The UK and Germany have destabilised faster than any other European economy since 2020
Key Points
- Allianz Research's Political Fragility Index shows the UK and Germany with the sharpest fragility increases of eight European countries since 2020.
- Weakening governability drives the rise in both cases.
- The UK scores 31 and Germany 36 on the index, the two lowest levels of the eight, behind the Netherlands on 57 and Belgium on 55.
- Allianz finds fragility migrating from the European periphery into the core, with safe havens eroding.
- The UK pays 24bps per standard deviation of fragility and EUR 41bn since 2022, while Germany shows no political premium.
Allianz Research’s latest Political Fragility Index shows the UK and Germany recording the sharpest increases in political fragility of eight European countries since 2020, both driven by weakening governability.
The Political Fragility Index converts a country’s politics into a single weekly number on a 0 to 100 scale, where higher readings mean more fragile.
Allianz builds it from smoothed poll-of-polls vote shares across France, Germany, Italy, Spain, the UK, Belgium, the Netherlands and Austria. The team leaves out Portugal and Greece, whose bailout and debt-restructuring programmes distorted their financing dynamics.
Four components make up the score:
- Fragmentation, weighted at 30%, rises when votes splinter across a growing number of smaller parties. Disaffection, at 20%, tracks voters abandoning traditional governing parties.
- Polarisation, at 20%, measures the combined vote share of far-left, far-right, Eurosceptic and populist parties.
- Governability, the other 30%, worsens when the government itself leans on forces at the extremes of the spectrum.
Where each country sits
The Netherlands scores highest at 57, ahead of Belgium on 55, France on 54, Italy on 49, Austria on 41, Spain on 39, Germany on 36 and the UK on 31.
Belgium and the Netherlands score structurally higher on fragmentation, while polarisation runs stronger in France, Germany and Austria, where the populist vote concentrates in one or two parties.
Both the UK and Germany still sit near the bottom on level. The UK index has ranged from 18.5 to 56.3 over the period Allianz covers, and Germany from 24 to 52.3.
A fragile 16 years
Allianz identifies three phases since 2010 which were responsible for the shift.
- The post-financial-crisis hangover from 2010 to 2012 opened a gap between a fragilising periphery in Italy and Spain and a stable core in Germany.
- The 2012 euro sovereign crisis followed, where austerity and reform fatigue seeded a durable rise in Eurosceptic and populist parties.
- The third phase opens with the Covid-19 shock in 2020, when fragility compressed briefly then rebounded to fresh peaks on eroded institutional trust and economic uncertainty.
The distinguishing feature of the third phase is direction, and Allianz reads the combination of a rising median and falling dispersion as evidence that Europe’s safe havens are eroding and countries are converging on similar levels of fragility.
A one-standard-deviation rise in the index adds 24bps to the UK premium, and Allianz estimates political fragility has added €41 billion to past and future UK interest costs since 2022. Germany registers -12bps and shows no positive response.
Its move from a negative to a positive asset-swap spread came from a repricing of fiscal fundamentals, including the Sondervermögen, rather than any change in perceptions of political stability.
Allianz attaches a caveat to the German reading. The country’s recent spread regime is partly supply-driven, reflecting the fiscal package and heavier issuance, so the political signal there represents an upper bound.
Germany, the Netherlands and Austria carry no structural fragility premium yet, though the report estimates one would quickly amount to 1% to 2% of annual interest expenditure.
