Strategy Focus - European Elections - Could they be a real game-changer?
The economic growth gap between the United States and the euro area has been reported in detail. And, while it is true that activity in the US is expected to be much stronger than in the euro area in 2024 (2.7% versus 0.8% according to the IMF), it is worth putting this into perspective. On the one hand, a significant proportion of this gap can be explained by demographics – population growth in the US is more than twice that of the euro area (0.5% versus 0.2%). The growth gap per capita therefore is less significant, albeit still large (2.2% versus 0.6%). Also, the euro area economy, which already suffered more from the Covid pandemic, has had to deal with a surge in gas prices following the invasion of Ukraine by Russia – a shock that has not been as severe in the US. When we take these two effects into account, the economic situation in the euro area does not seem quite so bad.
The core of the problem relates more to the medium- to long-term outlook, what economists refer to as potential growth, than to the short-term outlook. Low population growth combined with weak productivity gains are keeping growth at a slow pace in the euro area, in contrast with the US. These issues will obviously be central to the European Parliament elections being held between 6 and 9 June: how to bolster medium-term growth and at the same time meet climate and demographic challenges without putting public finances sustainability at risk.
Often overlooked or played down, these elections will be important for the European Union (EU) given the many heated issues that will require action by the new Parliament and the resulting new European Commission.
In this document, we look firstly at the importance of the European Parliament, the balance of powers between the different political groups, and what the polls say. The latter are less reliable for these elections than for national elections due to a lack of voter interest. Nonetheless, they do provide some pointers: a swing to the right by the Parliament seems very likely, with a fresh rise in extremes, but the outgoing coalition (centre right, centre left and liberals) is expected to maintain a majority (if smaller).
Then we look at the economic challenges awaiting the new Parliament (weak productivity in particular) and draw up a (non-exhaustive) list of projects that will be on the Parliament and the Commission's agenda (overhaul of the single market, completion of the European architecture, strategic autonomy, etc.).