Threadneedle’s Harvey on European elections: Building blocks of reform in place

Martin Harvey, fixed income manager at Threadneedle, comments on the impact of the elections for the European Parliament.

The European elections are widely expected to show a shift in public opinion towards protest parties, such as UKIP in the UK. However, this should not prevent the more traditional parties from forming a majority, given that those gaining share will not necessarily form alliances at the European level due to their diverse ideologies.

The European bond markets have been relatively sanguine in the approach to the elections, although some commentators have attributed the recent weakness in Italian bonds to the likelihood that Beppe Grillo’s 5 Star Movement would fare well.

It is certainly true that the next few months will involve an element of political impasse while key jobs are assigned for the coming years, so any resurrection of the crisis may be met with something of a power vacuum.

However, national governments are a more important part of the crisis-fighting process, so we would not expect major problems.

From a bigger picture perspective, many of the building blocks for a more integrated union have already been put in place over recent years, most recently banking union legislation, and these are unlikely to be derailed by a change in the parliamentary make-up.

In fact, in certain circumstances where EU parliamentary approval may have proved tricky, national governments have managed to circumvent the process via intergovernmental treaties.

Over the long-run, it is surely concerning that the population feels increasingly uneasy with the direction of travel in European politics, especially given that much of the crisis-fighting ideology involves greater integration.

It should therefore be food for thought for European policymakers eager to maintain democratic legitimacy.

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