Blog 10 min read 30 April 2024

Preparing for a Post-Election Single Market: How Can Business Respond?

Economic growth, inflation, social inequality, and immigration are top of mind for European voters as the far-right grows in popularity, and hundreds of millions of citizens prepare to cast their votes in June’s EU elections.

At the same time, geopolitical tensions and supply-chain disruptions have refocused policymakers’ priorities. The digital and green transitions must advance European competitiveness, economic security, and open strategic autonomy, whilst being socially just.

The unveiling of former Italian Prime Minister Enrico Letta’s recent high-level report “Much More Than a Market,” sets the scene for policymakers to propose radical reform of the Single Market, including further integration in financial services, energy, and telecoms. An overarching theme of the report is how Europe will mobilize the public and private investment needed to support industry. Mr. Letta’s report calls for the creation of a Savings and Investment Union, and the involvement of insurance companies and pension funds in infrastructure financing, in a move towards a completed Capital Markets Union.

A similar report from former Italian Prime Minister and President of the European Central Bank (ECB) Mario Draghi on competitiveness expected after the elections may further embolden the push for radical reform.

Key questions for business include: How will a new EU policymaker landscape respond to these challenges? And what can businesses do, given that the elections will shape the EU agenda for the coming five years?

Access to investment: build relationships with the new guard

Access to investment is seen as a key driver for boosting Europe’s industrial ecosystem. Mr. Letta’s report calls for more EU-level funding and stricter enforcement of state aid at the national level following a relaxation of the rules to respond to consecutive crises. However, funding will likely be directed to Europe’s industries “rather than financing…partners or rivals’ industrial development”.

For some companies, this potentially creates significant funding opportunities. But it also introduces a challenge for third-country businesses and EU businesses that cannot access funding to remain competitive.

In parallel, work will begin on bolstering trade defence, focusing on both revised foreign direct investment and outbound investment screening, as well as implementation of the current trade defence toolbox. Consequently, the environment for incoming and outgoing investments in Europe may become more unstable and politicized as Member States deploy trade defence tools to protect their national interests.

Finally, Europe will see a changing of the guard as European Commission Executive Vice-President Margrethe Vestager ends her second and likely final term overseeing competition. Corporates will need to prioritize relationship building with her successor as they put their own stamp on competition policy.

An industrial Green Deal: opportunities for clean tech

Environmental policies have faced a backlash in the aftermath of consecutive economic crises. This has led to key proposals being voted down by an uncomfortable alliance of center-right and right-wing policymakers, after the former came under pressure as farmers’ blockades spread across the EU.

How can Europe reconcile its environmental ambitions with economic competitiveness and a just transition in an increasingly hostile atmosphere? Left-wing political groups advocate for a strict implementation of the Green Deal alongside climate action and social justice – a ‘Green Deal with a red heart’.

Meanwhile, those on the right prioritize Europe’s energy and industrial independence via the deployment of clean technologies. Support for placing nuclear energy, biofuels, or carbon capture, storage and use (CCSU) on an equal footing with renewables shows this vision is gaining traction.

Echoing these voices, Mr. Letta’s report calls for a truly integrated single EU energy market. However, in an era of weak growth, mobilizing funds to finance the green transition is emerging as a central concern.

Europe’s tech ecosystem: from regulation to innovation funding?

Introducing legislation to rein in the perceived dominance of big tech companies to protect European citizens and consumers has been a focus for the EU over the past five years. But, with concerns shifting to growth and competitiveness, policymakers’ focus will move to implementing and enforcing existing regulation. Moreover, technological innovation is now seen as critical for Europe to grow and compete with the U.S. and China, and vital to the transformation of traditional sectors.

‘AI factories’ will provide European small and midsize enterprises with access to the supercomputers needed to train AI systems. But could investments be mobilized through Mr. Letta’s proposed EU stock exchange for deep tech startups?

Moreover, a consensus is gathering that greater innovation and consolidation in telecoms are required to make Europe’s businesses competitive and to connect its regions. Would a Digital Networks Act and industrial policy approach foster the investment needed in the sector?

Increasingly, the technologies necessary for Europe’s digital transformation are being viewed through the lenses of economic security and open strategic autonomy. Indeed, the focus on semiconductors, AI, and quantum computing may be expanded further. This could offer European digital players a greater share of voice in the debate. That said, the scale and resource of U.S. players could mean that their partnerships, investments and influence remain decisive.

Post-election action: assess the landscape, build new alliances, craft your narrative

A right-wing surge may not topple the current grand centrist coalition. A centre-right alliance (centre-right European People’s Party [EPP], liberal Renew Europe and right-wing European Conservatives and Reformists [ECR]) would likely fall short of a majority. However, a right-wing coalition of EPP, ECR and far-right Identity and Democracy [ID] may have the seats needed to pass legislation. But, this would require partnering with ID, currently under cordon sanitaire, which holds problematic views for the EPP on integration, immigration, sustainability, foreign policy, trade and defence. Ultimately, it may, therefore, come down to votes from other groups per issue, with majorities decided by support from national delegations and parties within groups, each with their own agendas.

For businesses, that will mean engaging with a new political stakeholder landscape matching the complexity of the regulatory environment. In the months after the election, the European Parliament’s political groups will form, key Committee positions will be decided, and priorities will be set. After that, MEPs will receive the President and the prospective Commissioners, and the Plenary should then approve the new executive leadership of the European Commission.

As the world faces a record number of elections in 2024, its largest single market may be radically reshaped, presenting economic and reputational risks and opportunities. Businesses should anticipate this landscape, build new alliances, and craft geopolitical and communications narratives in line with policymaker priorities to ensure their voice is heard in the coming five years.