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Ursula von der Leyen treads narrow path to second term

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Ursula von der Leyen treads narrow path to second term

Ursula von der Leyen became president of the European Commission five years ago with a razor-thin parliamentary majority of just nine votes.

Securing a second term may be even more fraught, hinging on uncomfortable choices and backroom deals that must navigate the EU’s rightward shift in elections on Sunday.

While her centre-right European People’s party parliamentary group won the election and secured 185 seats in the 720-strong assembly, von der Leyen’s other centrist allies have fared worse, while the hard right surged from a fifth to nearly a quarter of seats.

“She has options, which is better than only having the hard right to turn to,” said Nathalie Tocci, director of the Istituto Affari Internazionali. “But that doesn’t mean it will be easy to choose which option works.”

For a second five-year term at the helm of the EU commission, Brussels’ most powerful job, von der Leyen needs both the backing of the EU’s 27 leaders and a majority of the newly elected parliament. The latter has long been more of a concern.

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In addition to the EPP, the other two groups that backed her in 2019 — the centre-left Socialists and Democrats and the liberal Renew — are projected to command around 402 seats in total according to preliminary results on Monday morning.

Her projected majority gives her a narrower space for manoeuvre compared with 2019, when the three groups together should have secured a 68-vote majority. But because many lawmakers voted against her and the ballot is secret, she passed by just nine votes.

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In a vote expected on July 18, analysts forecast that von der Leyen would lose as much as 15 per cent of that coalition, which would leave her short of the majority she needs.

That means she and her team would need to reach out to other parties, officials said, including the hard-right European Conservatives and Reformists, led by Italian Prime Minister Giorgia Meloni, and the Greens.

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But the jeopardy is that by expanding her coalition, she risks losing votes from the other side of the political spectrum. German Chancellor Olaf Scholz, a Social Democrat, has warned against a pact with Meloni — and so has French President Emmanuel Macron’s party.

Bas Eickhout, one of the Greens’ two lead candidates for the election, said he was in touch with von der Leyen but that no formal negotiations had started. “I always had difficulties in understanding exactly how a coalition with ECR would work,” he said. “I’ve always seen the only reliable, stable democratic coalition possible is with the Greens.”

A person briefed on the discussions said: “You would not be surprised to know how many conversations have taken place between the EPP and the Greens in recent weeks.”

Seeking Green support would put von der Leyen in a complicated position given her retreat from a swath of climate legislation in recent months to fend off protests from farmers and rightwing parties. Embracing Meloni would be likely to involve a tougher stance on migration that could alienate her liberal supporters.

Ursula von der Leyen speaks to Giorgia Meloni
Ursula von der Leyen with Italian Prime Minister Giorgia Meloni at an EU summit in April © Omar Havana/AP

Von der Leyen will spend the next two weeks in a series of meetings with EU national leaders, including during an EPP conclave on Monday, the G7 leaders’ summit in Italy starting on Thursday and the Ukraine peace summit in Switzerland next weekend.

She will seek both their personal backing at an EU summit on June 27 and for their parties’ backing in parliament.

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“She needs to get the 27 [leaders] both comfortable with her vision for the next five years, but just as importantly, convinced she’s got the numbers in parliament,” said an EU diplomat involved in the preparations for the summit. “It would be a disaster for them to endorse someone who gets rejected by the MEPs. So she can’t approach it as two separate processes. They run in tandem.”

Von der Leyen’s pitch will be threefold: that she is the only available candidate who can win support from leaders and negotiate a deal to win a majority in parliament; that she steered the EU through the twin crises of Covid-19 and the Russian invasion of Ukraine; and that it would be folly to change leadership in the middle of a war in Europe and with the potential return of Donald Trump as US president.

“We won the European elections. We are by far the strongest party. We are the anchor of stability and voters acknowledged our leadership,” von der Leyen told the party faithful on Sunday night to cheers of “five more years”.

She said she was “confident” of winning a second term, and that on Monday she would begin negotiating with the S&D and Renew groups, “building on a constructive and proven relationship”. When asked about coalition partners, she said she was open to talks with “those who are pro-European, pro-Ukraine, pro-rule of law”.

