Discussion Board

Turmoil, upheaval… what’s going on in Europe?

Richard Hass, CEO of the Council of the Foreign Affairs in New York, tweeted on Dec 7:  

“In an instant Europe has gone from being the most stable region in the world to anything but. Paris is burning, the Merkel era is ending, Italy is playing a dangerous game of chicken with the EU, Russia is carving up Ukraine, and the UK is consumed by Brexit. History is resuming."

May be the most surprising in all this is the eruption of violent protests in France! Leaving Russia aggression on Ukraine aside, let’s look at what’s going on in the EU as it affects the four largest economies of the EU, representing 63% of the EU economy! So, in a nutshell, and alphabetical order of the country names:

 

France: Paris is burning!

In November, the government announced that it would raise the diesel tax by 0.065 €/liter (about 0.21$/gallon) effective January 1, 2019. This was the ‘straw which broke the camel’s back” as many French people have trouble ‘making ends meet’. Since his election in 2107, Macron has engaged in many much needed reforms. Yet, most of these reforms have gone unappreciated by the large population. Increasing taxes on diesel would have directly impacted “struggling rural folk who need to drive to work” (1). A spontaneous movement rose under the ‘gilet jaunes’ acronym (i.e., ‘yellow jackets’). This grassroots movement was quickly captured by extreme-right and extreme left activists leading to out-of-control violence! The government has since cancelled the tax, stating that “no tax is worth endangering the unity of the country” (2).  Macron is due to address the French people on Monday!

 

 Germany: a new era?

End of October, Angela Merkel announced that she would step down as head of the CDU, (Christian Democratic Union), i.e, the largest political party in Germany. This marks the end of an era which started in 2000. She became Chancellor of Germany in 2005, and will remain so until 2021. She has advised that she will not seek re-election. Over the course of her tenure, she “has transformed her country into an economic and diplomatic force” (3). Yet, her decision in 2015 to allow more than 1 million refugees from the warn-torn countries in the Middle-East created a fraction in Germany. Though re-elected in September 2017, she was forced to rally the SPD (Centre-left Social Democrat) party, basically her opponent in the September run-off election, to join her coalition with the CSU (Christian Social Union) to form a new government and counter the rise of the far-right AfD party. The new elected CDU leader, Annegret Kramp-Karrenbauer, is to take the party leadership on December 14. Though a Merkel’s protégé, Kramp-Karrenbauer is taking steps to detach herself from Merkel’s policies as first steps to rebuild the CDU standing.    

 Italy: the next challenge to the euro?

Italy’s national debt is more than 130% of its GDP, a bit lower than Greece’s at 175%.  Last Spring, Italy elected a new government which resulted in a coalition of the anti-establishment Five-Star Movement and the right-wing League Party. Both ran on an ‘Italians first’ motto targeting immigration, economic issues, and loosening ties with the EU (falling short though of advocating for an Ital-exit). In September, the government proposed a budget deficit for 2019 corresponding to 2.4% of Italian GDP, three times more than the previous government. This has led to a confrontation with the EU. Though within the Maastricht criteria, this budget deficit is threatening the ability for Italy to pay down its debt at a time when ECB is to terminate its quantitative easing program, program which has “helped to contain the cost of Italy’s borrowing” (4). Facing EU deficit fines, Italy seems ready to send a revised budget by mid-week!

 The UK: Bexit - the spector of Theresa May’s rebuttal and a no-deal agreement

Mid-November, Theresa May and the EU reached a deal for Brexit. On Monday, the European Court of Justice is to deliver a judgment on whether the UK can unilaterally reverse its notice to leave the EU without conditions attached (5). And then comes the difficult part: the UK parliament is to vote on the deal on Tuesday December 11. Right now, the odds are against the deal (i.e., being far from what the Brexiteers wanted). The vote could lead to “political chaos, perhaps leading to Mrs May’s ousting, a snap election or a second referendum” (6), or simply sending her back to negotiate with the EU, or yet forcing her to find other ways to convince the UK parliament. So, let’s stay tuned in!

 Let's add to this, the surprising election of Vox, a populous extreme-right party, in the Andalusia regional election earlier this month, shocking the Spaniards. Vox opposes immigration, feminism, and is Eurosceptic (7). The extreme-right is now represented in the Spanish parliament. As a reminder, Spain is the 5th largest EU economy.

 

 (1). https://www.economist.com/leaders/2018/12/08/emmanuel-macrons-problems-are-more-with-presentation-than-policy

(2) https://www.economist.com/europe/2018/12/08/emmanuel-macron-faces-the-first-real-test-of-his-presidency

(3) https://www.youtube.com/watch?v=Bpk-GTiYVfE

(4) https://www.economist.com/europe/2018/09/28/italy-announces-a-budget-that-could-wreck-its-economy

(5) https://www.bbc.com/news/uk-scotland-scotland-politics-46428579

(6) https://www.economist.com/britain/2018/12/08/the-consequences-of-saying-no-to-theresa-mays-brexit-deal

(7) https://www.economist.com/europe/2018/12/08/vox-an-anti-immigrant-anti-feminist-party-wins-seats-in-andalusia

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