What the German elections, Scholz and more mean for the EU

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German Chancellor Angela Merkel (CDU) must leave politics.

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LONDON – As Germany prepares for an overhaul of its political status quo, analysts are examining the impact the next government could have on the European Union.

Europe’s largest economy went to the polls on Sunday in a decisive vote to choose a new chancellor, after Angela Merkel’s 16 years in power.

The Socialist Party, SPD, narrowly won the election, according to preliminary results, with 25.7% support. He is now trying to form a coalition government with the Greens and the liberal FDP. Merkel’s conservative alliance of the Christian Democratic Union and the Christian Social Union, which dominated German politics for decades, suffered its worst election result since World War II, receiving 24.1% of voice.

SPD candidate for Chancellor Olaf Scholz, the country’s current finance minister and vice-chancellor, now appears to be in pole position to be the next German leader. Although it is not a done deal and difficult coalition talks may ultimately fail.

“If Olaf Scholz becomes chancellor, he will be in a pretty good position, because he has at least the experience of a finance minister,” Daniela Schwarzer, executive director of Open Society Foundations, told CNBC on Monday of the relationship. Scholz with Europe.

Despite this, Schwarzer reported that Scholz remained far less experienced than Merkel, who played a fundamental role in European politics for decades.

“We can see a few months in particular – also given the upcoming French elections next spring – where things could be less fluid than they usually would be,” she added.

Germany, as one of the founding nations of the EU, has long had a certain weight in European policy making. During her tenure as Chancellor, Merkel helped lead the bloc’s response to the global financial crisis, the sovereign debt crisis, the migration crisis and, most recently, the coronavirus pandemic.

Beyond the leadership style, questions remain open about what the new German Chancellor will mean for further integration between the 19 economies in the eurozone.

“Although the background music is a little more positive towards some of the things the EU wants, I think the ability of the German Chancellor to act decisively – this is going to be quite limited”, Robin Bew, Managing Director of the Economist Intelligence Unit, told CNBC’s “Squawk Box Europe” Monday.

Indeed, the coalition, once formed, will probably lean a little more towards European integration than in the past. However, he stressed that a three-way coalition will also be more difficult to manage, given the wider range of opinions.

“I don’t think you will see particularly strong leadership,” Bew added.

European issues

There are a number of issues that the next German government will have to tackle in Europe.

One of the main projects at the euro area level is the completion of the so-called Banking Union, which transfers powers from national banking authorities to institutions at European level. It was introduced slowly in the wake of the debt crisis, but Germany has been particularly reluctant to the idea. Many Germans are opposed to the project, fearing that they will be forced to pay heavy bills to support less financially conservative eurozone countries.

A view of the EU and German flags on the Reichstag building, seat of the German Parliament.

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The eurozone is also due to update its debt and fiscal rules in 2022 – indeed, the rules have been repeatedly broken, with various countries reporting debt ratios above 60% of GDP, for example, and deviations should occur. Keep going.

It is not clear whether Germany, which is known for supporting tight fiscal policy across the bloc, will particularly support debt ceiling changes.

In addition, the EU made a decision in July 2020 to jointly raise funds on public procurement to finance the region’s recovery from the pandemic. The so-called Stimulus Fund has been touted as a one-off measure to appease fiscally conservative countries like the Netherlands, but some experts question whether the EU could make it a permanent tool – something that would require the support from the new German government. chancellor too.

Scholz of the SPD argued that Europe’s fiscal rules are already flexible enough, in that they allowed countries to spend more when the pandemic struck. He also dodged questions about the future increase in EU debt, saying it was not a debate on the table.

At the same time, the FDP, which is expected to be part of the next German coalition, has “has become rather eurosceptic in terms of deeper integration of the euro area,” analysts at consultancy Eurasia said in a note on Monday.

“A dramatic easing of Germany’s position on debt and EU fiscal rules is therefore unlikely, as is making the Stimulus Fund a permanent feature of the EU’s fiscal architecture.”

Another challenge in Europe is its ambitious attempt to become carbon neutral by 2050. To achieve this, a concrete plan to reduce greenhouse gas emissions by at least 55% by 2030 is underway. discussion by European legislators. Germany, with its leading automotive sector, will have a key role to play here if green ambitions are to be met.

Eurasia described the SPD’s Scholz as a pragmatist on this front, saying he would be “open to using leeway to help fund Germany’s transition to net-zero.”

The President of the European Parliament, David Sassoli, was one of the very few politicians in Europe to comment on the result of the vote. After congratulating Scholz on his victory, he said: “After this historic crisis, there is no time to waste: Europe needs a strong and reliable partner in Berlin to continue our common work for a social and green recovery. “


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