Many ordinary citizens seem to have lost a clear understanding of why the European Union was constructed and particularly why “more Europe” would be necessary. EU parliamentary elections, which will be held between May 23 and 26, are seen by many as the opportunity to address this issue, perhaps for the first time. That makes the vote one on the future of the bloc, rather than simply a sounding on the popularity of national governments as has been the case in the past.
This year’s election has already triggered a real debate about the EU and its direction. Pro-European parties are being asked to explain why they think more integration is needed. And those who advocate more national sovereignty will have to give more details of their vision and how to achieve it. Nor has there ever been so much interaction between national politics and European themes.
Parties in different countries are positioning themselves in relation to European parliamentary groups, new alliances are being proposed and there is likely to be a major recomposition of the EU Parliament’s political make-up. Also, national votes - even in smaller countries such as Slovakia or Finland - and partial elections in some southern Italian regions or English local councils are receiving a new level of Europe-wide attention. It is as if the continent’s future depended on these local moving parts, which are being viewed as bellwethers for the decline or rise of euroscepticism across the continent.
The results of the election will decide who is at the helm of the European Parliament, the Commission - the EU executive, as well as the European Council, the forum where national governments make decisions. But that has always been the case. This time, these decisions will in turn also influence who replaces Mario Draghi as president of the European Central Bank since his eight-year term ends a few months after the election.
But the ECB is independent. And euro zone fiscal policies are monitored by the EU Commission and implemented by national governments. Nor will gains for parties that want more national sovereignty disturb asset prices: it is already clear that the European Parliament will be more fragmented, and markets have discounted that. Only if eurosceptics were to win enough seats to be able to block decision-making, would things be different. But this is very unlikely.
Instead, the reason investors care so much about this election is that it could be the catalyst for national political developments, particularly in those countries where government coalitions look unstable. Take the case of Italy, where tensions in the coalition government are rising. Many expect that the electoral results may bring changes in the composition of the government or lead to the formation of a new government. The country will also have to pass a difficult budget law for 2020, with a possible increase in VAT to raise more than 23 billion euros. As markets have started focusing on that, the premium that Italian bond yields offer over comparable German ones has grown again recently.
Even less predictable is the impact of the elections on UK politics, which are becoming increasingly fragmented, with traditional parties falling victim as the national debate has increasingly become dominated by the issue of Brexit. Investors expect Britain to leave the EU in a generally orderly manner by the end of October or later. They are not, however, counting on a disorderly departure which involves Britain leaving without any sort of deal on trading arrangements. That may be another apparently-remote risk that comes into the spotlight after this pivotal vote.