At the start of July, the politicians who won in the European Parliament elections take their seats in Brussels at the start of the new legislative term. As we discussed earlier in the year, the makeup of the European Parliament is – like so much of politics – going through a period of fundamental change right now. The two parties which have dominated European politics for years have seen some of their power eroded, although not quite to the extent that had been feared.
One of the first tasks of the incoming Parliament is to appoint a new President of the European Commission. This is a case of member states whittling down candidates from the largest parties in the European Parliament and it’s believed that Angela Merkel and Emmanuel Macron – the German and French leader respectively – have been talking about possible nominations on the side lines of the G20 summit in Japan. Once proposed, the Parliament needs to approve the nomination with a simple majority, but who will get the top job?
The answer to this could be critical to the future path of the Eurozone economy and its trade policies. Front runner Manfred Weber has been essentially knocked out, leaving the real chance that Danish politician Margrethe Vestager could land the job. As EU Commissioner for Competition, she has been responsible for a string of fines and back-tax charges against US tech giants. This hasn’t escaped the attention of Donald Trump, who claimed that Ms Vestager ‘hates the United States more than any person I’ve ever met’. With transatlantic trade tensions expected to come to a head shortly in the wake of a WTO ruling, her appointment would have the potential to weigh on the Euro as a result.
Another front runner is Michel Barnier, lead negotiator for the EU in Brexit. As a supporter of what could be seen as the core European values – a centralised economy and a powerful presidency – he may be a popular pick for traditionalists, but he’s unlikely to find much support from the emerging band of populists. They want a European Union that is less dominated by distant politicians in Brussels. Whilst Mr Barnier’s appointment may raise concerns over the stability of the Euro in the longer term with countries like Italy keen to see fiscal policies relaxed, although the more damaging impact of this could be on the Pound, with Sterling at risk of fresh losses. Given the UK’s stance over Brexit, a hard line over future relationships would likely be taken.
With the Green Party now the fourth largest in the European Parliament, and the environment taking an ever more dominant position on the agenda, their German candidate Ska Keller may be in with a chance. There’s reluctance from some Eastern European countries to endorse her however with their economies still being heavily reliant on coal. In the event that she does win the race, it could be European equities that stand to suffer in the longer term. There can be no doubting that we need to take better care of the environment in which we live, but that’s going to come at a real monetary cost.
Other names include the outgoing European Central Bank President Mario Draghi, and even Angela Merkel. They may not seem the most natural of fits but pressure is building to ensure that whoever takes the helm from Jean-Claude Junker can galvanise a Union that has been through a series of challenges since the turn of the century. Whichever path the Members of the European Parliament decide to pursue will likely have more than a passing impact on some asset valuations.
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