top of page
  • Writer's pictureMalcom Seah

The 'Right' to Govern.

Photo Credit: EV, Unsplash

Executive Summary.

In an explosive political resurgence, the radical right has since forcefully stormed into parliament across Europe, with multitudes of previously nascent nationalistic bodies gaining remarkable traction as they seek to threaten the titular protagonist of modern society – Democracy.

Enter: Marine Le Pen, Georgia Meloni and Herbert Kickl. While tyrannical historical figures like Hitler and Stalin have since contributed considerably to the tainted impression of populism, the instinctual response is to jump to absolute, extreme conclusions regarding the modern right. It is then somewhat misinformed to brand the rise of the right as deplorable; perhaps it is time to evaluate their suitability to be labelled as deuteragonists rather than antagonists in light of an increasingly tumultuous global landscape still reeling from the after-effects of the dual-pronged shock of COVID-19 and a grossly-unexpected Ukrainian conflict.

In an optimistic, recuperating region projected to escape the bloodied claws of recession (apart from Great Britain), is the increased tolerance towards far-right politicians what the continent demands? The successive pages attempt to cast an introspective lens on the nuclear fallout from unexpected catastrophic global events and illustrate the varying reasons for the revival of a previously-maligned political faction long associated with dated stereotypes and maligned dictators.

1. The Fallout From a Nuclear Pandemic:

1.1. Consumption, Trade, and Gross Domestic Product.

With restrictive measures sweeping the globe and a rising death toll in the continent of Europe (particularly in Italy among the older demographic, with a death toll amounting to 188,000), the pandemic unraveled a whole myriad of challenges. The prevailing health and safety concerns spurred nations into aggressive states of lockdown in hopes of containing the spread of the potentially fatalistic virus. The restrictive repercussions manifest in the forms of the cessation of activities/events, precautionary social isolation/distancing measures, and erasure of business patronage.

An abrasive consequence of that came in the form of the first domino to fall: the vehement clip in consumer spending. Eurostat observes that there was an “unprecedented” decline of 8% in consumer spending in 2020 when compared to 2019, which stands as the largest one-year decrease in history. Restaurants and Hotels saw a 38% decrease in household expenditure spent, while transport; clothing & footwear; recreation and culture all saw 17% declines. Along with a decrease in final household consumption expenditure, there were marked alterations in consumption patterns too, as visualised in Figure 1 attached below.

Figure 1: Final Household Consumption Expenditure by Consumption Purpose, 2019 vs 2020.

Source: Eurostat, SEIC Insights.

Germany oversaw a 60% decrease in household consumption spending, while Spain experienced a 50% decline. Strikingly, the Iberian region saw a monumental decline in its import growth rate for the first time in many years during the beginning months of 2020, reaching a low of -37.18% in April 2020, coinciding with the country entering a lockdown. Additionally, export growth rate was observed to adhere to a trend reminiscent of import growth rate, reaching a low of -39.81% in April 2020 The data is visualised below in Figure 2. The dual dwindle amalgamates to present a conclusive decline in the country’s gross domestic product, represented in Figure 3.

Figure 2: Total Import and Export Growth, Spain 2019-2020.

Source: CEIC, SEIC Insights.

Figure 3: Gross Domestic Product, Spain 2018-2021 ( Quarterly ).

Source: CEIC, SEIC Insights.

Naturally, Gross Domestic Product suffered as a result of the pandemic due to a multitude of reasons: a decreased trade balance coinciding with historical declines in import/export growth as well as a distinguished decrease in final household consumption expenditure despite increases in governmental spending on fiscal policy. Such measures total to approximately EU85bn, including an EU24.7bn unemployment benefit stipend awarded to workers laid off under Temporary Employment Adjustment Schemes (ERTE) due to COVID-19. Spain in particular, is a nation that places intense reliance on its tourism and service industry to propel its economy. Fiscal balance and debt will be explored further in the next section of this article.

A slowing trade frontier across the region is not just limited to a diminished trade balance, but also the implicit abandonment of physical capital, the unquantifiable decay of perishable goods and stock, and most importantly, the contribution to unemployment in the European continent, which ultimately rose to 15.53% as productivity ground to a halt amidst a stuttering economy put on indefinite pause.

