Looking Ahead (1 July)

Tuesday, 2 July – European Parliament’s new term kicks off with uncertainty around top positions

The European Council, which convened around 7pm yesterday, has still not decided on the main leadership positions for the forthcoming 2019-2024 term. The latest proposal is for Frans Timmermans to become Commission President with EPP candidate Manfred Weber sharing the presidency of the European Parliament with Renew Europe candidate Guy Verhofstadt. This would represent a considerable climbdown from the EPP which, despite losing seats, remains the largest political grouping in the European Parliament.

Parliament is scheduled to pick its President and Vice Presidents tomorrow. As we have noted before, if Member States leaders cannot find agreement on a Commission President in time for this vote, Parliament’s options are much less clear. The selection process is caught up with domestic considerations to an unprecedented degree due in large part to Mario Draghi’s term as ECB President coming to an end later in the year, and concerns on how this could affect the ECB Monetary support which has helped to supress bond yields – particularly in south European countries. Italy in particular is anxious to prevent Germany’s Jens Weidmann from succeeding Draghi.

This week parliament will also choose new committee heads tasked with scrutinising legislation for the coming five years. While parliament is more fragmented than ever, it holds considerable power over the EU’s policy direction for the forthcoming legislative term and must sign off on inter alia any Brexit deal plus any trade deal including the Mercosur agreement signed over the weekend.

Tuesday, 2 July – Sanchez set to start countdown on government approval

Pedro Sanchez is expected tomorrow to set a date for an investiture vote in his PSOE party. Under the Spanish constitution, a candidate requires an absolute majority if they are to succeed in the first parliamentary vote. If the candidate is unsuccessful, a second vote is held two days later. In a second vote only a simple majority is required. The first vote, if unsuccessful, also triggers a two month countdown after which a new election is called if a government has not been formed.

Sanchez’s decision to move ahead with the process for a first vote is likely aimed at focusing minds in opposition parties on whether they can afford the risk of a further election this year. While the PSOE could investigate formal coalitions with either Ciudadanos or Podemos – the latter of which would also require support from regional parties – the party would prefer to be able to govern alone as a minority administration.

Sunday, 7 July – Greek general election

Polling for the Greek general election continues to point toward a clear victory for New Democracy. Across 9 opinion polls conducted since the European Election, the projected New Democracy vote averages just over 38%, while the projected Syriza vote averages at just over 28%.

New Democracy’s chances of securing an outright majority will hinge to an extent on the number of smaller parties that clear the 3% threshold to enter parliament. Our expectation remains that ND will secure a majority. If the party misses out it will only be by a narrow margin, leaving it placed to attempt formation of a minority government

While extravagant spending proposals made by Syriza ahead of the election are likely to have raised eyebrows in Europe, the EU institutions will find only limited comfort in the fact that Tsipras is unlikely to win the election. The proposals of Mitsotakis and New Democracy are arguably as expensive as those of Syriza. Mitsotakis believes that his party’s promises can be funded through €2 billion of public sector cuts and a general growth boost from business-friendly policies. Despite this hope, Mitsotakis will also need to deal with the current likelihood that Greece will fall short of its 3.5% primary surplus target. This may dampen the prospect of quick ratings upgrades, which would be seen as a vote of confidence in a New Democracy government and its plans.