Blog

European Parliamentary Elections 2019: Caution Reaffirmed

While the election is not a game changer in terms of EU policymaking, it confirms that populism remains strong, and a significant threat to an intrinsically fragile currency union.

The EU parliamentary elections held last weekend delivered few surprises. Support for populist parties across the EU rose from around 22% in 2014 to around 28% currently, broadly in line with predictions from pre-election polls. The ranking of key groups in the European Parliament also looks to be in line with expectations, with the center-right EPP likely to have the highest representation in parliament (with 179 out of 751 seats), followed by the center-left S&D (153 seats) and the centrist ALDE&R (105 seats).

No doubt, the election confirms that anti-establishment sentiment has been on the rise in recent years. But, as we argued in a recent piece, this result is unlikely to be consequential for European policymaking for a few reasons. First, populist support remains well below 50%, which limits their power in parliament. Second, populist parties are not cohesive, and are unlikely to form a united front. Third, the European decision-making process remains very intergovernmental, with key decisions requiring country leaders’ approval (in the context of the European Council). Fourth, populist parties have softened their Eurosceptic rhetoric recently, focusing on immigration rather than leaving the EU.

The consequences in terms of the upcoming nominations of key European positions – first and foremost the President of the European Commission (EC), the President of the European Central Bank (ECB), and the President of the European Council – also do not appear to be very significant. These positions will be the result of horse trading across key European leaders, who are meant to take the election results into account, but retain a lot of discretion.

For the EC President specifically, the Spitzenkandidat convention stipulates that the European Council should nominate the candidate put forward by the European political party that wins the most seats in the EU elections. If the convention is followed, this would likely crown German candidate Manfred Weber as EC President. Arguably, far-right populists (including Hungarian party Fidesz, currently in the EPP) could gain a similar number of seats in parliament to the EPP if they were to join up, but an alliance between all of these parties appears unlikely. And, importantly, the Spitzenkandidat is merely a convention, which has been subject to a lot of criticism, and may well not be followed.

There are some national implications from the election results. Among the major implications, Prime Minister Tsipras in Greece called a snap election (likely to take place in late June or early July), although this would have needed to happen anyway by the fall. In Italy, a strong showing by the League (which got more than 34% of the votes) changes the balance of power within the government, although it’s not clear that it is in the interest of parties in government to break the coalition at this point. In the UK, the strength of the Brexit party (which received more than 31% of the votes) at the margin puts pressure on the Conservative party to take a harder stance on Brexit. But such a harder stance seemed to be on the cards already given the likely election of a Brexiteer as the Conservative party’s leader.

All in all, while the election is not a game changer in terms of EU policymaking, it confirms that populism remains strong, and a significant threat to an intrinsically fragile currency union over the medium-term. The rise in anti-establishment sentiment also reduces already low hopes of achieving further integration in the region. On balance, this reaffirms our longer-term outlook for low growth, low inflation, and low interest rates in the eurozone. We remain cautious on investing in eurozone peripheral sovereigns and taking European credit risk broadly.

The figure is a table showing the composition of the outgoing and incoming European Parliament, with of a list of parties in terms of seats and percentage. More data, as of 29 May 2019, is detailed in the table.

Learn more about PIMCO’s long-term outlook for Europe and the global economy in our Secular Outlook, “Dealing With Disruption.”

READ HERE

The Author

Nicola Mai

Portfolio Manager, Sovereign Credit Analyst

Peder Beck-Friis

Portfolio Manager, Global Macro

Related

Disclosures

London
PIMCO Europe Ltd
11 Baker Street
London W1U 3AH, England
+44 (0) 20 3640 1000

Dublin
PIMCO Europe GmbH Irish Branch,
PIMCO Global Advisors (Ireland)
Limited
3rd Floor, Harcourt Building 57B Harcourt Street
Dublin D02 F721, Ireland
+353 (0) 1592 2000

Munich
PIMCO Europe GmbH
Seidlstraße 24-24a
80335 Munich, Germany
+49 (0) 89 26209 6000

Milan
PIMCO Europe GmbH - Italy
Corso Matteotti 8
20121 Milan, Italy
+39 02 9475 5400

Zurich
PIMCO (Schweiz) GmbH
Brandschenkestrasse 41
8002 Zurich, Switzerland
Tel: + 41 44 512 49 10

PIMCO Europe Ltd (Company No. 2604517) is authorised and regulated by the Financial Conduct Authority (12 Endeavour Square, London E20 1JN) in the UK. The services provided by PIMCO Europe Ltd are not available to retail investors, who should not rely on this communication but contact their financial adviser. PIMCO Europe GmbH (Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany), PIMCO Europe GmbH Italian Branch (Company No. 10005170963), PIMCO Europe GmbH Irish Branch (Company No. 909462), PIMCO Europe GmbH UK Branch (Company No. BR022803) and PIMCO Europe GmbH Spanish Branch (N.I.F. W2765338E) are authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie- Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 15 of the Securities Institutions Act (WplG). The Italian Branch, Irish Branch, UK Branch and Spanish Branch are additionally supervised by: (1) Italian Branch: the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act; (2) Irish Branch: the Central Bank of Ireland in accordance with Regulation 43 of the European Union (Markets in Financial Instruments) Regulations 2017, as amended; (3) UK Branch: the Financial Conduct Authority; and (4) Spanish Branch: the Comisión Nacional del Mercado de Valores (CNMV) in accordance with obligations stipulated in articles 168 and 203 to 224, as well as obligations contained in Tile V, Section I of the Law on the Securities Market (LSM) and in articles 111, 114 and 117 of Royal Decree 217/2008, respectively. The services provided by PIMCO Europe GmbH are available only to professional clients as defined in Section 67 para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication.| PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH-020.4.038.582-2) . The services provided by PIMCO (Schweiz) GmbH are not available to retail investors, who should not rely on this communication but contact their financial adviser.

Lagarde, von der Leyen appointments to lead the ECB, EC, send three market signals
XDismiss Next Article