Europe: A Roadmap for Elections Weekend

Published on May 22, 2014

The results of the European Parliament voting that starts today and goes through the weekend will be closely scrutinized for evidence of the breadth and depth of disaffected, anti-establishment, and especially far-right movements across the European Union.

But well-publicized reports of animosity and major policy disagreements between various national anti-orthodoxy parties have lowered expectations for a unified bloc to emerge from these elections.

*** The elections we believe are nevertheless likely to result in the successful formation of a third, and more stridently right-wing, voting coalition bloc in the European Parliament. That will be accompanied by some strategic reshuffling of parties from the other two already existing right-wing groups, and will in the process create some political shockwaves more broadly through Europe. ***

*** Ultimate decision making in Parliament and the European bureaucracy will not shift away from the well-established center-right EPP (European People’s Party) and center-left PES (Party of European Socialists), but a trimmed down center may impact the Parliament’s ability to influence legislation such as proposed reforms to European Treaties or requested legislative reviews of the so-called “six pack,” which currently regulates among other things the excessive deficit procedures. ***

*** In a slight offset to the rising populism, the EPP’s candidate Jean-Claudel Juncker of Luxembourg, reportedly with the tacit support of German Chancellor Angela Merkel and the European Council, looks likely to win the highly public battle for the first ever “democratically” elected European Commission President over the PES’s Martin Schulz, or any other alternative stop-gap candidate for that matter. ***

*** But the most tangible immediate impact of the EP elections is more likely to be felt in the domestic politics of individual member countries rather than in Strasbourg or Brussels. Specifically, we expect the EP outcome to be far less dire than markets expect for Italy and Greece (see SGH 5/16/14, “Greece: A Look through the Election Fever”), a significant political negative for the already dysfunctional Conservative-Liberal Democrat coalition in the UK — perhaps even providing some unexpected and uncomfortable momentum for the pro-independence vote in Scotland’s September  referendum —  and with its biggest impact potentially in France, where the EP results could trigger a move to a co-habitation government by this fall under President Francois Hollande. ***

The Birth of a New Voting Bloc

The expected enfranchisement of the rising tide of populist protest in Parliament — coming just as the hitherto toothless European Parliament steps up its own fight to carve institutional power away from the stranglehold of EU member states — has turned the usually ho-hum EP elections every five years into an election that actually matters.

If a high number of “euro-skeptics” are voted into the Parliament as expected, it will have consequences for legislation on the margins. It will, for example, probably require consensus among all three of the big European families (the Liberals, the Socialists, and the Christian-Democrats) for any major European legislation to be passed. That may squeeze these parties even more to the center, with perhaps only the blandest of agreements as a result.

This will be evident in particular in the budgetary procedure, which needs a broad level of agreement within the Parliament. And a less cohesive Parliament will have more trouble in having a role in the round of Treaty reforms that appear to be the main focus of the next EU legislature. One power a truly united Parliament could have is to force the Commission to review the so-called “six-pack,” which establishes, among other things, the rules for the excessive deficit procedure. With a smaller majority, consensus on this matter is seen as more difficult.

The first step, however, for the European “anti-establishment” nationalist parties will be to form coalition groups, which guarantees political leverage (in the form of participation in legislative activities), and money. To do so, they need to put together a voting alliance of parties coming from at least seven different countries, with a minimum of 25 Members of European Parliament (MEPs).

Ultimately, the main issue for all nationalist parties will be how to find a common platform of ideas and goals on which to base a group without losing consensus in their own countries – a bit of a conundrum for parties that are at once against Europe but ironically have to play by European rules and align with each other for influence. Voting history in the last legislature shows that far-right members only voted together 49% of the time, against 90% on average of other EP coalition groups.

The far right in the European Parliament is currently represented by the EFD (Europe of Freedom and Democracy) group, an alliance of various nationalist and euro-skeptic parties, among which are the British UKIP (United Kingdom Independence Party), the True Finns, the Flemish nationalists and the Italian Northern League. That group has 33 Members and is guided by the charismatic UKIP leader Nigel Farage.

