Pro-European liberals and Greens will have plenty to celebrate after the weekend’s stronger-than-expected results, while populist parties gained fewer seats than initially expected.

Furthermore, the high voter turnout - at 50.5 per cent, the highest since 1994 - highlights a renewed impetus behind the European project and is a great result for democracy and citizens’ engagement with the EU.

The elections, however, also confirmed the fragmentation of the EP. Large losses for the traditional centre-right European People’s Party (EPP) and centre-left Socialists & Democrats (S&D) families, which have dominated European politics for decades, mean that consensus-building will become harder.

Looking into the details, here are three winners and three losers from the vote.

The winners: 

• The Liberals (The Alliance of Liberals and Democrats      for Europe - ALDE) - The liberals are set to gain 40-45 MEPs and      become a key player in the EP as a centre-ground political family, powered      by Emmanuel Macron’s La République En Marche (LREM). Beyond France, ALDE      also scored strong advances in large member states such as Spain, Romania      and the UK. However, Macron’s loss to the far right in France is a      setback.
• The Greens - There was a strong result for ‘Die Gruene’ in      Germany - as the Greens proved particularly popular among young voters.      But the party also had a good showing in France, the UK and smaller      countries like Ireland and the Netherlands, completing the Greens’ three-decade      long journey into the mainstream of European politics. The Greens may even      form the fourth-largest group in the EP ahead of the far-right European      Alliance of Peoples and Nations (EAPN).
• Right-wing populists - Italian Deputy Prime Minister Matteo      Salvini’s alliance of far-right nationalists (EAPN) looks set to double      its EP representation to about 75 MEPs thanks to a solid result by      standard bearers Marine Le Pen and Salvini himself. Nigel Farage’s Brexit      party will comfortably surpass the UK Independence Party’s (UKIP) 2014 MEP      contingent. However, the ‘populist surge’ failed to materialise: the      Alternative for Germany (AfD) did not gain ground at the national level;      the Five-Star Movement (M5S) fell behind a resurgent Democratic Party (PD)      in Italy; Geert Wilder’s Freedom Party came close to losing all of its 3      MEPs in the Netherlands; Spain’s Vox lost almost half of its support      compared to the general elections just held; and the Freedom Party of      Austria (FPO) paid the price of its recent crisis.

The losers:

• The Socialists (S&D) - Much as predicted, the traditional centre-left family of European parties continued its electoral decline with the near elimination of France’s Socialist Party, an embarrassing result for the UK’s Labour party and another bad night for the Social Democratic Party of Germany. Clear victories for the S&D in Iberia, a resurgent PD in Italy and the surprise victory of spitzenkandidat (lead candidate) Frans Timmermans in the Netherlands somewhat saved the night.
• The EPP - Like the S&D, the EPP’s bad result was      widely telegraphed. The Christian Democratic Union (CDU) did hold their      ground reasonably well in Germany and the EPP will remain the largest      group in the EP. The poor showing by the EPP will now make Manfred Weber’s      role as the leading contender to become the next European Commission      president less clear-cut.
• The Left - Unlike the hard right, the Eurosceptic left      scored mostly disappointing results in France, Spain and Germany. In      Greece, Prime Minister Alexis Tsipras has already called early general      elections after a bad election result for Syriza (24 percent  vs. New      Democracy’s 33 percent).

A country-by-country look at the results

At a country level, the EP elections reflect a shifting tide in favour of the less moderate fringes of the political spectrum.

In the UK, the Brexit party confirmed its recent surge with over 31 per cent of the votes, while the Liberal Democrats gathered most of the Remain vote at more than 20 per cent (27 per cent in London). Labour saw a dreadful result with just 14 per cent, while the Tories garnered 9 per cent, 3 percentage points behind the Greens. The optimists will note that in aggregate, Remain parties received less than 40 per cent of the vote compared to over 35 per cent for hard Brexit parties - the balance comprised of the on-the-fence Labour and Tories. The Scottish National party (38 per cent in Scotland) and Plaid Cymru (20 per cent in Wales) also advanced. The result may help to convince Conservative party members to elect a Brexiteer leader. The remaining 27 European Union countries, on the other hand, will likely harden their resolve to oppose any further compromise with a troublesome UK, thus increasing the probability of a hard Brexit.

In France, Le Pen’s RN election victory will be a humbling moment for president Macron but is unlikely to lead to any material change in the political landscape, given LREM’s control of parliament and the presidency for at least another three years. However, it will damage Macron’s stature as a driving force for deeper EU integration.

In Germany, the losses suffered by the CDU/Christian Social Union are manageable. Nevertheless, the poor result recorded by the SPD may weaken the grand coalition in power and could yet lead to early elections. The emergence of the Greens as the main opposition party and the lack of progress for the AfD are encouraging, although the far-right party did win in Brandenburg, one of the three states holding closely-watched elections this Autumn.

In Spain, there was a clear victory for the Spanish Socialist Workers' Party (PSOE) with over 33 per cent of the vote, broadly repeated in the municipal and regional elections being held simultaneously. The centre-right People’s Party held its ground compared to the general elections in April and looks set to be heading the Madrid municipal government. Vox flopped, losing 4 percentage points of the national vote compared to 10.3 per cent attained in the general elections, though still electing three MEPs.

In Italy, there was some consolation for mainstream parties in that the centre-left PD looks set to remain a key player with more than 24 per cent of the vote, clearly overtaking M5S. However, Salvini’s Lega appears likely to add 23 MEPs to its existing five, while hard right Brothers of Italy/Federation of Liberals may gain another five. 

Implications for investors

The European Parliament elections took place at a delicate time for the EU. EP fragmentation will not help the block navigate what still is a challenging political landscape. There are several key roles up for re-election, including EC President and Mario Draghi’s successor at the helm of the European Central Bank. The growth backdrop, meanwhile, is yet to improve. While Europe postponed its trade negotiations with the US, it will eventually have to contend with them and will need to show a united front.

There are still plenty of hurdles ahead, and no doubt volatility and dispersion will remain elevated in the next few quarters. Valuations in European assets, however, already reflect and price in the uncertainty that investors face. This is particularly evident in European credit, where spreads have underperformed their US equivalent over the past 12 months. Income-starved European investors will find the yield available in European credit attractive as the ECB keeps a very accommodative stance and deposits are likely to yield zero for a long time still. On the macro front, meanwhile, the external headwinds that have so far weighted on European growth are likely to subside, with Chinese stimulus that is steadily feeding through.