Europe's two most important economies will lack stable governments when Donald Trump assumes office as US president. Often called the twin engines of EU growth, they are hampered by huge economic and financial problems.

 

France and Germany falter as Donald Trump presidency looms
Andreas Becker

 

Long before Donald Trump's inauguration on January 20, the US president-elect threatened Europeans with high tariffs on their products, reduced support for Ukraine, and a reassessment of NATO's funding.

Given the turbulence ahead, it would be crucial for the 27 European Union (EU) member states to demonstrate unity and speak with one voice. However, when Trump takes office, Germany and France will not have stable governments, let alone their current leaders finding common ground on how to deal with Trump's policies.

These two countries, often referred to as the "engines of EU growth," have the largest populations and economies in the bloc.

'Lame duck' leaders

In Germany, Chancellor Olaf Scholz's government, consisting of Social Democrats and Greens, no longer has a majority in parliament. The country is gearing up for snap elections on February 23.

 

Latest polls suggest that no party will achieve an outright majority, making coalition negotiations inevitable after the election. It is expected that at least two months will pass after Trump's inauguration before Germany forms a functioning government.

In France, instability is expected to last even longer. According to the French constitution, new elections cannot be held until July 2025 at the earliest. Until then, the unclear majority stemming from the July 2024 election will remain.

The French National Assembly has three major blocs, none of which has a governing majority: the far-right National Rally (RN), the leftist coalition New Popular Front (NFP), and President Emmanuel Macron'scentrist Ensemble pour la Republique (Ensemble), and its allies.

Claire Demesmay, a political scientist at Sciences Po in Paris and a researcher at the Franco-German Center for Social Sciences in Berlin, describes the current political situation in France as "highly unstable."

"There is no majority in parliament, and the three blocs refuse to cooperate," she told DW, adding that French politics has no tradition of building multi-party coalition governments like Germany. "France's political culture is confrontational and lacks a tradition of compromise, making it difficult to form a majority government."

Debt and spending disputes stifle growth policy

Both countries are entering the new year without approved budgets due to fiscal disputes. In Germany, Scholz's former three-party coalition collapsed over budget disagreements. In France, conservative prime minister, Michel Barnier, failed to pass a budget and lost a confidence vote on December 4, 2024. President Macron then appointed centrist Francois Bayrou as prime minister on December 13 to form a new government.

Carsten Brzeski, chief economist at ING Bank, says Germany and France are pursuing opposite fiscal policies which is "worsening the situation further." While France is burdened with high debt and would need more austerity, Germany should increase spending on its aging infrastructure. "France must become more German, and Germany more French," he told DW.

France now has the third-highest national debt in the eurozone after Greece and Italy, while Germany only slightly exceeds the EU's debt ceiling of 60% of annual gross domestic product (GDP) allowed under the so-called Maastricht Treaty on fiscal policy.

Moreover, the French national budget deficit — projected at 6% of GDP for 2024 ­— is double the allowed limit of 3% for eurozone countries. This has already triggered an EU deficit procedure and plunged the new French prime minister into the same dilemma as his predecessor: Meeting EU fiscal rules requires austerity, but securing parliamentary approval for serious spending cuts requires a stable majority, which is unlikely before summer 2025.

While Demesmay described France's fiscal problems as "trying to put a square peg in a round hole," financial markets are already reacting strongly. The risk premium on French debt recently hit its highest level since the eurozone debt crisis in 2010. And international ratings agency Moody's added to the trouble in December by downgrading France's credit rating, citing political fragmentation and fiscal instability.

Germany, in stark contrast, has a budget deficit of less than 3% of GDP due to its so-called debt brake enshrined in the constitution. Critics of the limit on fresh borrowing say it must be scrapped or at least reformed to free up urgently needed funding for the country's aging infrastructure. However, the two-thirds majority for reform can only be found by the next government.

Europe's growth engines sputter as Trump looms large

France's central bank is expecting economic growth to come in at 1.1% for 2024 but has lowered its 2025 forecast to 0.9%, citing "rising uncertainties" to growth at home and abroad.

Europe's biggest economy, Germany, is expected to see a second consecutive year in recession in 2024, with the central bank projecting rather negligible growth of 0.2% for 2025. The biggest risk factor is the probability of "globally rising [trade] protectionism," the bank said.

For Germany's export-driven economy, promoting free trade with new agreements could provide some relief. A first step was taken in December when the EU Commission and the South American Mercosurtrade bloc signed a treaty that will create the world's largest free trade zone, encompassing around 700 million people.

However, it remains uncertain whether and how the agreement will be ratified by member states after France made it clear that it opposes the treaty.

"The trade issue is a classic point of contention between Germany and France," said Demesmay. "In France, large trade agreements are viewed much more critically than in Germany. There is a prevailing sense that the country's future is no longer in its own hands, which is politically dangerous."

The lack of unity between the two leading nations in Europe could also become a problem when Donald Trump starts his second term. During his first term (2017–2021), Europeans often appeared caught off guard, unsure of how to respond to Trump's erratic policy announcements and social media posts.

Today, Europeans are better prepared than they were eight years ago, believes Carsten Brzeski, who advises against merely reacting to Trump's actions.

"Instead, they should focus on their domestic economies, invest in infrastructure, and push for structural reforms," he said. Therefore, he advocates for close policy coordination between Germany and France. "From past experience, we know that if the two largest economies don't cooperate and drive the European project forward, progress in Europe will be very slow."

This article was originally written in German.

 

https://www.dw.com/en/france-and-germany-falter-as-donald-trump-presidency-looms/a-71210372

 

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