Europe’s Socialists are on track to win more seats than the European People’s Party (EPP), according to the most recent polls. Yet this will not be sufficient to allow them to pass legislation without the support of other groups in the European Parliament.
Both of the two largest parties, and ALDE, the Liberals, also face losing votes to Eurosceptic parties and to the extreme left and right, according to many analysts.
This leaves the EPP and Socialists with difficult decisions. Do they seek to work with these newly emboldened Members of the European Parliament (MEPs), despite their attitudes to the European Union, or do they turn to each other?
Do they simply approach each bill on a case-by-case basis and risk that the horse-trading this will require slows the legislative process and breeds a paralysis that plays into the hands of the Eurosceptic faction?
The alternative is a grand coalition, with the EPP and Socialists sitting down to hammer out a comprehensive agreement and strategy for the next five years of parliamentary policymaking. That would have far-reaching consequences, not just for European private equity, but all industries.
The Socialists may have a stronger hand politically, by virtue of their expected majority. For the first time national EU governments are treaty bound to take the results of the elections into account when appointing the next European Commission President. This means, if the polls are right and if member states’ leaders follow the results in making their decision, the Socialists could have an influential ally at the Brussels executive to help them to shape the legislative agenda. But that is still not sufficient to get legislation passed if there is opposition from the rest of the Parliament.
Such a coalition could lead to greater compromise, a “third way”, and to the development of a more coherent programme of action. Leaders of the Parliament’s political groups could become more active in shaping the direction of the entire EU and less reactive to initiatives proposed by the Commission or put forward by the member states. It would give the Parliament a political unity to match that of the Council and Commission.
Germany’s Chancellor Angela Merkel is now leading a grand coalition of her own conservative party with the social democrats. The electorate hopes that such a large coalition will be able to address major reforms, like the “Energiewende” – the transition from non-renewable to renewable energy - or the reform of the pension system.
Merkel’s last grand coalition, in the legislative period 2005-2009, could not set a policy agenda as it was too busy reacting to the financial market crisis and the later economic crisis. The coalition’s size was a distinct advantage. It needed both major parties to convince the German people that the government had everything under control, that their money was safe (inflation being a “Ur-Angst” of Germans) and there was no need for a run on the banks.
Any EU grand coalition will hopefully not face challenges or crises on the same scale. Ideally, it will use its dominance to proactively shape the political agenda and help Europe meet the long-term challenges posed by global competition, low growth, and high youth unemployment.
Eventually, the outcome of the European parliamentary elections will have a direct impact on the private equity industry. In 2017 the Parliament will play an important role in the review of the Alternative Investment Fund Managers Directive. The review could influence everything from how and where fundraising can take place to the structure of remuneration.
Invest Europe has already begun preparations for the new Parliament. Many new MEPs may know little of our industry and it’s important they understand the benefits it brings to businesses and to the wider economy.
Over recent years, Invest Europe has explained to policymakers that private equity, including venture capital, has a significant part to play in Europe’s economic recovery by boosting innovation, productivity and competitiveness in the companies they back (read more here). Such investment also provides long-term investors such as pension funds and insurers with the returns they need to meet their liabilities.
The Parliament’s ongoing work on European Long-term Investment Funds (more here) is another area of great interest for our industry. Private equity funds are long-term illiquid investment vehicles that provide long-term finance to Europe’s businesses and that needs to be recognised by regulators and policymakers after the elections.
As always, clear, transparent communication about the industry is what’s needed to meet the challenges of a grand coalition and avoid the possibility of unintended regulatory consequences that could hamper private equity and its part in Europe’s future prosperity.