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The composition of the next European Parliament and its MEPs likely will determine the future of key political and policy plans. This Political, Economic, Social and Technological (PEST) assessment guides decision makers on how to understand and prepare for the potential risks and challenges.

In recent years, Europe has been witnessing a notable surge in the prominence and influence of far-right politics and the expected ramifications on the societal fabric. The war in Ukraine has further strengthened this rising trend, since it has highlighted the differences among individual EU member-states on crucial political, economic, and social matters, including EU foreign policy. As a result of these differences, with the primary focus on geopolitical matters, rather on the internal problems within the Union, plus the decline of the EU economy, have indirectly created fertile ground for the far-right political grow.

More current issues, such as transnational threats, the 2015 influx of migrants and refugees on mainland Europe, coupled with concerns about cultural identity and national sovereignty, have provided favorable opportunity for far-right politics, capitalizing on fears of cultural dilution, societal change, and perceived threats to national identity. Worth mentioning is that 2023 migration flows have risen to the same levels as in 2015 migration crisis.^[3] In addition, the UK’s Brexit decision similarly mirrored far-right sentiments affecting the immigration and protecting national sovereignty. As a matter of fact, in the last two decades Europe has been witnessing a confluence of economically left-wing and culturally conservative policies, that has reshaped the political landscape and has manifested in the formation of coalitions across the political spectrum.^[4]

This PEST analysis aims to dissect a range of factors contributing to this trend, providing insights into the challenges and opportunities posed by the rise of this phenomenon, and how investors should fine-tune their investment policies in this nuanced scenario considering the upcoming EU elections.^[5] The assessment first forecasts the European parliament composition.

Since the early 2000s, almost every European election has witnessed the growth of support, coalition participation, or even governmental takeover by far-right parties, where radical right parties have firmly established themselves as integral players in mainstream politics. The discourse adapted the rhetoric to address contemporary issues such as immigration, cultural preservation, Islamophobia and Euroscepticism. Noteworthy examples that left an indelible mark and have become a recurring presence in the European Parliament and the European far-right landscape are the French National Rally, Austrian Freedom Party, the ruling Brothers of Italy, Dutch Party for Freedom, which recently won the majority votes in Netherlands,^[6] Hungarian FIDESZ, Sweden Democrats and Alternative for Germany, which seems to be gaining political momentum.^[7]

Should far-right parties secure substantial gains in the June elections, there could be a notable shift in the composition of the European Parliament, which would further impair the decision-making processes within the Parliament. Moreover, the French National Rally and Italy’s League, are anticipated to gain traction in the upcoming June elections, by having expressed intentions to strengthen the European Union’s stance on immigration while adopting a more lenient approach towards climate policies, indicating a potential divergence from the current policy trajectory. In terms of the parliamentary dynamics, the formation of a far-right majority in the EU Parliament would have significant implications for decision-making and policy formulation. The concerns about the difficulty in forming majorities highlight the potential gridlock that could emerge, hindering the EU’s ability to address pressing issues. The existing coalition may face challenges in maintaining cohesion in the face of a rising far-right influence.

In the short to medium term, the policies emanating from a far-right majority in the European Parliament could see shifts, particularly in areas such as immigration, climate policies, and recalibration of the EU’s foreign relations. Additionally, it may also affect the ability to reach consensus on crucial matters such as the green transition, defense, and security strategies. Such divergence in approaches between far-right factions and mainstream parties will likely result in a more fragmented and polarized EU Parliament.(Fig.1)

Figure 1: European Parliament Seats Distribution^[9]

As the elections approach, the EU and its member-states are likely to experience a period of heightened uncertainty and political recalibration. The short to medium-term outlook hinges on the election results and the subsequent ability to form a functional and cohesive European Parliament, capable of addressing the pressing challenges facing the EU. Recent polls reveal that European Conservatives and Reformists and the Identity and Democracy right-wing groups in the EU parliament would see improved standings, which could additionally drive the center-right European People’s party to adopt certain far-right positions proposed by far-right politics.^[10] Therefore, there is an anticipation of a consistent policy agenda in Europe, given the diverse political makeup in the European Council. Despite the presence of liberals, socialists, and the populist right from different member states, the arrangement seems unlikely to support an all-out victory of the far-right politics.

The new EU Parliament will likely aim to stabilize inflation through political cooperation and diplomatic efforts with major energy players.

