Carsten Brzeski’s blog

Austria: Split nation

The Austrian Interior minister Sobotka just announced the official result of yesterday’s breathtaking presidential elections. Alexander Van der Bellen (a Greens politician but running as an independent) has narrowly beaten his rival Norbert Hofer (of the right-wing Freedom Party). According to minister Sobotka, Van der Bellen won the elections by a very narrow margin of 31,026 votes. Van der Bellen received 50.35% of votes, Hofer 49.64%.

This victory in extra time may bring some relief to European policymakers and financial markets as the feared scenario of a populist at the head of a core Eurozone country has not materialized after all. Nevertheless, the result also stresses that almost half of the Austrian voters in fact did vote for right-wing populist Hofer and seem to sympathize with a very strict stance on Austria’s refugee policy and a very distant relationship with the EU. Obviously, election results are never driven by only one or two factors and explanations of the Austrian results do vary. In our view, however, the results show that there seems to be a strong divide within the Austrian people on the future direction on immigration policies and Austria’s role in the EU. Moreover, the strong result for Hofer also seems to illustrate a deep frustration with the so-called established parties. For almost a decade, Austria has now had a grand coalition with the two biggest parties the social-democrats and the conservatives.

The Austrian vote is another example – as for example the Netherlands in the early 2000s – that populist parties do not only flourish during recessions or in economically difficult times. Populist parties can also be successful in core Eurozone countries, which enjoy healthy economies with low unemployment rates. This observation, combined with the notion of growing frustration with grand coalitions, should be a clear warning signal to Germany but also to the rest of the Eurozone. To Germany as the country is currently witnessing signs of wear from a grand coalition; but also to the rest of the Eurozone, where increasing populism is likely to reduce options for potential government coalitions, limiting common ground for economic policy options, thereby possibly hampering growth and consequently again preparing the grounds for more populism. A dangerous vicious circle. Financial markets and international observers will probably quickly move their attention again away from Austria but the ingredients and underlying political trends of the Austrian presidential elections are likely to stay in the Eurozone for a while.