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Populists make little headway in European parliamentary elections


Investment Banking Essentials Newsletter April Edition - 2022


Banking Essentials Newsletter April Edition - 2022


Investment Banking Newsletter April 2022


Banking Essentials Newsletter - April Edition

Populists make little headway in European parliamentary elections

Centrist parties lost ground in the European parliamentary elections but are still expected to form a coalition with the Liberals and Greens as the threatened populist insurgency failed to materialize.

The center-right European People's Party and center-left Alliance of Socialists and Democrats have dominated the assembly for decades but lost 37 MEPs and 41 MEPs, respectively, according to provisional results, leaving them with a combined 326 out of 751; well short of the 376 required for a majority.

The Liberals were the big winners in the elections held between May 23 and May 26, gaining 41 MEPs to reach a total of 109, and could be added to the coalition to form a majority. But with Brexit making the future presence of U.K. MEPs uncertain, and populists intent on making trouble, analysts expect the Greens (69 seats) to be included to shore up the majority.

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"Although the Christian Democrats and Social Democrats have lost their majority, the Liberals and the Greens have gained seats, and it should therefore be possible to make a new coalition," wrote Rabobank in a research note.

Still, the result will likely complicate the process of choosing a successor to Jean-Claude Juncker as president of the European Commission. European People's Party leader Manfred Weber is the likeliest candidate, which could spell the end of Germany's central bank chief Jens Weidmann's hopes of replacing Mario Draghi as president of the European Central Bank when he steps down in October. The major roles at the European Union are typically distributed via horse-trading between member states, and it is unlikely Germans will be allowed to take two of them.

Salvini, Farage win for populists

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Matteo Salvini's League party stormed to victory in Italy, increasing the likelihood he will pull out of the coalition government.

Source: Associated Press

It was a largely uninspiring election for populist parties, with the three main Eurosceptic groups only increasing their share of seats to 22% from 20%. Yet one clear winner was Matteo Salvini's right-wing League party in Italy, which won 34.3% of the vote, setting the stage for a possible right-wing coalition taking control of Italy, led by the League.

Salvini's League has upended its relationship with its coalition partner, the anti-establishment 5-Star Movement. Since forming the unlikely government in May 2018, the League doubled its vote share from the 17% it achieved in the March 2018 Italian election. By contrast, 5-Star Movement's share crumbled to 17.1% from 33%, slipping behind centrist party PD (22.8%) into third.

The strong result for Salvini has raised the prospect that he will break off the coalition and look to seek either a mandate in a general election, or form a right-wing coalition with former President Silvio Berlusconi's Forza Italia and the far-right Fratelli d'Italia. Together the three Italian right-wing parties claimed 49.6% of the vote in the European parliamentary elections.

The prospect of an emboldened Salvini is a grim one for the European Union. The Italian firebrand has once again been ramping up rhetoric about a battle with the European Union regarding Italy's debt-to-GDP ratio.

Yields on Italian 10-year sovereign debt were up 4 basis points as of 11:50 a.m. BST at 2.71%, widening the spread with German Bunds to 286 basis points as markets feared a repeat of the acrimonious budget discussions that sent BTP yields rocketing in 2018.

Meanwhile, the newly formed Brexit Party led in the U.K. with 31.71% of the vote, with the Liberal Democrats a distant second at 18.55%. The Labour Party won 14.05%, while the Conservatives received 8.71%. The U.K. had to participate in the elections despite voting to leave the EU in 2016, as a withdrawal agreement between the two sides remains out of reach.

Elsewhere there was limited progress for the far right in the leading European economies. Marine Le Pen's rebranded Front National party — the National Rally — pipped President Emmanuel Macron's centrist La République en Marche to first place in France. But her margin of victory, 23.7% to 22.5% for Macron, was smaller than the victory Le Pen won in the 2014 European elections.

In Germany, the far-right Alternative for Germany party also appeared to have hit a wall, returning a share of 11%. Ruling center-right Christian Democratic Union and its Bavarian partner, the Christian Social Union, led with 28.70% of the votes, followed by the Greens with 20.70%.

The EU saw a voter turnout of 50.95%. Country-wise, Belgium and Luxembourg saw the highest turnouts of 89.0% and 84.1%, respectively.