The unfinished monetary union of the Eurozone poses a significant challenge to its stability. The political fringes, including the right-wing and left-wing extremists, are becoming stronger, which could lead to a decrease in cooperation among members. As a result, the European Central Bank (ECB) may not be able to provide aid to any very right-wing government that comes to power.
The upcoming early elections for the French parliament could have far-reaching consequences for the euro zone. President Emmanuel Macron’s surprise announcement of an early election following his party’s defeat and the victory of the right-wing Rassemblement national in European elections has raised concerns about the future stability of the monetary union. If a new prime minister from either side of the political spectrum is elected, it could put tremendous pressure on an already fragile Eurozone.
To keep an incomplete monetary union like the Eurozone functioning with a common monetary policy but no common fiscal policy, strong political will is needed for cooperation among members due to their diverse national cultures and interests. While this has been mostly true in recent years, there was a need for intervention by the ECB as a cleaner during the debt crisis in 2012.
Parties on both sides of the political spectrum tend to be more opposed to fiscal policy guidelines agreed upon in the Maastricht Treaty than their counterparts at center stage. These parties would prefer a Europe of nation-states over an increasingly integrated EU with a central government in Brussels. The strengthening of fringe parties in France, Italy, and several other Eurozone countries coincides with high levels of national debt and non-compliance with Maastricht criteria by many members.
Election promises made by extreme left and right parties in France are weakly based on current financial market conditions, which have led to rising risk premiums for French government bonds recently. The three safety nets that ensure Eurozone cohesion rely heavily on rescue packages and ECB purchasing programs that require political support from economically stable member states. If both recipient and donor countries become less willing to cooperate, preserving the euro could become endangered even though all involved are aware of its benefits politically and economically.
In conclusion, while cooperation among members is crucial for maintaining stability within the Eurozone, it is becoming increasingly difficult as fringe parties gain more power across Europe. Political factors such as nationalism and populism are putting significant pressure on countries already struggling financially, making it harder for them to comply with Maastricht criteria or seek help from other members if needed.
As such, it is important that policymakers remain vigilant about these developments and work tirelessly to find solutions that balance economic stability with national sovereignty while also addressing underlying issues such as income inequality and job creation across member states.
