Economic, political repercussions of European elections may be greatest in Italy

In the aftermath of the recently concluded European elections, a more fragmented parliament in its wake will complicate European Union (EU) policymaking while implications for domestic politics could be greatest in Italy, according to a leading rating agency. 

In a note to clients, Moody’s said the results of the European parliamentary elections are broadly credit neutral for the EU as a whole but policymaking and advancing a reform agenda would be prove problematic.

"We do not expect a reversal in the EU integration achieved to date or a change in the broad policies governing the EU and euro area," said Kathrin Muehlbronner, Vice President at Moody’s. 

“The strong result for Lega in Italy increases the risk of early elections, although political uncertainty is already incorporated into Moody's current rating. In France, the results increase the political pressure on President Emmanuel Macron, but are unlikely to alter the government's commitment to implementing its reform programme.”

The agency also noted that the results provide an indication of voting sentiment going into parliamentary or presidential elections later in the year in Austria, Greece, Poland, and Romania.

In the UK, the poor electoral performance of the Labour and Conservative parties is likely to prompt them to revisit their stance on where Brexit should go next. “The combination of this result and Prime Minister Theresa May's resignation increase the likelihood of a no-deal Brexit,” the agency concluded.