The political crises in France and Germany aggravate the problems of the battered European economy

The political vacuum in France and Germanythe two largest and most influential countries in the EU, portends trouble for a European economy already in crisis. The French Parliament has voted a motion of confidence against the Prime Minister, Michel Barnier, just three months after being elected by President Emmanuel Macron. He is the prime minister who has held office for the shortest time in the Fifth Republic. President Emmanuel Macron will now be under pressure to appoint a replacement, and even faces calls to resign.

France has the worst budget imbalance in the eurozone

The political dispute that led Barnier to the precipice, regarding the 2025 annual budgetsuggests that it will now be even more difficult to address the country’s economic problems. With a deficit of 6.2% of GDPFrance already has the worst budget imbalance in the eurozone. Barnier’s plan sought to remedy this prolonged deficit using the maximum period of seven years allowed by the new EU fiscal rules.

Whoever forms the new Government will now have great difficulty in carrying out the tax and spending proposals. There can be no new elections until the middle of next year, and none of the three blocs in the French National Assembly can muster a majority.

Many on the left have called for undoing the broader reforms of the pension systemwhich were a centerpiece of Macron’s liberal agenda; In the short term, the far-right Marine Le Pen called for the costly policy of indexing pensions to inflation. Worse still, the Paris crisis adds to the discomfort of the other economic and political power of the EU: Germany.

Germany, the largest member of the bloc with the worst economic results

Next year, the largest member of the bloc will also be the one with the worst economic results: According to the European Commission’s forecasts, Germany It will grow 0.7% next year, after contracting in 2024.

And Berlin faces its own political problems. The ruling three-party coalition collapsed in November following disagreements over fiscal policy between socialist leader Olaf Scholz and his liberal finance minister, Christian Lindner.

Scholz has called early elections for February. During this governance chaos, Berlin has not sent the EU any plans on how it will address its deficit in the coming yearsdespite having led the political request to Brussels for strict tax rules. The gloomy European economic outlook shows no signs of improving.

The instability of German foreign policy

Relations with China, its main trading partner, are increasingly cold, as the EU tries to “distance itself” from an increasingly important geopolitical enemy.

The electoral promise of the President of the United States, Donald Trump, to impose 10% tariffs on European products will pose a new headache, imposing a direct economic cost on EU exporters and a difficult decision on national leaders about how to retaliate. The threat of Russian aggression and the possible abandonment of NATO by the US will also force Europe to dip into its pockets to invest in Defense.

The competitiveness of the European economy is weak

And the political vacuum threatens to hamper broader efforts to address the sluggish European economy. In recent months, two former Italian prime ministers, Draghi and Letta, have launched grim warnings about European competitivenessfar surpassed by the American one.

But with little guidance from Paris and Berlin, the two capitals considered drivers of the European projectit is not clear whether their proposed solutions will be taken into account. Draghi and Letta have proposed some politically difficult ideas: common debt through Eurobonds, creation of capital markets or a new pan-European investment fund to match the large US subsidies for green technology.

In practice, these ideas could involve sharing risks with other governments, increasing financial contributions to Brussels, reforming pension systems or eliminating national financial watchdogs. It is about a toxic political mix for any national government, and even less so for a fatally weakened government.