The balance of power is changing in the European Union’s three largest economies which could have significant implications for financial markets.
Germany has just turned the page on Angela Merkel’s 16 years of leadership, France is bracing itself for an uncertain presidential election in the spring, and Italy is anxiously waiting to find out whether Mario Draghi will leave his prime ministerial post.
“We may well be in for a rather profound ‘watershed moment,’ with significant positive implications for policies,” Erik Nielsen, group chief economist at UniCredit, said in a note to clients in December.
Germany
“The new German government will bring in significant reforms in Germany, if less headline-grabbing and straightforward then desirable, and it will, very likely, also facilitate reforms in Europe,” Nielsen said.
The newly established government has promised to decarbonize the German economy and to invest in digitalization. At the same time, its idea is also to follow a sound fiscal policy from 2023 onward, once stimulus to deal with the pandemic has been faded out.
These targets are likely to influence European discussions on how to update the fiscal rulebook — a topic that market players are following closely. The euro zone has had strict deficit and debt targets, but there has been a lack of enforcement of these rules. In addition, others question whether these targets are still valid in a post-pandemic world. How much governments will spend, and where, could have direct implications for the bond market.
The German economy should stage an impressive comeback as European growth champion 2022.
Analysts at ING
“Previous government stimulus plus the new government’s impressive investment policies will unfold in 2022 and lead to stellar growth performance,” analysts at ING said in a note in December.
The German economy grew 2% in the second quarter of 2021 and 1.7% in the third quarter, according to the national statistics office. In the whole of 2020, GDP dropped by almost 5%.
These numbers have been significantly impacted by the pandemic and supply chain issues.
“As soon as global supply chain frictions start to abate and the fourth wave of the pandemic is behind us, industrial production will strongly rebound, private consumption will start to pick up and investments will flourish and the German economy should stage an impressive comeback as European growth champion 2022,” he added.
In October, the International Monetary Fund projected a GDP growth rate of 4.6% for Germany in 2022 — this was higher than the estimates for France and Italy.
France
French voters are heading to the polls in late April. Incumbent President Emmanuel Macron has not yet announced his intention to run for a second mandate. However, he is currently polling first among all candidates.
But there is plenty of time for voter polls to change, even more so as new candidates formalize their plans for the presidency.
Eric Zemmour, an anti-immigration candidate, is seen as a threat to the likeminded politician Marine Le Pen. Meanwhile, the arrival of Valerie Pecresse to lead her center-right conservative campaign is also seen as a challenge to Macron, if he decides to run for a second term.
Nielsen described Pecresse as a “serious contender against the favorite, still undeclared, Macron,” if she makes it to the second round of the election. At the moment, she is polling fourth, after Macron and the two far-right candidates.
“Macron will therefore have to navigate an even narrower path to reform France, notably concerning pensions, the public service and the labor market,” analysts at ING said.
Nonetheless, a Macron victory would mean that France would still have a pro-European leader looking to work with Germany and Italy to reform the region.
Italy
In Italy and abroad, everybody wants to know if Mario Draghi will remain as the country’s prime minister —or if he will choose to be the next president instead. The latter would bring a fresh wave of political uncertainty given the fragmentation of the Italian Parliament.
“The bottom line is that the political equilibrium that has prevailed since Draghi’s appointment as PM is set to be shaken, if not broken, by the upcoming presidential vote,” Wolfango Piccoli, co-president of the consultancy firm Teneo, said in a note in December.
As president, Draghi would have less direct influence on Italian politics.
“Draghi would struggle to act on behalf of Italy vis-a-vis the EU from the presidential palace,” Piccoli said.
However, Italy would still have a pro-European president who would have a say in some of the measures that a new government may take.
If Draghi remains prime minister, his work “could be more complicated in the months ahead, depending on how the ruling coalition manages the presidential election process,” Piccoli noted.
Draghi is the head of a technocratic government, supported by the various political groups in the Italian Parliament. Without their votes, Draghi’s work could face obstacles when presenting new laws.
Nonetheless, “in this scenario, Draghi would almost certainly remain prime minister until elections in 2023, thereby securing Italy an unprecedented influence on key European policies next year while, possibly, leaving Italian politics somewhat less anchored over the longer term,” Nielsen added.
OTTAWA – Prime Minister Justin Trudeau says the NDP is caving to political pressure from Conservative Leader Pierre Poilievre when it comes to their stance on the consumer carbon price.
Trudeau says he believes Jagmeet Singh and the NDP care about the environment, but it’s “increasingly obvious” that they have “no idea” what to do about climate change.
On Thursday, Singh said the NDP is working on a plan that wouldn’t put the burden of fighting climate change on the backs of workers, but wouldn’t say if that plan would include a consumer carbon price.
Singh’s noncommittal position comes as the NDP tries to frame itself as a credible alternative to the Conservatives in the next federal election.
Poilievre responded to that by releasing a video, pointing out that the NDP has voted time and again in favour of the Liberals’ carbon price.
British Columbia Premier David Eby also changed his tune on Thursday, promising that a re-elected NDP government would scrap the long-standing carbon tax and shift the burden to “big polluters,” if the federal government dropped its requirements.
This report by The Canadian Press was first published Sept. 13, 2024.
Simon Jolin-Barrette, minister responsible for consumer protection, has tabled a bill to force merchants to calculate tips based on the price before tax.
That means on a restaurant bill of $100, suggested tips would be calculated based on $100, not on $114.98 after provincial and federal sales taxes are added.
The bill would also increase the rebate offered to consumers when the price of an item at the cash register is higher than the shelf price, to $15 from $10.
And it would force grocery stores offering a discounted price for several items to clearly list the unit price as well.
Businesses would also have to indicate whether taxes will be added to the price of food products.
This report by The Canadian Press was first published Sept. 12, 2024.
Quebec legislature member Youri Chassin has announced he’s leaving the Coalition Avenir Québec government to sit as an Independent.
He announced the decision shortly after writing an open letter criticizing Premier François Legault’s government for abandoning its principles of smaller government.
In the letter published in Le Journal de Montréal and Le Journal de Québec, Chassin accused the party of falling back on what he called the old formula of throwing money at problems instead of looking to do things differently.
Chassin says public services are more fragile than ever, despite rising spending that pushed the province to a record $11-billion deficit projected in the last budget.
He is the second CAQ member to leave the party in a little more than one week, after economy and energy minister Pierre Fitzgibbon announced Sept. 4 he would leave because he lost motivation to do his job.
Chassin says he has no intention of joining another party and will instead sit as an Independent until the end of his term.
He has represented the Saint-Jérôme riding since the CAQ rose to power in 2018, but has not served in cabinet.
This report by The Canadian Press was first published Sept. 12, 2024.
