The advance of Europe’s far right

Europe's far right is hampered by internal bickering [View in browser]( [Bloomberg]( Welcome to the [Year of the Elections](, Bloomberg’s newsletter on the votes that matter to markets, business, and policy amid the most fragmented geo-economic landscape in decades. The far right is set to gain seats in this week’s European Parliament elections, but internal disputes among many nationalist groups will limit their influence and might offer mainstream parties some breathing space. The Alternative for Germany (AfD) in particular has suffered a number of setbacks in the past few weeks. A series of scandals shook the party, ranging from a conference on the planned deportation of asylum seekers and naturalized Germans to a bribery and spying affair, which tainted the party’s lead European Union candidate, Maximilian Krah, and his deputy, Petr Bystron, a member of parliament. The AfD leadership told both candidates to stop campaigning. Even worse: Two weeks ago, French nationalist Marine Le Pen publicly distanced her National Rally (RN) from the AfD after Krah said in an interview with an Italian newspaper that [not all members of the Nazi SS]( paramilitary organization were criminals. The Identity and Democracy alliance in the European Parliament, which includes RN, expelled the German party. Although this move was purely symbolic, since it didn’t affect any decision making in the current EU parliament, it showed how isolated the AfD has become in Europe. Unlike Le Pen and Italy’s far-right leader Georgia Meloni, the AfD’s co-leader, Alice Weidel, has failed to move her party more into the political mainstream. Plus, it’s unclear whether the AfD will be able to join a political group again in the newly elected EU parliament. As a result of this series of mishaps, the AfD has lost its momentum in the polls. In the most recent national EU poll from the Insa institute, it dropped from a peak of 23 percent in July 2023 to 16 percent on June 1. But it remains the second-most popular party in Germany, ahead of Chancellor Olaf Scholz’s Social Democrats. Without the AfD, ID is projected to win 68 seats in the assembly, according to a polling average compiled by Europe Elects. That would be down from the December projection when it appeared on track to win 93. In spite of the surge projected by the polls, European officials remained skeptical that the results would lead to the rightist tide that some have predicted. Their disruptive impact would depend on whether the two main voices of these parts of the spectrum, Le Pen and Meloni, could join forces in a single group in the EU chamber, said some diplomats, who doubted that the Italian prime minister would go for that option. The increase of the support for hardline parties against some landmark EU policies, including green rules, has come amid the rising impact of hacking and [disinformation against the candidates]( and the EU institutions. Some campaign officials, who spoke on condition of anonymity because of the sensitivity of the matter, expected a significant [increase of malware]( activity during the final couple of weeks. European Commission President and EPP candidate Ursula von der Leyen’s website was one of the targets of such attacks. — [Arne Delfs]( and [Jorge Valero]( Le Pen arrives at a European election campaign rally in Paris on Sunday. Photographer: Nathan Laine/Bloomberg European Economy Q&A [Craig Stirling](, Bloomberg’s senior editor for economy and government in Europe, gave us his perspective. The European Central Bank is set to cut interest rates and growth is rebounding. Does that mean the European economy is entering a sweet spot? Euro-zone officials would [dearly wish so](, but that seems unlikely. The European Commission described its forecast last month as a “gradual recovery amid high geopolitical risks” — and the 0.8% expansion it predicts for the currency region this year is less than half of the average seen in the five years before the pandemic. While the Brussels executive anticipates a [stronger pickup]( next year, the dangers posed by Russia’s war in Ukraine raging nearby with the threat of another energy shock seem likely to overshadow the economy for years to come. When you look over the next five years, what will be the key economic challenges for the next commission? Among the longstanding problems officials will face are the region’s persisting lack of productivity growth, its [waning competitiveness](, and the continuing fragility of a single currency that isn’t matched by a fiscal union. More recently, the need to retool the economy for climate change and a push to [pool defense spending]( has been preoccupying Brussels, while the implications of an aging population is another issue rapidly rising on its list of priorities. One complication could be the possibility of a less compliant European Parliament if the elections deliver a swing against mainstream parties toward populist groups more opposed to the bloc’s legislative