May 30, 2019

Stability Loses in Europe's Election

Elections to the European Parliament took place last week and the outcome showed that Europe is clearly changing.

Every five years, European Union citizens vote for who will represent them in the EU's legislative body, which can vote on legislation that governs the union. It represents the second-largest democratic vote in the world after India with 400 million eligible voters in 28 countries. This year's election had the highest participation in 25 years, with over 50 percent of citizens showing up to voice their views over a four-day process.

A stable political climate dominated the European Parliament for years, with the socialist and centrist parties maintaining absolute majorities since 1979. But since the last election in 2014, Europe has suffered anemic economic growth, refugee crises and security anxieties. This year's election results show shifting attitudes, with shrinking centrist influence and increasing influence from populist and environmentalist parties. Also of note was that in the United Kingdom, an anti-EU party made sweeping gains, humiliating both the pro-EU Labour and Conservative parties.

  • In Germany, France and Greece, centrists lost seats.
  • In Italy, Hungary, Poland, France and the UK, the results reflected rising populist sentiment.
  • In Germany and France, environmental parties made gains.

Despite the new, fragmented EU Parliament, the foreign exchange market did not respond too much, since two-thirds of the seats are still pro-EU. The British pound sterling didn't fall that much either, as the head of the pro-“remain" Labour party conceded to a second referendum scenario on Brexit, in which case the remainers are hoping that Brexit may not actually be enacted.

The general takeaway from the election results was that more people feel progressive policies pursued by centrists were rejected as elitist ideas and more out of touch. Many voters, as a result, shied away from the centrists, defecting to more extreme, anti-establishment nationalist parties, or the Green party.

With no absolute majority, a coalition must be forged between these emerging parties. Even so, it will be difficult to find compromise between competing ideologies and the result could potentially paralyze EU decision-making.

My View: Bottom line, the dominant centrists prevailed this time, but anti-establishment movements are likely to continue to grow. However, these movements are complicated and not necessarily united.

  • While the UK may want to leave the EU, the rest of Europe wants to stay and change the EU from within.
  • Some want to reconcile with Russia, while others don't. Some reports suggest Russian backing of anti-establishment parties in the EU election.
  • Populists' views in Europe are strongly supported by former Trump administration strategist Steve Bannon. Do they want to align themselves with the U.S. president, who is a skeptic of the North Atlantic Treaty Organization?

What is the long-term solution to these problems? It may be to focus on building an economy where people's standard of living is fixed, not their political views.

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