European Elections: more fragmentation and a thinner pro-EU majority

Highlights:

• The June 6-9 European Election resulted in a more fragmented parliament (EP): The share of Eurosceptics (ECR and ID) and independents (NI) rose, largely at the expense of the Euro-friendly coalition (EPP, S&D, Renew). Also the Greens lost heavily. Still, the centre coalition maintains a narrow majority of seats (55% from 59% before).
• Notwithstanding the EU-friendly coalition, the gain of the Eurosceptics might slow down or even prevent integration in important areas like banking union. It may further dampen climate ambitions. The discussion over the composition of the new Commission and the choice of the President may take longer than usual.
• A more nationalistic tilt will also weigh on the negotiation of the next (2028-34) EU budget and the execution of the new Stability Pact. Deeper debt mutualisation and increase in EU direct funding to e.g. finance climate transition or defence spending may prove even more difficult. 
• The results unexpectedly triggered a snap parliamentary election in France. A full extreme-right majority looks unlikely, but President Macron may find it difficult to gather the grand coalition he is dreaming of. The risk of stalemate is large. . In Germany PM Scholz’s SPD party lost severely, raising the risk of a coalition breakup and snap elections in the not-so-distant future. 
• The Euro lost against the dollar, and European equities (especially French banks) suffered. Medium term, indirect effects from the 2024 election related to fiscal governance could impact government bond markets, as hopes for a follow-up to the NGEU bond experience will waver.
   

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