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Out of the Box: Your Wake-Up Call

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How do you like me now?
How do you like me now,
Now that I’m on my way?
Do you still think I’m crazy
Standin’ here today?
-Toby Keith

We are but three weeks out from a defining moment for the world. I remain convinced that most people, and financial institutions, do not understand the gravity of what is about to take place. What I am speaking of here is the elections for the European Union Parliament and the quite real possibility that the populists, the nationalists, are going to win these elections and wrestle control of the EU from Germany and France.

The “underlying assumption” is that this won’t happen, this can’t happen, and that the EU will roll merrily along. I do not share this belief. I think that either the nationalists will gain control or that they will have such a significant minority position that the desires of both Germany and France will be frustrated, if not overruled, by the new populist coalition.

The European Union was formally established when the Maastricht Treaty came into force on November 1, 1993. The initial laws and regulations were amended by the Treaty of Amsterdam in 1997, the Treaty of Nice in 2001, and the Treaty of Lisbon in 2007. The European Union is now a political and economic union of 28 member states with an estimated population of about 513 million people. Brexit is still there, and undecided, so the member nations may decline by one, at some point.

In Italy, the League party of Italian Interior Minister Matteo Salvini continues to dominate polling projections for this month’s European Parliament elections as a new alliance with Hungarian Prime Minister Viktor Orbán begins to take shape. According to a new poll released by Index Research, Salvini’s League is still firmly the most popular party in Italy going into this month’s election with 32.8%, with the second largest party, the League’s populist coalition partner the Five Star Movement, polling more than ten points behind at 22%, Il Giornale reports.

Last week, Salvini visited the Hungarian capital to meet with Prime Minister Viktor Orbán, of the governing conservative Fidesz party, where the two discussed the possible form of their new alliance in the European Parliament. We are clearly looking for cooperation with Mr. Salvini, in a form to be defined,” Prime Minister Orbán said during a press conference Thursday, and added, “I am convinced that Europe needs an alliance of anti-immigration parties.”

Ahead of the visit of the Italian minister, Orbán described Salvini as “the most important person in Europe today.” The Hungarian leader also said he would welcome cooperation of the European People’s Party (EPP), the group in the European Parliament to which Fidesz is a member but is currently suspended, with the anti-mass migration coalition as well. “It would be better for Europe if it was not Macron, but Orbán and Salvini who are at the helm” on border control, he said.

Salvini, meanwhile, has made it clear he wants to unite the sovereigntist movement across Europe saying that it could become the largest group in the European Parliament. “For the first time in the history of the EU, a new majority can be formed leaving aside the EPP and the Socialists,” he said. In an interview with current affairs channel M1 broadcast late on Thursday, Salvini said “uncontrolled migration” only brought about “a cheap work force for slaveholders and votes for the left”. He further stated, “Our objective is to be the force of government and change in Europe.”

Jörg Meuthen, a leader of the Alternative for Germany party, or AfD, said at a news conference that there were absent partners “who will join us soon.” Immediately after the elections in May, he said, the allied parties will form a new group in the European Parliament called the European Alliance of Peoples and Nations, the result of numerous meetings over recent months.

Most of Europe’s nationalists are currently divided into three groups, with a tangled web of alliances, in the European Parliament, which they would like to overhaul, if not destroy. They are the Europe of Nations and Freedom (ENF) group, which includes Salvini’s League and NR as well as Austria’s Freedom Party and the Netherlands’ Party for Freedom. Then comes the European Conservatives and Reformists (ECR) group, and the Europe of Freedom and Direct Democracy (EFDD).

I point all of this out today because I think Europe is a “Major Risk” now. Unless you have some kind of mandate, I would not be investing in Europe at the present time, until some sort of clarity is found after the elections. The focus should be on who is going to be making the decisions, after the election is over, and then on having reasonable expectations of just what might occur. Absent some miracle, in my estimation, the “Good Old Days” are over, for France and Germany, and a new dawn is about to take place in the European Union. Revolution is on the horizon.

“Every revolution seems impossible at the beginning, and after it happens, it was inevitable.”
-Bill Ayers

Mark J. Grant
Chief Global Strategist, Fixed Income
Managing Director
B. Riley FBR Inc.
U.S. 954-468-2366

Information herein is for general use; is not unbiased/impartial; is current at publication date, subject to change; may be from third parties; and may not be accurate or complete. Opinions are the Author’s, not B. Riley FBR, Inc., or their respective affiliates or subsidiaries. This is not a research report or solicitation or recommendation to buy/sell the subject securities. Investment factors are not fully addressed herein. B. Riley FBR Inc. and their affiliates may have a proprietary position in the subject securities.

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