While we have historically noted the explosion of youth unemployment as a key factor for instability in Europe, there appears to be an ever more concerning indicator of the potential fragility of the European Union. As Bloomberg’s Maxime Sbahi notes, the difference in economic performance (and mood) between France and Germany, often referred to as the European “engine,” is at a record high. This disparity is likely to weaken France and isolate Germany further, heightening political tensions and indecision in the euro area.
And the “mood” of the people – perhaps even more contentiously – is near 30 year highs…
Via Bloomberg Brief,
The political consequences of these economic gaps are growing clearer, though the differences in underlying policy choices have been visible for some time. Last week’s European Parliament elections provided a first glimpse of the political shakeout, with the victory of the National Front in France. The country will send a record 24 euroskeptic members to the European Parliament in a total delegation of 74, compared with seven out of 96 from Germany.
Disagreements between the two EU founding members are likely to intensify as past common interests are now strained by increasing economic divergence. Recently, France has repeatedly argued for a relaxation of fiscal targets and called on the European Central Bank to be more proactive to weaken the euro. Germany has retorted by insisting on the ECB’s independence and respect for fiscal discipline, directly warning France against non-compliance with budget commitments.
If the French economy continues its slide from the euro area’s core to the profile of a periphery member, new standoffs are likely to materialize, weakening the Franco-German relationship that has provided leadership in the past. This might slow down the functioning of the euro area, where decisions are mostly made between heads of government in summits. Over the long term, one of the most disturbing consequences is a potential lack of a common strategic view for the euro area’s future at a time when direction is needed more than ever.
If its historic partner is downgraded to a junior status, Germany may grow even more powerful on the European stage. The country may find
itself in a more isolated and uncomfortable
position.
via Zero Hedge http://ift.tt/1l1Blq0 Tyler Durden