German Elections: Europe will move on with Merkel behind the wheel

Germany has always been playing a key leadership role in European politics and the economy. Not only the size of its economy but also its history makes it decisive, game changing player on European pitch, so to say.

With German parliamentary elections looming, it looks like increasing number of European politicians can’t wait for Merkel’s re-installment to push forward with ever closer the European Union.  Polls show that Merkel’s Christian Democratic Party (CDU) keeps a consistent lead over Social Democratic Union Party of Germany (SDP) led by former European parliament chief Martin Schulz. The only question is whether CDU will be able to form the government alone or form coalition with rival SPD.

It looks like both German party leaders count with such possibility. Last TV debate of Merkel and Schulz confirmed smooth tone with no controversies and attacks on each other, typical elements of political debates elsewhere in Europe. With 40 percent of German voters still undecided, results are still far from being clear. The tone of last TV debate though indicates that both Merkel and Schultz count with two-party option representing a continuation of the current grand coalition of CDU and SPD.

Future of Europe and monetary union, in particular, will be formed by Merkel regardless of what are the actual results of German elections. And that is good news for Euro currency, although its appreciation of about 15 percent year-to-date is a source of worry for policymakers in Frankfurt based European Central Bank.

German leadership seems natural given the fact that the UK is leaving the European Union, Italy’s politics are unstable and marked by the economic weakness and high level of debt and France under the leadership of Emmanuel Macron is doing its homework with the labor market reform. Mid-sized countries like Spain or Poland seem not able to take the responsibility either. While Spain is still getting out of the recession, Poland is currently politically hostile in almost all aspects of EU politics regardless of the fact it receives the largest portion of EU funds.  

Although president Macron already indicated his will to strengthen cooperation with Germany in building French-German axis of power in new, ever closer union, Merkel’s response was “do your homework first.” Even with France recovering, rules for the closer union will be set by Germans that under finance minister Wolfgang Schaeuble already proved that austerity, debt reduction and labor market reforms aiming productivity gains are the only acceptable way.

European Commission chief Jean-Claude Juncker outlined the politics of ever closer union in his speech in the European Parliament in the State of the Union address this week. “Foundations on which we build a more united, stronger and more democratic Union,” Juncker said in his speech confirming that the European politics are about to change. And the change will be geared up by Germany with Merkel behind the wheel. 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these securities. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Forex involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.