However, the EU (overall) still ran a strong trade balance surplus of EU217bn despite the anomalous dips in import (-11.6%) and export (-9.6%) growth in comparison with 2019 after boasting consistent increments over the last decade.

1.1.1. France.

The headlining story thus far has been the incensed protests erupting across France as Premier Emmanuel Macron announced his plans to raise the retirement age from 62 to 64. Macron’s agenda: boost GDP, increase investor confidence and ensure that the pension plan is sustainable for years to come while not worsening the budget deficit. His extensive-margin argument centres around the prospect of retaining a more robust labour force while the reduced need for pension pay-outs will free up more expenditure capital for the government. The average retirement age for the rest of Europe rests at 64.9 while France stands at the tail end at 62. The move was intended to be a ‘progressive’ change in legislation that would bring the country up to speed with the continent.

France’s inflation rate concludes at 5.9% in April 2023 after reaching a high of 6.4% in February 2023, still lower than the European Union average of 8.1% for April 2023. In terms of GDP per capita, the country still ranks slightly below the European Area average when adjusted for differences in purchasing power parity ( an index that standardises the value of a basket of goods based on the currency exchange ). Macron’s motives are then understandable as he wishes to move France along in tandem with the rest of Europe. However, an antagonistic view from the head of the independent pensions’ advisory council postulates that the current projected pension spending remains within reasonable domains. Such a claim not only damages Macron’s credibility, but also angers the public, who feel that there is no sufficient justification behind the proposed change. An approximated 1.27 million French demonstrators took to the streets to express their displeasure.

March 2023 saw Macron exercise article 49.3 of the constitution, which allowed him to push through the pension reforms despite faltering in his attempt to accumulate the needed votes in parliament. This has since seen him survive an abrupt vote of no-confidence, which amassed 278 votes, 9 short of the needed to dislodge his parliament. Consequently, riots and protestations persisted. The bitter irony in all of this is that these public demonstrations of dissatisfaction will only add to social turmoil, derailing potential investors from landing on French soil. In Macron’s characteristic pursuit of foreign investment, the forced pension reforms have only strengthened the global aversion to Paris.

Polls in the same month saw Macron’s popularity plummet to 28% while 68% of respondents willed for the vote of no-confidence to be successful. Jump to 5 April 2023 and an Elabe survey revealed that 55% of those surveyed would opt for Marine Le Pen, the far-right party leader, if an election run-off was held that day. Macron’s stubbornness to overturn his pension reforms exacerbates a far larger sentiment: the French feel that the government does not have their best interests at heart; member of the National Assembly of France Kevin Mauvieux echoed that citizens feel akin to mere tax-payers and nothing more.

People wish for change, and the choice to place faith in Marine Le Pen is one more marred by Macron’s wavering popularity rather than pure confidence in the far-right.

Figure 4: GDP Per Capita among European Countries, 2022 in Purchasing Power Standards.

Source: Eurostat, SEIC Insights.

1.2. Fiscal Balance and Debt.

A EU540bn support programme was proposed by the European Council to arrest the declining health of the continent; split up into three factions: job compensation, business support and ease of attaining membership status as part of the Union. EU100bn was committed to SURE – support to mitigate unemployment risks in an emergency – disseminated across 19 member states in a show of collective solidarity designed to mitigate the concerning loss of job prospects in an economy put on a temporary standstill. For businesses, EU200bn was set aside by the European Investment Bank to provide loans to small-time entrepreneurs struggling to make ends meet under the Pan-European Guarantee Fund. Lastly, a designated EU240bn was made available as loans to Euro area member countries under the umbrella of Pandemic Crisis Support, with the loan amounts capped at 2% of current GDP valuations. The need for increased fiscal support left governments with a prickling urgency to dig deeper into debt.

On top of this, EU37bn was set aside for the Coronavirus Response Investment Initiative, which was an emergency scheme shelled out by the European Union in March 2020 to provide contingency support to its member states for medical and healthcare needs.

