European Parliamentary Elections: A Barometer of European Thinking?

European parliamentary elections don’t typically generate international headlines, but with Brexit still unsettled, this time they are front and center. Our Head of European Fixed Income David Zahn says voters are clearly venting their frustrations, but what is really needed to restore greater investor confidence is some certainty about the path forward.

Normally, we don’t consider European parliamentary elections to be an especially significant consideration for financial markets.

But these aren’t normal times and we expect a lot of scrutiny of these results.

As expected, far-right populist parties have performed strongly, but don’t have a majority in the parliament. Greens have also won more seats.

And while these election results are unlikely to have a direct impact on markets generally, they could act as a barometer of what Europe is thinking. Traditionally, the election of members of the European Parliament (MEPs) is seen as an opportunity for voters to vent their frustration, and we generally see a lot of protest votes. So, we’re cautious about reading too much into the results.

Still, whenever an investor can get additional information about sentiment, we think it can be helpful.

We recognize that fixed income investors may be concerned that a significant populist representation in the European Parliament could stifle reform and hinder much-needed growth.

We’d certainly argue that Europe needs reform to get its economy moving and to encourage greater growth potential.

It’s important to remember that, other than limiting immigration, there’s not a lot the various far-right factions across Europe actually agree on. So, they don’t have an agenda to push. But, we do think they have the potential to be disruptive.

Far more powerful than MEPs are the presidents of the various branches of the European bureaucracy. These bodies include: the European Commission, the European Council, the European Parliament and the European Central Bank.

Having a larger share of more extreme parties in the European Parliament may make those appointments, which are due to take place in the coming months, a less smooth process than in the past.