Looking Ahead (15 April)

w/c Monday, 15 April – Efforts to form government following inconclusive Finnish General Election get underway

Finns went to the polls yesterday to return members to its 200 seat Parliament. No party was able to secure more than 20% of the vote, demonstrating the political fragmentation that has affected several EU countries. With 17.7% of the vote, Finland’s Social Democrats (SDP) won the most votes in a parliamentary election for the first time since the 1990s, although the party underperformed polling expectations. The Finns party, despite mass defections in 2017, came second with 17.5% while the centre right National Coalition Party came third with 17%.

As the largest party, the SDP will have the first chance to try to form a government. It will look to avoid the re-entry of the Finns into government by teaming up with the Greens and the Left Alliance to form a coalition. This would give 76 seats so the participation of either the Center Party or the National Coalition Party would be required for a governing majority.

As the largest right-wing party, Finns will be waiting in the wings to advance claims to holding the Prime Ministerial position. Should the Finns enter government, this could have a significant impact on EU policymaking as the country is set to take the presidency of the European Union in July. The Finns party has announced its intention to join Italy’s Lega, Germany’s AfD and the Danish People’s Party to form the European Alliance for People and Nations which would aim to challenge centrist European policies.

w/c Monday, 15 April – Conservative – Labour talks to continue as parliament draws breath on Brexit

Talks between the Conservatives and Labour continue this week after Michael Gove and David Lidington met with Labour’s John McDonnell on Friday. While working groups have been set up between cabinet and shadow cabinet ministers, the central difficulty in the negotiations continues to be British participation in a Customs Union. If there is no agreement by Easter, then the Conservative-Labour talks process as a whole could break down, making it highly likely that the UK would need to participate in the European elections. Our assessment is that, while the talks are being conducted in a genuine spirit – the fact that they have continued despite the Article 50 extension is proof of this – they are still more likely to fail than succeed.

Confirmation of British participation in the elections would likely accelerate nascent backbench plots to oust the Prime Minister. At Prime Minister’s questions on 11 April the DUP also highlighted their continued ability to cause difficulty for the government by calling into question their backing for a confidence and supply arrangement after June.

w/c 15 April – Commerzbank hoping for decision on proposed merger while Deutsche pushing for more time

A solution to Deutsche Bank’s woes favoured by the German government is for a merger

with Commerzbank which is still 15% state owned following a €16.2 billion state bailout in 2009. However, the German union Verdi, which sits on Commerzbank’s supervisory board, has warned of 30,000 potential job losses and is reportedly calling for Commerzbank to push its CEO Martin Zielke from office and end merger talks.

Despite the ECB’s goal of bank consolidation throughout the Eurozone, members of the Single Supervisory Mechanism (SSM) remain unconvinced of the business case for the proposed merger due to the weakness in both entity’s balance sheets. Commerzbank is hoping for a decision this coming week, but Deutsche Bank’s leadership is pushing back against this timetable with CEO Christian Sewing asking to wait until after 21 April before a decision is made.

Sewing may be encouraged to make up his mind quicker following a report from Der Spiegel on Friday suggesting he would continue to lead a merged entity with Commerzbank while Commerzbank's Zielke would serve as deputy CEO in charge of private and corporate banking.

Should talks fail, Unicredit is likely to bid. The SSM is particularly keen on cross border consolidation within the Eurozone and with Unicredit showing itself to be a much healthier bank than Deutsche Bank in recent times, this is likely to be the regulator’s preferred outcome.