The EU parliamentary elections held over the weekend revealed results that might shake up economic policies in the region. Here’s a quick rundown of what you need to know:
1. Landslide victories for anti-EU parties.
As French Prime Minister Manuel Valls put it, the victory of protest parties in the recent parliamentary elections was an “earthquake” as it threatens to topple the once solid political ruling core in the EU. Analysts remarked that this reflects increasing frustration over the leaders’ handling of the euro zone crisis.
In France, the National Front party bagged roughly a quarter of the total votes while the ruling Socialist party came up with only 15%. The United Kingdom Independence Party or UKIP took the lead with 27% of the votes while the ruling party in Greece was left with only a 2-seat majority in a 300-seat parliament.
2. No more united front for France and Germany?
What’s interesting to note is that parties strongly against austerity and unemployment were able to emerge as winners, upping the odds that lawmakers could push for economic reforms. In particular, the weakening of President Francois Hollande’s political party in France could leave German Chancellor Angela Merkel without the usual support from her BFF when it comes to implementing strict budget cuts across the region.
“It will be more about pursuing policies that resonate with the people,” Merkel noted. “They are less interested in the issue of whether there should be treaty change or not, but rather whether Europe is making a difference in their own lives.” After all, several taxpayers have blamed austerity measures for derailing the economic recovery in the euro zone.
3. Market reaction was generally positive for the euro.
Despite the potential change in the euro zone’s political landscape, the election results seemed nothing more than a slight tremor for the euro. EUR/USD managed to recover above 1.3650 early in the week while EUR/JPY was able to climb back above 139.00.
Perhaps markets are looking forward to a better set of economic reforms that could both trim government deficits and provide support for overall growth. Many believe that the previous ruling parties have failed to impress and that it’s about time to try other ideas. Do you think this could provide long-term support for the euro or was the rally a mere correction?