German Politics Weigh On The Euro’s Future


  • Marcon’s vision for a unified EU has led to euro strength since his victory
  • The first dent in this vision followed German elections, today’s development is more serious
  • Thanks to an ongoing bull market, the euro’s sell-off has been mild so far
  • Following Macron’s significant victory in the French elections earlier in May, fears of the euro’s demise took a backseat to renewed optimism. Preceding the election, many predicted that a Eurosceptic political party would rise in France, putting the entire region at risk. Instead, Macron won the election, seemingly based on his ‘Europhile’ credentials.

    Later in September, he delivered a landmark speech and advocated for a big increase in the European Union’s scope of activities. In particular, he called for a joint defense force, a dedicated finance ministry, common corporate taxes, and a streamlined European Commission. In short, he called for a significant increase in the pace of centralization of political power within the EU. More importantly, he called for a new Franco-German axis to lead the future. Given Germany’s economic significance, Macron ultimately has limited leeway in enacting reforms to the EU unilaterally.

    German electorate have other ideas

    Unfortunately for Macron, the timing of his speech was far from optimal. Two days earlier, Angela Merkel’s CDU/CSU suffered its worst result since 1949. A series of political mistakes such as the party’s liberal refugee policy, clean energy initiatives (which have resulted in sharply higher energy costs for households), and calls for more integration with the rest of the EU fell flat with voters. While the main opposition party (the Social Democrats) fared even worse, non-mainstream parties such as the Free Democrats and the AfD (Alternative for Germany) were able to capitalize on Merkel’s weakness.

    Following today’s collapse in coalition discussions, Germany looks set to return to elections as Merkel has refused to form a minority government. From Merkel’s perspective, the high stakes gamble makes sense. As the EU is in dire need of reform, the region needs German leadership. Without a clear mandate in the form of a majority in the Bundestag, Merkel risks becoming a lame duck.   

    Reviews

    • Total Score 0%
    User rating: 0.00% ( 0
    votes )



    Leave a Reply

    Your email address will not be published. Required fields are marked *