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One of the curiosities of European policymaking is that electoral politics are still largely national affairs in each of the 27 member states. Elections to the European Parliament (EP) in early June, plus the snap elections in France on June 30th and July 7th, are cases in point. To start with the former, aggregate results actually came in bang in line with good, polling based seat forecasts– with pan-European divergences in the low to mid-single digits of seats, i.e. less than 1% out of the expanded 720 Members to the European Parliament (MEP).[1] The reason was once again that big national level surprises were largely uncorrelated, tending to offset each other.
As our Chart of the Week shows, the vote share for the center right EPP (European People's Party) group held roughly steady, while it went up for the center left S&D (Socialists and Democrats) group, based on preliminary results. In terms of seats, the reverse was true; the EPP did very well in small member states, such as Estonia, where far fewer votes are required to secure an MEP.[2] Conversely, the S&D vote was distributed less efficiently than in 2019, so that a higher vote share translated into fewer seats.[3] Liberals and Greens lost, no matter how one looks at it, albeit after historically strong results in 2019. And on the far right, the center of gravity decidedly shifted with the national conservative Conservatives and Reformists (ECR) - dominated by parties very wary of Russian influence - gaining ground and more Russia friendly Identity and Democracy (ID) group losing pan-European vote share, but benefiting from a more efficient distribution of its votes.[4]
Winners and losers at the elections to the European Parliament in terms of preliminary vote shares
Sources: Europe elects, DWS Investment GmbH as of 6/18/24
In markets as in politics, however, perceptions often matter more than electoral realities. When French President Emmanuel Macron decided to call snap parliamentary elections in reaction to his parties expected but dismal performance, both equities and bonds markets got spooked. On one level, that’s understandable enough. French government debt to GDP is around 110%. The budget deficit was 5.5% in 2023 and is expected be around 5% this year as well. With the reinstatement of European fiscal rules (public debt below 60% and public deficits below 3% of GDP), France will enter into an Excessive Deficit Procedure (EDP). S&P cut the rating from AA to AA- at the end of May. None of this, however, should have been breaking news to markets. Nor is the inherent difficulty in predicting results to the two round legislative elections to the National Assembly (AN), the dominant chamber of parliament.
Since 2022, Macron’s Renaissance party and its allies have lacked a majority in the AN. A unity pact among four left-wing parties on Thursday has put them at risk of being excluded from many second-round run-offs on July 7, which could instead see plenty of matchup between an unusually united left and Marine Le Pen’s the far right Rassemblement National (RN). Though we are very skeptical of RN’s prospects to win an outright majority, there is a decent probability of another hung parliament. Under the French constitution, the President could not call another snap election for 12 months. For the coming weeks, we expect volatility to remain high.
