The collapse of the government in both Berlin and Paris is expected to have negative consequences for Europe’s struggling economy. France’s deficit of 6.2% of GDP, the worst in the eurozone, will now be harder to address as a political vacuum hampers decision-making. Meanwhile, Germany’s economic performance is predicted to decline, with political troubles adding to the uncertainty.
The crisis in Paris and Berlin comes at a time of increased tensions with major trading partners, such as China and the United States. The threat of tariffs imposed by US President Trump could further harm the EU economy, while concerns about Russian aggression and potential shifts in US commitment to NATO may require increased military spending.
Former Italian Prime Ministers Draghi and Letta have warned about Europe’s lagging competitiveness compared to the US, proposing solutions such as common borrowing, building capital markets, and creating a pan-European investment fund. However, with little guidance from Paris and Berlin, it remains to be seen if these proposals will be implemented.
Overall, the political vacuum in Europe’s key capitals poses a significant challenge for addressing the economic slump and advancing the European project. National governments may face difficulty in championing politically difficult ideas to revitalize the economy, especially in the absence of strong leadership from France and Germany.
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