Gains for the far-right in European Parliament elections that prompted French President Emmanuel Macron to call a shock national vote puts the focus squarely back on political risks in Europe that financial markets had long put on the backburner.
“Further economic integration will be slowed down instead of being accelerated,” said Carsten Brzeski, global head of macro at ING, referring to the EU’s rightward shift.French stocks are the clear losers from Macron’s surprise decision, which came after a bruising loss to Marine Le Pen’s far-right National Rally in the EU ballot.Barclays’s head of European equity strategy Emmanuel Cau expected banks and utilities to bear the brunt of the uncertainty.
He has an underweight position on French debt and said France’s spread could widen to over 70 bps if the RN win.During the COVID-19 pandemic the EU took unprecedented steps towards a fiscal union with an 800-billion-euro recovery fund, with France a key player in making that happen. A rightward shift in that country and beyond may weaken the case for more. The risk premium on bonds issued by Italy, a key beneficiary of the pandemic recovery program, widened on Monday but remains well contained.
“The political move to the right in the European Parliament and the outcome of new parliamentary elections in France will undoubtedly lead to more trade barriers between the EU and China,” said Commerzbank’s chief economist Joerg Kraemer.
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