Week Ahead (24 June)

W/C Monday, 24 June – Final week of campaigning for first round of snap French parliamentary elections

The final week of campaigning ahead of the first round of snap French parliamentary elections kicks off today. This election follows the far-right Rassemblement National's (RN) triumph in the European Parliament elections, which prompted President Emmanuel Macron to dissolve the parliament and call for snap elections. France is now set for a crucial two-round parliamentary election on 30 June and 7 July.

Without a parliamentary majority, Macron risks becoming a lame-duck president. A potential RN victory could lead to a government cohabitation with 28-year-old Jordan Bardella as Prime Minister. Macron might use his presidential powers to challenge RN policies, but the far-right could moderate its stance in power, similar to Italy's Giorgia Meloni, potentially easing voters into accepting a far-right presidency in 2027.

France's economic situation is under strain, with a budget deficit of 5.5% of GDP last year. Macron’s government has pledged spending cuts to meet the EU’s 3% deficit target by 2027, but the RN’s policies threaten to derail these plans. Instead, they have promised significant economic reforms, including tax cuts on electricity and fuel, and reducing VAT on essential goods. Economists have criticised these measures as unfunded and likely to worsen France’s deficit. An Institut Montaigne study estimated the RN’s program would cost over €101 billion annually, a figure the RN disputes.

The financial markets have also reacted negatively to the prospect of a far-right government. Following Macron’s call for a snap election, the gap between French and German government bond yields widened significantly, reaching its highest level since October. The spread increased by 0.29 percentage points, reflecting investors’ anxiety.

Macron’s centrist party and its allies are leveraging economic fears to dissuade voters from supporting the RN. Prime Minister Gabriel Attal and other officials warn that an RN victory could trigger a financial crisis similar to the UK's 2022 experience under Liz Truss. However, the RN has already begun to adjust some of its more controversial economic policies. Jordan Bardella recently softened the RN’s stance on reversing Macron’s retirement age increase to 64, indicating potential flexibility in their economic plans.

According to an Ifop survey, the eurosceptic, anti-immigration RN is projected to receive 33% of votes in the first round, slightly up from its EU election polling rate. The left-wing alliance, recently formed between Melenchon's party, the Greens, the Socialists, and the Communists, stands at 28%, while Macron's centrist coalition is at 18%. The potential for a hung parliament, with the RN as the largest party, remains high. Macron’s alliance will face substantial losses, and the political landscape is poised for major shifts, either towards the right or the left, depending on the election's outcome on 7 July.

W/C Monday, 24 June – European Commission likely to announce final decision on Lufthansa’s purchase of controlling stake in ITA Airways

The European Commission will likely announce its decision on whether to allow Lufthansa’s purchase of a controlling stake in Italy’s ITA Airways. Although the Commission’s deadline for Phase 2 of the deal is on 4 July, a decision could come as early as this week following the submission of concessions earlier this month.

On 30 November, Lufthansa and the Italian government notified the European Commission of their agreement that will see the former acquire a 41% controlling minority stake for €325 million in the Italian national carrier, including an option for the German airline to acquire the remaining shares at a later date. Under the deal, aimed at strengthening Lufthansa's presence in southern Europe, ITA Airways, established as a successor to Alitalia, would transition from SkyTeam to Star Alliance. German Chancellor Olaf Scholz and Italian Prime Minister Giorgia Meloni have voiced support for the proposal. However, the two parties did not receive a fast-track status for the deal. Hence, in January, the Commission launched an in-depth (Phase 2) investigation into Lufthansa’s bid. The Phase 2 investigation, with a June 6 deadline, was initiated due to the Commission’s concerns over competition on routes connecting Italy to central Europe and long-haul connections to the US and Japan, as well as Lufthansa’s dominance at Milan Linate airport.

The Commission is now likely to accept a series of concessions recently made to address concerns about the deal’s impact on long-haul flights, particularly to North America. The likely approval of the deal will ease tensions between Brussels and Rome, which had been strained by the potential for a veto. Indicatively, Italy's Deputy Prime Minister Matteo Salvini had described any potential ban on the merger as a "serious attack on Italy." Lufthana’s proposed purchase of a controlling stake in ITA Airways, along with IAG’s proposed acquisition of Air Europe are part of a series of airline merger deals that the Commission has been examining in past months, potentially indicating the direction of its competition policy for such deals.  A deadline for a final decision on the latter is set on 20 August.

