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Heightened uncertainty over the outcome of European elections in 2017 means further economic and political integration in the region is unlikely for the foreseeable future, as governments focus on shoring up domestic support, Moody's Investors Service said in a report today.
As previously stated, Moody's does not expect anti-consensus parties—including those campaigning on anti-EU or anti-euro policy platforms —to form outright governments or hold executive power following elections. However, the trend of heightened credit market volatility during elections which have seen rising support for anti-EU agendas, particularly since 2009, highlights downside risks to capital market financing conditions in 2017, at least over the short term.
The report, "Euro area and European Union: Rising Policy Risk Suggests Further Meaningful EU Integration Unlikely in 2017", is available on www.moodys.com. Moody's subscribers can access the report using the link at the end of this press release. The research is an update to the markets and does not constitute a rating action.
"While a busy EU election calendar is not unusual, these votes are taking place against a backdrop of rising challenges to the political status quo and the declining popularity of governing political parties," said Colin Ellis, Moody's Managing Director and co-author of the report. "These elections have the potential to shape the future of regional integration, weigh on economic growth and stoke financial market volatility. While there are no immediate rating implications, such developments would be clearly credit negative as they have the potential to weaken EU sovereigns' economic and institutional strength."
Risks of traditionally centrist parties becoming more focused on shoring up political support before or after election cycles than pursuing unpopular economic and fiscal reforms, either at a national or regional level, are material. The credit implication of such a scenario is that large economic imbalances amongst member countries are likely to endure, leaving the region vulnerable to recurrent future crises.
Furthermore, concerns over future economic policy direction may negatively affect business confidence and investment in countries where anti-consensus parties are gaining momentum, weighing on the region's already weak growth.