agenda. Euro-area finance ministers have agreed to a new set of debt and deficit rules that could, in theory at least, start to put pressure on governments next year. How do you see that playing out? This could become a real test both of the new rules and of the commission’s potency. Five members of the bloc have borrowings exceeding 100% of output. Of those, [Italy]( is predicted by Scope Ratings to replace Greece as the region’s most-indebted nation within three years, while both [France]( and [Belgium]( continue to run particularly egregious deficits. Officials know from the bitter experience of the region’s sovereign debt crisis that a failure to repair public finances just stores up trouble for the future. But testy electorates, the need to rearm to deter [Russia]( and the challenge of meeting existing pension commitments funded by proportionately shrinking workforces will make that a tough job to achieve. Despite the war on their doorstep, the economies have central and eastern Europe have been among the strongest performers in recent years. Can you see that outperformance persisting? For now, yes. The commission’s own forecasts are bullish, with a prediction of 2.6% growth in Latvia and Slovenia next year the lowest in that group — and Hungary seen achieving as much as 3.5%. By contrast, Brussels officials reckon the EU as a whole will notch up expansion of 1.6%, held back by the biggest euro-zone economies. Then again, living standards in some eastern economies are still catching up with the regional average, giving them greater scope to grow. The Markets Take [Alice Gledhill,]( a Bloomberg reporter covering government bonds and foreign exchange, writes about the outlook for European debt markets. Investors will parse the election results closely for any hints over a potential change in the fiscal backdrop further down the line. A push for greater fiscal freedom could unnerve investors over the long term given concerns over already-large debt piles in some member countries. As recently as Friday, [France was downgraded]( by S&P Global Ratings, given the government’s missed goals in plans to restrain the budget deficit after huge spending during the Covid pandemic and energy crisis. Italy has long been Europe’s poster-child for problematic levels of debt, though its yield premium over Germany — a common measure of risk in the region — isn’t far off the two-year low it reached in March, given Meloni has so far been willing to work with Brussels. For this week at least, the market’s attention will be focused on the ECB’s monetary policy meeting this afternoon, when policymakers are expected to lower borrowing costs for the first time in this cycle. Corporate Stakes [Ben Sills](, Bloomberg’s managing editor for European economy and government, looks at the possible market reaction. With the Green Party expected to lose almost a quarter of its seats, UBS strategist Felix Huefner sees the possibility of vetoes to some climate laws, impacting measures such as stricter carbon emissions for new cars. European car manufacturers, which have invested billions in electrification, are feeling the strain from cooling EV demand. Any relief on penalties for not meeting emissions targets could be viewed as a positive, so keep an eye on Germany’s Volkswagen, as well as peers including France’s Renault SA and Sweden’s Volvo Car AB. Plans for greater military spending to counter Russian belligerance have spurred huge [rallies in the shares of defense companies]( such as Rheinmetall AG, Saab AB and Rolls-Royce Holdings Plc. If discussions at the NATO summit in Washington next month were to see European nations push their military spending to 2.5% of GDP, equity fair values would rise by 15-20%, Citi analyst Charles Armitage estimates. Europe’s banking stocks have been on a tear this year, thanks to robust profits and an M&A resurgence. Investors hope EU lawmakers will now prioritize policies for completing a banking union. More from Bloomberg - [Balance of Power]( for the latest political news and analysis from around the globe - Check out our [Bloomberg Investigates]( film series about untold stories and unraveled mysteries - [Bloomberg Opinion]( for a roundup of our most vital opinions on business, politics, economics, tech and more - [Next Africa](, a twice-weekly newsletter on where the continent stands now — and where it’s headed - [Washington Edition]( for exclusive coverage on how the worlds of money and politics intersect in the US capital - Explore all Bloomberg newsletters at [Bloomberg.com](. Follow Us Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. Want to sponsor this newsletter? [Get in touch here](. You received this message because you are subscribed to Bloomberg's The Year of Elections newsletter. If a friend forwarded you this message, [sign up here]( to get it in your inbox. [Unsubscribe]( [Bloomberg.com]( [Contact Us]( Bloomberg L.P. 731 Lexington Avenue, New York, NY 10022 [Ads Powered By Liveintent]( [Ad Choices](