A move to the right in Germany might lead to significant consequences.
Following the European elections, it's been established that right-wing and populist parties have seen a significant rise in numerous EU countries. Experts regarding the economy are concerned about the safety of Europe and the euro. Fratzscher, the head of the DIW (Deutsches Institut für Wirtschaftsforschung), indicates that Germany is likely to suffer the most due to a divided Europe.
These political shifts may bring detrimental consequences for the economy, such as competitive disadvantages, additional debt crises, and a weaker euro. The president of the DIW predicts that Europe's economic standing could be compromised, potentially putting them at a disadvantage against powerhouses like China and the United States.
The opportunity for the introduction of a unified market or a common industrial and defense system is in jeopardy. Germany, though, is expected to be one of the biggest casualties among divided European countries. Its economy stands to lose in the global rivalry with China and The United States, according to the head economist in Berlin.
Similarly, Moritz Schularick, president of the IfW (Institut für Weltwirtschaft in Kiel), also commented on the topic. Schularick believes that in times of global economic turmoil, a unified European Union is essential in representing European interests. He emphasized the need for completion of the capital market and the banking union, as well as major leaps toward establishing a European defense.
Possible Weakness of the Euro
The focus of the new European Commission's work should be on economic stability and market development. Populism and Euroscepticism present formidable obstacles to this effort. However, as economists have shown, these ideologies are costly and could hinder growth. "These costs are something we cannot afford," Schularick asserts.
Rising risks are of concern to banking specialists as well. According to Brzeski, the ING chief economist, the prospect of a new debt crisis looms as many nations will be pressured to spend more—on investments or redistribution. Given the likelihood of a shortage of majorities for instruments like the reconstruction fund, further conflict is all but certain.
Krame, chief economist for Commerzbank, foresees repercussions for the euro. The European Parliamentary election in France is a significant source of uncertainty, as France is the EU's second-largest economy. If the far-right becomes powerful in this upcoming election, it could become challenging for pro-European parties to win over voters, potentially weakening the euro—even against other currencies.
Emmanuel Macron's Call for New French Elections
In response to the populist and far-right's advancement in the European elections, President Macron is dissolving the National Assembly and setting a date for new elections on June 30th. Berenberg Bank's chief economist, Schmieding, details that the French parliamentary vote carries considerable uncertainty for European economic and financial policies. "Given the high French budget deficit, this could burden French bonds and the euro somewhat," he cautions.
The potential prominence of the far-right party, Rassemblement National (RN), in the parliament could prove to be a burden for the EU. In the past European elections, the RN led by Le Pen outperformed Macron's Renaissance Alliance. This could potentially influence French economic and fiscal policies and, by extension, Europe's shared prosperity.
In the meantime, the European People's Party (EPP) has retained its position as the dominant political force in the EU Parliament. This is not a guarantee for stability, as populist and far-right blocs increased their standing significantly among the 27 member states.
Therefore, these shifts within the European Parliament risk both economic and geopolitical repercussions.
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The escalating influence of right-wing and populist parties in European elections has raised concerns about the stability of the European Single Market. Fratzscher suggests that a divided Europe could potentially lead to additional debt crises and a weaker Euro, putting Europe at a disadvantage against economic powerhouses like China and the United States.
During times of global economic turmoil, Schularick advocates for the completion of the capital market and banking union, as well as major strides towards establishing a European defense. He warns that Euroscepticism and populism could hinder growth and are costly, something Europe cannot afford.