The energy security of the European continent witnessed erosion due to EU’s response towards the war in its neighborhood. The accompanying waves of sanctions towards Russia and the Nord Stream incident, led to deterioration of the political dialogue and further highlighted the energy crisis, that the EU is currently facing. Even though the current EU parliament jointly reacted in stabilizing the challenges with a number of policies to mitigate the energy issues,^[12] the next EU Parliament represented with increasing number of far-right parties will likely try to revert the cooperation with Russia.^[13] Although certain divisions are evident, such discourse aims to initially stabilize the inflation and the overall domestic economic prospects of respective EU member-states, since the general stance and rhetoric of EU far-right parties is to address the pressing issues of the population.

The regulatory policies regarding immigration and labor market will likely be adjusted to favor native-born populations in Europe.

The rising far-right representation in EU Parliament will likely have a greater say and will assume a harder stance towards immigration and labor market policies, with the aim to limit the Union’s influence and the decision-making processes.^[14] The new EU Parliament will likely be obliged to assume a tougher stance on immigration, which would exert more pressure on the labor market, as the EU’s labor market is heavily reliant on non-EU citizens.^[15]

Even though there have been certain efforts to deal with immigration issues in the EU and manage the labor market, the next EU Parliament will face challenges and delays in implementing the regulatory framework related to these issues, subsequently impacting market dynamics and business operations.

The trade relations with major global players are likely to be revised in the next EU Parliament to alleviate the economic hardships of the Union.

The war in Ukraine and Gaza Strip besides current US-China competition, have introduced geopolitical risks for the EU. These issues have created a more challenging global environment for trade, particularly in industrial policy’s adoption impacting the green transition, the semiconductor industry, and resulted in implementation of restriction measures.^[16] It is expected that the new EU parliament will reconsider the trading policies aiming to mend the deteriorating business environment and relationship with global actors.

Although currently divisions exist within the EU on issues across the board, the new EU Parliament will likely push the political focus inward, and further diminish the EU’s capacity for unanimous coordinated actions. In the aftermath of the elections, it is expected that the post electoral agreements to be complicated, resulting in weak coalitions. Looking forward, the future solutions regarding energy matters, immigration, labor market and trade relations will likely be protectionist and nationally oriented in line with interest and priorities of the electorate.

• Economic Factors

The aftermath of the 2024 EU elections will significantly impact inflation and the investment climate in Europe, dependent on a combination of economic stability, currency stability, and interest rate policies. Monetary policy decisions will play a crucial role in shaping the EU’s economic landscape. Geopolitical events and tensions will likely impact currency stability and investors’ confidence.

Economic stability will likely face challenges with the increased representation of far-right parties in the EU parliament.

Although EU’s economic stability projected resilience in 2023 related to the energy crisis, economic growth was slowed down nevertheless, highlighted by increased gas prices, restrictive monetary policies, and weak industrial activity.^[17] However, the economic stability prospects for 2024 are being challenged, influenced by external shocks, geopolitical tensions and/or financial crises, which ultimately leads to recession. Such a scenario should warn investors to be more cautious in the decision-making processes related to investments in Europe. It is expected that the new EU Parliament will likely face further divisions related to economic policies, since the economic situation in Europe is witnessing a slight decrease in GDP, accelerated inflation and decrease in industrial production.

The European currency is likely to face growing challenges in the aftermath of the June elections. The Euro’s strength compared to other currencies remains steady, which bears the potential to reduce inflation risks and present an appealing investment climate for global investors. On the other hand, the European Central Bank (ECB) highlighted the volatility of energy prices due to geopolitical tensions, developments in major economies, and trade relations that have an impact on the currency stability.^[18] Currency volatility driven by factors such as trade tensions, geopolitical uncertainties and global economic downturns will likely amplify the fragility of the European currency with fluctuations negatively affecting the value of investments.

The interest rates will likely be another point of confrontation in the aftermath of the June elections, dependent on several external factors.

The ECB assured that interest rates would remain unchanged^[19] for the time being. However, tensions related to the war in Ukraine, the growing Chinese economy, the geopolitical developments in the Red Sea and the Gaza Strip conflict are factors worth considering which have a high impact on EU’s economic recovery.^[20] Although analysts predict that interest rates would be considered for reduction in Q3,^[21] the next EU Parliament will likely witness heightened discussions between the opposing blocs, regarding the above-mentioned external factors. Bearing in mind the current divisions in this context, the decision-making processes are expected to be stalled and interrelated with the resolution of the conflicts in the geopolitical hotspots.

Considering that the EU Parliament would focus its attention inward after June 2024, it is likely that the economic policies favoring individual member-states will be prioritized, amid turbulent international developments.

• Social Factors

The increased representation of far-right political parties likely will lead to social polarization and changes. There are even chances that these changes could potentially reshape the demographic trends, ultimately affecting the labor market in the EU in the aftermath of the June elections.

The next EU Parliament represented with an increased number of far-right representatives is poised to shape EU’s internal dynamics and external migration patterns influencing consumer behavior and demand for certain products and services.

