In a morning email, Saxo Bank chief economist Steen Jakobsen had a few comments on the European parliamentary elections.
Here’s my two cents on the EP-2014: One conclusion which stands out is growth and reform will be delayed. The trade remains LONG fixed income. Everything which just happened in Ukraine, ECB and now EP-2014 has a negative growth/inflation impact.
Europe is caught out – miscommunication is the norm, and the mandate for change just moved further away despite the strong showing for anti-EU votes.
The anti-EU vote is diluted by institutional frameworks and a modus operandi in proceedings which makes it impossible to change the course, but hopefully It can change the pace.
Europe rejected Barosso’s idea that the solution to Europe’s problem is more Europe – they shouted: No! It’s a better working Europe.
Rising Unemployment, Slowing Growth
On his blog, Steen offers his detailed view in Europe’s lurch to right will see unemployed, growth, emerge as losers.
Massive eurosceptic bloc breakthrough at parliamentary elections impossible to ignore
European project at risk as voters reject Brussels’ push for ever-further integration
Real losers in vote continue to be unemployed and growth prospects as Europe divisions rise
Across Europe, EU-sceptic voters gained ground, but it could be in vain as the overall majority of the old guard: Conservative, Liberals, Greens and Social Democrat’s still carry 70 percent of the mandates.
How the protest votes engage with the main stream parties will set the tone for Europe over the next five years. If the protest parties just want a floor to shout “No thank you to Europe”, then we will see the old parties align themselves more towards the middle and dilute the negative votes. On the other hand, if the EU-sceptic votes want real influence, then compromise and seeking real influence on key votes will be the strategy.
The European Parliament makes a new law every second day, which is scary in itself, but it also shows you that Europe today is very much a machine where stopping the momentum is extremely hard. The EU system is built and set up to protect the bureaucratic model and it clearly favours pro-EU inclined political parties.
This biased set-up and momentum makes the results in the UK, Italy, Greece, Denmark, and France impossible to ignore. The implications in France and the UK carries the biggest weight where Marine Le Pen’s National Front took 25 percent of the vote foran estimated 25 seats and Nigel Farage’s UK Independence Party obliterated the traditional parties of power to take 28 percent of the poll and an estimated 23 seats.
The chances of a UK voting no in the referendum next year is now a clear and present danger. UKIP has arrived at the national scene, likewise in France where Marine Le Pen has now clearly become a force to reckon with in the next Presidential election.
A move to a more wait-and-see attitude away from the full support for everything European will be the biggest marginal change in Europe. By ignoring the wishes of their voters, a lot of mainstream parties across Europe are now looking for a new strategy – a strategy which after this week’s election will entail less Europe, not more.
It is also in total opposition to EU Commission President Jose Manuel Barosso’s State of the Union speech where he said: “the problem with Europe is not that we have too much Europe, it’s that we have too little”. Europe’s voters clearly disagree and the consequences of this EP election may be slow and small, but significant.
The new European Parliament will have stronger democratic credentials which is anchored in the Lisbon Treaty and includes new lawmaking powers. It will be decisive on the majority of EU legislation. In total, over 40 new fields have been added including agriculture, energy policy(or the lack of it), immigration and EU funds. The Parliament also has the final say on the EU budget.
The biggest immediate change will be that the new President of the European Commission will need to have the approval of the Parliament to take office. We can expect a major fight between the EU Council and the European Parliament on exactly this point. Don’t expect any consensus before the last minute.
The 751 members of the EU Parliament operate through coalitions of interest across countries and sometimes political standpoint. The final date for submitting a coalition is June 23, and a “coalition” has to be at least 25 members from seven different nations.
Here the protest votes can play vital role. The Europe-sceptic vote is divided. The risk is that, similar to the Occupy movement in the US, al ack of common goal, except those of a negative nature, allows the majority get away with ignoring what clearly is a call from the voters to the politicians that Europe is too far away from the daily life of its 500 million citizens.
The Banking union, high unemployment and low growth remain formidable challenges. I still see a dramatic slow-down in Germany into 2015 as the biggest risk for Europe. Germany has been the locomotive so far, surviving by exporting to Asia during this crisis, but now Asia is slowing down leaving us with less export in Europe.
The EU “economic police” will be tested. France and Spain is already in violation of budget deficits for 2014 and 2015. The so called “recovery” is actually a stabilisation, not recovery. In history, unions, even primitive ones, fail when economic times turns negative. A new test is upon us as we leave 2014 in my opinion, and has not been made easier by the new European Parliament. Voters and politicians are clearly not agreeing. Putting anything European to a referendum will be risky and hence Europe is now on move to a pace of speed walking from jogging along.
The market is ignoring the European Parliamentary 2014 results, they see the glass as half-full. However, as the new European Parliament gets down to business, the in-fighting will continue in the European Council, in the European Parliament, between the EU Council and European Parliament, and between the EU and the voters of Europe. That is the ultimate conclusion: Europe’s politicians and its voters have never been further apart. The price for that is a continued flow of miscommunication which will leave Europe weaker, with less decision power and ever-widening rifts.
As George Bernard Shaw once said: “The single biggest problem in communication is the illusion that it has taken place”.
What Europe needs is to move forward with a political and fiscal union to consolidate and progress. It will clearly not happen. It also needs to simplify its business. Also very unlikely to happen. We have just increased the complexity of politics and decision making. The loser, as always remains the unemployed, growth and reforms. The victor: Buying more time. Sad. Really.
Mike “Mish” Shedlock