Looking Ahead (10 June)

Monday, 10 June – Conservative leadership contest to get underway in earnest as spectre of Farage looms

Candidates for the Conservative Party leadership must submit their intention to run by 5pm today. In the first ballot – on 13 June – candidates must receive at least 17 votes to proceed to the next round, to be held on 13 June. In that subsequent round candidates will need at least 33 votes. From that point the weakest candidate in each round of voting will be eliminated until two are left.

It is expected that the identity of the final two will be known on either 19 or 20 June. Hustings will be held from 22 June. Boris Johnson is highly likely to make the final two. The key question of the leadership contest is set to be the identity of Boris Johnson’s opponent. A showdown between himself and another hard Brexiteer would run the risk of escalation, as each promises more extreme no-deal style measures in a bid for the leadership.

The possibility of this extreme outcome was increased by the results of the 6 June Peterborough by-election. If the prospect of Nigel Farage sweeping to a parliamentary majority remains remote, the lesson of Peterborough is that he can still split the Tory vote and hand seats to Labour. Faced with the prospect of electoral wipe-out, the temptation of a hard-Brexiteer leader – to nullify Farage – will become more compelling for both Tory MPs, and the party membership.

Monday 10 June, Tsipras to meet with Greek President Prokopis Pavlopoulos to request dissolution of Parliament and snap elections to be held on 7 July

Despite rumours that Tsipras had changed his mind on snap elections, he is expected to meet with President Pavlopoulos today to ask for Parliament to be dissolved. A snap election will then be held on 7 July.

In an attempt to claw back support, Tsipras has announced a series of pre-election giveaways which SYRIZA estimates will cost 0.6% of GDP while the European Commission’s estimate is at 1.1 to 1.4% which would put the 3.5% GDP primary surplus target for 2019 in doubt.

The pre-election giveaways did not help SYRIZA in European or regional elections and historic voting patterns in Greece have shown a widening of the gap between the first and second placed parties in years where a European Parliament election has been followed by a national election. Our base case for the general election is for New Democracy to return to office with a narrow absolute majority of 151-157 seats in the 300 seat parliament. Depending on how narrow the majority is, ND leader Mitsotakis may invite the centre-left Movement for Change (KINAL) to join a governing coalition.

Tuesday, 11 June – Deputy finance ministers to deliver opinion on Italian excessive deficit procedure, as Conte attempts to avert standoff

The Italian budget dispute, which was reignited last week by the Commission’s recommendation of an excessive deficit procedure, will intensify this week with the meeting of Eurozone and EU Finance Ministers, with the 13 June Eurogroup and 14 June ECOFIN. We expect that Finance Ministers will ultimately agree with the Commission recommendation.

While the re-emergence of discourse on the miniBOT has been dismissed by some journalists as a distraction, we do not share that opinion. The idea has clearly been the subject of serious thought in Italy, and within the Lega.Whatever the legal reality of miniBOT, the political and market reality – as noted by Bruegel – is that it would be viewed as a clear first step towards Italian Euro exit.

Prime Minister Giuseppe Conte – aware of the risks involved in a deepening standoff – has continued to try to act as a mediator. Conte will today meet with Salvini and Di Maio in an attempt to formulate a plan to avoid a procedure. While it is likely that the Italian parties will agree on a short term compromise to keep the government in place for, this is likely only to be temporary. We continue to believe that an election is likely this year, as Lega will want to capitalise on their strong polling position. Our expectation is that Salvini, seeking a majority, will look to ramp up the conflict between Italy and the EU, before forcing an election.