European election: Higher turnout and unclear majorities but no lurch to the right

Europe has voted. As expected, Eurosceptics have made gains (actually becoming the strongest party in France, the United Kingdom, Italy, Poland and Hungary). Yet a populist landslide failed to materialise. Despite sustaining losses, the EPP remains the strongest group, followed by the Socialists and Democrats (S&D). These two parliamentary groups have not drummed up enough support for a grand (centre-right / centre-left) coalition: according to the latest projections, they can only expect to command 329 of the 751 seats in the European Parliament. Moreover, this figure does not take account of the fact that Hungary’s Fidesz, which will probably pick up 13 seats, could turn its back on the EPP and join a right-wing populist parliamentary majority. The EPP and the S&D will therefore be reliant on a third partner if they are to secure a parliamentary majority. Possible options here would be ALDE (liberal) or the Greens, both of whom managed to boost their share of the vote. According to the latest forecasts, the Eurosceptic-conservative and right-wing populist parliamentary groups will, together, hold 172 seats, although this figure does not factor in either the possible defection of Fidesz or the right-wing parties which are not, as yet, affiliated to any political group (for example Spain’s Vox).

The overall implication of the result is that the influence of the right-wing populists in the EU is admittedly growing but that pro-European parties can nonetheless still muster a clear majority. What is more, Europe is not only drifting to the right; parties explicitly advocating “more“ Europe (the Greens and, in some cases, the Liberals) have likewise gained ground whereas the dominant position of the EPP and the S&D is eroding more and more. The upshot is that the EU is increasingly divided and disunited about whether the Community’s objective should be greater integration or renationalisation. The high election turnout testifies, furthermore, to the mounting interest of the continent’s citizens in the topic of Europe.

On the whole, EMU government-bond markets have reacted with relief to the election result. The outcome definitely does not mean that EU citizens have shown the Community the red card, although it is conspicuous that opinions are becoming increasingly polarised and that the EU is confronted with major political challenges. The market’s main focus today is likely to lie on Italy. The Lega has won a clear victory at the ballot box: together with Forza Italy and the Brothers of Italy, the potential coalition partners of a right-wing (populist) alliance, the Lega now claims around 47% of the vote. Despite all the avowals that the Lega intends to prolong the coalition with the Five Star Movement, Salvini may regard the result as a reason to dissolve the alliance. In early trading, BTPs suffered slight losses in response to the election result in Italy. In the wake of Salvini’s victory, uncertainty is prevailing about whether there may be new elections ahead of time. In addition, investor hopes that a right-wing populist alliance would exercise more budgetary discipline than the current pan-populist administration have recently vanished. During the election campaign, Salvini was not even prepared to rule out that Italy’s public-debt ratio could rise to 140% of GDP. Syriza in Greece is having to come to terms with a veritable disaster, having ended up ten percentage points behind ND (centre-right). In contrast to BTPs, GGBs have managed to make up a good deal of ground today: on the back of speculation about snap elections at the end of June at the earliest, ten-year GGB yields already tumbled by approximately 15 basis points on Monday morning.

And what is going to happen next in Brussels? Now that the EPP and the S&P have lost their majority of seats, they are going to hold talks with ALDE and the Greens to determine whom they can recruit for a three-way alliance. Negotiations about who is to fill the post of European Commission president will soon be back in full swing. Although the EPP is the largest parliamentary group, it is anything but certain that its leading candidate, Weber, will become head of the EU executive branch. Neither French President Macron nor German Chancellor Merkel thinks that one of the leading candidates should automatically become the commission president. It is true that Merkel has recently been reticent on this score, but she was a declared opponent of such an automatic link following the previous European election five years ago. The EU statutes ordain that the European Council, taking into account the European Parliament elections, has to propose a candidate for the post of President of the European Commission to the European Parliament. Other candidates for the top job come from the Netherlands, France and Denmark – Timmermans (S&D), Barnier (EPP) and Vestager (ALDE), respectively.


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