European elections cause investor uncertainty

Perpetual Investments head of investment markets research Brigette Leckie says that Europe has entered election season and there is an expectation that there will be a political shift to the right.

Up until recently 13 out of 15 governments in Europe have been either socialist or left-of-centre, she says, but following elections in France, Italy, Germany, Ireland, the Netherlands and several other areas there is expected to be a shift towards the right.

Part of this is due to the impacts of the European Monetary Union which has had the impact of helping improving the state of smaller economies, arguably at the expense of two of Europe's superpowers, France and Germany.

Leckie says this is illustrated by house prices. Prices in London (the United Kingdom is outside the European Union), Dublin, Stockholm, Amsterdam and Madrid have skyrocketed, while prices in Frankfurt and Paris have shown significantly smaller gains.

"There has been a decline in the standard of living (in France and Germany)," she says.

Leckie predicts that a shift towards the right is likely to be positive for markets as some countries have laws that stifle business. Labour laws are particularly business unfriendly in France. If an employer wants to make a 55 year old redundant they have to pay that person a full year's salary, plus half pay for the next five years.

Likewise Germany has some very old laws which make retailing difficult.

Leckie predicts there will be a shift away from the European parliament with "more clout going back to individual governments." Likewise there will be a slowdown in the number of smaller countries joining the EU.

These changes are likely to bring some difficulties such as an increasing number of strikes.

Historically Europe's growth rate has mirrored, but trailed that of the United States. Leckie says a shift towards the right will bring about changes that will help improve Europe's relative growth rate.

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