Capital Ideas^TM

The EU parliamentary elections over the weekend were fairly accurately predicted by the polls, with the centrist parties maintaining their majority in the European parliament. Current projections put the centrist coalition at over 410 seats, well above the 361 seats needed for a majority. The far right made gains (at the expense of the Greens and Liberals), especially in France, Germany and Italy and we are observing a greater impact from the elections in these countries (more on this below). 

Meanwhile, Ursula von der Leyen appears likely to secure another term as president of the European Commission, particularly as her centre-right European People’s Party (EPP) remains the largest party (and gained an increase in the share of the vote), although it should not yet be considered a done deal. 

Broad policy continuity with some policy shifts expected

The results of the elections are unlikely to bring about major shifts within the European Parliament itself, where the alliance of the three principal parties— conservatives, liberals, and socialists—retains a significant majority. Even considering the low voting cohesion in the European Parliament, the alliance’s majority is enough to make big decisions without seeking external support. That said, the rightward shift in the European Parliament, combined with the loss of support for the green parties, could lead to some policy shifts:

Tougher approach to migration, including agreements with other countries to control the influx of migrants.

Green energy mandates will face further delays and dilutions due to domestic political opposition. Net-zero carbon mandates have received a blow with the Greens losing their share and are also in conflict with other EU policy preferences, such as re-industrialisation and defence.

Possibly more strategic trade protectionism. While the incoming Parliament will back re-industrialisation plans, the lack of funding for subsidies comparable to the US and China and disagreements between member states will likely make European industrial policies less effective. To compensate, the EU may rely more on strategic trade protectionism.

EU elections will impact government stability across Europe

It is important to note that while initial concerns about a populist surge may have been exaggerated, the rise in the far right might reflect broader trends in European national politics and the election results are poised to have a more pronounced impact on domestic politics, particularly in France. 

In France, Following the publication of the results, President Macron announced snap parliamentary elections for the National Assembly on 30 June for the first round and 7 July for the second round. Marine Le Pen's farright party secured a significant increase from 2019, and more than twice the votes for Macron's party, representing a setback for Macron's reputation and his pro-European Union position. 

While national election outcomes may differ from the EU parliament vote, with only three weeks until the first round, a substantial shift in the voting landscape isn't assured. Moreover, the last snap vote in 1997 resulted in a loss of majority for President Chirac, indicating that calling an election may not necessarily alter voting patterns. This could lead to changes in the French government, potentially having broader economic and political repercussions. 

In Germany, the weak performance of Chancellor Scholz's centre-left party, marking its lowest national election result since 1949, along with the rise in votes for the far-right, may pose challenges to the already fragile coalition government. The election outcome may complicate the ongoing negotiations for the 2025 budget, as the governing parties could show less inclination to compromise. 

In Italy, the strong victory for Meloni’s Brothers of Italy should allow her to consolidate her hold further but it could also create tensions within her coalition. Meloni's challenge will be to complete her gradual shift to the moderate centre-right by joining the electoral coalition for the Commission President without provoking a backlash from her radical right party base and allies.