Achieving growth in the year ahead
Germany, France and Italy- the three biggest economies in Europe, will not only coordinate
with each others engagement within the
economic matrix, but will also leave their
imprint on the economic activities of all
the other members of the EU
Muhammad Zamir
Over the past few years during this decade, several factors -nationalism, populism, conflicting strategic interests, low economic growth and high unemployment have been driving wedges among EU member States. To this evolving paradigm has been added issues related to high levels of debt, fragile banking sectors and growing Euroscepticism. Despite these problems however, the European Union has managed to survive. It continues to be an important stakeholder in international relations.
Analysts are however suggesting that in 2017, the Eurozone crisis could enter a new, more dangerous stage as risk begins to affect its largest political and economic players. It is being felt that this in turn could threaten the future of the institutions that govern this Zone. It is being anticipated that it could particularly cast a long shadow on Italy, France and Germany.
This developing situation has been growing over the past few years and has over the last year been taken over by nationalist forces. We have already seen example of this in Austria and now will have to wait and see how it affects elections in Germany and France and potentially Italy (if its government resigns before the end of the legislative session in mid-2018). It is possible that the ultra-nationalists might fail to win some or all of these elections. However the growing nationalists popularity is bound to influence the future decisions of their countries leaders. This in turn will contribute towards the furthering of political fragmentation of the European Union. If this happens, then there will be increasing risks of some European Member States demanding the return of sovereignty to national governments. The principle of BREXIT introduced by Britain in this context will be watched and monitored very carefully and cautiously. Economists feel that this is bound to also increase financial risk, especially in the banking sector.
This process will assume more significance given the change in dynamics as the European Union finds itself having to deal with new issues within the global order. They have arisen through the election of Donald Trump to the US Presidency. This will include aspects pertaining to the reliability of NATOs security umbrella and the increasing number of terrorist attacks in different parts of Europe. The EU consequently will have to re-visit the measures on how EU members need to work together on security and defense. This in all likelihood will apply more for EU States from West Europe. That will be less likely for EU Members from Eastern Europe. They, in all likelihood will have as their center of attention regional and bilateral cooperation in their effort to build a united front against a more assertive Russia.
One thing is certain. Germany, France and Italy- the three biggest economies in Europe, will not only coordinate with each others engagement within the economic matrix, but will also leave their imprint on the economic activities of all the other Member States of the EU. It is also anticipated that the inter-active engagement might lead to socio-political tension between countries of Northern and Southern Europe. Some of them have been indicating for the past year that they hold differing views on the future of the Eurozone.
France, presently preoccupied with its elections is not expected, according to economists, to introduce any significant financial measures or reforms. That might change swiftly with the new government. As evidenced in reports in the media, most of the presidential candidates in France appear to have similar views on security issues. They tend to agree on supporting tough measures to fight terrorism and limiting immigration. They however tend to have different opinions on economic issues, particularly associated with deregulation, liberalization and enhanced protectionism.
The French Presidential election to be held over two rounds is scheduled for April and May this year. It is already clear that populist views are encouraging voters to support more anti-globalization and nationalist positions. If this trend persists, it is bound to affect Frances future courses of action even if the moderates win. It will reduce Frances support for providing free trade facilities and in all likelihood divert its attention towards security and defense. The new President in this context might then end up seeking to introduce measures to limit immigration, to push Brussels to redesign the Schengen agreement and to improve the European Unions border controls. Such a ball game will directly and indirectly also create problems for the European Commission in the performance of its responsibilities.
Political commentators are also suggesting in this regard that post-Presidential election France with a far-right National Front government might even go to the extent of introducing measures to limit the free movement of goods, people, services and capital throughout the European Union. Some are even hinting that in such a situation, it will not be inconceivable for that government to announce plans for a referendum on Frances continued EU membership. Britains BREXIT will be seen as a sign-post. If that were to happen, that would definitely lead to a serious crisis with chance of the EU breaking up into smaller sub-regional groups. This would certainly affect existing financial institutions, particularly among the southern EU States with fragile economies.