There is another, more moderate, “right wing” group, the ECR (European Conservatives and Reformists), mostly composed of British Tories who migrated from the center right EPP in 2009 in protest of the “federalist bias” of the European Christian-Democrats. The ECR currently has 56 Members and actively participates in legislation, representing a more “intergovernmental” position – basically defending the primacy of national governments and a more pro-business agenda.

That landscape is likely to change after the weekend’s elections, resulting in what we expect to be three groups to the right of the EPP center-right.

Geert Wilders (of the Dutch PVV) and Marine Le Pen (of the French National Front, FN) have already expressed an interest in forming an alliance, and with both parties likely to score very well, there is little doubt that they will make the 25 MEPs threshold between them.

As to securing the five additional Member States to meet the seven country threshold, the Italian Northern League has already signaled its willingness to switch over from its current alliance with the UK’s UKIP; other candidates could be United Poland and the Flemish nationalists (Vlaams Belang).

It is unclear where the left leaning Italian 5Star Movement will sit, but its leader Beppe Grillo has already said he won’t ever join the Wilders-Le Pen alliance. Also hard to handicap is where the Austrian FPO (also extremely strong domestically, with roughly 20% of the votes) will decide to locate itself.

This will leave UKIP, Farage’s party, in a different group than Wilders and Le Pen, and in alliance with probably the Finns, the Czech nationalists and the Lithuanian “Order and Justice.”

The German AfD, who are loathe to join the more extremist groups, is increasingly looking like it may ally itself with the more moderate third group, what is currently the ECR led by the UK Tories. They may also attract the Flemish moderate alliance (N-VA), while the Polish Law and Justice party is already within the group and expected to stay.

The Battle for the Presidency

These elections have been touted in some circles as a litmus test for democratizing the selection of the European Commission President, currently held by Jose Manuel Barroso. Some even say the new President should now be the Spitzenkandidaten himself who wins the biggest bloc in European parliamentary elections (of the two main parliamentary coalitions, Socialist or Christian Democrat, it is assumed). Up until the last appointment in 2009, the Commission President has been selected in back room deals by the national heads of state of the European Council.

The fight over control of this position has been public, bitter and at times nasty, but it all may be a moot point, at least this time around.

From what we understand, an EPP relative majority is the most likely electoral result, which will very probably lead to the appointment of Jean-Claude Juncker, a compromise candidate with wide support in the Council, to the Presidency.

Juncker is a conservative, but with a significant social-democrat nuance: he is “hawkish,” but has not ruled out softening budgetary rules; and he is a moderate federalist and compromise builder, which would make him more acceptable for Member States.

There is a threat of a UK veto of Juncker, but the Commission President can in theory also be appointed in a Qualified Majority Vote (255 out of 325 votes and 15 Member States), so it remains to be seen whether the British government will be willing to further damage its credibility in the European Council by playing a nuclear card on what is fundamentally a non-issue.

An unlikely Socialist victory won’t however necessarily lead to its candidate, Martin Schulz, being appointed as President. Even as the senior German, he has not managed to draw a consensus in the European Council, including from Merkel herself, and he is seen as too close to the Parliament. An alternative name that is therefore circulating in case of a Socialist victory, undemocratic as it may seem, is Danish Prime Minister Helle Thornig-Schimdt — of Obama “selfie” picture fame to US readers — who is seen by her supporters as a true European, a pragmatist and, in a major change, a woman.

The political dogfight over control of the Presidency between the member states and Parliament remains a mess. Council President Herman Van Rompuy, who has been the most vocal against the presence of “leading candidates,” has called for an informal summit on May 26th, one day after the elections, clearly to beat Parliament to the punch and find an agreement on a name. Normally the Council would have met on June 20th, which also remains the likely date for a final decision.