These measures were unfortunately, not sufficient for some countries, who applied for additional loans from the International Monetary Fund ( IMF ) in hopes of cushioning the impact of the unrelenting pandemic. In April 2020, the IMF approved a loan of EU37bn for Italy under the pretence of aiding the nation with financing emergency initiatives to support struggling households and businesses. A month later in May 2020, the IMF also approved a loan of EU23.9bn for Spain in hopes of injecting some vitality into its healthcare systems as well as attempting to stabilise the economic situation unravelling in the Iberian region; the Spanish government would then finance measures to protect jobs, support small and medium-sized enterprises, and provide income support to vulnerable households. For some countries, support from the European Union was not enough.

Despite the speedy, large-scale crisis protocols of the European Council, the initial plan still remained insufficient, forcing some of Europe’s more stable economics to apply for loans from other financial bodies to finance their own internal contingency initiatives in hopes of subduing the virus. The urgent need for increased fiscal policy led to the natural consequent of a budget deficit. Most notably, Italy saw a remarkable downturn in its budget balance through the most tumultuous phases of the pandemic (2020-2021), as represented below in Figure 5.

Figure 5: Budget Deficit, Italy 2010 – 2021.

Source: Eurostat, SEIC Insights.

COVID-19 was a global crisis. Countries around the globe sought to kick in contingency fiscal measures in bids to stop the virus from spreading and that typically included unemployment support, transfer payments to small / medium business to help them survive the pandemic and monetary injections into the healthcare system to accommodate the ill. Europe, as a Union, had the privilege of being a part of a ‘conglomerate’ that came together to swiftly mitigate any further collateral from the fallout. However, certain countries still bore more economic backlash than other European nations, and in the near future, there lies increased possibility of greater pessimism from investors, who already experienced significantly reduced confidence as a result of financial markets and economic systems around the world being subject to an unprecedented halt.

Figure 6: Gross Debt Per Capita, Countries in Europe 2020.

Source: Eurostat, SEIC Insights.

Highlighted in red are countries who have since either elected far-right, populist leaders (like in Italy’s case with Georgia Meloni) or are slated to experience a strong showing by a far-right party/coalition in the upcoming elections (Spain, France). We can then see a trend from this scatter plot – the countries who have amassed high amounts of gross debt per capita are increasingly likely to tolerate far-right opposition as opposed to traditional democratic rule. It is also worth noting that among Scandinavian Countries, Finland ranks anomalously high compared to Norway and Denmark, while Sweden’s justifications for more nationalistic tolerance come from refugee-related concerns to be discussed further on in this article. Another point of consideration is that typically less developed countries such as Bulgaria and Romania have visibly lower gross debt per capita valuations as compared to more developed nations. This can be explained by the fact that the financial systems there are not as advanced as those in Central Europe, and coupled with the fact that income levels are not as competitive, the incentive for governments there to spend more on infrastructure investment, social security and public services are relatively diminished. An external shock like COVID-19 is a greater threat to the more advanced economies and would require far higher fiscal spending together with more elaborate policy. While it is challenging to draw a linear regression from gross debt per capita, we must also acknowledge that the reasons for far-right support do not just lie in the domain of fiscal debt/budget deficit woes; in Sweden’s case, it is incensed by refugee intolerance while in France, a high gross debt is not the primary contributor to unrest, but a preliminary gateway into Prime Minister Emmanuel Macron’s contentious move to raise the retirement age.

A worsening financial debt is precarious because of the potential need to borrow; borrowing can often drive debt lower and in some cases, result in higher interest payments that only compound. This does not bode well for investor confidence, as it might signal an inability to repay loans. Most importantly, a worsening debt-to-GDP ratio is often synonymous with raised taxation coupled with decreased infrastructure (social) spending.

An unexpected pandemic triggered a prompt response from the EU; and even though they exercised swift action and showed timely cooperation in shelling out an emergency response budget, the woes of a stuttering economy manifest in a severely dampened trade balance and a deepening fiscal deficit among an amalgamation of a multitude of social issues – with unemployment and an impaired standard of living the undisputed headliners among emerging concerns from members of the public who look towards the authorities as a messianic beacon in tumultuous times.

1.2.1. Debt Defaults.

A debt default occurs when a country, corporation or individual fails to satisfy its financial obligations regarding repaying borrowed funds. Conventionally, when loans are procured, the loanee has a set of requirements it has to fulfil on top of compensating an interest-included amount. It can range from having a quota regarding reducing carbon emissions to promises to increase social spending.

