The collapse of governments in Berlin and now Paris will hamper efforts to address Europe's growing deficits and faltering competitiveness.
ADVERTISEMENT
The political vacuum in France and Germany, the two largest and most influential players in the European Union, portends difficulties for an already ailing European economy.
On Wednesday, the National Assembly voted for a motion of censure which led to the resignation of the government, making Michel Barnier the shortest-lived Prime Minister under the Fifth Republic.
President Emmanuel Macron is now forced to name a replacement and even faces calls to resign.
The political dispute which rocked Michel Barnier over the 2025 annual budget suggests that it will be even more difficult to tackle the country's economic difficulties. With a deficit of 6.2% of GDP, France already has the largest budgetary imbalance in the euro zone.
Michel Barnier's plan aimed to fill this long-standing gap, using the maximum time limit of seven years allowed by the European Union's new budgetary rules.
Whoever the new government is, it will now be very difficult to pass texts on taxes and spending. There cannot be new elections until the middle of next year, and none of the three blocs in the French National Assembly can muster a majority.
Many on the left have called for the cancellation of the pension reform which constituted a centerpiece of Emmanuel Macron's liberal program. Immediately, National Rally MP Marine Le Pen called for the implementation of the costly policy of indexing pensions to inflation.
Worse still, the Paris crisis is accompanied by unease in the EU's other economic and political power, Germany.
Next year, the European Union's largest member will also be its worst-performing economically. According to European Commission forecasts, Germany is expected to grow by 0.7% next year, after falling in 2024.
Additionally, Berlin faces its own political problems. The three-party ruling coalition collapsed in November following disagreements over tax policy between socialist leader Olaf Scholz and his liberal finance minister Christian Lindner.
Scholz called early elections for February. During this period of chaos, Berlin has not sent the European Union a plan on how it intends to reduce its deficit in the coming years, despite being behind the political call in Brussels to adopt strict budgetary rules.
The dark economic picture in Europe is not about to get any clearer.
Relations with the main trading partner, China, are increasingly frosty, as the EU seeks “de-risking” in relation to an increasingly present geopolitical enemy.
US President Donald Trump's campaign promise to impose 10% tariffs on EU goods will pose another headache – imposing both a direct economic cost on EU exporters and a difficult choice for national leaders on how to respond.
The threat of Russian aggression and the possibility that the United States will walk away from NATO will also force Europe to put its hand in its pocket to invest in the military.
ADVERTISEMENTFinally, the political vacuum risks hampering efforts to remedy the sluggishness of the European economy.
In recent months, two former Italian prime ministers, Mario Draghi and Enrico Letta, have issued grim warnings about Europe's competitiveness, which has been largely overtaken by the United States.
But as Paris and Berlin, the two capitals considered to be the driving forces of the European project, give little indication, it is not certain that the solutions they propose will be taken into account.
Draghi and Letta proposed politically difficult ideas: joint borrowing through Eurobonds, the construction of capital markets or a new pan-European investment fund, matching the massive subsidies given to the United States for green technologies .
ADVERTISEMENTIn practice, these ideas could involve risk sharing with other governments, increased financial contributions to Brussels, further reform of pension systems or the abolition of national financial supervisory bodies. This is a toxic political mix for any national government to defend, let alone a fatally weakened one.
