Elections to the European Parliament: market expectations

Last Thursday the parliamentary elections began in the European Union, which will end today. Almost 420 million citizens are called upon to elect their 751 representatives for the next 5 years in the European Parliament, The only institution of the bloc elected by direct suffrage.

The vote will mark the direction that the Union will take over the next five years in areas such as trade, security, consumer protection, the fight against climate change and economic growth.

Today's one will be the day when most countries will focus on voting: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Slovenia, Estonia, Finland, France, Germany, Greece, Hungary, Italy, Latvia, Luxembourg, Poland, Portugal, Romania, Spain and Sweden.

The elections in the UK will be one of the highlights of these elections: almost three years after the referendum decision to leave the EU – Brexit – without having finalized it yet, Thursday they will have to go to the polls to elect their 73 deputies, as they are still full members of the Union. But the national translation of the election in each country has its specificities.

According to an expansion report, the experts generally relativize the impact of the results of the elections to the European Parliament on the markets. "It is an institution of very small influence and decisive capacity seminula", phrase Guillermo Santos, partner of Eafi iCapital. For its part, Pedro Cubillo, from M & G Valores, adds that even though it is "politically incorrect, who is responsible in Europe, it is not the European Parliament, but Germany and France, with what will be relevant when their government change. "

AT Gonzalo Lardiés, director of A & G Banca Privada, "at the second reading of the results, already in a national key, this is where the interest could be the greatest, especially with regard to Italy, but also for Germany". According to these results, conclusions can be drawn from the support of the electorate, and for example, could motivate changes in the management of the current government coalition in Italy, resulting in a perception of risk investors for debt and funds this country ".

According to Expansión, the results in the United Kingdom should be of particular interest in interpreting the current position of voters in relation to Brexit. And we also hope to see how far anti-system and eurosceptic parties have grown at the expense of traditional pro-European parties.

"If the Farage option prevails in the UK and the resulting consolidation of the" hard Brexit "option, the markets will have badly received it, if we add the possibilities of consolidate the populist options in Italy or the nationalists in Hungary and Poland, as well as the traditional options.French right anti-European centers, the prospects will be darker for a strengthened Europe, in which case investors will react with more skepticism and rejection when they bet on Europe as a solid investment option, "he explained. Alberto Blanco, professor at the Master's degree in stock exchange and financial markets of the IEB, also cited by Expansión.

In a recent report, UBS badysts point out that recent political events have been observed in the markets, particularly with regard to the risk premium of the concerned states and the currency. The euro was depreciated by 9% due to the crisis of the new Italian government and by 6% when the far right Marine Le Pen went to the second round of the year. French presidential election of 2017. And the pound collapsed by 13% after the referendum on Brexit in 2016.

After the elections today significant movements in the markets are not expectedbut everything will depend on the scenario established by the Strasbourg Parliament once the votes of European citizens have been examined.

According to the report of the Spanish business newspaper, the ING experts propose three possible scenarios:

The European dream is still alive. A grand coalition of three or four parties is moving towards greater European integration, the unfinished business of the European Union since the crisis. The euro would rise from 1.11 USD to 1.13 USD currently. The return on the German 10-year bond (bund), the inverse of the price, would fall from -0.12% to -0.05%. And the Italian risk premium would go from 275 to 250 basis points.

Fragmentation advance. Eurosceptics are gaining ground but not enough to achieve common goals. In this case, the situation of monitored badets, particularly in the markets, would not be different from the current one.

The populist revolution. Alarms would ring in the markets if parties opposed to the system won about one-third of the seats. If they are able to work en bloc, the eurosceptics could block important political decisions such as budget and individual appointments to the European Commission. If this risk materializes, the single currency would depreciate to 1.08 dollar, the yield of the bund would be even lower, reaching -0.2%, and the risk premium of Italy would reach 290 basis points.