The inability to fulfil said criterion has the potential to illicit severe damage to the economy. The loss of general confidence in financial institutions, or the government, would potentially lead to a mass exodus of government bonds, currency or other assets. This can happen to banks too, as illustrated in the Credit Suisse ordeal which spawned immense panic among Swiss officials as they sought to manage the bank run.

This then spills over into a potential contagion effect, where the collapse of one financial institution might lead to the crumbling of another. In Credit Suisse’s case, Morgan Stanley and Citigroup Inc. both had their stocks plummet by 5% in March 2023. When this happens, the bank and country both run the risk of facing a sovereign credit rating downgrade, which makes it more challenging should they desire to procure future loans; these loans will not only be met with more scepticism and caution, but also increased interest payments and additional collateral.

The ultimate consequence manifests in terms of declining investor confidence, which deters the influx of foreign direct investment (FDI), which is integral to a country seeking to spark economic growth. In a bid to then compensate for the loss of FDI, countries might undertake measures such as budget cuts, higher taxes and reduced infrastructure spending. This culminates in a negative feedback loop that has the capacity to further entrench a country in hindered economic growth, and recession concerns might proceed to surface.

Crucially, running a high fiscal deficit while having outstanding loan obligations requires extended caution and prudence should a country seek to propel itself out of recession concerns. It’s a gamble that holds derelict repercussions should the initial ambitions not be realised.

1.2.2. Finland.

On 2 April 2023, Finland’s most popular politician of the last century, Sanna Marin of the centre-left Social Democratic Party (SDP), was dethroned by the Social Coalition Party (SCP)’s Petteri Orpo. Marin, who gained worldwide notoriety for images of her enjoying an exuberant time in a nightclub, was a magnetic presence in parliament; she oversaw a successful handling of the pandemic and also spearheaded Finland’s ascension into NATO – the latter was a decision driven extensively by the Russia-Ukrainian conflict that seemingly dissolved a decade-long forced position of neutrality consequent of Finland being part of the now-defunct Soviet Union. Marin was seen to be progressive, charming and a steady pair of hands despite her tender age. So, where does Orpo come in?

Petteri Orpo is not a stranger to Finnish politics. He has served as the head of the SCP since 2016 and was also the country’s deputy prime minister from 2017 to 2019. Although he lacks the celebrity-stature of Marin, he is viewed as an experienced, hard-nosed and practical man who delivers results, the last point owing to his celebrated handling of the tenfold increase in asylum arrivals in 2015. In bold opposition to Marin, he highlighted Finland’s concerning fiscal debt and promised to cut unemployment benefits and make amendments to current social policies in a bid to fund tax cuts. The most contentious issue pertinent to the Finnish public is no longer one of progressing the country forward with social policy and welfare. It’s now a matter of economic recovery and stability.

HICP inflation is still relatively high, concluding at a value of 7.8% in December 2022. It is projected to fall to 4.8% in 2023, but a pessimistic business outlook coupled with declining consumer and investor confidence is not set to subside tremendously in the immediate future. However, the labour market still projects to experience a phase of tightening before it loosens. Unemployment in December 2022 stood at 6.8% and is set to increase to 7.1% in 2023 before declining back to 6.8% in 2024 according to the European Commission’s estimates. A rise in unemployment will require an increase in welfare spending, something that Orpo is determined to sever; his motivation to reduce tax cuts is also an added incentive for those without jobs to search for employment as he seeks to revive the country’s economic health.

Finland’s economic growth is expected to slow to 0.2% in 2023 compared to 2.1% in 2022 before steadily increasing to 1.4% in 2024. This comes as a result of Finland experiencing a mild technical recession during the second quarter of 2022, which will dim the growth prospects of the current year, or at least for the first half of 2023. With Finland’s debt-to-GDP ratio hitting a high of 73% in December 2022 and expected to increase to 73.9% in 2023 and 76.2 in 2024, it paints a striking discrepancy when placed in comparison with the valuations from the mid-2010s. Orpo has emphasised that his party will adopt decreased social spending to fund tax cuts, which was seen a relief for the Finnish public, who were previously concerned with taxation. Either ways, it remains to be seen what policies will be implemented, for Orpo is still in the process of forming his coalition. But we can be more certain that the pursuit of normalcy will not be swift, regardless.

