Christopher Graham, the economist at Standard Chartered, suggests that the European parliamentary elections, which are set to be held on 23-26 May, could be the most important in years, with populist, Eurosceptic parties potentially securing more than 30% of seats in the parliament.
- We are likely to see an end to the centre-left, centre-right grand coalition which has dominated European politics for years, and a more diverse coalition of governing parties emerging as a result, rendering reform efforts and policy-making potentially more difficult than previously.
- The rise of populist, Eurosceptic parties does not present an immediate existential risk to the EU, given that most parties are no longer pushing to leave the EU but rather reform it from within. However, if these parties can align their interests on key issues, they could become a potent force in the EU legislative process, providing a robust check on the Commission and national governments seeking to adopt a more pro-integrationist policy framework.
- Investor sentiment is susceptible to the rise in prominence of populist, Eurosceptic parties at the European level; however, given that a centrist coalition is still likely to emerge (albeit with more parties), any immediate market volatility is likely to be tempered.
- The bigger threat to investor sentiment will be the extent to which fragmentation of the European Parliament (EP) following this election holds back the completion of post-euro area crisis reforms to European institutions and financial architecture, given their importance to the EU’s long-term economic stability.