Turbulent year ahead on political fronts across the globe

PUBLISHED : Sunday, 26 January, 2014, 5:00am
UPDATED : Sunday, 26 January, 2014, 5:00am

While 2013 was the year of all-powerful central banks, fragile economic recovery and market euphoria, 2014 will be all about politics. In various countries social disruption threatens and western welfare states need to be overhauled because of ageing populations and Asian competition.

Following last year's shutdown drama in the US, electoral fireworks can be expected this year. All members of the House of Representatives stand for election in November, while one third of the Senate seats are up for a vote. As the Federal Reserve retreats, politicians should step forward and create healthy foundations for a sustainable revival, but President Barack Obama has lost power and prestige and parties are unlikely to bridge the bipartisan divide as the midterms loom.

Europe is finding it very hard to emerge from the mire. Waves of negative sentiment boost the chances of populist anti-euro parties at the European elections in May. If pessimism provides a breeding ground for populism, the electoral outcome could be disastrous for those who hold the EU dear: eight out of the 15 most pessimistic countries on earth are EU members.

Assuming that populists make big gains, it is the response of the large centrist parties that really matters. If established parties panic and pander to populist rhetoric, the European project will be in jeopardy and the crisis will erupt with a vengeance. Alternatively, social democrats, Christian democrats, and liberals could decide to ward off the populist danger through concerted action.

Voters in a range of other major emerging economies will also go to the polls: in South Africa, India, Indonesia, Turkey, and Brazil. Most of these countries are in a state of political flux and tensions will increase as elections approach.

Geopolitical violence could also stir up market volatility. Three major geopolitical themes are at play in the Middle East and North Africa: nuclear negotiations with Iran, war in Syria, and the Israeli-Palestinian conflict. In Syria, Shia Iran and Sunni Saudi Arabia are fighting each other indirectly. Simultaneously, Lebanon and Iraq are drawn into the fray. To make matters worse, surrounding states are far from peaceful.

Ruchir Sharm wrote in Foreign Affairs: "Political cycles are as important to a nation's prospects as economic ones." Unquestionably, this will come to the fore in 2014. As to the financial markets, 2013 was a splendid year in many respects. Whether this year follows suit will largely depend on political factors.

Andy Langenkamp, political analyst, ECR Research and ICC, Utrecht, Netherlands