A year ago, the eurozone was the main high income area facing political challenges. Now the focus is on the US and UK.

Eurozone political developments have been favorable. Brexit has seen European sentiment rise among most members. The populist-nationalist have been turned back at nearly every opportunity. After struggling for the past year to govern Rome, the EMU-skeptic Five Star Movement in Italy was dealt an important setback in the first round of local elections held over the weekend. Macron appears to set to have a large majority in the next French parliament. Sarkozy and Hollande were elected as reformers, but both failed to reinvigorate the French economy. There is a sense of optimism with Macron and the seeming realignment of French politics. 

A more robust France, coupled with what appear to be the likely fourth term for German Chancellor Merkel, could strengthen Europe is profound ways. It could not happen at a more opportune time. The UK’s exit from the EU, the push back from eastern and central Europe, and perceptions that the US is a less reliable partner than in the past is spurring some soul searching in European capitals. A robust French economy that meets the Stability and Growth Pact commitments would help overcome the current paralysis of European integration.

To be sure, challenges remain. Catalonia’s pursuit of a referendum on independence later will force a confrontation with Madrid. Austria and Finland face challenges from the anti-immigration and anti-EU forces. Italy will likely hold elections in around a year’s time, which gives the Five-Star Movement time to readdress internal fissures. 

American and British politics stand out. It is not so much that the populist-nationalist party won. It was more the case that the center-right party of the two party system adopted the rhetoric of the populist-nationalists. As we have noted, education seemed like the single best predictor of voter behavior. Although education and income tend to be correlated, some analysis (see Nate Silver, fivethirtyeight.com) found in areas in which the correlation broke down; education was a better predictor than income in the US.