The European Elections: will populism triumph again?


Unsurprisingly, Brexit has grabbed the headlines in recent months, but there is a second, very significant event on the European calendar in May: the European Parliament elections scheduled to take place between 23rd and 26th May. For many of us in the UK, the big question is whether Britain will take part if Brexit is delayed as expected. However, from the broader perspective of the EU, there is a much greater threat to the status quo in the form of the growing trend towards populism.


The key battles in May 2019 will take place in Germany, France, Italy, Poland and Spain, which collectively account for more than 50 percent of the European Parliamentary seats. However, the rise of nationalists in Sweden and the Netherlands is also a concern for the pro-European vote.


A report by the European Council on Foreign Relations (a pro-EU think tank), published last month, anticipates anti-Europeans winning more than one third of seats in May. Such a result would give the populists significant influence and the ability to block legislation on immigration, trade, freedom of movement and civil rights and potentially damage the group’s credibility.


In recent months, polls have suggested that the far right is set to make advances mirroring what we’ve seen at a national level since the last elections back in 2014. Guy Verhofstadt, the former Belgian prime minister and leader of the liberal group in the European parliament, has warned of a “nationalist nightmare” and that May’s European elections are the “last chance” to fight populism. 


According to the latest poll from Politico (data shown on the chart below), there is a notable change in trend with Eurosceptic and far right parties gaining seats over their pro-Europe counterparts. Of the 705 seats, almost 30% are set to be won by populist parties. This could significantly impair the EU’s ability to pass legislation and deploy its budget.


Figure 1: Projected Composition of the next EU Parliament













Source: Politico, 8 March 2019


However, at this stage, the result could still swing either way and there is a growing sense that Brexit could tilt the balance back in favour of Europe. The divide in the UK created by Brexit and the economic concerns about Britain’s future outside the European Union have been well publicised. While there is certainly a growing sense of nationalism in Europe, any party planning its manifesto on similar policies is likely to struggle to win a significant majority considering the troubles faced by Britain.
Parties on the right of centre are far from united. Matteo Salvini in Italy and Marine Le Pen in France may be willing to entertain Vladimir Putin, yet Europe’s nationalist authoritarian populist parties and its ruling party PiS, Poland’s ruling party, is most definitely anti-Russian. Meanwhile, Germany and Austria have no interest in supporting Salvini’s calls for the wealthy North to take more immigrants from across the Mediterranean.


It is almost inevitable that there will be a shake up of the status quo, which isn’t necessarily a negative, but the one thing that is certain about Brexit, is that it can leave a country divided and cause damage which could take years, if not decades to repair. Will others be prepared to follow in Britain’s footsteps and risk similar repercussions? Maybe, maybe not, but at this stage, the outcome is far from certain.


What does this mean for the euro?

In the short term, it reinforces our bearish outlook that we set out in last week’s report.


At the very least, we expect nervousness about the outcome of the election to prevent the euro advancing in the coming months.


Longer term, if the populist vote fails to materialise, it will offer some respite to the currency as markets take comfort from renewed certainty. Otherwise, we continue to see risk of further divergence within the European Union which will likely result in a break-up of the currency bloc in the years to come.






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