Political Risk Is on the Rise in Europe. Here’s Why.

  • Recent election results suggest that the political landscape in several European countries is fragmenting. This fragmentation will make general elections harder to predict and slow the formation of new governments.
  • Government coalitions will likely become more heterogeneous, which in turn will lead to more complex policymaking.
  • These developments will increase uncertainty about the policy direction of countries, leading to higher political risk across the Continent.
  • Increasing political volatility at home will make it harder for governments to participate in decisions at the continental level, potentially slowing the decision-making process in the European Union.

European politics has entered a period of political fragmentation. Across the Continent, mainstream political parties are losing ground to new competitors, parliaments are becoming more atomized, negotiations to form governments are taking longer and the overall policy direction of countries is getting harder to predict. This development is increasing political risk across the Continent, as companies, institutions and households are forced to operate in a political atmosphere that is becoming harder and harder to read.

Political risk is on the rise in Europe, with the electoral landscape in some of the Continent’s largest economies becoming more fragmented. In the coming years, political trends in Europe will force social, economic and political actors to operate in a context of increased uncertainty.

A Decade of Increasing Divisions

Election results in Europe’s largest economies over the past decade show increasing divisions in the political landscape. This fragmentation has manifested in different forms. In some cases, the number of political parties represented in parliament has increased. In Germany, for example, the 2017 general election produced its most fragmented parliament in the postwar period with seven political parties winning seats in the Bundestag, up from five in the previous election in 2013. Similar sitiuations unfolded in the Netherlands, where the number of political parties in parliament rose from 10 in 2010 to 13 in 2017, and in the Czech Republic, where the number of parties winning parliamentary seats went from five in 2006 to nine in 2017.

In other places, the number of parties with seats in parliament has remained stable or even decreased, but mainstream parties have lost ground to new rivals. To assess this trend, we looked at the number of parties that received at least 10 percent of the vote, a symbolic electoral threshold that increases a party’s chances of becoming a relevant political force, particularly in countries where coalitions of several parties are necessary to form governments.

Spain, which holds a general election on April 28, is this trend’s paradigm. For decades, the center-left Socialists and the center-right People’s Party dominated Spanish politics and would jointly obtain roughly 80 percent of the vote. In recent years, however, the popularity of these parties decreased as new forces emerged to their right and to their left. So, while there are fewer overall parties in Spain’s parliament than a decade ago, the distribution of seats is much more balanced. In Italy, two parties received more than 10 percent of the vote in 2008; four did in 2018. That trend was mirrored in France, where four parties obtained more than 10 percent of the vote in the first round of elections for the General Assembly in 2017, up from only two in 2007.

A chart showing the results of the past three parliamentary elections in Europe's 20 largest economies, illustrating the Continent's political fragmentation.

Multiple factors are driving these developments. Across Europe, there is a widespread feeling that the traditional political forces are out of touch with the reality of millions of families, and voters are looking for new options. The economic crisis of the 2010s damaged the popularity of mainstream political parties and contributed to the emergence of new, sometimes anti-establishment, political forces on the right and the left. The immigration crisis has also contributed to the emergence of nationalist and anti-immigration parties across the Continent. The emergence of more extremist parties has forced centrist parties to move further to the right or to the left to compete, deepening polarization in many countries. This phenomenon is not exclusive to the European Union. In Norway, which is not a member of the continental bloc, the data also shows that the political landscape has become more fragmented.

Naturally, there are exceptions. In Poland, for example, the number of parties in parliament has been…

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