Analysis-To Europe's Economic Malaise, Add a Leadership Void
AInvestMonday, Dec 9, 2024 1:15 am ET
2min read
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The European Union (EU) is grappling with a perfect storm of economic challenges, from sluggish growth and high unemployment to the imperative of transitioning to a low-carbon economy. Yet, as if these hurdles weren't daunting enough, the bloc is now contending with a leadership vacuum in its two largest economies, France and Germany. This political instability is exacerbating the EU's economic malaise and hampering its ability to tackle the mounting issues at hand.



In France, the no-confidence vote that ousted Prime Minister Michel Barnier has left the country without a stable government, making it difficult to drive fiscal reforms and address budget imbalances. Germany, too, is in political disarray following the collapse of its ruling coalition, with early elections scheduled for February. This leadership void is particularly concerning as the EU faces mounting challenges, including a sluggish economy, high unemployment, and the need to transition to a low-carbon economy.

The political instability in France and Germany is not only hindering the EU's ability to implement fiscal reforms but also impacting its capacity to negotiate and implement trade agreements with major partners like China and the US. The EU's internal divisions, with fiscally conservative members like Germany preferring balanced budgets while southern European countries favor more public spending, are further exacerbating the bloc's weakened state. This leaves the EU vulnerable to external pressures and unable to effectively negotiate trade agreements with major partners.

The absence of Franco-German leadership is also influencing the EU's response to geopolitical challenges, such as the threat of Russian aggression and the need for increased military investment. A study by the European Council on Foreign Relations (ECFR) found that the EU's response to Russia's annexation of Crimea was weak due to the lack of Franco-German consensus. Similarly, the EU's inability to agree on a common defense policy has been attributed to the absence of Franco-German leadership. The EU's dependence on the US for military capabilities has been exacerbated by the lack of Franco-German leadership, as seen in the EU's struggle to develop autonomous military capabilities.

The political vacuum in France and Germany is also hindering the EU's efforts to address the twin transitions of energy and digital. Without clear leadership from these two key member states, the EU may struggle to agree on and implement ambitious policies, such as common borrowing via eurobonds or a pan-European investment fund. To overcome this, the EU should foster a more collective leadership approach, involving other member states and supranational institutions, while encouraging France and Germany to resolve their internal political issues and reassert their role as drivers of European integration.

In conclusion, the EU's economic malaise is being exacerbated by a leadership void in its two largest economies, France and Germany. This political instability is hindering the bloc's ability to implement fiscal reforms, negotiate trade agreements, and respond to geopolitical challenges. To overcome these obstacles, the EU must foster a more collective leadership approach and encourage France and Germany to resolve their internal political issues. By doing so, the EU can better address its economic challenges and ensure its long-term prosperity.
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