Figure 7: Finland gross debt-to-GDP ratio, 2014 to 2024*.

Source: Statistics Finland, Eurostat, SEIC Insights.

2. The Reverberating Collateral from the Ukrainian Conflict:

Burdened with the already strenuous task of recovering from the pandemic, the European continent was then dealt an untimely disruption in the Russia-Ukraine conflict. Russia has always been a moderately peripheral figure in Europe, but the ill-natured invasion of Ukraine cast enormous pulsating shockwaves across the world. On top of stroking political tensions (Russia was promptly expelled from the European Council on 16 March 2022), conclusive sanctions were implemented against the Kremlin. Politicians, oligarchs and well-endowed businessmen saw their assets in European banks seized, unable to be withdrawn. An approximated EU21.5bn of assets and a further EU300bn of assets from the Central Bank of Russia were now effectively frozen in the EU (European Council). However, the prevailing ban came in trade despite considerations of an import tariff being floated around. The European Commission posits that since February 2022, the EU has banned upwards of EU43.9bn in exported goods to Russia and larger EU91.2bn in imports. On the export front, countries in Europe are not allowed to sell Russia any form of cutting-edge technology, aviation equipment or oil-refining products among others. Notable illegal imports now include: crude oil and refined petroleum products, coal and steel. Crucially, the sanctions do not encompass agri-food products. Yet, the undisputed monarchs of the contagious economic shock still materialise in the forms of energy and food crises, incubating the birth of the EU’s newest titanic adversary: Inflation.

2.1. Agri-Food and Fertiliser.

Owing to the pandemic, agricultural commodity prices have been steadily climbing due to the disruption of the virus and general deterioration of the world’s agricultural economies and industries; an example being poor harvests in the United States consequent of prolonged droughts.

On the topic of the Russia-Ukraine conflict, Russia stands as one of the top producers of fertilisers in the world. Moscow has since claimed that the European sanctions on its shipping and banking industries spill-over to a reluctance for foreign companies to carry Russian harvests across the sea, even though the European Union has strategically left out food from its list of imposed sanctions.

Ukraine was one of the world’s largest food producers, owing to its arable land, ideal climate and large manpower committed to the farming industry. Prior to Russia’s invasion, 50% of the world’s sunflower seed oil came from Ukraine while the country ranked 3rd in the world for Barley exports and 5th in the world for wheat among other crops. These are essential crops that have cemented their place as staples in cuisines around the world; from Indonesia to Egypt, of which Ukrainian wheat comprises of 13% and 15% of total wheat respectively. Crucially, Russia has since taken control of Ukraine’s Black Sea ports, which account for 90% of agricultural exports. The blockade of such a pivotal trade hub prevents Ukraine from amassing a much-needed EU20bn in annual revenues and is a great economic deterrence for a country going through war with limited resources. On top of this, factories and industrial hubs dedicated to agricultural produce were also destroyed. In conjunction with this, Russia also banned domestic exports of fertilisers in March 2022, which sought to destabilize the global market and stroke inflationary pressures when it came to fertilisers and agricultural goods. March 2022 saw a 60% spike in global food prices as compared to March 2020, when the pandemic was arguably at its apex.

Together, these two countries account for 1/3 of the world’s wheat supply and are a major producer of other agricultural commodities that include fertilisers, corn and seed oils. The conflict that ensued meant that both countries were abruptly rendered inactive in the global trade scene.

2.2. Energy.

Another vital resource that was a dealt a debilitating blow was energy. Prior to the war, Russia was one of the largest suppliers of crude oil to the European Union, its largest petroleum-product supplier and also responsible for half of the EU’s total coal imports. The European Council included energy in their initial sanctions, prohibiting the transfer, import and sale of certain petroleum products as well as seaborne crude oil from Russia to the EU. As approximately 90% of Russia’s crude oil is traditionally seaborne, the sanctions were designed to cull Russia’s received profits, but sentences countries such as France, Spain, Belgium and the Netherlands to a challenging road ahead due to their severe dependence on Russia’s energy sources.

