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EU Elections’ Implications for Industries

Stavros Tousios | Thursday 13 June 2024

Many European stocks closed lower after far-right gains in Europe's weekend parliamentary elections on June 6-9 prompted French President Emmanuel Macron to call for snap elections amid his party's crushing defeat to Marine Le Pen's National Rally. French elections will now be held on June 30.

Investors were concerned about the risk of interventionist economic policies and stronger regulation from France's far-right National Rally party if it gains power.

In response, European stocks like BNP Paribas (BNB.PA) and Societe Generale (GLE.PA) declined approximately 8% on Monday, with the French 40 index (FCE) down by 1.4% and EUR/USD (EURUSD) by 0.6% that day. 

The results were seen as a referendum on national governments, with far-right gains prompting a snap election and losses for governing parties in countries like Germany and Hungary seen as blows.

EU Elections’ Implications for Industries

EU Election Results Surprise to the Right

The European People's Party (EPP) secured a clear victory in the EU election on June 6-9, winning around 184 seats and remaining the largest party. However, far-right groups made major gains, with the National Rally winning big in France, Brothers of Italy surging in Italy, and Germany's Olaf Scholz falling to 3rd position behind the far-right Alternative for Germany party.

Furthermore, Macron's call for a snap election in France could sway more gains for the National Rally party, giving it more power over economic policy. Given it collected nearly 30% of France's votes in Parliament, Le Pen's National Party could shake EU policy dynamics. In Italy, Prime Minister Giorgia Meloni's right-wing Brothers of Italy party secured 28.8% of the vote. While the EPP won a majority, supporting Ursula von der Leyen's bid for a second term, the rise of far-right parties poses great challenges. (Source: Reuters)

Overall, right-wing parties won 131 seats, while Green parties fell from the fourth to the sixth largest party, with major losses seen in France and Germany. 

Policies at Crossroads Amid Agenda Differences

With far-right parties gaining more power, some experts believe that this could slow economic and fiscal integration within the EU. Moreover, climate policies may come under additional pressure, potentially dampening the EU's Green Deal, which aims to make the EU climate-neutral by 2050.

Notably, the far-right has opposed the Green Deal over time due to concerns over its impact on fossil fuel industries and jobs, arguing that it reduces EU energy supply independence. As such, the shift could lead to more support for industry and traditional energy sectors at home, potentially at the expense of renewable energy and sustainability initiatives.

Additionally,  it could lead to more trade barriers between the EU and China, negatively impacting European companies while also reducing prospects of joint defence projects. Nonetheless, debates within right-wing parties could limit influence and these are only predictions. Only time will tell what the effects of these political changes could render.

Energy Security a Priority for Far-Right

Radical right parties have pushed their agendas following the energy crisis. Typically, they emphasise energy security and argue the EU's reliance on renewable energy sources. However, their stance on importing energy in particular depends on strategic considerations.

Despite rejecting renewable energy, they support nuclear power because of its lower costs.

Impact and Potential Effect Forward

French stocks, especially banks and utilities, fell sharply on concerns that populist parties could push for policies that negatively affect them. However, the far-right surge could result in a less stringent approach to fossil fuels, improving supply-demand balance and moderating energy prices. Still, this may only postpone the EU's energy transition if a new direction is carved. 

In that light, Macron planned to build 14 new nuclear reactors by 2050. Although it is unlikely to be implemented if the far-right party wins the election, Le Pen's approach is more focused on extending existing reactors and building new ones in a more measured and cost-effective manner.

While both may push for nuclear energy and, by extension, raise demand for hydrogen, the EU might still rely heavily on imported fossil fuels despite the Green Deal. However, the far-right's stance on energy imports depends on strategic considerations and whether regimes align with their ideology.  

Conclusion

The election results may signal a shift in short-term and long-term strategies, with an immediate impact on European stocks and assets after Macron's response. 

In the short term, markets still digest the potential for far-right economic policy changes, especially in industries tied to the Green Deal and defence as we head to France's critical snap elections. In the long run, investors could weigh the possibility of a diluted Green Deal against a right-leaning Parliament, which could favour traditional energy sectors. 

Risks include potential legislative disruptions and market instability, which investors may prefer to monitor closely to adjust their portfolios promptly. Only time will tell what the actual results of this will be. 


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