With less than two weeks remaining until the EU elections, a resurgence in support for far-right parties continues to concern mainstream political groups, particularly the European People's Party (EPP).
While current polls still indicate a win for the incumbent leader, Ursula von der Leyen, the potential increase in seats for the radical right could have significant implications for the future of the European Union (EU). The political influence on the EU's economic landscape will primarily affect the implementation of the Green Deal and diplomatic relations with Ukraine. This could also indirectly devalue the euro against other G-10 currencies.
Unhappiness arises amid the cost-of-living crisis
Far-right party leaders have been gaining public support due to the deteriorating quality of life arising from Russia's war in Ukraine. The rising cost of living, increased immigration, and discontent among farmers have all contributed to the voting shift towards populist groups, particularly the Identity and Democracy (ID) group and the European Conservatives and Reformists (ECR).
The ID group is seeing surging support for France's National Rally (NR), led by Marine Le Pen, and Germany's Alternative für Deutschland (AfD). Meanwhile, the ECR has been buoyed by the Brothers of Italy, with their leader Giorgia Meloni becoming the country's first female premier.
This situation evokes memories of the unexpected outcomes of Brexit in 2016 and Donald Trump winning the US election in 2016. When people are dissatisfied with the incumbent ruling party, they often seek change, creating opportunities for populist leaders. According to the Euronews polls, the two far-right groups may gain around 20% of the seats, potentially leading to a rightward shift in the European Parliament.
Green Deal faces a political hurdle
A common area of focus for these groups is the issues arising from the energy transition. Right-wing parties have become the voice of EU farmers, who have been protesting against the Green Deal across the continent since February.
The Green Deal aims to cut greenhouse gas emissions by 90% before 2040, a goal that has raised concerns among farmers. The unrest prompted the European Commission (EC) to compromise, deciding to exempt agriculture from the deadline.
However, while the cost of the green transition is expected to constrain farmers' income, agricultural funding from the EU appears to reach only a small percentage of farm workers. Meanwhile, farmers' earnings have declined due to high inflation in goods and labour costs. This could lead to delays in achieving the Green Deal goals if right-wing parties take the lead.
Another issue that the EC encountered was the phasing-out of fossil fuel cars by 2035. Right-wing parties are calling for a cancellation of the deadline, arguing that such a policy would put pressure on consumers to purchase high-cost electric vehicles (EVs). Instead, consumers have shifted to more affordable hybrid vehicles, with the market share rising to 29% from 24.4% in March, according to the European Automobile Manufacturers' Association (ACEA).
Fully implementing EV utilisation will also require a sufficient deployment of charging stations, with the government offering subsidies to aid in the transition progress. The ACEA states that "tax benefits for electric company cars are less widespread, with only 17 member states offering them", while "only five member states provide incentives for charging infrastructure".
The green transition of automobiles has also sparked concerns about a surge in Chinese EV imports with lower prices. Implementing protection measures such as raising tariffs could lead to retaliation and potentially harm European carmaker sales in China.
A right-wing-leaning parliament is likely to pose more challenges to the EV policy in the face of these rising issues.
A potential diplomatic shift with Ukraine
The growing support for far-right parties is threatening the EU's diplomacy with Ukraine. ID groups, including the German AfD party, the Austrian Freedom Party, and the French NR, tend to lean towards a pro-Russia stance. This could potentially become a roadblock for the EU's efforts to strengthen its defence against Russia and its alliance with NATO.
In addition, the right-wing parties pose a threat to free trade between the EU and Ukrainian food producers. EU farmers have protested against cheap food imports, particularly concerning the free trade agreement with Ukraine. In response, the EU has reached an agreement to extend free trade with Ukrainian food producers, but with new limits on grain imports. Politicians have also imposed a cap on tariff-free goods, including poultry, eggs, and sugar.
The diplomatic shift with Ukraine and Russia could be significant if far-right populists come into power. This could have a major impact on the global political landscape, especially considering that the US will hold its presidential election in November.
A further weakening euro may be ahead
The uncertainty surrounding the potential victory of the radical right may weigh on the euro, as Eurosceptics would be likely to try to undermine the integrity of the EU. Divisions in political opinions and policies could reduce the competitiveness of the single market.
Economic turmoil and uncertain outlooks may prompt the European Central Bank (ECB) to lower its interest rates as early as June, potentially preceding other major central banks. CIO of SMS Investments, Shahil Shah, commented: "The euro could reach parity with the US dollar by the end of this year," referring to the possibility of an ECB rate cut in June.
