Franklin Templeton Fixed Income Group’s David Zahn examines the issue of populism in Europe, including Dutch elections and a possible second Scottish referendum.

The failure of far-right politician Geert Wilders to make the expected breakthrough in this week’s Dutch elections has led some observers to speculate that Europe’s experiment with populism is fizzling out. But David Zahn, head of European Fixed Income, Franklin Templeton Fixed Income Group, suggests investors should be cautious about extrapolating this result to the upcoming polls in France and Germany. He also takes a look at the implications of the political situation in the United Kingdom where the government is facing calls to hold a second Scottish referendum as it prepares to fire the starting pistol on the process of leaving the European Union.

Another vote, and another surprising result, this time from the general election in the Netherlands. But the difference between the outcome of this week’s Dutch election and previous ballot-box surprises is that the expected far-right populist surge failed to materialize.

In that respect, the result was more interesting than anticipated. We see it as especially notable that for all the talk of a rise in populism across the world, in this case the majority partner in a ruling coalition has actually done better than initially expected.

Furthermore, two of the Netherlands’ pro-European Union (EU) parties actually gained seats in the election.

On the other hand, the far-right Freedom Party (PVV), led by Geert Wilders, did less well than expected, although it gained a handful of seats.

To us, the overall voter sentiment in the country seemed to be more pro-Europe than many observers had thought.

The result seems to suggest that we may not see the surge in populism expressed in opinion polls actually play out in other 2017 elections in Europe. In our eyes, that should be positive for Europe as a whole.

We’d expect most observers to try to extrapolate the outcome of this Dutch election to France where the far-right Front National, led by Marine Le Pen, has been polling well.

There are many similarities between Le Pen’s National Front and Wilder’s PVV. And so, people may start to question whether Le Pen really does have the tailwind that polls have been suggesting.

This result may lead markets to downplay the likelihood of a Le Pen presidency, and for that possibility to be priced out. We may see a tightening of French/German government bonds spreads in the lead-up to the first round of the French presidential election on April 23.

However, we believe investors should be cautious of the sort of complacency that was prevalent around the United Kingdom’s Brexit vote and the US presidential election. In our view, there’s a possibility Le Pen could win in the second round of voting in May—albeit a low one.