Fisher Investments Editorial Staff
Politics, Across the Atlantic


By, 04/25/2014

Marine Le Pen looks skeptical at a Front National conference. Frederic Stevens, Getty Images.

Europe has been busy lately. The last couple weeks have been a flurry of approved legislation, tax cuts and labor reforms. This week, officials clinked their champagne glasses over the eurozone’s broad deficit reduction progress—the region’s aggregate deficit met the Maastricht Treaty target of 3% of GDP for the first time since 2008. Considering the eurozone doesn’t actually borrow anything as an entity, and that aggregate deficit is a mishmash of 18 national figures, it’s a bit of a meaningless milestone. So why hype it? Because it’s nearly European Parliament election time! Pro-euro pols are desperate to curry favor with voters, and boasting of deficit progress is a handy way of showing the euro still works. Considering euroskeptic parties have gained ground lately, the eurocrats worry a rising anti-euro tide in Parliament could throw a wrench in further integration. Depending on election results, debates may get noisier and/or slower, but the chances euroskeptics make big waves in Parliament seem small. Even if they win more seats, the EU’s future likely stays on course.

The European Parliament is the third leg of the EU’s legislative stool—necessary for passing, denying and amending EU-wide law. Legislation typically starts with the European Commission (appointed institutional leadership), gets hashed out by member-states’ relevant cabinet ministers, then travels to the European Council (heads of member states), which usually amends laws before approving. Meanwhile, the European Parliament drafts its own version—if they don’t match, the Council and Parliament reconcile their differences, and each passes identical legislation.

A meaningful disruption to this system could reasonably stall integration. One reason the past few years’ bailouts and other crisis-oriented measures passed as swiftly as they did was the strong majority of pro-euro parties in Parliament. But after four years of bailouts, forced austerity and recession—with EU institutions and the common currency itself widely scapegoated—anti-euro sentiment is on the rise. Citizens in bailed out countries didn’t like EU leaders mandating national policy that resulted in job cuts. Citizens of core Europe didn’t enjoy seeing their hard-earned tax euros bail out what they viewed as profligate foreign governments, and recent polls suggest a fair amount will register their displeasure at the ballot box May 22-26, voting for anti-euro or anti-EU parties. Six main euroskeptic parties have been gaining popularity: the French Front National, the UK Independence Party (UKIP), the Dutch Party for Freedom, Greece’s Golden Dawn, Italy’s Five Star Movement and the Alternative for Germany (AfD). Sweden, Austria and others have euroskeptic movements, too.

What does this mean for Parliament? Depends how you look at the balance of power. Political parties from different member states typically form broad coalitions built along rough ideological lines. Currently, there are two big center-left and two big center-right groups, the Greens, and a smattering of smaller parties. If more euroskeptics get in, they likely take seats away from the mainstream parties, making it less likely the chamber gets a center-left or center-right majority. However, this doesn’t necessarily prevent legislation from passing. The big coalitions are generally pro-euro and pro-EU.

Data don’t support euroskeptics’ much eroding the pro-EU majority. European Parliament currently has 766 MEPs from 28 countries, and the five biggest, EU-friendly caucuses have 87% of the seats. Available seats will drop to 751 this election, per the Lisbon Treaty. To keep bigger countries from dominating, seats are determined by “degressive proportionality”: Bigger countries get more MEPs altogether, but smaller countries get more per capita. Right now, fringe parties with the most clout aren’t gaining enough ground in countries with the most MEPs to materially alter the balance of power—pro-euro/EU parties combined eclipse them.

For Germany's 96 seats, AfD polls at a low 6% versus pro-EU factions. To fill the UK’s 73 seats, UKIP polls at 27% versus pro-EU Labour’s 30% lead—Conservatives, also pro-EU, aren’t far behind (22%). Italy (73 seats) has a similar situation: The Five Star Movement (23.4%) must compete with the pro-Europe Democratic Party (33.8%) and Forza Italia (19%). Even in France (74 seats), which has a greater euroskeptic following, Front National (24%) polls in second, but pro-euro contenders combined, like Union for a Popular Movement (25%) and the Socialist Party (19%), dominate.

On matters relating to EU integration, pro-Europe factions tend to vote together, largely regardless of country and left- or right-leanings. Ideology influences the finer points of the debate, of course, but they generally seem to find a workable compromise. Parliament’s two biggest current coalitions, the center-right European People’s Party and center-left Progressive Alliance of Socialists and Democrats, have different mandates, but both endorse a united Europe. As do the third, fourth and fifth largest parties. Euroskeptics are a noisy minority, but even if they gain 20% of the seats or more, pro-Europe MEPs will still be in the driver’s seat.

Euroskeptics, meanwhile, will likely be a very disorganized minority. The many parties actually agree on very little. They all have unique—primarily nationalistic—goals and objectives: Germany’s AfD is anti-euro, but not anti-Europe, and Front National is unabashedly only pro-France. Most fringe parties focus more on who they won’t align with: AfD with UKIP, Danish euroskeptics with the Swedes, and hardly anyone with Front National (and no one with Golden Dawn). Parties’ far-right or far-left alliances keep them apart, as do nations’ conflicting euroskeptic parties: Front National isn’t France’s only euroskeptic party—it also has far-right Arise the Public. Even if euroskeptics gain more MEPs than anticipated, they likely couldn’t gain enough of a chorus to promote their individual anti-EU objectives.

True, a bigger majority of euroskeptics could slow legislation down, but for now, European Parliament passed the big outstanding bills—approving the banking union’s Single Resolution Mechanism, extending the Markets in Financial Instrument Directive, pushing Solvency II ahead and passing the Undertakings for Collective Investment in Transferable Securities—all in this Parliament’s twilight. Of course, there is still plenty to do as EU leaders continue developing a tighter political, monetary and banking union. Some items have hardly been discussed in detail, like potential Eurobonds or debt mutualization, and any measure to tighten the union will require Parliament’s blessing. This is all far in the future, but worth considering. Only time will tell how future legislation goes, but the broader will to keep the EU together and moving forward likely persists—even with a louder euroskeptic minority.


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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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