W/C Monday, 24 June – European Commission likely to announce whether to allow Blackrock’s acquisition of Global Infrastructure Partners

The European Commission is likely to announce its decision this week on whether to allow Blackrock’s acquisition of Global Infrastructure Partners. The agreement, announced in January, involves a payment of $3 billion in cash and approximately 12 million BlackRock shares. This acquisition aims to position BlackRock at the forefront of investments in critical infrastructure sectors such as ports, power, and digital infrastructure worldwide. Upon closing the deal, BlackRock, which oversees $10 trillion in assets globally, will manage roughly $150 billion in infrastructure assets, including projects ranging from US liquefied natural gas exports to wastewater services in France and airports in England and Australia.

The surge in demand for logistics and digital infrastructure, coupled with the substantial financial requirements for transitioning away from high-carbon energy sources, has made infrastructure a highly attractive asset class for institutional investors. Announcing the deal, BlackRock’s CEO, Larry Fink, highlighted infrastructure as ‘’one of the most exciting long-term investment opportunities, as a number of structural shifts re-shape the global economy.’’  Founded in 2006, GIP has positioned itself as a leading global infrastructure investor, managing over $100 billion in assets, with a portfolio that includes major infrastructure projects like Britain's Gatwick Airport, the Port of Melbourne, and extensive offshore wind developments.

The parties filed a notice of the proposed deal to the European Commission on 30 May. Although the Commission’s deadline for Phase 1 of the deal is 3 July, a decision is likely this week.  The EU antitrust regulator may clear the deal after the preliminary review or initiate a four-month investigation if serious concerns about competition distortion arise.  

Thursday, 27 June – Friday, 28 June – EU leaders meet to agree on EU top jobs

This week, the European Council Summit will be held in Brussels, largely expected to focus on the allocation of key EU roles. Earlier this week, at an informal European Council meeting, EU leaders failed to reach an early agreement on the top positions, and on backing Ursula von der Leyen for a second term as European Commission president.

Despite prior assurances from France's Emmanuel Macron and Germany's Olaf Scholz that ‘’there is every indication that Ursula von der Leyen will be able to serve a second term’’, the 27 heads of state and government could not finalise a deal during their meeting. An initial consensus has formed around von der Leyen, Portugal's António Costa as European Council president, Malta's Roberta Metsola as European Parliament president, and Estonia's Kaja Kallas as foreign policy chief. However, negotiations stalled due to the European People's Party (EPP) demanding more power and proposing a split term for the European Council presidency, which upset the Socialists and Democrats (S&D). Italian Prime Minister Giorgia Meloni also expressed dissatisfaction with the negotiation process, further complicating discussions. It is understood that the Italian Prime Minister seeks to position herself as a kingmaker for von der Leyen’s reappointment, aiming for a significant portfolio in the next European Commission.

Despite gains by far-right parties, the European Parliament's balance remains largely unchanged, with centrist pro-EU parties (EPP, S&D, and Renew) retaining a majority.  However, Renew is a much weakened following the poor performance of its French contingent and Friday’s surprise decision by Czech populist Andrej Babis to withdraw his seven MEPs from the group, thereby reducing its total seats to 74 – down over 25% from the 102 seats it had in the previous term.  EPP, S&D and Renew now control only 398 seats – Von der Leyen needs 361  to get elected.  She will need the support of the Greens or the ECR, which involves balancing delicate political alliances.   

Recent developments suggest von der Leyen is more likely to seek support from the Greens, who hold 57 seats rather than the right-wing ECR. Aligning with the Greens could strain relations within von der Leyen's EPP, especially among members critical of the Green Deal. Striking a deal with the Greens, Socialists, and Renew would make support from Meloni’s MEPs unnecessary, countering previous speculation about an EPP-Meloni alliance.  However, the Greens have not been invited into the coalition talks by the EPP. Influential elements within the EPP, including its leader Manfred Weber, likely view it as contradictory for the new von der Leyen majority to lean left while the Parliament shifts right.

Hence, EU leaders will reconvene this week, aiming to finalise the top job appointments before the European Parliament votes on the next Commission president in its first plenary session on 16-18 July. However, due to these complicating factors, her re-election could also be confirmed in autumn.