As the dust settles, the battles begin

This year’s European Parliament elections were a big deal and generated a lot of coverage across the continent. There was certainly a lot to digest. As predicted in advance, the European People’s Party (centre-right) remained the largest faction but it lost a significant number of seats (down from 221 to 177, or from 29.4% to 23.6% of the total). The representation of the centre-left S&D bloc also declined, from 187 seats to 149 (24.9% to 19.8%). This means that the two main groups that have dominated the European Parliament since direct elections were introduced in 1979 now have a combined vote share of less than 50%. The big winners were the centrist Liberal alliance (ALDE) and Greens, but also the Eurosceptics and nationalists (comprised of three separate blocs).

Whilst the swing away from the nationalist parties was not wholly directed towards the Eurosceptics, which probably did less well than they might have hoped, they nonetheless found a lot of support, taking almost a quarter of the total number of seats. Such parties topped the polling in three of the largest EU countries: Italy (where they took 58% of the votes); the UK (44%) and France (36%) whilst they also did well in Hungary, the Czech Republic and Poland (62%, 54% and 54% respectively).

We should thus be under no illusions that the electorate in a number of countries has expressed dissatisfaction with the status quo and that it will be difficult to continue along the same path that we have been following for the past forty years. No one group can dominate the European Parliament, and a number of what might in the past have been seen as strange coalitions will have to be formed. The EPP will need the support of the Greens and Liberals, but even these three blocs will not be sufficient to command a parliamentary majority without the support of at least one of the smaller groups. This highlights just how difficult things are going to get in dealing with many of the big issues which confront Europe. On the one hand it is going to be difficult to find common cause on geopolitical relationships with the likes of the US, China and Russia. Then there are economic problems such as the environment and dealing with competition issues. If Europe has struggled with these issues before, life is about to get far tougher.

The horse trading that has already begun over the numerous positions in European institutions does not fill me with confidence. Key positions, such as the President of the European Commission, are supposed to be filled via the Spitzenkandidat (or leading candidate) principle. This principle was first established following the 2014 elections in which the candidate proposed by the leading political faction was in pole position to take over as Commission President. This is how Jean-Claude Juncker got the gig in 2014 despite opposition from the British and Hungarian governments. On this basis, Manfred Weber (EPP) would be expected to be one of the front runners. But the French have decided that they don’t like the idea of Weber getting the job, with President Macron apparently in favour of someone else (though we are not quite sure who).

Having put the Spitzenkandidat principle under strain, it raises the justifiable concerns of those who see the process of appointing the EU’s top jobs as a Franco-German carve-up, which will certainly not go down well with the large number of Eurosceptics in parliament. This dispute will also have implications for other jobs which are up for grabs. If Weber fails to get the job as Commission President, it would not be a surprise if Germany put forward Jens Weidmann as the new ECB President in succession to Mario Draghi who leaves in November. That would certainly not be welcomed in southern European countries, given Weidmann’s opposition to unconventional monetary measures such as QE. The more we look at the job allocation process, the messier it becomes.

All this comes against the backdrop of further disquiet on the part of the European Commission regarding Italy’s fiscal position. The Commission today wrote a letter to the Italian government warning that “Italy is confirmed not to have made sufficient progress towards compliance with the debt criterion for 2018.” This could trigger another excessive deficit procedure against Italy, following last year’s issues which were ultimately resolved when the Italian government softened its position a little, and which might ultimately lead to financial sanctions. Bearing in mind that the Italian electorate voted on Sunday for parties with a strong anti-EU bias, this will not go down well in Rome. It also puts the various actors in this drama in a tricky position. On the one hand, it is likely to reinforce Italian resentment regarding the actions of the EC to stifle GDP growth, which has averaged just 0.4% per annum during Italy’s membership of the single currency. On the other hand, the likes of Germany are becoming increasingly intolerant of Italy’s fiscal position and it continues to push for the southern European nations to play by the rules. This fault line running through the euro zone shows signs of growing wider, rather than narrowing, as the splits between federalists and nationalists and northern Europe and southern Europe grow wider.

Then, of course, there is the issue of Brexit. At the EU level, the change in the composition of parliament might have some bearing on whether it is possible to reopen negotiations between the UK and EU as some prominent UK politicians believe. A change in the Commission President could have a similar effect, whilst the departure of Donald Tusk as European Council President will rob the UK of a staunch ally in Brussels. As for what the election results meant domestically, everyone has a view based on their prior belief. Brexiteers argue that since the Brexit Party got the largest number of seats of any party, this is a strong signal that the UK should get out of the EU as quickly as possible. Remainers argue that the total vote share accounted for by Remain-supporting parties was larger than that of the Brexit Party and that the number of votes obtained by the Brexit Party (5.2 million) was smaller than the number signing a petition calling for Brexit to be stopped (5.8 million signatures). Both arguments have some validity but as we saw in 2014, it pays not to extrapolate the European election results too far.

But however we look at it, the events of the past few days have highlighted that the EU has a lot of soul-searching to do. It does need to do more to convince the people of Europe that its direction of travel is the right one. This parliamentary session will thus prove to be the most important in recent history as the EU figures out how to proceed. It is important to get it right, for otherwise it is easy to foresee rising tensions putting further strains on the workings of the single currency and the fabric of the EU itself.