Annika Haas

World News


Populism is Contagious, Merkelism is the Cause

Angela Merkel knows she’s rapidly approaching a no-win scenario moment as the de facto leader of the European Union. Last weekend, it was next door in Austria with Sebastian Kurz winning the Chancellorship. He will form a center-right coalition government in Austria for the first time since World War II. This weekend’s votes moved against her in stunning fashion yet again as the “Czech Donald Trump,” Andrej Babis won nearly 30% of the vote in an 8-way race. He garnered nearly three times the support of any other candidate.

This recent spate of electoral defeats for the EU started with none other than Merkel herself. She’s yet to form a ruling coalition, though discussions of a ‘Jamaica’ coalition continue between the Free Democrats (FDP) and the Greens.

Europe is moving farther away from Merkel’s positions on immigration and security. This is making it more difficult for her to negotiate debt relief deals for Italy and Spain and keep control of the rebellious East. Speaking of Italy, the Northern League successfully organized referendum yesterday that speak to a strong mandate to push for more autonomy for the richer regions of northern Italy. Veneto and Lombardy both had overwhelming support in favor. These votes set the stage for a nasty general parliamentary election in May of next year. I have previously warned about these events. The outcomes of these elections will make it more difficult for Germany to dictate to the rest of the EU in ways that Merkel wants.

The fact that the Trump administration is offering Greece debt relief behind Merkel’s back is a sign that Merkel’s preferred path of public bailouts funded through the ECB to save German banks exposed to interest rate rises is over. The U.S. and the International Monetary Fund are abandoning Merkel along with the voters. She won’t have a political ally in former Finance Minister Wolfgang Schauble as her hatchet-man anymore. In fact, the longer it takes for Merkel to form a coalition in Germany the harder it will be for the EU to respond to any emergent crisis.

Merkel’s opposition to plans for a more cohesive European Union are getting stronger, while she gets weaker. As these election results come in it makes French President Emmanuel Macron’s grand plan for a Federalized Europe look not only tone-deaf, but an act of desperation.

The End of European Progress

In fact, this thing looks about as dead-on-arrival as Saudi Crown Prince Mohammed bin Salman’s Vision 2030 project is. The reason for both projects’ troubles are the very geopolitical issues that necessitated them in the first place.

For the Saudis, these reforms are 15 years too late and should have been implemented when oil was $125 a barrel, not after losing a price war with Russia. For the EU, this push towards federalization should have been there from the beginning. Euro-denominated debt should have been consolidated under the ECB. But Germany didn’t want to give up its comparative advantage and nixed that structure.

So, the events of the past several years, starting with the initial Greek sovereign debt crisis in 2010, are all knock-on effects of that faulty economic and political structure. It will culminate over the next couple of years with more member states set to move away from the EU project. How is Merkel going to continue pressing countries like Poland and Hungary over immigration quotas when electorates across the EU are voting in larger blocs in support of them? Using the kangaroo European Court of Justice to rubber-stamp obviously tyrannical orders will sit about as well with Eastern Europeans as Spanish Prime Minister Mariano Rajoy’s brutal suppression of Catalan independence.

All of this is setting up a political crisis in the EU that will have big effects on the financial systems there. Our eyes now need to turn from Germany to Italy to see just how far they are willing to go in defiance of Brussels’ mandates at financial reform. This weekend’s non-binding votes may wind up being the most important ones cast.