Merkel’s departure – what does this mean for Europe?

An era is now coming to an end in European and German politics, but what could a different chancellor mean for the EU and the world?

Angela Merkel
Source: Bloomberg

Angela Merkel has had enough, it seems. As her position comes under pressure, the 21st century ‘iron chancellor’ has decided to step down as leader of her party, the Christian Democratic Union (CDU), and also announce the end of her political career in 2021.

The decision comes as her party faces a more difficult electoral landscape, but it also seems in keeping with her cautious approach to politics. By slowly giving up the reins of power, it allows time for a successor to emerge as the CDU head, and thus position themselves as a viable candidate for chancellor ahead of the next election.

We must not forget too, that while she can help define the terms of succession and the potential candidates, Merkel may not be an entirely lame duck chancellor. With no need to seek re-election, she may (emphasis on the ‘may’) look to break away from political and economic constraints. The EU and the eurozone face many problems. A chancellor with more freedom to manoeuvre may look to change the consensus around austerity economics in the eurozone, which has arguably done much to limit growth in southern Europe, while also pushing forward with further economic integration of the currency bloc.

And then there is Brexit. Will she look to push the EU towards a more conciliatory stance, perhaps giving the UK more leeway on the Irish border and the four freedoms? Merkel’s belief in the need for coherence means she is not likely to allow the UK untrammelled access without some return concessions, but perhaps she can bolster those in the EU Parliament, like Guy Verhofstadt, who are arguing for the UK to be given a ‘special relationship’ that reflects both its economic heft and its importance as an ally for Europe.

Or, Merkel may well simply carry on with current policies. Overall, they have worked well for Germany, but there are still huge risks that a renewed eurozone crisis, this time surrounding Italy, will be much harder to solve. Merkel has cemented Germany’s position as the economic centre of gravity for the eurozone, but at the cost of a diminished position in international politics, and with a job half-done in eurozone economic reform.

Brexit

Find out what Brexit could mean for the markets and
how a hard or a soft exit from the EU could affect traders.

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