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Political change is coming to the EU's big three economies. Here’s why it matters – CNBC

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French President Emmanuel Macron and Italy’s Prime Minister Mario Draghi.
Alessandra Benedetti – Corbis | Corbis News | Getty Images

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.

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‘Disgraceful:’ N.S. Tory leader slams school’s request that military remove uniform

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HALIFAX – Nova Scotia Premier Tim Houston says it’s “disgraceful and demeaning” that a Halifax-area school would request that service members not wear military uniforms to its Remembrance Day ceremony.

Houston’s comments were part of a chorus of criticism levelled at the school — Sackville Heights Elementary — whose administration decided to back away from the plan after the outcry.

A November newsletter from the school in Middle Sackville, N.S., invited Armed Forces members to attend its ceremony but asked that all attendees arrive in civilian attire to “maintain a welcoming environment for all.”

Houston, who is currently running for re-election, accused the school’s leaders of “disgracing themselves while demeaning the people who protect our country” in a post on the social media platform X Thursday night.

“If the people behind this decision had a shred of the courage that our veterans have, this cowardly and insulting idea would have been rejected immediately,” Houston’s post read. There were also several calls for resignations within the school’s administration attached to Houston’s post.

In an email to families Thursday night, the school’s principal, Rachael Webster, apologized and welcomed military family members to attend “in the attire that makes them most comfortable.”

“I recognize this request has caused harm and I am deeply sorry,” Webster’s email read, adding later that the school has the “utmost respect for what the uniform represents.”

Webster said the initial request was out of concern for some students who come from countries experiencing conflict and who she said expressed discomfort with images of war, including military uniforms.

Her email said any students who have concerns about seeing Armed Forces members in uniform can be accommodated in a way that makes them feel safe, but she provided no further details in the message.

Webster did not immediately respond to a request for comment.

At a news conference Friday, Houston said he’s glad the initial request was reversed but said he is still concerned.

“I can’t actually fathom how a decision like that was made,” Houston told reporters Friday, adding that he grew up moving between military bases around the country while his father was in the Armed Forces.

“My story of growing up in a military family is not unique in our province. The tradition of service is something so many of us share,” he said.

“Saying ‘lest we forget’ is a solemn promise to the fallen. It’s our commitment to those that continue to serve and our commitment that we will pass on our respects to the next generation.”

Liberal Leader Zach Churchill also said he’s happy with the school’s decision to allow uniformed Armed Forces members to attend the ceremony, but he said he didn’t think it was fair to question the intentions of those behind the original decision.

“We need to have them (uniforms) on display at Remembrance Day,” he said. “Not only are we celebrating (veterans) … we’re also commemorating our dead who gave the greatest sacrifice for our country and for the freedoms we have.”

NDP Leader Claudia Chender said that while Remembrance Day is an important occasion to honour veterans and current service members’ sacrifices, she said she hopes Houston wasn’t taking advantage of the decision to “play politics with this solemn occasion for his own political gain.”

“I hope Tim Houston reached out to the principal of the school before making a public statement,” she said in a statement.

This report by The Canadian Press was first published Nov. 8, 2024.

The Canadian Press. All rights reserved.

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Saskatchewan NDP’s Beck holds first caucus meeting after election, outlines plans

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REGINA – Saskatchewan Opposition NDP Leader Carla Beck says she wants to prove to residents her party is the government in waiting as she heads into the incoming legislative session.

Beck held her first caucus meeting with 27 members, nearly double than what she had before the Oct. 28 election but short of the 31 required to form a majority in the 61-seat legislature.

She says her priorities will be health care and cost-of-living issues.

Beck says people need affordability help right now and will press Premier Scott Moe’s Saskatchewan Party government to cut the gas tax and the provincial sales tax on children’s clothing and some grocery items.

Beck’s NDP is Saskatchewan’s largest Opposition in nearly two decades after sweeping Regina and winning all but one seat in Saskatoon.

The Saskatchewan Party won 34 seats, retaining its hold on all of the rural ridings and smaller cities.

This report by The Canadian Press was first published Nov. 8, 2024.

