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European financial markets are under pressure as investors react to the results of the European Parliament elections held over the weekend.
The elections, which determined the 720 members of the block’s parliament, have led to notable shifts in political power across several key countries.
What Happened: A market-friendly coalition composed of the center-right European People's Party (EPP), the center-left Socialists and Democrats (S&D), and the liberal Renew group retain the majority of seats.
But far-right parties made substantial gains.
In both France and Germany, far-right parties emerged as significant contenders, securing first and second preferences among voters, respectively.
In France, Marine Le Pen‘s far-right National Rally party garnered 31.4% of the votes, more than doubling the results of President Macron’s centrist alliance.
In a surprising move, President Emmanuel Macron called for snap elections on Sunday night. These elections, set for June 30 and July 7, come just before France hosts the Olympic Games from July 26 to Aug. 11.
In Germany, Chancellor Olaf Scholz‘s Social Democratic Party (SPD) faced its worst performance in an election, securing only 14% of the votes and falling to third place behind the far-right Alternative for Germany (AfD), which received 16%.
In Italy, the far-right Brothers of Italy party, led by Prime Minister Giorgia Meloni, solidified its position by obtaining 29% of the votes. This result doubled the party’s performance in the 2019 European Parliamentary elections and surpassed its 2022 national election results.
Why it Matters: Europe is at a crucial juncture, requiring strong cohesion among member countries on key issues such as the green transition, technological development to bridge the gap with the United States and China, and support for Ukraine.
Although the current coalition holds a majority, the shift in power towards the right could lead to significant challenges. If far-right parties unify their propositions, they could form a strong opposition, potentially complicating the passage of critical legislation.
On a national level, France’s snap election announcement adds to the uncertainty, with Marine Le Pen’s party showing increased strength over President Macron’s centrist party. In Germany, the major defeat of the ruling party could lead to calls for snap elections, further complicating the political landscape.
Market reactions: The euro, as tracked by the Invesco CurrencyShares Euro Currency Trust (NYSE:FXE), fell by 0.5% against the US dollar at 08:30 a.m. in New York.
Coupled with Friday’s 0.8% loss, this marks the worst two-day performance since March 2023. European stocks, broadly tracked by the iShares MSCI Eurozone ETF (NYSE:EZU), were down 0.8%.
French equities, as tracked by the iShares MSCI France Index Fund (NYSE:EWQ), were the worst performers of the day, down 1.5%, reflecting the political risks associated with the snap elections, with major banks such as Societe Generale (OTCPK: SCGLY) and BNP Paribas (OTCPK: BNPQY) plummeting 7.8% and 4.9%, respectively.
Image: Pixabay