Natural gas prices hit record highs and the cost of a barrel of oil rose to nearly US140 per barrel, which was just shy of an all-time record. In May 2021, the price of gasoline stood at US3 per gallon. At the start of the Russia-Ukrainian conflict, it rose to US4.331 per gallon. In May 2022, it increased to US4.374. The increasing price as a result of an induced scarcity forced countries to dig into their stockpiles and scramble for alternatives to support their recovering economies.

Countries adopted measures like implementing petrol price caps, which limit the amount fuel companies can charge for the price of energy while paying these suppliers the difference in an attempt to alleviate cost-of-living woes for the citizens. Governments around the world were speculated to have spent a collective total of EU900bn on fossil fuel subsidies in 2022, double the estimated amount for 2021. Europe’s largest economy, Germany, nationalised its largest importer of Russian Gas, Uniper, in an EU29bn acquisition with the goal of stabilising the energy market. France enacted a similar purchase with its 90% stake in nuclear-power group EDF, achieved through a fee of EU9.7bn in January 2023. Macron’s government’s decision to nationalise a debt-laden energy producer was ambitioned to provide France with greater energy sovereignty and security in the long-term as the country seeks to decouple from its heavy reliance on Russian energy exports. Apart from softening the inflationary impacts of energy from the Russia-Ukraine conflict, European countries embraced the alternative of clean, renewable energy. Admittedly, the war did spike an initial frenzy for coal, fossil fuels and traditional energy sources as Russia sought to weaponize its energy exports.

However, Europe has since realigned its focus to more sustainable power, focusing on wind and solar energy as viable substitutes. A comparatively milder winter supplemented by China’s increased capacity for solar manufacturing allowed solar and wind energy to constitute 22% of the energy market in February 2023, while coal and natural gas stood at 16% and 20% respectively. The transition to cleaner sources of energy has proven to be a paramount priority in Europe’s vision moving forward, and we can expect the introduction of more aggressive policies in the near future.

Unfortunately, the green-energy transition still falters in its attempt to discount the matured inflationary spiral that continues to ravage the world.

Figure 8: Europe: Inflation and Nat Gas Prices.

Source: CEIC, SEIC Insights courtesy of Adam Ahmad Samdin.

2.2.1. Italy.

22 October 2022. That was the day Georgia Meloni of the historically-fascist Brothers of Italy was sworn in as the prime minister of Italy amidst alarming opposition from the rest of the world. In Italy, the fact that their leader identifies with Mussolini’s heirs is the least of their concerns as they struggle with an energy crisis.

Italy has long held harrowing amounts of government debt, as visualised in the following graph. It was one of, if not the most, countries who were the most damaged by the pandemic, and by contrasting the budget deficit per capita with the EU average, it is clear to see that the nation was struggling more than its European peers. This has manifested as one of Meloni’s most prevalent tickers as she sought to renegotiate higher amounts of financial support from the EU as part of Italy’s recovery plan. For those curious, the EU relented to granting EU200bn in grants and cheap loans (which made Italy the scheme’s largest beneficiary) on 3 April 2023 but ultimately still fell short of Meloni’s targets. EU19bn is still frozen due to concerns about Rome’s ability to comply with the designated set targets and spending requirements, which will hamper the country’s medium-term economic growth while also dealing a potentially significant blow to the country’s credit rating. There has been an increasing trend as of late and if Italy wants to guarantee economic growth in the immediate future, it has to first arrest the alarming slide before it reaches pandemic-highs again.

Figure 9: Budget Deficit Per Capita, Italy vs EU 2010-2021.

Source: Eurostat, SEIC Insights.

Before the war, over 40% of Russia’s gas energy came from Russia, which has since dwindled to 18% during September 2022, with Italy seeking renewed contracts with Algeria and Azerbaijan as then prime minister Mario Draghi ambitioned to diversify the country’s gas supply. Still, the gas crisis has perpetuated a maniacal upward spiral in the price for energy while causing inflationary spill-overs in order to compensate for rising costs. Italians find their energy bills quintupling while they lament government inaction regarding subsidies or price caps. The dissatisfaction is then justified, with many businesses contemplating survival considering the country’s main contributor to GDP is the manufacturing sector, which is energy-demanding in itself.

