European Elections: Disruption is the EU's New Norm

Recent European elections paint a picture of disruption both in the EU and in many of its member states. Two seemingly polar opposites have risen to power, Greens/Liberals on the left and nationalist Eurosceptics on the Right. What they share is a belief in the disruption of the current system.

This disruption appears to be coming from within. As opposed to talking of leaving the EU, forces of change are now operating from within. While this approach may have settled those worried about a disintegration of the Union, their calm may be short-lived.

An internal struggle for the soul of the EU may be more transformational than any one country leaving. This process is yet another example of the degradation of post-WW2 norms and institutions.

I have written frequently (for example here and here) about the rise of nationalism across Western civilization. We are living in a cycle of lower confidence in the post-WW2 political and monetary structures that have defined the global order for decades, namely Bretton Woods, the United Nations, NATO, the European Union, NAFTA, the Saudi-US petrodollar arrangement, the US-Chinese WTO-driven trade relationship, and many others.

We are nearing a major transition toward a multipolar global system defined more by a clash of civilizations, nationalism, and new models of trade. Markets continue to underestimate the significance of these events.

The European Experiment – 70 Years of Peace Through Connectedness

Created as a reaction to the devastating events of two world wars, the EU’s goals and values reflect a rejection of the warring legacy of European states since 1500.

The prevailing wisdom is that the EU’s stated goal of peace requires a united Europe, interconnected on economic, political, and security fronts. This interconnection has created an incredibly complex bureaucracy in the European Union, one that exerts immense influence on its member states and citizens.

European Elections Explained

Europe elects a bloc-wide European Parliament (EP) every 5 years. Initially created with limited powers, the EP has come to represent a core branch of the European Union (EU) along with the European Council, the European Commission, and the Council of the European Union.

If your head is spinning, you are not alone. A brief explanation:

• The European Parliament (EP) is the lower house of the European Union’s legislative branch. While it cannot propose legislation or confirm budgets, it does have the power to approve all EU laws. The body is currently led by Antonio Tajani
• The Council of the European Union is the other main decision-making body of the EU along with the EP. It is the voice of EU member governments, adopting EU laws and coordinating EU policies. Its members are government ministers from each EU country, according to the policy area to be discussed.
• The European Council is a body comprised of the heads of state of each EU country that “Defines the general political direction and priorities of the European Union“. The European Council is led by Donald Tusk
• The European Commission is considered the politically-independent executive arm of the EU. It promotes the general interest of the EU by proposing and enforcing legislation as well as by implementing policies and the EU budget. Its members are a team or “College” of Commissioners, 1 from each EU country. The current President is Jean-Claude Juncker

EU states and citizens are currently elected 751 members of the EP, a number that will go down to 705 when Britain exits the union. Elections are held at the national level according to individual state electoral norms. Voting began on May 23rd with most of the elections complete as of May 26th.

Each state is allocated a certain number of representatives, or MEPs, based on total population. For example, Germany, the most populous EU member, sends 96 MEPs to the EP, while Malta and Luxembourg send six.

Every country votes on the principle of proportional representation, meaning that each political party or list of candidates gets a number of seats equivalent to their share of the vote.

A party needs to gather at least 5 percent of the votes in one country to enter the EP. There are eight pan-European political groups that MEPs can choose to join. It takes 25 MEPs from seven different countries to form a political group.

Historically, the two largest political groups are the center-right European People Party (EPP) and the center-left Socialists and Democrats (S&D). The alliance of these two groups, called the Center Bloc, has held majority control in the EP for over 4 decades.

Results Signal a Slow Motion, But Historic Shift

This year’s European elections have undermined the historic power structure in the EP. Many in the media are framing the results as a repudiation of nationalism & populism, a mixed message, or not as big a Populist wave as expected. These headlines ignore three absolute clear trends in the data.

The Center Bloc is No Longer

The Center Bloc that has lost share in every election since 1994, and for the first time in 40 years, no longer controls a majority of the European Parliament.

There is talk now of the Center Bloc aligning with the pro-EU ALDE and/or Greens (combined 22.4% of seats) to maintain control of the EU’s agenda. This is certainly the likely near-term operating strategy. But this talk obscures the base reality that the multi-decade norm has been shattered. And it does not properly acknowledge that the combined share of the four Euroskeptics political groups is now up to 28%.

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Despite wildly differing philosophies, the Greens, ALDE, and the Euroskeptics all agree on one thing: changing the status quo.

Bottom line, disruption is fast becoming the new norm.

It does not matter that the Euroskeptic groups can’t agree on issues such as Russia. They, along with the Greens and Liberals, are bound to make consensus more difficult on future European budgets and legislation. The EP is about to get messier and harder to control.

Country Level Results Paint a Picture of Dramatic Change

All is not stable across the EU member states. Here is a snapshot of some of the results of the European elections:

• Germany: The two primary political parties, Chancellor Angela Merkel’s Christian Democratic Union (CDU) + Christian Social Union (CSU) and the Social Democratic Party (SPD) are projected to win 44.7% of Germany’s 96 seats, a shocking 30% drop from nearly 63% of the seats in 2014. The Greens emerged as the dominant left party, winning 23 seats and the nationalist Alternative for Germany (AfD) is now the fourth largest party
• France: Marine Le Pen’s eurosceptic National Rally topped the European election vote, according to exit polls published Sunday, beating the centrist alliance of President Emmanuel Macron
• United Kingdom: Nigel Farage’s newly formed nationalist Brexit Party is expected to win, ahead of the country’s two main parties, just as Prime Minister Theresa May steps down
• Italy: The far-right Lega finished a comfortable first, securing 34.3% of the vote, up from 6.2% in 2014
• Hungary: The populist Prime Minister Viktor Orban won a resounding victory, projected to be as high as 52%.
• Greece: The opposition New Democracy party led by Kyriakos Mitsotakis topped the ruling Syriza party by as much as 9 percentage points. Prime Minister Alexis Tsipras called for a snap general election in June
• Poland: The ruling nationalist Law and Justice (PiS) party is expected to win the election, beating the opposition European Coalition which included the Civic Platform formerly led by none other than European Council President Donald Tusk
• Romania: The ruling Social Democrats (PSD) won just 25% of the vote, in a tie with the opposition centrist National Liberty Party, compared to the 45% support secured in the last national ballot in 2016
• Spain: Socialists are expected to win 18 of Spain’s EU Parliament seats, according to an exit poll, a gain of 4 seats from 2014. The Conservative People’s Party is predicted to lose seats, dropping to 11-12 from 16 in 2014
• Croatia: The pro-EU conservative HDZ party won only four out of 12 seats in the EP, nowhere near a clear mandate
• Bulgaria: The ruling center-right GERB party of Prime Minister Boyko Borissov won 30.5-32.7% of the vote, according to exit polls by two independent pollsters

Europe Against the World

As the US and China reevaluate the global trade system and potentially draw battle lines for a clash of civilization, Europeans are certainly aware of the importance of playing an equal role. Although unity remains the preference of the day, a gut-wrenching internal battle is afoot for the soul of the EU. The outcome of this battle will most certainly alter norms that have been in place for decades.

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Any opinions or forecasts contained herein reflect the personal and subjective judgments and assumptions of the author only. There can be no assurance that developments will transpire as forecasted and actual results will be different. The accuracy of data is not guaranteed but represents the author’s best judgment and can be derived from a variety of sources. The information is subject to change at any time without notice.