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Different results, but both suggest far-right's hold in Europe

Austria rejects a far-right candidate, while Italy rejects its liberal Prime Minister Matteo Renzi. These show what mainstream parties need to do to keep the far right at bay, says Tony Barber of the Financial Times.

POLITICAL CENTRE HOLDS IN AUSTRIA

Mr Alexander Van der Bellen's victory in Austria's presidential election on Sunday will be greeted with relief in Brussels and most European capitals. It will be taken as a victory for pluralism, tolerance and liberal democracy itself. Yet there will also be a sober recognition that the forces of right-wing Eurosceptic populism remain a significant disruptive influence in European politics.

Austria is a case in point. Mr Norbert Hofer, the far-right Freedom Party's presidential candidate, lost but his party still has a commanding lead in opinion polls in the run-up to the next parliamentary elections, due by 2018. Dissatisfaction is widespread with the two ruling coalition parties, the centre-right Austrian People's Party and the Social Democrats, which have alternated in power at the national level for almost the entire post-1945 period.

The prospect cannot be excluded that the Freedom Party will become the senior partner in a coalition government within the next two years. This would be a first for the extreme right in post-World War II Europe.

However, the success of Mr Van der Bellen, a Greens-backed independent moderate, illustrates the limits of the far right's appeal. In Austria, it points to the existence of a politically sophisticated, liberal-minded majority, consisting of city dwellers, the well educated, young women and other voters, who saw through Mr Hofer's beguilingly anodyne campaign slogans.


Mr Hofer of the Freedom Party lost in Austria's presidential election on Sunday. 


Mr Renzi was defeated in Italy's constitutional reform referendum.

Many who voted for Mr Van der Bellen were fearful of the damage to Austria's international reputation that would have arisen from a far-right victory in a country that was annexed by Nazi Germany in 1938. Mr Van der Bellen benefited from this effect when he clinched the narrowest of victories over Mr Hofer in May, before the discovery of vote-counting irregularities made a rerun of the election necessary. Voters may display similar impulses in next year's presidential election in France, where Ms Marine Le Pen, the leader and candidate of the far-right National Front, is sure to be disappointed by Mr Hofer's defeat.

In the Austrian context, it needs to be kept in mind that the European Union's various challenges - ranging from low economic growth and unemployment to the euro zone's troubles and the refugee and migrant emergency - have altered the political climate. The government reacted to the tide of refugees that flowed through Austria last year by imposing strict border controls, prompting complaints from Germany that it had not coordinated its actions with the rest of the EU. Many Austrians are turning against globalisation and are strongly against planned EU free trade deals with Canada and the United States.

Such, it seems, is the price that must be paid by mainstream political parties, especially on the centre-right, in order to keep the extreme right at bay. A similar effect is noticeable in France, where Mr Francois Fillon, the centre-right's presidential candidate, is conducting a campaign strong on themes of national security and the threat of Islamist terrorism.

The Freedom Party's apocalyptic warnings of the imminent "Islamification" of Europe and the risk of civil war erupting in European cities over the presence of non-European Muslim migrants left a majority of Austrian voters unconvinced.

Yet the party has been a vocal force in Austrian politics since the 1980s, long before the migrant and euro zone crises. The party holds 40 seats in Austria's 183-seat Parliament and, even if it does not win the next election, there is every reason to expect its representation to go up.

The struggle between liberal internationalism and anti-establishment extremism in Austria and other European countries is by no means over. But in what has been the most testing year for Western democracies since 1945, Mr Van der Bellen's victory serves as a reminder of the underlying strength and attractiveness of the principles of openness and moderation.

THE CASUALTIES OF ITALY'S REFERENDUM RESULT

For EU governments and financial markets, Mr Matteo Renzi's defeat in Italy's constitutional reform referendum will intensify unease about the risks of political and financial instability in the euro zone's third-largest country. In many respects, anxiety about Italy's political future is overblown. Yet the concerns about the condition of Italy's banks, public finances and economy are well founded and demand convincing measures from the nation's political classes if the shock from Mr Renzi's defeat is to be contained.

On a momentous Sunday for European politics, the victory of a moderate, liberal candidate over his far-right opponent in Austria's presidential election drew audible sighs of relief in Brussels and EU capitals alarmed about the advances of anti-establishment populism. But the celebrations were cut short by the referendum result in Italy.

The danger is not that Italy will descend into political chaos or fall into the clutches of the insurgent populists of the Five Star Movement. Now that Mr Renzi looks set to honour his campaign promise to resign in the event of defeat, the most likely outcome is that Italian President Sergio Mattarella will appoint a new prime minister to govern the country until the next parliamentary elections, due in early 2018.

The new premier would almost certainly be a safe pair of hands such as Mr Pietro Grasso, the anti-mafia magistrate who is president of the Senate, Italy's Upper House, or Mr Pier Carlo Padoan, the internationally respected finance minister, or another minister from Mr Renzi's Democratic Party. The premier's chief task will be to prepare a new electoral law to replace the present system, which awards bonus seats to the winning party and is intended to ensure a government can rule unchallenged for a full five-year term.

The new law will probably change the system so that the bonus seats go to a winning coalition, rather than a single party. In this way, it will actually make it far less likely that the Five Star Movement, should it win an election, would find itself with a commanding majority in Parliament. Mr Renzi's defeat may in this sense be a blessing in disguise for those worried about the Five Star Movement's idiosyncrasies and its suggestion that Italy should hold a referendum on euro zone membership.

The more immediate and real concerns relate to Italy's banking sector. The referendum result throws into question the ability of Monte dei Paschi di Siena, Italy's third-biggest and most fragile bank, to conduct a successful €5 billion (S$7.5 billion) capital increase that was planned to take place straight after the vote. It also puts the spotlight on the weaknesses of other banks struggling under the burden of non-performing loans and low profitability. Financial market nervousness in the light of Mr Renzi's defeat could add to these pressures.

The risks are particularly acute in Italy because households there own about €170 billion worth of bank bonds. Should any banks fail, ordinary Italian bond holders would be expected, under new EU rules, to absorb some of the losses. This is a politically toxic prospect. Yet if the Italian state were to step in to prop up failing banks, it would increase Italy's public debt, which already amounts to a colossal 133 per cent of gross domestic product.

Underlying these concerns is the awareness in markets that Italy's economy has barely recorded any economic growth since the nation entered the euro zone in 1999, even though Mr Renzi's government has presided over a modest recovery since it took office in early 2014 and has passed some well-received labour market and tax reforms.

The outlook for more such reforms now looks bleak, for if Mr Renzi should resign, the next government will hold power for little more than a year, at most. Its energies will be devoted in large part to revising the electoral law. There is a danger that economic stagnation will resume its grip on Italy.

But the priority in the coming days and weeks must be to prevent instability from spreading in Italy's financial sector. The first test will be the planned rescue of Monte dei Paschi di Siena.

FINANCIAL TIMES

A version of this article appeared in the print edition of The Straits Times on December 06, 2016, with the headline 'Different results, but both suggest far-right's hold in Europe'. Print Edition | Subscribe