In a joint rally held in Rome, Georgia Meloni formed an alliance with centre-right ex-premier Silvio Berlusconi and far-right leader Matteo Salvini. Crucially, the far-right alliance proposed a cut on sales tax concerning energy and other essential items, which appealed to distraught Italians unhappy with the previous parliament’s inaction. They also campaigned for overturning Italy’s decades-long ban on nuclear power, citing the urgency for independence in energy production. Other more nationalistic policies include increased allowances for families bearing children and more stringent tackling of irregular/illegal immigration. By channelling nationalistic tendencies and a cost-of-living crisis at the forefront of her campaign, Meloni has managed to turn previously deaf-ears to her much maligned party. With regards to the current cost-of-living crisis, Italians feel more compelled by economic-alleviating narratives rather than abortion laws.

The current government is still working on an EU6bn plan under REPowerEU to supplement its transition into greener, more renewable energy.

2.3. Inflation.

Soaring energy prices and an abrupt scarcity of agricultural commodities copulate to birth a more threatening antagonist: Rising inflationary pressures. Energy prices were the main contributor, rising to a high of 41.1% in June 2022 before falling to 25.5% in December 2022 (owing to Europe’s widespread adoption of green energy), while food prices hit a peak of 17.8% in December 2022. The HICP (harmonized index of consumer prices) stood at 10.4% at the end of 2022, a precarious value that prompted the European Central Bank (ECB) to enact a series of interest rate hikes in a bid to suppress spiralling pressures. It is inopportune that inflationary pressures peaked in Winter, as Europeans looking to stockpile on food and energy in the cold season found their purchasing powers cut significantly.

Figure 10: HICP, Food and Energy Inflation in the European Union, Quarterly 2018-2022.

Source: Eurostat, SEIC Insights.

2.4. Wages.

The repercussions of rising inflation is visualised better when cross-referenced with wages. If wage fails to rise in tandem with inflationary pressures, real purchasing power of consumers decrease. The same basket of goods will now cost more when placed in comparison with the worker’s wage. Certain items might become luxuries, and consumers will be forced to be more frugal with their spending. Despite the large savings haul accumulated through the pandemic, rising inflationary pressures this instance manifest most prominently in necessities – energy and food prices. It is therefore a dilemma of how long these savings can indeed sustain these threatening price increments. This then spirals into a reluctance to spend (which will deter economic growth), a desire to switch occupations in search of better pay or most crucially, a general dissatisfaction with the current standard of living. The last consequence is the most concerning as it holds the power to destabilise and challenge the political climate of the state. Present manifestations of such levels of discontent include the UK’s NHS Strikes and Scotland’s EIS Strikes.

Figure 11: Wage Increments vs HICP, Quarterly 2021-2022.

Source: Eurostat, SEIC Insights.

2.4.1. Immigration.

Europe is renowned for having comparatively lax immigration flows. Apart from welcoming workers from the Middle-East, Asia or even Africa, intra-Europe immigration still reigns supreme. In theory, immigrants typically opt for lower-skilled or manual labour (construction, nursing) and are pivotal for countries looking to drive economic growth and human capital. Immigrants with more pronounced skillsets have the capacity to transition into higher-paying, higher-productivity management roles in industries that need them. However, the current landscape is one that is plagued by towering levels of inflation and recession concerns; the influx of immigrants will not only provide competition for locals, but also potentially drive a downward spiral in terms of wages offered. As illustrated prior, wages are already struggling to keep pace with rising inflationary pressures. Firms do not possess the luxury of undertaking more workers; in fact, most are looking to downsize. The increased competition for fewer vacancies will not demand for lowered wages, but increased dissatisfaction among locals coupled with increased unemployment. Demand, supply and abundance. Austria.

The Freedom Party of Austria (FPO), which was founded by Nazis in the early 1950s, is slated to overtake the Conservative People’s Party (OVP) as the country’s majority party in the Austria’s next determining election in 2024. Herbert Kickl, the aggressively nationalistic patriarch at FPO’s helm, has overseen a nation-wide 28% vote while the centre-left Social Democrats reaped 23% and leaving OVP to haul a 21% consensus in January 2023.

