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Markets watch election news

The fractious US presidential campaign is ramping up a gear and a swing to populism is causing problems in the corridors of power in the European Union.

| 7 min read

At US President Joe Biden’s request, the two US presidential candidates held an early TV debate contrary to precedent. Usually, presidential hopefuls await the endorsement of their candidatures at their party conventions. The decision turned out to be a poor one, with many Democrats and the media letting it be known they thought their man had performed poorly. It reopened the whole issue of Mr Biden’s age and ability to carry out the tasks of president for another four-and-a-half years.

We have been predicting for many months that Mr Biden and Donald Trump would both win their party nominations, with national polls showing the two men are both fairly unpopular with the wider electorate.

The polls indicate a very close contest between them. We have pointed out that, whilst a Biden/Trump re-run was the likely outcome, Mr Biden’s age and Mr Trump’s legal difficulties meant there was some risk that one or other would not make it to the ballot paper. Some Democrats are currently calling for a change of candidate, but Mr Biden won a convincing victory in the primary elections and is quite entitled to carry on.

The easiest way to get a change of candidate would come about if Mr Biden were himself persuaded that he should stand down, creating a vacancy which the Democrats would then need to fill swiftly and with as much unity as possible. So far, Mr Biden’s family and close advisers have supported his continuing, and the campaign has sought to rally Democrat voters post the debate.

There might be several who fancied their chances if Mr Biden withdrew, so there would need to be a method for selecting and voting on them. The convention can, of course, hold a ballot with the party deciding any revision of rules that would apply. It seems unlikely the vice president and cabinet would seek to invoke Amendment 25 to remove him from office on grounds of incapacity. Daily they confirm their view that the president is up to the job. Many Democrats support Mr Biden, noting that the polls do not suggest another candidate would lift their chances of winning.

The French election

The first round of the French election produced the predicted win for National Rally, securing more than 33% of the vote. The New Popular Front left-wing alliance polled 28% and President Macron’s Ensemble grouping was squeezed into third with 21%. Turnout was high by French standards. This means more of the second-round contests could include three candidates instead of the usual two, as more candidates secured the minimum 12.5% of the registered electors allowing them to stay in.

The New Popular Front has however indicated that where it is third it will likely withdraw its candidates making it an easier choice for voters in the run-off. Ensemble is talking about negotiating over whether to withdraw some candidates but will need to do so before the cut-off date for printing the ballot papers and organising the vote.

President Macron hopes tactical voting will lead to the defeat of National Rally candidates on the second ballot, whilst some polling indicates there could be tactical voting against any of the three frontrunners in each constituency by voters voting for other candidates. With only 33% of the vote, National Rally could be easily stopped in most seats if the opposition combines, but that is no longer guaranteed as many voters dislike the New Popular Front and Ensemble as well.

The most likely outcome is no party gains an overall majority in the parliament, but National Rally will be the biggest minority. In that circumstance, National Rally may decline to form a government. It will prove difficult to construct a coalition to govern, and even difficult to assemble ad hoc coalitions to secure necessary budgets and legislation. It will make identifying the cuts to meet the requirements of the EU’s excessive deficit procedure particularly difficult. Were National Rally to emerge with a majority, then party president Jordan Bardella would become prime minister, seeking to get the government and president to adopt more of their agenda.

Under the EU scheme, past radical parties have had to alter their approach to live within EU laws and budget controls.

It looks as if Ursula von der Leyen will secure a second term as European Commission President, as we expected. The populist shift in the European elections did not give the new parties a majority. The three main right, centre and left pro-EU establishment party blocs have come together to cement their position in European government.

Mrs Von Der Leyen represents the EPP, the centre right group who won most seats. Portuguese Antonio Costa of the Socialist and Democrats grouping is offered the European Council Presidency and Estonian Prime Minister Kaja Kallas of the centrist Renew Europe bloc is proposed for foreign policy High Representative. They now need to win a parliamentary vote to confirm this agreement of the European summit. This may take place in mid-July, where they will need half of the 720 MEPs voting to support.

Giorgia Meloni, the Prime Minister of Italy, is unhappy that she and the European Conservatives and Reformists bloc was left out of the negotiations and deal, The six EU member state leaders who proposed it were from Germany, France, Spain, Greece, Poland and the Netherlands. Both Italy and Hungary have complained.

Each member state gets a commissioner appointment, so they may seek to mollify Italy by giving them best choice of positions remaining to fill. There are some worries from the conservatives about Antonio Costa’s stance on the vexed issue of migration, and from various sources about the hawkish views of Kaja Kallas on the Russian threat.

The drift to populism?

There have been times in Europe and the US before when populists have won elections. It does not necessarily lead to populist government. Under the EU scheme, past radical parties have had to alter their approach to live within EU laws and budget controls. President Trump in his first term had to accept Senate and House restrictions.

Mrs Von Der Leyen has promised Italy and others tougher measures on migration, which is one of the most divisive preoccupations. Mr Trump is making demands for stricter border controls in his campaign. We should expect further moves to try to limit the mobility of people, as part of a general shift away from globalisation.

France will be a further test to EU budgetary controls and euro disciplines.

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Markets watch election news

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