Political paralysis in France, Germany threatens Europe’s economic stability

In its article, US News features that Europe is grappling with significant economic challenges as political paralysis in France and Germany threatens to hinder the continent's growth. 

Even before the collapse of the French and German governments, Europe's economy was already facing numerous challenges. Sluggish growth, declining competitiveness compared to the US and China, and a struggling automotive sector. How to secure billions for defense against Russia? And now, the added pressure of Donald Trump threatening tariffs.

Finding solutions will become even more difficult as the two countries, which represent nearly half of the eurozone's economy, remain mired in political deadlock well into 2025.

Where the so-called French-German axis once drove Europe forward, there is now a void. French Prime Minister Michel Barnier resigned after losing a vote of confidence, and while President Emmanuel Macron will appoint a successor, the new leader will not have a majority. Elections cannot take place until at least June, according to the constitution.

Germany's coalition government, led by Social Democratic Chancellor Olaf Scholz with the Greens and pro-business Free Democrats, fractured in November, leading to an early election on February 23. Talks to form a new government may drag on into April.

At least Germany’s likely new chancellor, conservative opposition leader Friedrich Merz, seems open to relaxing constitutional borrowing restrictions to allow for pro-growth spending and investment, noted Mujtaba Rahman, managing director for Europe at Eurasia Group.

France, however, could be heading towards “complete paralysis on the economic question,” Rahman added. “It’s highly unlikely they’ll achieve a political equilibrium with a mandate to implement a credible fiscal course correction.”

"And that's obviously a problem for Europe because it means the great potential of the European economy is not what it otherwise should be, because you don't have France and Germany firing on all cylinders," he said.

Europe's lagging business environment is also a concern, as highlighted by former European Central Bank head Mario Draghi in a report with recommendations such as common borrowing to support public investment, an EU-wide industrial policy, and integrating financial markets to help startups raise capital. However, Rahman pointed out, “nothing can move in Europe without Franco-German alignment.”

At the same time, Europe’s auto industry has called for a review of stringent EU emissions standards in 2025, instead of 2026, arguing that reduced demand for electric cars makes it difficult to avoid hefty fines and that the money would be better spent on developing new electric vehicles.

By Naila Huseynova