Vulcan View: The latest EU developments 3 June – 7 June

What to expect from the European Parliament election

With the elections beginning this week, there are EU election projections surfacing. Below Vulcan’s team has analysed what is expected from the upcoming results. 

Although there is an anticipated far-right surge, a centrist majority comprising of the centre-right, liberals, and socialists still prevails. The centre-right European People’s Party (EPP) is expected to take first place with 182 seats, followed by the Socialists and Democrats (S&D) with 136 seats. Along with Renew Europe (81 seats), this centrist majority is set to dominate the European parliament once again with 399 out of 720.

Although, EPP and S&D are maintaining roughly the same seats they currently hold, Renew is set to lose 20 seats, its worst result since being created in 2019. The three groups are expected to maintain their coalition, ensuring control over the Parliament’s policymaking and key decisions despite their internal disagreements on how to handle the impending far-right.

The Greens are projected to secure 55 seats, 17 less than last term, and in turn, limiting their influence in the European Parliament. The major losses come from both Germany and France due to participation in an unpopular coalition government in the former, and economic issues being the fore front of people’s priorities in the latter. Greens co-president Terry Reintke has acknowledged the potential decline but is remaining hopeful as he recalls the unexpected “green wave” of 2019 which elevated the group to the fourth-largest party in the Parliament.

The traditional centrist majority is set to weaken with the expected losses from the Greens and Liberals. The European Conservatives and Reformists (ECR), led by Giorgia Meloni’s party are expecting an increase of 11 seats, while the far-right Identity and Democracy (ID) are set to gain 10 seats to 69. This enhancement of ECR and ID is likely to allow the EPP to pressure Socialists and Liberals into giving concessions when drafting legislation. Right-wing leaders, such as Viktor Orbán and Marine Le Pen, are calling for unification, though a right-wing super group is unlikely to form due to internal disagreements. 

The Left political group is set to have 38 seats, roughly the same as now, although the future of the group appears to be quite uncertain. In Germany, Sahra Wagenknecht Alliance (BSW), recently confirmed it has found enough support to create a new group, which some of The Left group’s members may jump ship to join.

As the EU elections begin, projections are indicating a significant shift in the European Parliament’s balance of power. While there is still a centrist majority expected to remain dominant, an anticipated surge of far-right parties could weaken this traditional bloc.

Shadow of Farage looms over first UK General Election debate

On Tuesday night, Prime Minister Rishi Sunak and Labour Leader Keir Starmer took to the stage for the first debate of the UK general election campaign. With Labour leading comfortably in the polls, the onus was on Sunak to land some blows in an attempt to narrow the gap for the Conservatives. 

One of the most striking aspects of the debate was the format, which allowed for only 45 second contributions from participants. In an age where politics rewards the showman and the entertainer, Sunak and Starmer share an increasingly uncommon characteristic. They are both technocrats, more comfortable discussing the minutiae of policy than trading verbal barbs. The format suited neither candidate particularly well, as they each struggled to register memorable soundbites. 

On the substance, widely regarded as Starmer’s biggest misstep of the debate was his failure to robustly challenge Sunak’s assertion that Labour would impose £2,094 worth of tax rises. The figure comes from calculations by the Conservatives that suggest that Labour has £38.5bn in spending commitments. However, Labour disputes those calculations. Starmer missed the opportunity 10 times to deny the £2,094 tax rise claim and ignored Sunak’s repeating of that figure for the first quarter of the debate. When he eventually engaged with it, the rebuttal was convoluted and couched in technical jargon. 

After the debate ended, a YouGov snap poll gave Sunak a slight edge, with 51 percent saying he performed better overall, compared with 49 percent for Starmer. Broken down into issues, however, respondents said Starmer did far better on the cost of living, the NHS, education and climate change. Sunak was seen as doing well only on tax and, by a narrow margin, on immigration. This suggests that the status quo was relatively unmoved by the evening’s proceedings, an outcome that will suit Starmer and Labour perfectly well given their overwhelmingly lead. 

Despite his absence from the debate stage, the shadow of Nigel Farage loomed large. One of the chief architects of the Brexit campaign, Farage has re-entered the electoral fray as leader of the Reform Party, confirming that he will stand in the Clacton constituency. This development merely adds to Sunak’s tribulations. While Farage will attack both of the main parties, particularly on immigration, his Reform outfit will be seeking to pull from a similar pool of voters as the Conservatives. Given the UK’s first past the post system, it is unlikely that Reform will capture many seats based on its current standing in the polls. However, even a minor decrease in the Conservative vote owing to a resurgent Reform Party could hand Labour additional seats in marginal constituencies. 

European Central Bank cuts rates for first time in 5 years

The European Central Bank (ECB) confirmed on Thursday that it would be cutting interest rates for the first time since September 2019, a move stemming from politicians’ and economists’ concerns about fluctuating inflation rates and variations of growth rates across member states in the last few months. However, the ECB’s plan to reduce interest rates comes from moderating inflation rises and easing the European Union into a stabilised economic position despite rising rates from 2.4% in April to 2.6% in May of this year. 

This action has been in the works following the ECB’s plan to move back towards its targeted 2% interest rates, which has remained impossible due to the after-effects of the COVID-19 pandemic and the invasion of Ukraine in 2022. The ECB began raising interest rates in July 2022 and kept increasing the rates to keep prices down until September 2023. This plan intends to set the central bank’s key rate to 3.75% from its current position of 4% (as of September 2023). 

The ECB Governing Council has recently reported their actions have been based on reaching the intended 2% rate and have been a steady process to bring the EU back to pre-COVID interest rates. They also strive to achieve the 2% rate by 2025, shifting their initial forecast down from 2.2%, but have maintained the position of the 2026 forecast rate at 1.9%. The ECB Governing Council states, “Based on an updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it is now appropriate to moderate the degree of monetary policy restriction after nine months of holding rates steady.”

According to chief eurozone economist at UBS Global Wealth Management Dean Turner, the ECB is expected to finalize this decision in its next policy meeting and cut rates once more in 2024, likely in September. The ECB is one of several institutions lowering rates this fiscal quarter, with Canada cutting interest rates down to 4.75% on Wednesday this week and Sweden and Switzerland’s central banks reducing their rates later this year. 

For more information, please contact the Vulcan team here.

Compliments of Vulcan Consulting – a member of the EACCNY.