Mar 5, 2019

European Parliament elections could pave way for end of euro

French President Emmanuel Macron.

French President Emmanuel Macron. Photo: Chesnot/Getty Images

The European experiment is in trouble ahead of the largely ignored European Parliament elections in May.

Driving the news: French President Emmanuel Macron on Monday placed an op-ed in newspapers around the continent — in all 28 eurozone countries — warning of the "trap" that could destroy the EU.

  • "Never since the second world war has Europe been so essential. Yet never has Europe been in such danger," Macron writes.

Details: The every-five-years elections select lawmakers for the body, which shares power over the EU budget and legislation, and makes sure other EU institutions are working democratically.

It's a largely ceremonial body whose elections draw diminishing voter turnout (sinking to around 45% in 2014), but the elections have already shown their importance, Markus Schomer, chief economist at PineBridge Investments, tells Axios.

  • "Brexit showed us that they can be very, very consequential and we overlooked it then, didn't we?"

Flashback: In the 2014 European elections the right-wing U.K. Independence Party triumphed over the reigning right-of-center Conservatives, leading the Conservatives to promise a referendum on leaving the EU if they were re-elected.

The next domino in the euro's fall could be France, Schomer says.

  • "We're living in a world where there are a lot of angry people everywhere. My worry is something could happen in these elections again that lights the fuse for another Brexit-like event a few years from now."
  • A triumph by France's far right and "I think they'll blow up the euro," Schomer says, "and of course blowing up the euro will be a 2008-style financial crisis."

The big picture: This is all happening as the eurozone barrels towards economic growth crisis.

The IMF revised down its forecast for growth to 1.6% in January, but Mohamed El-Erian, chief economic adviser for Allianz SE, said on Monday that such an estimate is actually too optimistic.

He expects the eurozone will struggle to deliver even 1% GDP growth this year and calls the slowdown the biggest risk to the market.

  • Worse still, El-Erian tells Reuters the European Central Bank has limited tools at its disposal to respond to economic weakness and European governments are not prepared to respond with spending.

Macron's op-ed seems to confirm the gravity of the situation:

"Citizens of Europe, if I am taking the liberty of addressing you directly, it is not only in the name of the history and values that unite us, but because time is of the essence."
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