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Without a doubt, many investors and analysts, not only in the Eurozone, but also on a global scale, were closely scrutinising the outcome of the European Parliamentary Elections carried out over the weekend, for most of yesterday, and the impact this could have on European equity and bond markets. As had been widely anticipated, the turnout was low. The gained ground by euro-sceptic parties did not come as a surprise either, confirming the disconnect between the way European voters portray the ideal EU model and integration process and the way things were materialising in practice as anti-EU parties won 30% of the seats in the new parliament. More importantly, their victory is expected to shape the debate, both at the EU and national levels, on a number of key issues, including further EU integration and economic policy.
At the national level, the victories of the UK Independence Party as well as that of France’s National Front are expected to add further impetus and direction to their respective government agendas in the months ahead. In Greece, the Syriza party better know for its anti-austerity stance had a strong performance and sent a few warning signs to the government coalition. On the contrary, Italy was the biggest surprise as the Democratic Party (PD), led by Prime Minister Matteo Renzi, won an unprecedented victory that will reinforce his push for reform. This came as a relief to the market after speculation that the anti-government movement might prevail, and this should support peripheral eurozone bonds. Italy will hold the EU presidency in the second half of 2014.
In the short term, the election result is likely to affect the decision as to who will succeed José Manuel Barroso as president of the European Commission. For the first time, the EU member states will have to bear in mind the European election results when nominating the next president, thereby suggesting that the candidate supported by the strongest political party in the European Parliament should be at the forefront, placing, former Luxembourg Prime Minister and Eurogroup chief Jean-Claude Juncker, in a strong position.
Ukraine was also at the polls over the week-end, pro-EU and chocolate-maker Petro Poroshenko looks to be on track to win Sunday's presidential elections at the first count with former PM Yulia Tymoshenko coming in second place and the leader of the Radical party Oleg Lyashko coming in third. The results are expect to be positive for Ukrainian and Russian markets overall, but also peripheral European markets as government contacts and business interests in Russia place Poroshenko in an ideal position to negotiate with Russian officials. Furthermore, despite the fact that the Russian Foreign Affairs Ministry noted that the presidential campaign "was not without problems", it reiterated Putin's stance that Russia would respect "the will of the people" and work with whoever wins. At this point, the threat of further sanctions against Russia is expected to dissipate for the time being, although a build-up of violence in the Eastern Ukraine can lead the US and the EU to re-assess the situation once again.
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