The far right’s rising popularity will increase pressures on domestic politics across Europe
The European People’s Party (EPP) managed to maintain its traditionally strong performance and will be able to form a centrist coalition that it will head throughout the upcoming parliamentary term. Unsurprisingly, the right-wing European Conservatives and Reformists (ECR) managed to solidify its position, but the biggest gains were made by Germany’s far-right AfD, which ran as an unaffiliated group, following its expulsion from the European Identity and Democracy (ID) party. Despite being unable to effectively govern, the increased presence of far-right parties in the European Parliament will translate into notable policy shifts that will see the de-prioritization of the green policies in favor of industrial policy and immigration.
Business Implications
The results of the European elections will inevitably lead to a shift in European policy, but the change is unlikely to occur overnight, with the green transition likely to be gradually deprioritized. The latter does not mean that the European Green Deal is dead, but rather that a new—and more ambitious—addition to it is highly unlikely. The new ruling coalition will likely seek to extend timelines for the green transition and soften planned and existing regulations. While such relaxations should, in theory, soften mounting pressures on the operational environment, short-term unpredictability will complicate investment decisions and long-term strategic planning. Executives should also monitor the green conditionality attached to EU cohesion and recovery fundings, which, if relaxed, may increase absorption rates and create new demand opportunities. Finally, the domestic fallout of the European elections is likely to remain acute in the upcoming months and has prompted French President Emmanuel Macron to call snap parliamentary elections. Heightened uncertainty about the elections will also complicate fiscal consolidation and reforms in 2024–2025.
Why do the European elections matter?
The direction of European policymaking is unlikely to change rapidly, but the results of the recent elections signal that a long-term and gradual shift will soon be under way. On the supranational level, the results will likely see green initiatives being watered down and massive cross-European investments gradually de-prioritized, while European MPs will focus increasingly on migration and the competitiveness of European industries. The latest introduction of a 25% levy on Chinese EVs imports are thus likely to be followed by additional trade restrictions that seek to protect the European common market in the upcoming year, but the implementation of similar policies will be slow.
On a national level, the reduced focus on cross-border initiatives over time will likely lead to a change in the European cooperation framework, and policymaking will become increasingly focused on domestic issues. While persisting fiscal issues will limit the ability of European governments to introduce significant fiscal changes, they will likely pursue looser policy through tax reductions or social transfers in the long term. The fallout of the elections and the strong performance of far-right parties will increase domestic political pressures on governments, especially in Germany and France, and will add to persisting policy uncertainty.
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