Join more than 165,000 subscribers and keep yourself informed with the latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
You are now subscribed
Your newsletter sign-up was successful
Want to add more newsletters?
An account already exists for this email address, please log in.
How European politics could derail Brexit negotiations
Many of Europe’s politicians are soon to face or have recently been through elections. The results will affect the stance each country takes in Brexit negotiations. Matthew Partridge explains why.
Angela Merkel is having a tough time forging a coalition to govern Germany.
(Image credit: This content is subject to copyright.)
It's safe to say that the political debate around Brexit is getting interesting. There's been a lot of speculation in the papers about splits in the cabinet, with the possibility that the prime minister could carry out a major reshuffle. Depending on how that is carried out, it could shift the balance of power towards those who want a hard Brexit, or empower those who want Britain to retain substantial links with the EU. At the same time, there have been demands from within Parliament for the Commons to have a bigger say on the final deal.
Given this, it's easy to overlook the fact that many of Europe's politicians could face their voters over the coming months. In turn, this could have a major effect on Europe's willingness to either make compromises in hope of a trade deal, or take a hard stance.
How Merkel's problems could delay a deal on Brexit
The most obvious example is Germany's recent general election. In September, Angela Merkel's Christian Democratic Union (CDU) in alliance with its sister party the Christian Social Union (CSU) came first, but with a sharply reduced share of the vote. The hope was that the "grand coalition" of the CDU/CSU and Social Democratic Party (SPD) could be replaced by a coalition of the CDU/CSU, Free Democratic Party (FDP) and Greens.
Try 6 free issues of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Sign up for MoneyWeek’s free twice-daily newsletter.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
However, over this weekend the talks collapsed. The big area of disagreement is refugee policy. The FDP wants Merkel to drastically cut the numbers Germany takes, while the Green party wants her to maintain her open door policy and allow the children and spouses of refugees already in Germany to join them. There's still a good chance that the talks could restart, or Merkel could try and create another coalition. But if they don't, then Merkel is left with only a limited number of options to avoid calling a fresh round of elections, either next month or (more likely) in the New Year.
If Germany does go to the polls again, it could be extremely disruptive to the process of working out a post-Brexit trade deal. The German public is generally hostile to Brexit, so Merkel won't want to be seen as letting Britain off the hook, so it will be harder for her to make any concessions. She's also unlikely to agree to start negotiations while her attention is focused on getting re-elected. So Germany's domestic political problems could delay the start of trade talks until early 2018 even if Britain substantially increases the money that we're willing to pay as a "divorce payment".
The picture from elsewhere in Europe
The elections in the Netherlands and France earlier this year resulted in clear defeats for anti-EU candidates Geert Wilders and Marine Le Pen respectively (though Le Pen did get over a third of the vote in the second round).
However, in Austria in September, Sebastian Kurz's People's Party got most of the votes. Kurz is a Eurosceptic, but he did invite the far-right Freedom Party to enter coalition talks. This raises the possibility that the Austrian government could become a lot more sympathetic to Britain's demands for controls on migration, or at least some arrangement that qualified freedom of movement.
All eyes on Italy
All eyes will now be on Italy, which is due to go to the polls by next May at the latest. At the moment the Democratic Party is facing a challenge from both the populist left, in the case of the Five Star Movement, and a coalition of Eurosceptic parties that range from former prime minister Silvio Berlusconi's Forza Italia (though Berlusconi is himself barred from office) to the Northern League and the far-right Brothers of Italy. While the electoral system means that there's a decent chance that Democratic Party could retain control of Italy's premiership, a Five-Star victory could cause political chaos.
Finally, there is a good chance that we could also see elections in Ireland next year. In theory, Ireland doesn't have to go to the polls again until 2021, but the current coalition is widely regarded as unstable, so it could be a lot sooner. The issue of the North-South border will be a big election issue, with all parties under pressure to demonstrate their opposition to any border controls that could disrupt the Irish economy or make lives difficult for the thousands of people who commute across the border each day.
Sign up for MoneyWeek's newsletters
Join more than 165,000 subscribers and keep yourself informed with the latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
