The Banking The Banking Executive Magazine - June 2024 Issue

EU Election 2024 IMPACT ON MARKETS Reuters experts see that gains for the far-right in European Parliament elec- tion 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. The euro, French stocks and govern- ment debt were all hurt as investors assessed whether the far-right can re- peat their success in French election and how much sway far-right parties can have on the new European Union executive. Further economic integration may be slowed down instead of being accel- erated with the EU's rightward shift. Barclays's head of European equity strategy expects banks and utilities to bear the brunt of the uncertainty. An- other concern is that populist parties could push for a bank tax which may also be creating unease. Standards and Poors (S&P) cut France's credit rating. The risk is a government less likely to comply with EU rules on keeping deficits in check, according to Deutsche Bank, with a strong showing for the Social- ist party. The French/German 10-year bond yield gap was 7 basis points wider. Experts expect some underperfor- mance of French assets and by exten- sion, some underperformance of European assets. IMPACT ON EUROPE CLIMATE POLICIES The Greens were one of the biggest losers of the 2024 EU election. The shift to the right is unlikely to undo existing climate policies, but could make it harder to pass new ones and add loopholes to weaken laws that are due to be reviewed. IMPACT ON EUROPE GLOBAL TRADE Parliament's rightward shift could have an impact on Europe global trade. The EU is already planning to impose tariffs on Chinese electric ve- hicles. According to Commerzbank, the po- litical move to the right in the Euro- pean Parliament and the outcome of new parliamentary election in France will undoubtedly lead to more trade barriers between the EU and China. Any retaliation would hurt European auto stocks. the BANKING EXECUTIVE 12 ISSUE 186 JUNE 2024 Euro area trade balances by partner Source: London Stock Exchange Group (LSEG) data stream and Thomson Reuters Trust Principles