The decision by France’s poll-leading politician Marine Le Pen to contest the presidency has revived, once again, the prospect of a national-populist challenge to the dominant European orthodoxy of pro-EU centrism. This challenge has been regularly underestimated for about 20 years, with each populist setback looked to as evidence of a turning of the political tide back toward centrist normalcy. The defeat of the self-described “illiberal” Hungarian leader Viktor Orban in April was the most recent instance. SIG’s view is that European right-wing populism is as close to a durable trend as one can find in politics. Investors cannot afford to ignore it.
In the past decade and a half, Marine Le Pen has run for president three times. Her electoral performance has increased each time: 17.9% of the first-round results in 2012; 21.3% in 2017 (with 33.9% of the runoff vote in the second round); 23.2% in 2022 (and 41.5% in the runoff). With her declaration last Tuesday, Le Pen is on course for her fourth run and leads French polling for the next election, scheduled for April 2027.
Meanwhile Nigel Farage, leader of the Reform UK party, has called for a by-election in his constituency of Clacton. Farage was leader of the United Kingdom Independence Party (UKIP) from 2006 to 2016, with a short break in 2010 to run, unsuccessfully, for Parliament. UKIP agitated for Britain’s exit from the European Union, which occurred in June 2016 with the support of 52% of the British electorate. Farage co-founded the Brexit Party in 2018, and the next year it became the dominant party in the European Parliament. (The process of Britain exiting the EU lasted from the 2016 election will into 2020.) The Brexit Party was renamed Reform UK in 2021. Current polling shows Reform as the dominant British political party at 25%, trailed by Farage’s former political home, the Conservative Party (21%), and Labour (20%). Britain’s mainstream parties have so far refused to engage in the Clacton by-election, calling it a “circus” (Labour) and a “gimmick” (Conservatives). There was some hope that the UK’s chancellor, who must certify a by-election, would block Farage’s plans. That hope disappeared on Thursday, July 9. The by-election will probably take place in mid-August.
Germany’s far-right party Alternative für Deutschland leads the most recent polls at 27%, followed by the conservative CDU/CSU coalition at 22%. Italian Prime Minister Giorgia Meloni’s center-right party Brothers of Italy continues, at 27.8%, to dominate polls, but is facing a surge to its own right from the months-old Futuro Nazionale, which appears to be displacing the League (5.9% vs. 5.8%) as the far-right alternative. Spanish politics also seem to be moving rightward. In Austria the ruling far-right FPO party remains dominant at 37%, followed by the center-right OVP at 20%.
Centrist or center-right coalition governments trying to avoid being pulled further right have become a European norm. The countries in question are all democracies; the rightward trend is a result of voter preferences. When the center-left London Guardian framed Le Pen’s “resurrection” as “a wake-up call” it did raise the question how many wake-up calls there can be before some new descriptive term is required.
What does this mean for investors? The main question is productivity growth, or the lack of it. GDP per capita growth rates in Europe have been declining since the 1960s. Rates in the rest of the world surpassed Europe’s in the mid-1990s. European fertility has been declining over the same period, from a high of 6.8 million births in 1964 to 3.55 million in 2024. Population growth is persistently well below replacement level. This is important because weak domestic demand is one of the few explanations for low European productivity that economists agree on — and opposition to non-European immigration is the main point of agreement among Europe’s center-right and right-wing political forces. Strikingly, 24% of European births in 2024 were to foreign-born mothers, although “foreign-born” includes intra-Europe migrants as well as those from outside the EU.
Reconciling declining population with economic growth and productivity growth is not easy. The European economy’s response has been to look for demand outside Europe while increasing openness to trade. Euro-area trade openness has doubled since 1999 while it has stayed stable in the rest of the world. Europe has had a trade surplus over the same period as producers find demand overseas — particularly in the US. The EU’s goods trade surplus with the US has doubled over the past decade. In short, more globalization has eased the problems posed by weak domestic demand and low productivity.
The proposed centrist solutions to productivity decline in Europe have been to deregulate labor protections, encourage intra-European population movements, improve technology, support European entrepreneurship, and consolidate markets across European national borders. Much of this comes under the slogan of “more Europe” and from many points of view is inarguable. However, these solutions can also be understood as more globalization within Europe itself —an internal liberalization. In either case, such policies run against the national focus of most center-right and far-right political groupings.
If the growth of such groupings is stable, as it has appeared to be for some time, then Europe will be at war with its own economies. The most likely policy solutions are at odds with the most likely political configurations as validated by the preferences of European voters. Investors would prefer the centrist reforms associated with Mario Draghi and Enrico Letta, but the political trends point in the opposite direction, with enduring negative implications for European growth.