Wharton’s Mauro Guillen and American University’s Michelle Egan discuss ongoing turmoil in Europe.

Europe is facing testing times these days. The Dutch elections last week were a bright spot for those who are concerned with a rise in far-right populism. But uncertainty prevails over whether voters in the forthcoming French and German elections will respond in kind. Meanwhile, Germany is trying to find some equilibrium with the new White House against the backdrop of Donald Trump’s campaign criticism of Angela Merkel’s immigration policies and the prospect of closer U.S. ties with Russia. Amid all that, the United Kingdom is pursuing a Brexit agenda while dealing with a call from Scottish political parties for a new independence referendum.

Dutch Elections
By Roxanna (based on File:Flag of Germany.svg) [CC BY-SA 3.0], via Wikimedia Commons
Dutch Elections

From the standpoint of the U.S., strong ties with Germany are the most important, according to Mauro F. Guillen, Wharton management professor and director of The Lauder Institute. He noted that the U.S., Germany and China are the three “most influential” countries in the world today. Germany is “an economic powerhouse” that has a balanced budget, runs a large trade surplus and is also “doing really well economically,” he said. “It is a democracy that seems to be working quite well.” Against that backdrop, German Chancellor Angela Merkel’s meeting last Friday with Trump was “very important,” he added.

The economic elephant in that room at the White House last week was the future of U.S. ties with Russia. Germany relies heavily on Russian gas, with 40% of its natural gas needs supplied by Russia, and the U.S. sanctions imposed by the Obama administration specifically target Russia’s energy sector. It doesn’t help Germany that there is little clarity on how U.S. sanctions against Russia will play out, said Michelle Egan, professor in School of International Service at American University and Global Fellow at the Wilson Center.

Guillen and Egan discussed the future of U.S.-German ties and the political currents in Europe on the [email protected] show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)

A Complex Relationship

The images are fresh in the public mind of the lukewarm vibes between Merkel and Trump during their meeting last Friday, after it was postponed because of the winter storm earlier in the week. Still, the meeting was less unfriendly than many had expected, and Merkel did try to rebuild bridges, as the Washington Post reported. Her delegation included CEOs from the German automobile industry to emphasize German investment and job creation in the U.S., Egan noted.

“It’s a relief that populism didn’t have another good day [in the Dutch elections].”–Mauro Guillen

Guillen set the backdrop for that uneasy setting between Trump and Merkel. The U.S. and Germany have a “complex bilateral relationship,” and their trade relationship has an imbalance that is in favor of Germany, he noted. Germany has the largest current-account surplus of about 270 billion euros (about $300 billion), bigger than China’s surplus, he said.

Significantly, Merkel faces an election in September that would decide if she could continue for a fourth four-year term as chancellor. “It’s not all about Trump [for Merkel]; she has domestic issues as well,” said Egan. Merkel also faces issues with neighbors such as the recent tensions with Turkey over an April referendum in that country that is intended to give Turkish President Recep Tayyip Erdogan sweeping new powers, she noted. Erdogan’s Justice and Development Party wants to campaign in Germany to build support among some 1.5 million Turks living there who are eligible to vote in the referendum.

Dutch Pointers

As elections in Europe go, the preliminary results of the Dutch elections held last Wednesday belied fears of a surge of populist sentiment (the full official results will be out on March 21). “It’s a relief that populism didn’t have another good day,” said Guillen. The populist Party for Freedom led by Geert Wilders had to settle for second place with a lower-than-expected tally, while prime minister Mark Rutte’s People’s Party for Freedom and Democracy led the polls. “We saved the day,” said Guillen of Rutte edging out Wilders. “We in Europe have now more optimism about the forthcoming negotiations with the U.K. about Brexit and also the upcoming French election, which is the next big test.”

At the same time, the fractured electorate in the Netherlands was a cause for concern. “The problem is extreme fragmentation,” said Guillen. “The Dutch electorate has chosen representatives across many different parties, so that is not a recipe for stability.” Egan, too, noted the high level of “voter volatility” with 28 parties contesting the Dutch elections.

“It’s not all about Trump [for Angela Merkel]; she has domestic issues as well.”–Michelle Egan

Egan pointed to some important takeaways from that election’s outcome. “One is the demise of the center-left in this election — they absolutely lost out,” she said. Another is the emergence of two pro-euro parties — the Democrats 66 and the GreenLeft, she added. She also noted that while Rutte edged out Wilders, his party actually lost votes since the previous election. She said that while people in the U.S. tend to link the outcomes to the debate over populism, domestic issues were more at stake. “For a lot of the Dutch it was about health care, social security and perhaps down the road, also immigration.”

French Connection

According to Egan, there are few direct lessons from the Dutch elections to the forthcoming French elections in April and May. “The only analogy I would make is with the upcoming French election is that the center left was decimated [in the Netherlands] and we have no center left running in the French election,” she said. In fact, Egan said that seemed to be a factor across Europe, and also pointed to Britain where she saw the opposition Labour Party as “very weak.”

The French elections are critical to the future of Europe, according to Guillen. “France in general lies at the core of the problems in Europe,” he said. The coming election will be “an important watershed” because it is not just about immigration or about the future of Europe but also about the French economy and how the country should deal with its various problems, he added.

Guillen hoped that Marine Le Pen of the right-wing National Front will be stopped in the second round if not in the first round with some “pragmatic voting.” (The French elections will be held in two rounds on April 23 and May 7.) The National Front espouses populist policies such as opposition to immigration, and it wants France to exit the European Union. “People who absolutely detest her will join forces and vote for the candidate running against her in the second round.”

Guillen noted that while the two-round process is “fairly undemocratic” and “somewhat dubious” constitutionally, in this election it might be a blessing in disguise. “In this case, it might prevent a candidate like Marine Le Pen from being president.”

Brexit Gets Closer

Egan said the French elections are significant also because the European Union is waiting for the results before it moves forward

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