Welcome to this edition of the Weekly Political Compass from Teneo’s political risk advisory team.
This week, we are taking a closer look at an evolving political funding scandal in Japan. Meanwhile, Chinese health officials have commented on a surge in respiratory illness, the budget crisis continues in Germany, Argentina’s self-described anarcho-capitalist president will be inaugurated, and presidential elections will be held in Egypt. Our graph of the week zooms in on elections around the globe in 2024.
An unfolding political funding scandal could engulf leading politicians in Japan’s ruling party LDP in the coming weeks, with the potential for wider political impacts. Our Japan expert James Brady analyzes the situation.
What is the evolving scandal about?
Tokyo police are investigating allegations that certain factions in the party gave kickbacks to their Diet members from the proceeds of tickets those members sold for annual fundraising events, in contravention of the Political Funding Control Law. The Abe and Nikai factions are reportedly under greatest suspicion.
What are the potential implications?
Depending on how the investigation unfolds, the scandal could weaken some of Prime Minister Fumio Kishida’s rivals within the party but further sap public support for the LDP as a whole and reduce the likelihood of a snap general election in H1/2024.
What to Watch
A top Chinese health official said on Saturday that a surge in respiratory illness is caused by known pathogens and not a new infectious disease, after the World Health Organization asked Beijing for more information on clusters of pneumonia among children. Chinese and foreign experts say the surge in China matches similar increases in respiratory illness in other countries after pandemic measures eased, but five Republican US senators asked U.S. President Joe Biden to impose a ban on travellers from China.
EU transport ministers are meeting in Brussels on 4 December to discuss ways to end – or at least ease – the blockade of border crossings between Ukraine and Poland and Slovakia since 6 November. Road freight operators in eastern EU member states including the Czech Republic and Lithuania, are demanding an end to the concessionary road transport agreement with Ukraine, valid until June 2024. They claim that Ukrainian haulers are undercutting their businesses. Poland is the largest road freight provider in the EU, with the transport and logistics industry accounting for 7% of the country’s GDP. The road blockages are significantly disrupting trade between Ukraine and the EU and have also already resulted in at least two casualties of truck drivers stuck in queues.
The fiscal crisis continues, as the coalition partners remain at odds over how to cut some EUR 17bn from next year’s budget. Vice Chancellor Robert Habeck has delayed his trip to COP28, as coalition talks continue in Berlin – to be interrupted only briefly for joint consultations with the Brazilian government, amid declining hopes for an EU-Mercosur trade deal. The fiscal timeline remains uncertain. The Bundestag will rise for the Christmas recess on 15 December, but even a one-week extension might run into constitutional problems. Legal issues could arise from the time pressure under which the accounts might have to be debated, depending on when the coalition can agree on a budget to table to MPs.
Self-described anarcho-capitalist Javier Milei will be inaugurated as president on 10 December. Milei has already said that he intends to lay out in stark terms the full extent of Argentina’s economic crisis in his acceptance speech. A blunt exposition will be designed to help build support for economic adjustments that could be presented to Congress in a “mega-bill” encompassing deep spending cuts, a broad deregulation agenda, privatization plans and labor reforms. A “mega-bill” would represent the first test of Milei’s ability to construct viable legislative majorities. Milei has already been managing expectations and preparing the ground for adjustments and an expected currency devaluation by warning that Argentina is at risk of hyperinflation, and that inflation could take up to two years to bring down to more normal levels. In the run-up to the inauguration, final appointments – including who will head the Central Bank (BCRA) – should be confirmed.
MIDDLE EAST AND AFRICA
President Abdel Fattah el-Sisi is set to win a third term in the 10-12 December presidential elections, which have been engineered to ensure no genuine competition. With high inflation, rising debt repayments, and a shortage of foreign exchange, the government is focused on post-election economic reforms that will hurt many Egyptians in the near term and potentially provoke political unrest. Given Egypt's crucial role as a gateway for aid into Gaza since the Israel-Hamas war started, the international community is likely to provide the necessary financial help to avoid a default in 2024.
Coup risks are even more elevated in West Africa. This comes after governments in Sierra Leone and Guinea-Bissau confirmed failed attempts by rogue military elements to take over power in those countries in the past two weeks, respectively. With the Economic Community of West Africa States (ECOWAS) unable to reverse any of the recent coup d’etats in the region through diplomatic measures, the risk that similar events could occur in the coming months remains high.
Graph of the Week
Voters across major countries are going to the polls in 2024, including the U.S., the EU, Mexico, South Africa, India and (most likely) the UK. Elections are taking place against the backdrop of geopolitical and economic instability. In multiple regions, conflicts have deteriorated over the past years, from West Africa through Ukraine to the Middle East. Anti-establishment politics also remain strong, as observed recently in the Netherlands and Argentina. Against this background, climate concerns and the speed of the energy transition represent a not-so-new dividing line in many countries, with radical right and green left parties mobilizing voters along these issues.