The Parliament’s conference of Group Presidents (the meeting of the party leaders and the President of the European Parliament) is meeting on May 27th, and will only then choose its own candidate. Schulz would normally chair that meeting, but Chancellor Merkel – another strong supporter of the primacy of Member States – already said he shouldn’t do it because he is conflicted, depriving the Socialist candidate of a critical stage that he would otherwise use to build the Parliament’s consensus on a truly “Parliamentary” appointee.

The Other Presidents and Key Appointments

Ironically, the Commission Presidency is probably not even the most important of the senior European leadership posts that will be renewed with the new legislature. But since the EU appointment process is a domino, the political color, nationality and gender of the Commission’s President will have consequences for filling other high level jobs along the chain.

To start, the European Council’s two and a half year “permanent” President (currently Herman Van Rompuy) will have to be appointed, a job with much more political power than the Commission’s presidency in the current environment where governments have essentially retaken control of the European integration process.

Many names have been lined up for the job – among them Italy’s Mario Monti or Enrico Letta, Spain’s Jose Luis Zapatero or Lithuania’s Dalia Grybauskaite, Finland’s Jyrki Katainen, Denmark’s Anders Fogh Rasmussen, Sweden’s Fredrik Reinfeldt and Poland’s Donald Tusk – but in this particular case of the Council Presidency, the result is still truly unknowable and negotiations will be held behind completely closed doors.

The Commissioner in charge of economy and the Euro – the successor to Olli Rehn – who has the responsibility for the adherence to budgetary rules and the excessive deficit procedure, will also have to be appointed. But a lot will depend on the Commission’s Presidential decision. Commissioners are named by national governments but the portfolios are assigned by the President.

The President of the Parliament and the Chair of the Parliament’s ECON Committee are two more spots to be filled that are of particular importance: the Presidency of the Parliament from what we understand is likely to go to a center-right or centrist politician (Lithuania’s Valdis Dombrovskis, Luxembourg’s Viviane Reding or Belgium’s Guy Verhofstadt). That is in light of an unwritten rule that the Parliament’s presidency goes alternatively to the left and to the right each two and a half years (the current President is Martin Schulz, a Socialist).

The second position, on the ECON Committee, is currently held by the ornery Sharon Bowles, a British Lib-Dem, and is likely, this time, to go to a politician from the Eurozone. Olli Rehn, who is a candidate for office in Finland as well, is rumored to be in pole position for that job.

Finally, especially since the EU is playing an unusually large role in negotiations with Syria, Iran and Russia, a lot of importance is being given to the successor of Baroness Catherine Ashton as the EU foreign affairs chief. Some of the names being circulated are of widely known EU statesmen (Rehn again, Rasmussen, and Sweden’s Carl Bildt). What we also know is that Martin Schulz has expressed interest in the job as well if he doesn’t get the Commission Presidency.

Domestic Political Fallout

With local election held in parallel to the EP elections, a fragile ruling coalition facing a continued strong challenge from Syriza’s anti-austerity firebrand leader Alexis Tsipras, and a great deal of good news priced into its markets, jitters over elections in Greece and the potential for instability there dominated peripheral European bond markets last week.

But as we flagged in SGH 05/16/14, (“Greece: A Look through the Election Fever”), we did not expect the first round of local elections last weekend to be as bad as the national polls showed for the ruling parties, and we believe this weekend’s runoff and second round local elections are unlikely as well to trigger an early collapse of the pro-European government of Antonis Samaras. In fact, as we wrote, it may even seal a new round of renegotiations on Greece’s existing debt load to the Troika, and markets have stabilized and even started to rally as that has only just started to sink through.

Italy was next in the line this week for jitters and a market correction, with concerns suddenly mounting over the implications of a potential strong showing by Beppe Grillo’s opposition and anti-austerity 5Star Movement on political stability.

But Italian Prime Minister Matteo Renzi is well aware of the importance of these elections – the first ones he’s running in as the party leader of the center-left PD – so with the 5Star Movement closing in, he has been positioning for the eventuality that the 5SM may become the biggest party in the south of the country by ruling out resignations in case of an unlikely PD defeat.

