Looking Ahead (27 May)

w/c Monday, 27 May – Jockeying for Commission set to start, while European Election results raise chances of Italian election

As expected the European elections have disrupted – although not completely undermined – the balance of power in the European Parliament. While parties on the right had a strong night in certain countries – such as Italy – there were also eye-catching results for Green parties in a range of Member States. The overall result will be greater fragmentation. This may stretch the timetable for the election of a new Commission President and European Commission. Following the last European elections, Jean-Claude Juncker was elected Commission President in July and gave his inaugural address in October.

As we have noted previously, from a market perspective, the effect of any changes at a European level are likely to be slow burning. It is the potential of the European Elections to catalyse change in particular Member States that should be of more concern to investors. This was immediately obvious in Greece, where Alexis Tsipras has called an

election – discussed in more detail below.

The results in Italy have also increased the chances of a general election being held this year. Matteo Salvini’s Lega are set to top the poll with more than 34% of the vote. When combined with support for other right-wing parties – Forza d’Italia and Fratelli d’Italia – a Lega led right wing coalition could attract a vote of about 50%, and certainly one well in excess of the 40% considered necessary to form a government. The momentum towards an election has been augmented by the poor performance of M5S, who are set to finish third in the polls – behind the PD and below 20%.

w/c Monday, 27 May – Greece goes from European election to general election mode

Despite Tsipras’ recent announcement of some €1.14 billion in budgetary giveaways and tax cuts, Greek voters delivered a comprehensive victory for New Democracy which won 33.2% of the vote, compared to 23.77% for SYRIZA. The party also dominated municipal and regional elections. Only 64% of those who voted SYRIZA at the last election in 2015 did so this time around while ND retained 87% of its voters.

The scale of the defeat persuaded Tsipras that his government cannot limp on until the autumn despite his preference for an election in October. As a result, elections will take place in the next six weeks, most likely on 30 June. At this juncture, the best Tsipras can hope for is to prevent ND gaining an outright majority in the Greek Parliament. Historic voting patterns in Greece have shown a widening of the gap between the first and second placed parties in years where a European Parliament election has been followed by a national election so Tsipras will have his work cut out.

w/c Monday, 27 May – Conservative leadership candidates set to tout their credentials

Theresa May’s 24 May announcement that she will stand own as Prime Minister on 7 June means that the Conservative Party leadership contest is set to officially start on the following Monday, 10 June. The preceding weeks are likely, though, to be taken up by leadership candidates skirmishing for position.

Upwards of 13 MPs are considering a run for the position, with Boris Johnson currently considered the clear favourite.

May’s resignation has further transformed the Brexit process into a Tory internal affair. The thinking espoused by many on the Tory right, that a Brexit deal is possible without the backstop, will be embraced by leadership candidates such as Johnson and Dominic Raab. If the leadership is won by such a candidate then subsequent discussions with the EU will be coloured by déjà vu, as a British Prime Minister demands changes to an unchangeable agreement, while the clock ticks down towards the Article 50 deadline.