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European Parliament elections could be a worry for markets

John Redwood, Charles Stanley’s Chief Global Economist, looks at what’s in store for the European Parliament as May elections approach.

by
John Redwood

in Features

11.01.2019

According to the latest polls there is going to be quite a change in the composition of the European Parliament after the next elections in May. The grip of the centre left and centre right over member states politics has been badly weakened over the last five years. A wave of populist movements have cast aside the Christian Democrat-style governing parties and the Social Democrat-style governing parties in France, Italy, and several of the smaller countries. In Germany, the two main traditional parties cling on to power only by being in coalition together. In Spain, the centre right Popular Party muddles along in a minority coalition.

Today, the European People’s Party of the centre right holds 14 of the 28 Commission posts and 215 of the MEPs, with the centre left Party of European Socialists holding eight of the Commission posts and 191 MEPs. The polls all show these two alliance parties losing substantial votes and seats in the forthcoming election. They face big challenges from populist parties of the left and the right. There is also considerable fragmentation, as challenger parties set themselves up to provide a more socialist alternative to the centre left and a more nationalist or Eurosceptic alternative to the centre right. Many of the challenger parties on the left as well as on the right are sceptical or even hostile to the EU project as currently defined and are looking to change EU policies substantially or withdraw their countries from some, or all, of the project. In general they want an end to austerity, seek more expansionary national budgets, and an implied more generous transfer system around the Euro area. Germany on the other hand will probably elect more AfD MEPs, who want to toughen the financial disciplines or cut German commitment as they see Germany having to pay more.

This process has stood French politics on its head. Just as the last Presidential election did not include a candidate from either traditional party, the Republicans and the Socialists, so the European Parliament polling points to the same two challenger parties topping the polls. The strongly Eurosceptic National Rally, a rebranded National Front with new leadership is on 23 seats in the latest prediction, and the pro EU En Marche movement with allies is on 19 seats. France Insoumie, a radical left party is third on 11 seats, with the Republicans and Socialists struggling in fourth on seven seats each.

There is an even more acute version of this change in Italy. There in national opinion polls the right of centre Eurosceptic Lega has shot up to 32% and their Eurosceptic coalition partners 5 Star are on 25%. The old centre left party in on 18% and Forza, the replacement for the Christian Democrats in Italy is on just 11%.

In Spain, the old centre left and centre right parties, PSOE and PP have held up a bit better, but share their popularity now with two challenger parties, Podemos and Cuidadanos with around one fifth of the vote each in national polls. In the Netherlands, the centre-right party stays in the lead on 29% but the populist Eurosceptic Party for Freedom is second on 19% and the old centre left PvdA struggles on just 9%.

 

These are early days and this is just polling. Things could change. It seems likely, however, that there will be a more splintered European Parliament after the election. It might mean the two establishment European parties – The People’s Party and the Party of European socialists – between them do not have half the seats. It also means a much-stronger challenger party presence where very disparate parties may, nonetheless, be able to unite against the establishment parties from time to time. They may try to find some common ground to change the economic policies in support of the euro.

The European Parliament matters a bit more these days as the EU evolves from a member body where what mattered was the voice and vote of the principal member states governments around the Council table. It is now a complex set of institutions where both Commission and Parliament have significant roles. The Commission is the effective government of the EU with Commissioners having substantial independent power under EU laws. The Parliament does not have the power of a national Parliament over a government, but it does require a vote of the Parliament to approve who will be the next President of the Commission, and the Parliament does have to approve the choice of Commissioners as a group. If the Parliament is as splintered as present polling shows, and may have very noisy populist elements, the Council of Ministers will have a more difficult task in proposing a suitable President of the Commission and then helping him or her shape an effective Commission. The new Commission will also have to appreciate that getting Parliamentary approval for legislation which requires the Parliament’s consent may also prove more difficult given the new balance of forces within the assembly.

The noise of the elections is unlikely to be helpful to euro-based markets, with some of the challenger parties saying more extreme things to get attention. After the election there could be a struggle over who should lead and be on the Commission, and there could be more need for the Commission that emerges to trim to the views of a disparate Parliament which will include a large group who want substantial change in EU policies. There are likely to be pressures for a more expansionary policy, as the EU turns to tackle slow growth and high unemployment in various countries and regions within the Eurozone.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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