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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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Youri Chassin quits CAQ to sit as Independent, second member to leave this month

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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.

The Canadian Press. All rights reserved.

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‘I’m not going to listen to you’: Singh responds to Poilievre’s vote challenge

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MONTREAL – NDP Leader Jagmeet Singh says he will not be taking advice from Pierre Poilievre after the Conservative leader challenged him to bring down government.

“I say directly to Pierre Poilievre: I’m not going to listen to you,” said Singh on Wednesday, accusing Poilievre of wanting to take away dental-care coverage from Canadians, among other things.

“I’m not going to listen to your advice. You want to destroy people’s lives, I want to build up a brighter future.”

Earlier in the day, Poilievre challenged Singh to commit to voting non-confidence in the government, saying his party will force a vote in the House of Commons “at the earliest possibly opportunity.”

“I’m asking Jagmeet Singh and the NDP to commit unequivocally before Monday’s byelections: will they vote non-confidence to bring down the costly coalition and trigger a carbon tax election, or will Jagmeet Singh sell out Canadians again?” Poilievre said.

“It’s put up or shut up time for the NDP.”

While Singh rejected the idea he would ever listen to Poilievre, he did not say how the NDP would vote on a non-confidence motion.

“I’ve said on any vote, we’re going to look at the vote and we’ll make our decision. I’m not going to say our decision ahead of time,” he said.

Singh’s top adviser said on Tuesday the NDP leader is not particularly eager to trigger an election, even as the Conservatives challenge him to do just that.

Anne McGrath, Singh’s principal secretary, says there will be more volatility in Parliament and the odds of an early election have risen.

“I don’t think he is anxious to launch one, or chomping at the bit to have one, but it can happen,” she said in an interview.

New Democrat MPs are in a second day of meetings in Montreal as they nail down a plan for how to navigate the minority Parliament this fall.

The caucus retreat comes one week after Singh announced the party has left the supply-and-confidence agreement with the governing Liberals.

It’s also taking place in the very city where New Democrats are hoping to pick up a seat on Monday, when voters go to the polls in Montreal’s LaSalle—Émard—Verdun. A second byelection is being held that day in the Winnipeg riding of Elmwood—Transcona, where the NDP is hoping to hold onto a seat the Conservatives are also vying for.

While New Democrats are seeking to distance themselves from the Liberals, they don’t appear ready to trigger a general election.

Singh signalled on Tuesday that he will have more to say Wednesday about the party’s strategy for the upcoming sitting.

He is hoping to convince Canadians that his party can defeat the federal Conservatives, who have been riding high in the polls over the last year.

Singh has attacked Poilievre as someone who would bring back Harper-style cuts to programs that Canadians rely on, including the national dental-care program that was part of the supply-and-confidence agreement.

The Canadian Press has asked Poilievre’s office whether the Conservative leader intends to keep the program in place, if he forms government after the next election.

With the return of Parliament just days away, the NDP is also keeping in mind how other parties will look to capitalize on the new makeup of the House of Commons.

The Bloc Québécois has already indicated that it’s written up a list of demands for the Liberals in exchange for support on votes.

The next federal election must take place by October 2025 at the latest.

This report by The Canadian Press was first published Sept. 11, 2024.

The Canadian Press. All rights reserved.

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Social media comments blocked: Montreal mayor says she won’t accept vulgar slurs

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Montreal Mayor Valérie Plante is defending her decision to turn off comments on her social media accounts — with an announcement on social media.

She posted screenshots to X this morning of vulgar names she’s been called on the platform, and says comments on her posts for months have been dominated by insults, to the point that she decided to block them.

Montreal’s Opposition leader and the Canadian Civil Liberties Association have criticized Plante for limiting freedom of expression by restricting comments on her X and Instagram accounts.

They say elected officials who use social media should be willing to hear from constituents on those platforms.

However, Plante says some people may believe there is a fundamental right to call someone offensive names and to normalize violence online, but she disagrees.

Her statement on X is closed to comments.

This report by The Canadian Press was first published Sept. 11, 2024.

The Canadian Press. All rights reserved.

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