The rise of far-right political parties indicates a profound shift in European societies and norms, triggered by number of factors that have influenced the demographic trends such as immigration, perceived social inequalities, particularly in the aftermath of the COVID-19 pandemic.^[22] Again, in this case, the next EU Parliament is looking at stalled decision-making processes, which will ultimately push for promoting policies related to cultural preservation and restrictive immigration measures. As a result, the impact would be on the population composition with curbed migrant flows, encouraging emigration, and in some cases deportations.

European society is poised to witness an increasing shift in social trends, impacting consumer preferences in the aftermath of the elections.

The increasing emphasis on national identity, anti-immigration, cultural heritage, and preservation, and anti-establishment as well as Euroscepticism,^[23] is likely to lead to a preference on locally produced goods and services, which translates to a more insular economic outlook favoring businesses that share such narratives. The decision-making processes in the next EU Parliament related to policies such as gender equality and inclusion are likely to be delayed and scrutinized under the influence of populist agendas, simultaneously pushing forward policies that favor the native-born population. As a result, the EU will likely experience heightened social polarization fostering an “us versus them” narrative. Such increased hostility will likely lead to further social tensions, create challenges for integration and unrest.

The increased representation of far-right members in EU Parliament will likely have significant implications for the labor market across the Union.

The likelihood of implementation of restrictive immigration policies having in mind the next parliament constellation, with the aim to manage the immigration flows will likely affect labor markets and alter the demographic composition of the workforce. The focus on domestic economic policies and favoring domestic industries will likely be a trigger for possible implementation of trade barriers,^[24] that could impact international trade, global supply chains and discourage foreign investments.

This indicates that industries dependent on exports would face challenges in such scenarios. Policies advocating stricter immigration controls will likely affect the availability and composition of the labor force. Industries relying on migrant labor, such as agriculture, construction, and certain services, may experience labor shortages, impacting productivity and potentially leading to wage pressures. Reforms in labor laws, changes in worker’s rights and social safety nets are likely to be revised, indicating shifts in job security, working conditions and benefits. Considering the social polarization and economic uncertainties, Europeans will likely experience a volatile job market, affecting both job creating and job security.

The upcoming EU Parliament is set to wield considerable influence over the EU’s internal dynamics and external migration patterns reverberating throughout European society, impacting social trends, and subsequently altering consumer market and preferences. The implications extend beyond societal changes, significantly affecting the labor market across the Union. From potential shifts in immigration policies to alterations in economic and social frameworks, the influence of far-right political parties in the next EU Parliament will be a crucial factor shaping the economic and cultural landscape.

• Technological Factors

The next EU parliament will likely face challenges and uncertainties affecting innovation, digital transformation, and cybersecurity.

Far-right parties in EU parliament will likely advocate reassessment and amendments to regulations and policies.

EU’s Digital Services Act and the Digital Markets Act entered into force in November 2022, which indicates that the EU is aiming to regulate the digital realm protecting the fundamental rights of users, as well as foster innovation, competitiveness and growth on the European and the global market.^[25] However, the next EU parliament represented with increased number of far-right members will likely seek reassessment or amendments to align regulations with their ideology, since far-right parties view this act as poisonous to free speech in the digital media.^[26] The focus on domestic policies bears the potential to limit collaboration on cross-border projects, hinder the exchange of ideas, expertise and create barriers to entry of innovative technologies and business models, impeding the development and deployment of cutting-edge solutions. Moreover, the allocation of research funding is another area that could be impacted by this trend, should it be perceived that it is not in line with their ideology and values. The adoption of restrictive policies may contribute to a “brain drain,” which could significantly impact a country’s capacity for innovation. Startups and SMEs, which are often at the forefront of innovation, may face challenges if far-right politics result in a less supportive environment for entrepreneurship. This could include difficulties in accessing funding, navigating regulatory landscapes, and attracting diverse talent.

Digital transition is expected to be delayed with the next EU Parliament.

Considered as a crucial element for development and autonomy, the EU is involved in regulating the digital realm in order to provide jobs, improve education, facilitate innovation and competitiveness, and also manage the climate issues and foster transition to green technologies.^[27] On the other hand, technological advancement triggers the perception of insecurity resulting in more votes for far-right parties.^[28]

However, it seems that the EU’s ability to set global standards is robust, having in mind the EU’s rules about a common charger,^[29] which led Apple to change its proprietary connectors globally.^[30] Such EU regulations are seen by critics as protectionist in shaping global technological standards, which additionally influences domestic legislations.^[31] Therefore, the far-right political parties in the next EU Parliament will likely oppose such global standards, advocate domestic approaches, and push for national technological sovereignty. As a result, it could potentially affect operational efficiency and market competitiveness.

