Whether or not the British choose to leave the EU, the close polling and rise of nationalism and populism have become a global political theme in recent months, with the rise of the Golden Dawn movement in Greece, the rebounding popularity of Marine Le Pen’s National Front in France and the rise of Donald Trump in the U.S. to become the Republican Party’s presidential nominee.
These right-wing movements all focus on anti-immigration, pro-sovereignty and anti-trade sentiments, says Arone, and thrive during periods of rising inflation and stagnant economic growth.
“In order to turn the tide and to get a broader number of folks feeling positive about the economy, we need higher growth rates,” Arone says. “Even if the U.K. votes to remain, the rise of these epolitical parties and their ability to gain some share in government is going to have policy implications moving forward. It becomes harder to enact free-trade policies, and that oculd pose a broader challenge to economic growth in the future.”
Thus, the political debate over local sovereignty and trade could become a feedback loop—stagnant growth drives voters to far-right populist movements, whose policies obstruct free trade and drive down the economy, leading to further stagnation.
The vote comes amidst volatility that followed polling on the likelihood of a vote to leave the EU. When surveys of British voters found growing support for Brexit earlier this month, markets responded with a sharp decline, only to rebound when subsequent polls found a narrow lead for remaining in the EU.
“What’s happened now is that the financial markets are voting machines that ebb and flow on sentiment, so these polls provide information that moves them directionally,” Arone says. “Longer-term, markets still move on fundamentals and are weighing mechanisms. They’re both overreacting and underreacting in the short-term to information.”