Viktor Orbán arrives to cast his vote for European parliament elections at a polling station in Budapest
Hungarian Prime Minister Viktor Orbán, a staunch von der Leyen critic © Attila Kisbenedek/AFP/Getty Images

Among the lawmakers who supported her in 2019 were MEPs from Poland’s ultraconservative Law and Justice party and Hungary’s far-right Fidesz, the party of Prime Minister Viktor Orbán, a staunch von der Leyen critic.

EPP officials on Sunday expressed confidence in her winning a second term.

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“There is no alternative being discussed in the party. And there’s a plurality of EPP leaders around the summit table. So she has nothing to worry about there,” said a senior commission official close to von der Leyen. “And so the question to the parliament is: if you are going to shoot a hostage, do you have a plan for afterwards? Because if they don’t, they’re voting for chaos.”

So far, only party leaders of the EPP and S&D have openly said they would back von der Leyen.

“At the end of the day the members of parliament are basically kids with guns,” said a senior EU diplomat. “So, really, who knows?”

How will the European parliamentary elections change the EU? Join Ben Hall, Europe editor, and colleagues in Paris, Rome, Brussels and Germany for a subscriber webinar on June 12. Register now and put your questions to our panel at ft.com/euwebinar

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Tech reversal pushes US megacaps into correction territory

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Tech reversal pushes US megacaps into correction territory

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Four of the so-called Magnificent Seven technology stocks that have powered the US market rally for the past nine months ended the week in correction territory, having fallen by more than 10 per cent from recent peaks. 

Another two — Microsoft and Amazon — are close to the double-digit falls that define a correction. Investors are looking ahead to further tech earnings updates next week amid worries about punchy valuations and the risks that returns from vast artificial intelligence-related spending may not live up to early hopes.

Nvidia and Tesla are each down 17 per cent from their recent peaks while Meta and Google parent Alphabet have fallen 14 per cent and 12 per cent. Apple is the best performer in the group, having lost just 7 per cent while Microsoft and Amazon have slid about 9 per cent each.

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On Wednesday Alphabet sparked a wider market sell-off when, despite it reporting solid quarterly operating numbers, its shares fell more than 5 per cent on concerns about AI-related investments. Its $13bn quarterly capital expenditure was almost double the levels of a year ago.

“For a long time investors were really sold on the premise that AI investment in and of itself — spending money — is good,” said Max Gokhman, a senior vice-president at Franklin Templeton Investment Solutions. “What we’re seeing now is . . . investors saying, ‘Hold up a sec, what are the productivity gains here, when do you expect to see them?’”

Alphabet’s fall helped drag the tech-heavy Nasdaq Composite to its worst one-day decline in 18 months on Wednesday, down 3.6 per cent. The index ended the week down 2.1 per cent.

Microsoft, Meta, Apple and Amazon earnings next week may set up a fresh test of investor faith in the AI narrative that has been a crucial driver of market gains.

“Expectations are high and valuations for the Mag Seven aren’t cheap. We’re also closer to the point when we see some decelerations in earnings from them as a group — from the beneficiaries of AI in general,” said Josh Nelson, head of US equity at T Rowe Price. 

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Investors this week also showed they were prepared to punish companies that missed expectations, with Tesla losing 12 per cent on Wednesday after slowing sales and its own AI spending shrank profits more than expected. And Ford shares tumbled 18 per cent on Thursday when its profits fell short, hurt by unexpectedly high warranty costs.

On average, companies that missed expectations had seen their shares drop 3.3 per cent in the days surrounding their earnings, according to data from FactSet, more than the five-year average of 2.3 per cent.

Companies that beat expectations saw on average no gains in their share price, FactSet reported.

“The trend of misses getting punished more than beats get rewarded is getting a little bit more significant,” said Liz Ann Sonders, chief investment strategist at Charles Schwab. “There is uncertainty and skittishness with regard to just how fast the market, driven by those names ran, without the commensurate improvement in their forward earnings prospects.”

Sonders also pointed to the fact that the earnings season under way had coincided with a “rotation” among investors taking profits in the biggest tech names in favour of backing smaller companies that were more likely to see big benefits if the Federal Reserve begins to cut interest rates in September.

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This week, the Russell 2000 index of small-cap stocks added 3.5 per cent while the blue-chip S&P 500 fell 0.8 per cent.

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Boar's Head recalls 200,000 pounds of deli meat linked to a Listeria outbreak

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Boar's Head recalls 200,000 pounds of deli meat linked to a Listeria outbreak

An electron microscope image of a Listeria monocytogenes bacterium, which has been linked to an outbreak spread through deli meat. Boar’s Head recalled meat on Friday, after two deaths and 33 hospitalizations linked to Listeria.