Cybersecurity issues are another stumbling stone indicating that the next EU Parliament’s decision-making processes will likely be impacted.

Cybersecurity is a complex and cross-cutting issue,^[32] and regulatory changes are typically influenced by a variety of factors beyond the political spectrum. There are however several ways that far-right political parties could potentially influence the related regulations. Noteworthy to mention is that such an approach to cybersecurity on behalf of the EU faces criticism by several civil society organizations, demanding clarification on the provision enshrined in the Digital Services Act.^[33] Therefore, the next EU Parliament may face trends to redirect policy priorities away from cybersecurity concerns. There is likelihood of resistance to international cooperation on cyber threats, scrutinization of resource allocation for cybersecurity measures, and advocacy for domestic cyber policies. In addition, the next parliament constellation will likely push for deregulation in the digital domain, weakening existing cybersecurity regulations, and impacting international agreements aimed at enhancing cybersecurity collaboration. The emphasis on digital sovereignty may lead to measures that prioritize domestic control over transnational digital infrastructure, potentially shaping the cybersecurity landscape within the European Union.

Politically, EU is facing internal divisions on number of issues currently. The next EU Parliament will likely aim to mend these divisions shifting its focus inward, which will likely improve EU’s capacity for action. Looking forward, the political landscape in EU Parliament will likely see weak post-electoral coalitions. Solutions to issues such as energy, immigration, labor, and trade relations will likely be protectionist and domestically oriented. The ongoing war in Ukraine and the rising geopolitical tensions in the Middle East have undeniably left its mark on European politics, with far-right movements experiencing notable shifts in their positions, narratives, and strategies. The dynamics triggered by these conflicts have implications that extend beyond national borders, affecting investors with interests in Europe. The positions adopted by these parties, ranging from support for Russia to a more moderate stance, are creating divisions in the EU Parliament, presenting a complex nexus for investment climate. These considerations seen through the upcoming EU Parliament elections in June 2024 introduce significant uncertainties for investors.

Economic stability and growth are being stalled with Europe facing recession, triggered by external shocks and geopolitical events. Although the euro in comparison to other currencies remains stable, the external shocks and the focus on geopolitics will highlight the euro’s fragility, further amplifying the inflation, which is likely to affect investments’ value. In addition, interest rates will remain at the same levels for the current period. However, EU’s management of the external shocks and geopolitical tensions are driving the cost of living up and are creating obstructions in the decision-making processes, which yet again reflects on the social fabric of the Union.

In the short term, economic uncertainties in Europe may impact investment decisions, with potential shifts in government policies that favor protectionist measures and member-states’ priorities. Austerity measures, the backlash of the imposed economic sanctions and social unrest, as several European countries are currently witnessing, lead to a less favorable investment climate.

In the medium term, the economic fallout from the COVID-19 pandemic and debates over EU foreign aid particularly to Ukraine and Israel will further complicate the political, economic, and social climate, subsequently affecting investment decisions. Therefore, as far-right political parties become a formidable political factor in EU politics, a reduction of foreign aid to conflict-affected countries is likely to be expected. Furthermore, an initial stabilization of the EU industrial potential is also likely, with certain challenges in the labor market, because a sizable portion of immigrants are part of EU’s economy.

Socially, the pandemic has contributed to increased tensions, xenophobia, and anxieties related to national identity and cultural heritage, which was instrumentalized by EU far-right political parties to further exploit their ideologies. Immigration and social inequalities led to a profound shift in social norms and led to increased representation of far-right members in national politics, and the EU Parliament. This shift is being translated to deepened divisions and delay of the Union’s decision-making processes.

In the short term, such a scenario will likely contribute to a less stable environment, affecting market dynamics. Issues such as immigration and multiculturalism will likely exacerbate social divisions, impacting investor confidence, and could pose a delay in local operations. Besides, the transnational nature of far-right movements facilitated by online platforms will amplify under the rising economic instability. In addition, this will likely lead to cross-border socio-economic impacts with social unrest and discontent, affecting investor perceptions and even regional stability.

Additionally, technological factors represented through innovation, digital transition, and cybersecurity, will likely face challenges, and introduce risks for global investors. The EU legislation covering online platforms as well as AI, which further regulates the online realm, fostering innovation, competitiveness, and growth, could initially positively impact the investors’ perceptions.

In the short term, the next EU Parliament will likely seek revision of the said legislations, which will likely trigger political debates and further deepen the political divide EU is currently facing. In the medium term, efforts to counteract the negative impact of technology on far-right movements will be crucial for maintaining market stability.