If the PD nevertheless scores extremely well – higher than 35%, which is unlikely – some members of the Senate have privately hinted that Renzi could call for a snap election in the fall. The Prime Minister’s electoral reform is currently stuck in the Senate, where it is tied to a constitutional reform on the abolition of the upper chamber that even members of his own party have repeatedly pledged to kill (see SGH 2/13/14, “Italy: In the Aftermath of the Coup”).

A weak showing by the PD, and very strong gains by the 5SM, on the other hand would not sound the death knell for Renzi’s government. Importantly, and surprisingly lost in much of the street analysis of these elections, Grillo has if anything attacked the other major “outside” anti-establishment, euro-skeptic force in Italy, Silvio Berlusconi, so viciously, and perhaps more harshly than anyone, meaning there is zero chance a 5SM wave would elicit the support of this former kingmaker. If anything, it would likely push Berlusconi into actually joining ranks with one of the established parties to block the 5SM tide.

The UK government of David Cameron is on the other hand finding itself in an increasingly complicated position.

With the enlargement of the Eurozone (with Lithuania likely joining in January 2015, and Poland in the next few years), the UK’s refusal to join the currency, the Schengen Agreement, the EU public prosecutor (the most significant federalist developments of the EU in the past twenty years), and the Fiscal Compact, it is becoming increasingly clear the UK will continue to be left on the sidelines of major decision-making on European matters.

And it won’t help Cameron’s position in the Council that his party will almost certainly only come in third – after UKIP and Labour – in this weekend’s elections. Back home, any chance for deflecting the increasingly risky domestic referendum question on EU membership will certainly be gone after this weekend. In addition, the rise of nationalist sentiment in Europe and clear signs of weakness in Westminster may add some wind to the sails of the Scottish independence movement that is generally expected to lose its bid for independence from the United Kingdom this coming September.

However, the weak position of London in Europe is counterbalanced by the strength of its Permanent Representation in Brussels – the diplomats who negotiate EU legislation – who always do manage to ensure the UK’s voice is heard in key legislation despite the sometimes extreme positions of the current Tory government in European affairs. And domestically, the ultimate saving grace for Cameron for now is the recovering economy, and, the fact that his opponent currently remains the hapless Labour leader, Ed Miliband.

Plan B Upheavals in France

But perhaps least appreciated by markets is the impact these elections could have on the Presidency of Francois Hollande in France.

The French government recently approved a budget plan which promises to reduce expenses by a whopping 50bn Euros over the next few years. The current proposal is to do so by reducing the so-called “cotisations” (the part of the salary paid by companies which includes injury insurance, unemployment insurance, and other similar charges), and by un-indexing benefits for civil servants as well as social security payments for low income families. In general, the government would like to promote an overhaul of the current social security system, which – while nominally funded by company contributions – is in reality significantly bolstered by tax revenues and is becoming an increasingly major burden on the country’s finances.

This, of course, has not gone over too well with voters and has become an exceptional argument for Marine Le Pen and the Front National in addition to all the usual attacks on immigration, social values, and rally cry around French nationalism. And indeed, the FN is polling extremely well.

That is the reason Hollande’s own Socialists are believed to be plotting an alternative “Plan B” for September, when the French will be voting for the Senate.

President Hollande – whose popularity has plummeted even below former President Nicolas Sarkozy’s 2011 levels – is said to be planning to dissolve the National Assembly on the bet a conservative-led government will win and ensure a “co-habitation” government to share the burden of the unpopular reforms (in France, the blame always goes to the Prime Minister). That sharing of the political cost in the reforms being pushed through, the Party Socialist thinking goes, would allow Hollande a victorious re-election in 2017. This may sound like a desperate ploy, but otherwise the PS fear 2017 will mark the beginning of another decade of center-right domination in French politics.

Current polls for EU elections see the FN leading the pack at 25%, UMP at 19-20%, Socialists at 15%, and Centrists at 11%; if that is close to the final count, we would expect to see some political upheaval in Paris by the end of the summer.

Back to list