Brexit and the Trump win make the outcome of upcoming European elections uncertain, writes Brian Caplen.

With Donald Trump in the White House, two major world economies – the US and the UK – face upheaval and uncertainty. Furthermore, the prospects of another anti-establishment vote prevailing in upcoming elections in France, Germany and the Netherlands becomes more likely. The victory of a right-wing anti-immigrant party in a major EU country would surely spell the end of the European Union in anything like its current form. As with Brexit, Trump's victory defied the opinion polls and shocked a liberal establishment, which estimates that in elections economics and common sense prevail. Instead, a lot of voters are saying, give us anything apart from more of the same.

The problem is that – and again in both the US and the UK – there is no clear picture of what this change means and even less guarantee that the outcome will benefit the blue-collar sections of the electorate who supported it. Apart from building a wall along the US-Mexican border there was very little of substance in Trump's electoral platform. He is against US military involvement overseas and trade deals with emerging markets that he regards as disadvantageous to the US. Brexit, on the other hand is about forging trade deals with key emerging markets such as India and about allowing market forces to run more freely not less.

As Trump is pro-Brexit, one trade deal he may consider is a UK-US one between countries that are on more equal terms economically and have traditional ties. But the outlook for the Trans Pacific Partnership trade deal must now be in question and China-US relations will become a lot more fraught. The other big unknown is what happens to monetary policy. Trump rounded on Federal Reserve chair Janet Yellen during his campaign and there are questions as to whether she will wish to stay in her post. Equally, continuing loose monetary policy and its impact on savers has been a stated concern of the UK’s new prime minister Theresa May. Ironically the disruption and inflation caused by both events may be the trigger that finally sends interest rates upwards.

What is absolutely clear is that one era in politics and economics is ending but the characteristics of what replaces it are extremely hazy. Markets will be skittish until they can see more exactly the true policy direction of President Trump.

Brian Caplen is the editor of The Banker.

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