The Canadian Press. All rights reserved.

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Nova Scotia election: Liberals say province’s immigration levels are too high

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HALIFAX – Nova Scotia‘s growing population was the subject of debate on Day 12 of the provincial election campaign, with Liberal Leader Zach Churchill arguing immigration levels must be reduced until the province can provide enough housing and health-care services.

Churchill said Thursday a plan by the incumbent Progressive Conservatives to double the province’s population to two million people by the year 2060 is unrealistic and unsustainable.

“That’s a big leap and it’s making life harder for people who live here, (including ) young people looking for a place to live and seniors looking to downsize,” he told a news conference at his campaign headquarters in Halifax.

Anticipating that his call for less immigration might provoke protests from the immigrant community, Churchill was careful to note that he is among the third generation of a family that moved to Nova Scotia from Lebanon.

“I know the value of immigration, the importance of it to our province. We have been built on the backs of an immigrant population. But we just need to do it in a responsible way.”

The Liberal leader said Tim Houston’s Tories, who are seeking a second term in office, have made a mistake by exceeding immigration targets set by the province’s Department of Labour and Immigration. Churchill said a Liberal government would abide by the department’s targets.

In the most recent fiscal year, the government welcomed almost 12,000 immigrants through its nominee program, exceeding the department’s limit by more than 4,000, he said. The numbers aren’t huge, but the increase won’t help ease the province’s shortages in housing and doctors, and the increased strain on its infrastructure, including roads, schools and cellphone networks, Churchill said.

“(The Immigration Department) has done the hard work on this,” he said. “They know where the labour gaps are, and they know what growth is sustainable.”

In response, Houston said his commitment to double the population was a “stretch goal.” And he said the province had long struggled with a declining population before that trend was recently reversed.

“The only immigration that can come into this province at this time is if they are a skilled trade worker or a health-care worker,” Houston said. “The population has grown by two per cent a year, actually quite similar growth to what we experienced under the Liberal government before us.”

Still, Houston said he’s heard Nova Scotians’ concerns about population growth, and he then pivoted to criticize Prime Minister Justin Trudeau for trying to send 6,000 asylum seekers to Nova Scotia, an assertion the federal government has denied.

Churchill said Houston’s claim about asylum seekers was shameful.

“It’s smoke and mirrors,” the Liberal leader said. “He is overshooting his own department’s numbers for sustainable population growth and yet he is trying to blame this on asylum seekers … who aren’t even here.”

In September, federal Immigration Minister Marc Miller said there is no plan to send any asylum seekers to the province without compensation or the consent of the premier. He said the 6,000 number was an “aspirational” figure based on models that reflect each province’s population.

In Halifax, NDP Leader Claudia Chender said it’s clear Nova Scotia needs more doctors, nurses and skilled trades people.

“Immigration has been and always will be a part of the Nova Scotia story, but we need to build as we grow,” Chender said. “This is why we have been pushing the Houston government to build more affordable housing.”

Chender was in a Halifax cafe on Thursday when she promised her party would remove the province’s portion of the harmonized sales tax from all grocery, cellphone and internet bills if elected to govern on Nov. 26. The tax would also be removed from the sale and installation of heat pumps.

“Our focus is on helping people to afford their lives,” Chender told reporters. “We know there are certain things that you can’t live without: food, internet and a phone …. So we know this will have the single biggest impact.”

The party estimates the measure would save the average Nova Scotia family about $1,300 a year.

“That’s a lot more than a one or two per cent HST cut,” Chender said, referring to the Progressive Conservative pledge to reduce the tax by one percentage point and the Liberal promise to trim it by two percentage points.

Elsewhere on the campaign trail, Houston announced that a Progressive Conservative government would make parking free at all Nova Scotia hospitals and health-care centres. The promise was also made by the Liberals in their election platform released Monday.

“Free parking may not seem like a big deal to some, but … the parking, especially for people working at the facilities, can add up to hundreds of dollars,” the premier told a news conference at his campaign headquarters in Halifax.

This report by The Canadian Press was first published Nov. 7, 2024.

— With files from Keith Doucette in Halifax

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