May 30, 2019
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.
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.
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.
The information in this report was compiled by the staff at City National Bank from data and sources believed to be reliable but City National Bank makes no representation as to the accuracy or completeness of the information. The opinions expressed, together with any estimate or projection given, constitute the judgment of the author as of the date of the report. City National Bank has no obligation to update, modify or amend this report or to otherwise notify a reader in the event any information stated, opinion expressed, matter discussed, estimate or projection changes or is determined to be inaccurate. This report is intended to be a source of general information. It is not to be construed as an offer, or solicitation of an offer, to buy or sell any financial instrument. It should not be relied upon as specific investment advice directed to the reader's specific investment objectives. Any financial instrument discussed in this report may not be suitable for the reader. Each reader must make his or her own investment decision, using an independent advisor if prudent, based on his or her own investment objective and financial situation. Prices and availability of financial instruments are subject to change without notice. Financial instruments denominated in a foreign currency are subject to exchange rate risk in addition to the risk of the investment. City National Bank (and its clients or associated persons) may, at times, engage in transactions in a manner inconsistent with this report and, with respect to particular securities and financial instruments discussed, may buy from or sell to clients or others on a principal basis. Past performance is not necessarily an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.