Between 23 and 26 May, voters in 28 European Union (EU) member states elected their political representatives for the next European Parliament (2019-24), one of the EU's three core legislative bodies along with the European Commission and European Council.

Electoral losses for long-established parties on the center-right and center-left are likely to benefit two opposing political factions: so-called progressive pro-EU parties often favoring a socially and economically liberal agenda combined with environmental policies; and Eurosceptic/anti-EU parties. For the first time ever, the European Parliament's two largest political party groups, the center-right European People's Party (EPP) and the center-left Progressive Alliance of Socialists and Democrats (S&D), represent fewer than half of the MEPs. According to preliminary results, the EPP won 180 (-41) and the S&D 146 (-45) out of currently 751 seats. However, the election results are nuanced and at times contradictory. For instance, while Germany's center-left Social Democratic Party (Sozialdemokratische Partei Deutschlands: SPD) suffered severe losses, coming third behind the Greens (Die Grünen), Spanish Prime Minister Pedro Sanchez managed to come first in the poll with his Socialist Workers' Party (Partido Socialista Obrero Español: PSOE) and the Labor Party (Partij van de Arbeid: PvdA) unexpectedly topped the polls in the Netherlands.

Changing political power dynamics and the increased fragmentation of the European Parliament heighten the likelihood of a potential slow-down in legislative procedures during the new five-year institutional cycle. EPP and S&D have a history of close collaboration on certain policies but will now be more exposed to the policy priorities of parties grouped in the Alliance of Liberals and Democrats for Europe (ALDE), which gained 109 (+42) parliamentary seats and green parties increasing their voting share mainly in Western and Northern European countries. In this context, passing legislation will require MEPs from across the political spectrum. Less predictable voting patterns and the precondition to accommodate a more diverse set of interests increases the likelihood that potentially prolonged parliamentary and inter-institutional negotiations will slow down the adoption of EU-wide policy packages, affecting a diverse range of issues from migration to financial market regulation. Nevertheless, a major shift in policy priorities and regulatory outlook vis-à-vis the outgoing administrative term seems unlikely.

The ambitions of anti-EU parties are likely to be mitigated by the overall parliamentary majority for EU-friendly parties in the European Parliament and currently limited influence in the European Council. However, the election victories of Marine Le Pen with her National Rally (Rassemblement national: RN) in France just ahead of President Emmanuel Macron's pro-EU Republic on the Move! (La République En Marche!: LREM) and Matteo Salvini's far-right League (Lega) in Italy reveal the extent of electoral support for anti-EU sentiments in multiple EU member states and the potential right-wing parties have to disrupt policy-making both at national and EU level. Their influence will highly depend on the ability of anti-EU parties to overcome current divisions and form a strong political party group in the European Parliament. Although Eurosceptic representatives largely share support for a strong nation-state, there are at times crucial differences in their overall policy priorities. For instance, preferred economic agendas range from protectionist state intervention through to support for neoliberal markets.

The European Parliament elections are likely to have a clear impact on national-level politics in many EU member states. For instance, in the United Kingdom, Nigel Farage's Brexit Party came first with 31.7% and the pro-EU Liberal Democrats second with 18.5% of the vote, widely reflecting the electoral frustration with how the ruling Conservative Party and the main opposition Labor Party deal with Brexit. In Greece, the governing Coalition of the Radical Left (Synaspismós Rizospastikís Aristerás: SYRIZA) suffered clear election losses, prompting Prime Minister Alexis Tsipras to call new elections. The election results have also increased the likelihood of early elections in Italy and confirmed Austrian Chancellor Kurz's popularity ahead of early elections in September.

Indicators of changing risk environment

Increasing risk

• Long-winded negotiations within and between the European Parliament and the European Council regarding top EU positions would indicate future challenges for EU policy-making.
• An increased number of disputes within the European Council would signal deepening disparity between some EU member state governments and further alienate groups of countries from each other.
• Continuous legislative blockades from anti-EU parties in the European Parliament would require strong discipline and willingness to compromise on the part of conservative, social-democratic, liberal, and green parties.

Decreasing risk

• Wide agreement to form coalitions among pro-EU parties would secure progress on core legislation such as financial market reforms and a new approach to migration and security policies.
• Limited collaboration across the right-wing and overall anti-EU parties and potential failure to form a strong cross-country party group in the European Parliament would mitigate against plans to hamper European integration.
• Changes to the current voting rules across the various EU institutions would speed up legislative procedures and potentially decrease the sometimes-perceived democratic deficit by promoting a more influential role for the European Parliament.

Posted 31 May 2019 by Jan Gerhard, Senior Analyst Country Risk Europe, S&P Global Market Intelligence