EU: Trust in European institutions is improving - ING

According to Bert Colijn, Senior Economist at ING, it is not just the economy causing the current “Europhoric” environment as the trust in the European Union reaches its highest level in six years as fear of the Eurosceptic vote is subsiding, although Italy remains a real risk with elections in 2018.

Key Quotes

“At the beginning of the year, further disintegration of the Eurozone was one of the biggest worries among global investors. Over the past months, we have seen this quickly subside as Austrian, French, and Dutch elections did not result in increased break-up risk. While the risk of populist backlash in Europe seems far from over, it does seem that euroscepticism is declining.”

“The latest Eurobarometer, a large semiannual survey among European citizens, shows that trust in the European Union increased again in the first half of 2017. 40% of EU citizens hold a positive view of the EU, 37% have a neutral view and 21% a negative view. Especially in France, where President Macron won the elections with a proEuropean campaign, the shift towards more optimism about the EU’s future has been enormous. The jump has also been large in other countries with recent elections like Netherlands and Austria. Also in Denmark, Portugal and Germany the results of the survey were far more optimistic now compared to the end of last year. Not just the EU gets a vote of confidence, but support for the monetary union has also increased as 73% in the Eurozone now support the euro, up from 70%.”

“Economic performance seems to contribute positively to the improving sentiment towards the institutions as the uptick in the economy has coincided with the recovery of sentiment. Both the economic situation and unemployment decreased as the most important issues facing the EU according to the survey. Terrorism and immigration still rank as the most important by far, although immigration concerns decreased significantly since the deal with Turkey. The fact that the largest EU concerns according to citizens are terrorism and immigration indicates that there seems to be appetite for pan-European collaboration in these areas. Chancellor Merkel and President Macron have already shown interest in more collaboration on defense policy, which ties in well with these results.”

“It is important to note that the more positive view on the EU does not mean that a Eurosceptic vote is ruled out in the coming months. Italy, with elections coming up in 2018, remains one of the more Eurosceptic countries in the EU. Trust in the EU did improve somewhat but remains very low at 36%, just higher than in the UK for example. Greece ranks last in trust in the EU and optimism about its future, with less than a third of people optimistic. This indicates that the appetite for a Eurosceptic campaign is still there in important countries and that political risk in the Eurozone may have taken a break but has not gone away.”

“Besides Italy and Greece, the Central European countries show some concerning results. Trust in the EU, but especially optimism about its future has been slipping, showing that the relationship between European institutions and Central European citizens has cooled off over recent months. Poland is the exception here, although it has to be noted that recent tensions between the European Commission and the Polish government occurred after the survey was taken in May.”

“European political risk has lost some attention from investors since the Macron victory in the French elections. Negative sentiment about the EU has indeed come down significantly, which will further mitigate political risk in some of the countries with elections coming up. While this does not mean that Italian elections will be a non-event for markets or that other countries do not pose a risk to an integrated Europe anymore, it does fit the current narrative of optimism about the EU.”