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- High long-term significance of European elections
We delved deeper into the process for the upcoming June 6-9 elections to the European Parliament and the relevant opinion polls last week. Now we examine the likely potential implications for the capital markets, now and into the future.
In general, we believe the election will have little significant short-term impact on the financial markets. This is what past European elections suggest. During previous elections the Economic Policy Uncertainty Index did not fluctuate noticeably. Similarly, the DAX and EuroStoxx stock indices remained relatively stable.[1] This year, moreover, the markets seem more focused on other geopolitical and economic issues than on Strasbourg and Brussels, the seats of the European Parliament.
Looking ahead, however, the Parliament has important work to do. One of its crucial tasks in our view should be to further develop and strengthen the financial and banking sectors in the EU. The deepening of the Capital Markets Union seems particularly important. Sufficient funding is needed for top-priority, transformative plans, such as green initiatives, digital advancements, and enhancing resilience— all vital to securing Europe’s future competitiveness.
Volatility remains largely unaffected by European elections
Sources: Haver Analytics, DWS Investment GmbH as of 5/21/24
We expect the election outcome will reflect broader trends. Whether the push for renewable energy remains a top priority after the election remains to be seen. Additionally, protectionist tendencies already observed in various EU member states may become evident at the European level. Meanwhile we believe that much-needed political integration in Europe will continue to be elusive.
On the other hand, it’s worth noting that political forces at the European level may not be the primary drivers of future developments. While the European Parliament is the only directly democratically elected body within the EU, it lacks formal legislative initiative powers—unlike most national parliaments. Initiatives primarily rest with the EU’s executive bodies—the Commission and, to a limited extent, the European Council.[2] Consequently, the European Parliament will continue to use its existent powers – scrutinising and voting on the appointment of EU Commissioners, amending and checking any Commission propositions for new EU legislation, as well as spurring the Commission into action on issues it sees as decisive. That, ultimately, is what puts the significance of this summer’s European elections into perspective.
