Economic challenges for the new European Commission’s mandate


The latest European elections for the EU Parliament occurred between May 23 and 26 measuring the historic turnout of the European electorate body. The composition of the EU Parliament has never been so diverse as of the outcomes in its 2019 elections! With the 179 (EPP) and 153 seats (S&D), ALDE was placed as the third runner up with 105 seats. While ENF won 58 seats, the ECR got 63 places.

On 2 July, Parliament’s 9thterm will start and MEPs will meet for its constituent session in Strasbourg. MEPs will elect the President, the 14 Vice-Presidents and the five Quaestors of the House and decide on the number and composition of Parliament’s standing committees. The next Commission Member states will nominate a candidate for the post of Commission President, but in doing so they must take account of the European election results. Moreover, Parliament needs to approve the new Commission President by an absolute majority (half of the component members plus one). If the candidate does not obtain the required majority, the member states need to propose another candidate within a month (European Council acting by qualified majority). The Commissioners-designate, who are proposed by the member states, and the Commission President-elect have to win the approval of Parliament before the Commission can enter into office, at the beginning of November.

What are the key issues to be dealt by the new European Commission? What are the challenges to maintain the economic outlook of the Union?

The European Union is the second largest economy in the world. With exponential rise of China its pledge to be among the top 2 world’s economies has been shaken. However, even with a stagnating or small scale growth, it experiences vast issues to be dealt with in the next period when it comes to economic and financial affairs. Deteriorated macroeconomic conditions and mounting risks led to a sharp reassessment of risk premia towards the end of 2018. This translated mainly into a flight to safety with falling equity prices, widening corporate bond spreads and declining sovereign bond yields. A reappraisal of monetary policy by major central banks helped to reverse this trend early this year. Sovereign yields have since continued to fall as investors no longer expected a near-term hike in US interest rates and accommodative monetary policy in the euro area is now expected to continue for longer. These expectations have led to a moderate depreciation of the euro and given a boost to global risk appetite, helping to spur a rally in equity markets. The euro has weakened by about 2% in nominal effective terms since the beginning of this year. This has happened against a background of weaker-than-expected growth in the euro area and the subsequent downward adjustment of market expectations about the ECB’s monetary policy. The euro’s depreciation has been rather broadbased: emerging economies’ currencies generally appreciated against the euro, supported by vanishing expectations of further US monetary policy tightening, while rising concerns about the growth outlook in the euro area weighed on the euro against other major currencies. Signals from the April 2019 ECB Bank Lending Survey reflected the accommodative monetary policy stance. Credit standards remained broadly unchanged for loans to non-financial corporates, while they tightened for household loans for house purchases, consumer credit and other lending to households. Banks’ cost of funds and balance sheet constraints and the perception of higher risks attached to the economic situation and outlook contributed to a tightening of credit standards on loans to enterprises, mainly competitive pressures in the banking sector contributed to an easing of credit standards. Among the largest Member States, credit standards for households tightened mainly in Italy and Spain.

It remains to be seen what the political priorities of the new Commission and its president will be, and how they will translate into the new cycle of multiannual and annual programming, including the Commission’s annual work programme (CWP) for 2020. In this regard, the 2016 Interinstitutional Agreement on Better Law-Making commits the Commission, Parliament and the Council to interinstitutional cooperation. Upon the appointment of the new Commission, the said institutions are to “exchange views on the principal policy objectives and priorities of the three institutions for the new term”. One thing is positive: the external influences coming from abroad are the variables on which the further work shall be dedicated to by the next European Commission’s mandate.

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