Hung Parliaments, Higher Deficits: The Fiscal Risk of Europe’s 2027 Election Cycle

Research evidence excerpt

Hung Parliaments, Higher Deficits: The Fiscal Risk of Europe’s 2027 Election Cycle

Economics Research

3 August 2026 | 9:37PM BST

EUROPEAN ECONOMICS ANALYST

Hung Parliaments, Higher Deficits: The Fiscal Risk of Europe’s 2027

Election Cycle

n Europe faces an unusually busy 2027 electoral calendar, with nine EU member Filippo Taddei

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states due to hold general elections and several systemic countries — including filippo.taddei@gs.com

Goldman Sachs International

France, Italy, Spain and Greece — voting before end-September. This

concentrates political risk in a narrow window, making fiscal guidance and

government formation key market variables next year.

n Historical evidence suggests election-year fiscal slippage has typically been

limited, with structural primary balances weakening by around 0.25% of GDP on

average, although cross-country variation has been meaningful. The lesson from

past cycles is that elections tend to create fiscal noise, but rarely a material

regime shift absent a broader political shock.

n The key fiscal risk is less the elections themselves than the clarity of the

outcomes, as past episodes show that fragmented parliaments have been more

closely associated with policy uncertainty, government instability and more

expansionary fiscal policy (via slower consolidation). We see the main risk behind

the 2027 electoral cycle as gridlock rather than pre-election giveaways.

n Markets do not appear to be pricing much domestic political risk yet, with

sovereign-spread moves still dominated by global and energy-related factors

rather than election-related fiscal concerns. We therefore think political risk

premia are more likely to build gradually as polling, coalition arithmetic and fiscal

platforms become clearer.