Winds of change Winds of change http://www.federatedhermes.com/us/static/images/fhi/fed-hermes-logo-amp.png http://www.federatedhermes.com/us/daf\images\insights\article\european-union-headquarters-small.jpg May 29 2024 May 30 2024

Winds of change

EU elections could result in its first center-right coalition.

Published May 30 2024
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The 2024 European Parliament elections taking place June 6-9 likely will be a continuation of the shift to the right seen in recent domestic elections in the Netherlands and Italy. For the past five years, the EU has been governed by a majority formed by a coalition of three groups: the center-right European People's Party (EPP), the center-left Socialists & Democrats, and the liberal Renew Europe. It looks increasingly probable that Christian democrats, conservatives and populists from the European Conservatives & Reformists (ECR) and the Identity & Democracy (ID) parties could partner with the EPP to create the first center-right coalition in EU history.

A shift to the right would have significant policy implications, particularly on environmental and energy issues. A euro-skeptic coalition likely would oppose ambitious actions to address climate change and undermine the EU’s Green Deal framework. The government is scheduled to set targets and measures through 2030 on how the bloc reaches climate neutrality by 2050. The right is proposing far less stringent environmental rules, especially as they pertain to agricultural policy and the combustion-engine moratorium in 2035. Migration and asylum also are likely to adopt a more restrictive tone and provide member states with leeway to limit refugee allocations. The shift could dampen the left’s call for debt pooling and increase support for spending cuts—if not austerity measures—to reduce debt levels reached during the pandemic.

While there is consensus on boosting defense spending, questions remain on how to raise the funds and the degree of integration. As it stands, the right is divided on this issue. Members of the ID are solidly against integration, while the ECR favors a broader approach, including the creation of an EU army.

While the almost-certain increase of the center-right’s power—even an eclipse of the Socialists and Democrats party—would have concrete policy ramifications, the European Council is likely to constrain it. This body is comprised of national leaders and officially sets the political direction of the European Commission, the executive branch. Three of the most influential countries in the EU—France, Germany, and Spain—have socialist or left-wing leaders, so in theory will check the right, ensuring complex dealmaking.

We believe a political shift to the right will have a muted effect on European fixed-income markets in the near term. But in the longer term, a shift could affect the markets significantly, especially for cross-border M&A and industrial, ESG and fiscal policy.

Tags Politics . International/Global . Markets/Economy .
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Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

ESG factors may be considered in the investment analysis process in a manner that is complementary to and enhances the fundamental research and analysis process. Certain ESG factors may help identify business and operational risks or opportunities and add a contextual dimension to the overall evaluation of a security. Like any aspect of investment analysis, there is no guarantee that an investment strategy that considers ESG factors will result in performance better than or equal to products that do not consider such factors.

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