 20% of its seats.
Some observers say this is a rejection of austerity, though Rajoy's PP appeared to have picked up a seat. The center-left nationalist party appears to have been the biggest winner. It is more secessionist minded, but disagrees with the CIU's domestic platform, which is quite mainstream. Arguably, more pressing than independence is that 42 bln euro debt the region has amassed and a credit rating below investment grade. On these issues, Mas may find he must deal with a more unwieldy coalition than the one he had before.
Second, in Italy, the jockeying for position for the spring election got underway in earnest. The Democratic Party of the Left (PD) had a leadership contest. The current leader Bersani failed to secure a majority and will face the second highest vote getter, Florence Mayor Renzi in a run-off on December 2. The PD is seen as the most likely to name the next Monti successor so the leadership contest may be seen as possibly picking the new prime minister.
Bersani represents the old guard in the party, and perhaps in Italian politics more broadly, while Renzi is younger, a reformist. Ironically, Renzi is seen to be more likely to follow Monti's austerity, whereas Bersani may seek to claw back some labor concessions. Bersani is seen with the advantage.
The center right People of Liberty Party was planning its own leadership election on Dec 16, but Berlusconi threw plans into disarray by suggesting that he may indeed run again. He has reversed himself a couple of times and it is destabilizing. His party has slipped in the polls and appears to be running in third place behind the PD and the Five-Star Movement behind the charismatic Grillo, who has endorsed a referendum on Italy's continued EMU membership.
It is still not clear what the electoral rules will be. Monti has been pushing for reforms prior to the election. The current system allows party leaders to pick members of parliament. A date for the election is not certain either. To get the most turnout it may be best to have regional and national elections on the same day. March 10 seems to be a possible date.
Third, in France, Hollande's support has slumped, but the center-right UMP can't quite figure out its strategy. A week ago, it was split between the Cope, former budget minister and representative of the right wing of the party, and the centrist, Fillon, former prime minister. Initially it appeared Cope won, but three days after the election, the party's election commission revealed that it had failed to count some votes and that Fillon actually won. The split remains unresolved. Former PM Juppe will reportedly try to adjudicate, but a new election has not been ruled out.
Even though the next presidential contest in France is not until 2017, the disarray, and perhaps splintering of the UMP, works in Hollande's interest. Former President Sarkozy also appears to benefit from the split in the UMP. The lack of a strong compelling leader may ease his rehabilitation and return to French politics.