Five trends bode ill for stability.
There are (at least) five reasons many European policymakers see the rise of populism as a key preoccupation for the next few years.
First, the European elections scheduled for May 2019 (a few months following Brexit) may upset the political balance, resulting in a Parliament heavily influenced by nationalist and euro-skeptic forces. The center-right European People’s Party will remain the strongest but could be weakened. The center-left Alliance of Socialists and Democrats will be significantly diminished, reflecting the collapse of socialist parties. The core block of these two parties may no longer form a reliable majority, especially if (as appears likely) the liberal pan-European En Marche! underperforms anti-EU political parties like Italy’s Northern League and Five Star Movement.
A fractured European Parliament would be a less effective co-legislator with the Council (representing the member states). Some states may seek to diminish the European Commission’s (EC) executive prerogatives by sending euro-skeptic commissioners to Brussels and stalling legislation. Member states may move ahead with their own legislation such as digital sales tax, resulting in greater EU market fragmentation.
Second, Italy has resurfaced as a major source of economic and political instability. Although the Italian Government is highly unlikely to carry out a referendum on the euro or EU membership, it has shown an eagerness to confront the EU. That threat has reawakened fears in global financial markets about Italy’s growing sovereign debt (€2.3 trillion, more than 130 percent of national GDP). Italian banks’ balance sheets could once again require strengthening if the sovereign debt value is written down. The tension between Rome and Brussels is also an unwelcome distraction: Italy needs to reignite growth after more than a decade of stagnation. If it fails in that mission, the result may be greater populism and euro-skepticism.
Third, the EU is facing a remarkable challenge to its core values and laws. After the Parliament censured Hungary for breaches of the rule of law, the nation appealed to the European Court of Justice in Luxembourg (the EU’s highest court) and refused to address EC’s concerns. Hungary might defy the court, unlike Poland, which agreed to amend a law on its judiciary only after the court upheld the EC’s concerns. If Hungary does so, the stage will be set for a conflict that would embolden euro-skeptics and potentially tear the EU apart.
Fourth, Germany’s ability to continue providing direction may diminish. Chancellor Merkel’s Christian Democratic Union has weakened in national and regional polls, at the same time that her sister party, the Christian Social Union, has lost its historic dominance in Bavaria. The grand governing coalition of CDU-CSU with the Social Democratic Party faces tremendous uncertainty. Merkel has given up party leadership and some speculate that she may not finish her term.
These trends are occurring at the same time as Brexit and political fragmentation across the Continent. France and the UK have complemented, and counter-balanced, German power at the heart of the EU. If the UK leaves as planned and French loss of political prestige persists, the European project would become even more unbalanced. Diminished leadership in Berlin, furthermore, may mean even greater unwillingness to make bold moves to secure Europe’s future, including partnering with Paris on eurozone reform.
Finally, external factors such as migration, Russia and the US add spice to this witch’s potion. Although the flow of migration from Northern Africa and the Middle East remains under control, it may re-emerge as a potent contributor to European extremism. While Russia has sought for years to magnify Europe’s divisions, its interference in European elections is new. And in the US, the White House, abandoning six decades of bipartisan foreign policy in favor of bilateral and transactional relationships with national capitals, now hopes for further member exits from the EU.
Tony Gardner is a Brunswick Senior Advisor in London and a former US Ambassador to the EU.
Illustration: Fabio Consoli