Changing EuropeElectionsEurozonePolitics

A Changing Europe Monitor: EU Politics & the Budget

By September 24, 2018 No Comments

The European Union and its institutions are critically important for the welfare of its 500m citizens and, dare we say, for global order. Every five years, on average, since 1979, the EU citizens have been called to elect the EU Parliament and, indirectly, the Commission. Every seven years, the EU approves its Budget, which allocates the equivalent of 1.1% of Europe’s gross national product within its member states to fulfil its mandate of promoting solidarity and welfare among all citizens.

 

This report provides a guide to the 2019 European elections and their implications. It also highlights the key parts of the proposed 2021-2027 Budget and its shortcomings, in our view, relative to voters’ perceptions of the EU. Low perceived ineffectiveness of traditional political parties, widening inequality of opportunities and a fundamental disconnect between what policy makers understand by “convergence” and what a growing number of people believe European convergence will deliver are driving the shift in voters’ preferences. To address these issues, the EU Budget is not enough, a potentially profound regulatory adjustment and more flexible fiscal strategy are needed. This is the first report of a series of three to investigate the medium-term repercussions of voters’ discontent about established domestic political parties and the European Union. The next report will discuss the implications of this discontent for monetary policy and the Euro. The third one will provide suggestions on how national States could reorganise policies and what that will mean for the EU structure.

In the EU elections framework, the relative winner gets the most important prize: the nomination of the president of the EU Commission. There are two equally likely scenarios ahead, in our view: a heavily weakened, but still in leading position, success of the Christian democrats, the EPP,  and by the Socialist party, S&D. In this case, all of the key leading EU institutions are likely to have a pro-EU bias and are likely to aim to continue to pursue an “ever closer Union”. This scenario on the surface appears the most benign one for the economy and financial markets but will imply an accentuation of the political tensions at the local and at the European level.

 

Alternatively, if a great deal of reshuffling takes place within the European parliamentary groups, the Eurosceptic parties should be able to secure second place, and we would not rule out even a surprise first place. This scenario would deliver far more visibility for a “nationalist” agenda, which in our view will influence the Euro and the fiscal strategy of the EU.