Traditionally deviant, Kickl is known for being an openly xenophobic nationalist who’s party has drawn up slogans such as ‘Home, not Islam’ in the past. FPO’s radical far-right leader has announced that the party’s agenda will primarily capitalise on the less-than-ideal handling of the pandemic by the OVP and the economic aftermath / cost-of-living woes that arose from surging inflationary pressures and energy prices stemming from the Russian conflict.

Austria’s notable dependency on Russian gas came in at 80% before the war before slowly dwindling to 57% in January 2023 as Moscow turned off its taps to the world. January 2023 saw inflation rise to a high of 11.2% before falling to April 2023 levels of 9.7%. Kickl is poised to cut social spending in favour of tax cuts while imposing stricter immigration laws that would prevent asylum-seekers and migrants from gaining access to Vienna. His focus is clear: Fix Austria before entertaining the prospect of accepting more from ‘outside’. This message has struck a resounding chord with fellow Austrians who are striving to pay the bills amidst a cost-of-living slump as more competition, even for lower-paying jobs, would lead to an inevitable depression in wages.

The Social Democrats and incumbent OVP are too adopting harsher immigration policies, and voters are quoted to be more inclined to place their confidence in the ‘real thing’ rather than ‘copycats’. A lack of faith and performance from the other parties are likely to be one of the largest reasons FPO is leading by default.

2.5. Monetary Policy.

Considering that the European Central Bank (ECB) has historically set its inflation target at 2% or below, and 10.4% in December 2022 more than satiates the need for monetary policy to be enacted. On May 4 2023, the ECB enacted a seventh successive interest rate hike, increasing the main deposit rate by 25 basis points to 3.25%. Increments of 75 and 50 basis points have been implemented since July 2022, while the latest increase has been the smallest in a chain of inflation-triggered reactionary hikes.

ECB’s president Christine Lagarde has, however, dismissed theories of placing a pause on contractionary monetary policy, claiming that “We are not pausing. We know that we have more ground to cover.” Her words come supplemented by an Euro Zone economy that has grown in limited capacity while banks are tightening access to credit – an impediment to further economic growth. The move to keep interest rates high disincentivises individuals from taking out more loans from the banks, while any outstanding loans that they might already have would increase in valuation. Increased borrowing costs discourage small-business taking out loans to stay afloat in arduous times while those looking for an injection of cash to start ventures would find this a significant obstacle in terms of accumulating financial capital. The policy is designed to act as a strong deterrent.

As of April 2023, the inflation rate in the Euro Area stands at 7%, which is an optimistic sign that levels will continue to hover around single-digits. What we can grow to expect from the ECB is a series of further increments, and it is increasingly likely that successive interest rate hikes will not be as aggressive as the previous 75 or 50 basis point surges.

It does however, not seem likely that interest rates will see a decline in the foreseeable future.


Europe, in general, is poised to escape a technical recession in 2023. Although slow economic growth is to be expected, the inflationary spiral seems to have subsided in magnitude recently. Still, prevailing concerns regarding debt, immigration and wages continue to funnel the cost-of-living crisis in many nations. The traditionally progressive continent has since shunned topics such as abortion laws in favour of returning to normalcy – the latter of which demands a hardier economic stance coupled with policies that do not seek to ‘harm’ the common man. Public satisfaction is key.

The far-right has since capitalised on these concerns, and previously-deaf ears are turning into converts. As radical as Kickl and Meloni might be with their ostentatious takes on incendiary topics such as LGBTQ+ rights and immigration, the general dissatisfaction with incumbent leaders is enough to incite calls for change. And change is already here, whether we are prepared for it or not.

The outstanding inquiry is still: will this truly usher in a better epoch for Europeans?

The verdict remains enigmatic. Regardless, it promises a refurbished dawn for the continent.


Malcom Seah is the Director of the Europe desk at SEIC.

The views expressed are the authors’ own and do not represent the official position of the SMU Economics Intelligence Club. This article may not be reproduced without prior permission from SEIC and due credit to the author(s) and SEIC.

192 views0 comments

Recent Posts

See All


bottom of page