Elizabeth White/AP/Centers for Disease Control and Prevention


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Elizabeth White/AP/Centers for Disease Control and Prevention

Boar’s Head is recalling more than 200,000 pounds of deli meat that could be contaminated with listeria, the Food Safety and Inspection Service announced Friday.

The recall includes all Liverwurst products, as well as a variety of other meats listed in the FSIS announcement. The CDC has identified 34 cases of Listeria from deli meat across 13 states, including two people who died as of Thursday. The statement also said there had been 33 hospitalizations.

The CDC warns that the number of infections is likely higher, since some people may not be tested. It can also take three to four weeks for a sick individual to be linked to an outbreak.

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Listeria is a foodborne bacterial illness, which affects about 1,600 people in the U.S. each year, including 260 deaths. While it can lead to serious complications for at-risk individuals, most recover with antibiotics. Its symptoms typically include fever, muscle aches and drowsiness,

The CDC says people who are pregnant, aged 65 or older, or have weakened immune systems are most at risk. It suggests that at-risk individuals heat any sliced deli meat to an internal temperature of 165°F.

The investigation from the CDC and FSIS is ongoing. This is not the first listeria outbreak of the summer, as more than 60 ice cream products were previously recalled during an outbreak in June.

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US charges short seller Andrew Left with fraud

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US charges short seller Andrew Left with fraud

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A federal grand jury in Los Angeles has charged prominent short seller Andrew Left with more than a dozen counts of fraud, alleging that he made profits of at least $16mn from “a long-running market manipulation scheme”, according to a statement from the Department of Justice.

The DoJ added: “Left knowingly exploited his ability to move stock prices by targeting stocks popular with retail investors and posting recommendations on social media to manipulate the market and make fast, easy money.”

The grand jury indictment charged him with 17 counts of securities fraud, one count of engaging in a securities fraud scheme and one count of making false statements to federal investigators.

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The indictment alleged that Left, who has a high profile on social media, publicly claimed that companies’ share prices were too high or low, often with a recommended target price and “an explicit or implicit representation about Citron’s trading position”. This, the DoJ said, “created the false pretence that Left’s economic incentives aligned with his public recommendation”.

Left prepared to quickly close positions after publishing his comments, taking profits on price moves he had caused, according to the indictment.

It also accused Left of presenting himself as independent and concealing Citron’s links with a hedge fund by fabricating invoices and wiring payments through a third party.

If convicted, Left could face decades in prison. Each securities fraud count carries a maximum penalty of 20 years in prison, while the securities fraud scheme and false statements counts each carry a maximum prison term of 25 years and five years, respectively.

The US Securities and Exchange Commission has also filed a separate civil fraud case against Left and his firm Citron Research, claiming the founder made $20mn from a “multi-year scheme to defraud followers.” Left declined to comment on the DoJ and SEC charges.

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“Andrew Left took advantage of his readers. He built their trust and induced them to trade on false pretences so that he could quickly reverse direction and profit from the price moves following his reports,” said Kate Zoladz, regional director of the SEC’s Los Angeles office. “We uncovered these alleged bait-and-switch tactics, which netted Left and his firm $20mn in ill-gotten profits, and we intend to hold Left and his firm accountable for their actions.”   

The practice of betting that a company’s share price will go down has long been controversial — opponents say it gives traders incentives to spread misinformation, while supporters argue that it improves price discovery and holds management accountable. Last year the SEC adopted new rules that require investors to disclose short positions more quickly and fully.

Left has been most vocal recently in his scepticism over GameStop, the ailing video games retailer. In May it raised $3bn selling new shares following a surge in its price driven by the reappearance of Roaring Kitty — whose real name is Keith Gill — who was instrumental in the 2021 meme stock mania that had sent its value rocketing.

Left told followers in mid-June that Citron had closed its short position on the stock not because he had changed his views but because of GameStop’s newly-strengthened balance sheet.

In 2016, Left received a five-year “cold shoulder” ban from regulators in Hong Kong — a landmark ruling for the city — temporarily barring him from its markets after he was found culpable of misconduct related to a research report he published on Chinese property developer China Evergrande.

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Additional reporting by Stefania Palma in Washington and Brooke Masters in New York

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