Next to be considered is Germany with its own general election in September or October this year. Angela Merkel has been trying her best to retain the European Union as a united force. It might not be so easy in the coming months with members of the ruling coalition, composed of center-right and center-left legislators, each trying to prove that they are separate entities before the vote. Such a scenario will in all probability also affect Berlins desire from any significant decision on important evolving EU issues related to questions of reform in financial or economic areas. To some extent any initiative from Germany and its northern neighbors with regard to the management of the Eurozone will be unlikely. This is bound to affect issues like taking a position with the European Central Bank regarding granting of debt relief to Greece or allowing Eurozone members to miss the European Unions deficit targets.
As highlighted in the media, security and immigration is already featuring prominently in the on-going German electoral campaign. This is becoming apparent in the manner in which polls are indicating that German voters, both in rural as well as urban areas are willing to support smaller parties on the left and on the right. If this trend continues, it will not be surprising to eventually have a situation where there will be a more divided parliament and concomitant difficulties in creating a coalition government.
Such a situation would however become more complex with victories by Eurosceptic forces in France or Italy. Germany will then be forced to take a more decisive role in removing internal challenges and then taking steps to preserve the unity of the European Union and the Eurozone.
This will become strategically that much more because of possible Moscow attempts to exploit divisions within the European Union. In such a situation Germany would possibly try to keep sanctions against Russia in place. Such a course of action will probably face resistance from some EU members (Italy, France and Austria), which would rather lift sanctions to improve their relations with Moscow. Germany will also defend cooperation on defense and security as a way to deal with uncertainty about NATO and Russia. It is however clear that the German government will continue to support Ukraine politically and financially, but not militarily. Nevertheless, some level of sanctions can be expected to be eased from the European Union by the end of the year.
Italy, the third important entity, is at this point of time suffering from political uncertainty, low economic growth and high debt levels. The combination of these frailties is already contributing to questions about the future of this country as well as the Eurozone as a whole. Italys present caretaker government is filling the gap before the next general election. It is unlikely however that they will be able to actively push for flexibility on EU fiscal targets and demand solidarity from its EU partners in this regard. They also have the difficult task of having to deal with the immigration crisis.
There is also another side of the coin for Italy. It is almost certain that if there is an early election and anti-establishment forces win, then it would certainly hurt Italian banks, raise borrowing costs and generate pressure on the Euro. Such an extreme situation would create uncertainty and might encourage Italy towards a collision course with the European Union. Such an eventuality, in all probability would then persuade Germany and other relevant EU institutions to contain the brewing crisis by accommodating the new government in Rome and preventing it from putting membership in the Eurozone to a vote.
Netherlands, one of the Eurozones wealthiest countries and an important player in Northern Europe, will also be holding a general election in March. It is already evident that Eurosceptic and anti-immigration forces in that country are already playing a prominent role. Consequently, it is being presumed that even if the Eurosceptics eventually fail to access power, their influence will force the next Dutch government to critically re-evaluate their future process of further integration within the European Union. This equation would assume more complex dimensions if events initiated in France and Italy raise prospects of collapse of the Eurozone. In such an eventuality, it is likely that Netherlands would react by continuing to work with Germany and other Northern European countries to salvage the situation.
During 2017, the debate on BREXIT and the United Kingdom will be monitored very carefully not only in Europe but also within Britain itself. Those in Scotland, in particular, will examine every connotation associated with this exercise. The British prime Minister has already had to deal with the sudden resignation of the British Ambassador to the EU and the question of appointing a new envoy. The British Parliament it may be recalled is divided on how its government approaches the negotiations with the European Union.
The Parliament wants a greater say in the process. The issue is bound to generate the threat of not only early elections but also possibility of delay in implementing the required process related to BREXIT. There might be difficulties but it is more likely that the government and the Parliament will eventually reach an understanding that would enable the United Kingdom to formally announce its intentions to leave the European Union. It would also initiate the dynamics of the UK in seeking negotiations towards a comprehensive trade agreement that would include as many goods and services as possible. Such an agreement would probably require Britain either signing a free trade agreement with the European Union or EU agreeing on Britains membership in Europes customs union, an area where member states share a common external tariff. A transitional agreement would also have to focus on the status of British citizens in the European Union and the status of EU citizens in the United Kingdom.
Given the seriousness of these issues, and the enormity of the elections in France and Germany, several of the most important decisions might consequently be delayed until at least 2018.
Muhammad Zamir, a former ambassador, is an analyst specialised in foreign affairs,right to information and goodgovernance. He can be reached at [email protected]
