A more fragmented Parliament with a still pro-European majority
- Eurosceptics gained considerably in the European elections and the traditional pro-European informal coalition of Conservatives and Socialists lost its majority. However, concerns about a landslide victory for the Eurosceptics did not materialize. A pro-European majority can still be engineered with help of either the Liberals or the Greens, who both emerged strengthened from the vote.
- Amid a more fragmented new European Parliament (EP), the process of agreeing on a new EC President could prove very protracted. The Conservatives (EPP) again became the strongest faction. But substantial losses will make it hard to gather sufficient support for its candidate Manfred Weber and for – more generally – the EPP to push through the lead candidate system.
- In Italy, the balance of powers within the government strongly shifted in favor of the Eurosceptic Lega which has become the de facto senior partner of the ruling coalition. This is likely to have positive effects on infrastructure programs, but the fiscal challenges for the government remain unchanged. A snap election remains a possibility, but is not our baseline.
- In the UK the landslide gains of the New Brexit Party and the defeat of Tories have added to concerns about a rising support for a hard Brexit.
- The European election outcome also has ramifications for other countries. In Germany, the poor results for the ruling parties are likely to intensify tensions in the government while in France President Macron fell short of the electoral support hoped for. In Greece snap elections are about to come in June.
- European equity markets opened on a stronger note on Monday morning, while bond and FX markets have barely moved over the weekend.