2019 second-quarter forecast

Mar 10, 2019 | 21:55 GMT

6 mins read

Europe

To the west of Eurasia lays Europe, a region predisposed to division. It is surrounded on nearly all sides by islands and peninsulas that make it difficult for Europe to cohere. The northern half of the continent, moreover, sits on a plain whose short, meandering rivers tend to empower countries without forcing them to work with others. The southern half is situated on more mountainous terrain that has historically impeded the creation of strong, unified economies. As a result, Europe is a continent riven by pockets of distinct cultures whose differences are all too often irreconcilable.

Europe is a continent riven by pockets of distinct cultures whose differences are all too often irreconcilable.
(canadastock/Shutterstock.com)

Key Trends for the Quarter

The U.K. and the EU Strive to Avoid a Disorderly Brexit

The British government will try to convince the House of Commons to approve the Brexit agreement it negotiated with the EU and avoid a disorderly exit. Should lawmakers fail to approve a withdrawal agreement by March 29, London will ask the EU for more time, effectively delaying Brexit for a few months. (The exact duration of the delay will be a topic of negotiation, not only within Britain but between the UK and the EU.) This means that disruptions in trade, travel and other areas of EU-UK relations will probably be avoided during the quarter. If the exit from the EU is delayed, the British government will be under pressure from the Commons to change direction and support a softer version of Brexit. Calls for another referendum will grow louder, but this option will remain unlikely as long as the current government stays in power. For more on Brexit, read our assessment of the main scenarios in play.

The EU Chooses a New Parliament

Voters across the European Union will elect new members of the European Parliament between May 23 and May 26. Pro-EU parties will retain control of parliament, but nationalist and Euroskeptic forces will increase their presence in the institution — though they won't be strong enough to block legislation. A more fragmented membership will make it harder for the parliament to pass laws. In the meantime, because of the electoral campaign across the Continent, many EU structural reforms will be postponed. European leaders will debate whether to introduce qualified majority voting, instead of unanimity, on issues such as taxation and foreign policy, but no changes should be expected this quarter. EU governments will also debate plans to introduce a common deposit insurance scheme for European banks, but at a time of divisions between northern and southern member states over financial integration, little progress will be made. 

A chart showing how the composition of the European Parliament could change

Even when voting on Continental matters this quarter, European countries will be guided by self-interest and domestic concerns.

After the elections for the European Parliament, European governments will start negotiations to appoint the new members of the European Commission, a process that will extend beyond the quarter. While the parliamentary elections should primarily be about Continental issues, internal political considerations will affect how countries vote. This means that the election results will have domestic repercussions in countries including France, Italy and Germany. For more on the national and international impact of the European Parliament elections, read our latest assessment.

Germany and France Propose New Competition Rules

Germany and France will push to amend EU industrial regulations to better compete with the United States and China. The countries' proposals will include allowing mergers between large European companies in strategic sectors and introducing stronger protection against takeovers from non-EU companies, as well as enabling greater state participation in struggling companies. Berlin and Paris will lobby countries across the bloc to win support for their proposals. No significant changes in EU regulation, however, should be expected until the new members of the European Parliament and the European Commission are appointed later in the year. Read more about Germany and France's motivations.

EU-U.S. Trade Negotiations Continue Apace

Negotiations over a free trade agreement between the European Union and the United States will dominate the quarter, but discrepancies about its content — and particularly EU reluctance to include agricultural products — will make it hard for Washington and Brussels to reach a deal. Washington will keep its threat of introducing higher tariffs on EU cars alive, but this will not be enough to change Brussels' negotiating position. Should the White House increase tariffs on European cars, the European Union will retaliate with countermeasures affecting imports from the United States in a way designed to affect the domestic political base of U.S. President Donald Trump. In spite of these disputes, room will remain for some degree of cooperation between the European Union and the United States on issues such as China's trade and investment strategy or Iran's missile program. Read our assessment on EU-U.S. negotiations for more details.

A chart showing the extent of the European automotive trade

France Takes Another Shot at Reform

Paris will push ahead with its reform agenda this quarter but must contend with a dissatisfied electorate that is increasingly willing to express its ire. The French government will, therefore, slow down the pace of reform and scale back some of its plans, including unpopular proposals to tighten the eligibility criteria for unemployment benefits while reducing monthly payments. 

A chart showing the factors that have inspired France's protest movement

A controversial reform of France's pension system will be postponed this quarter, but will such measures be enough to assuage the restless French electorate?

Reforms to the way that public sector workers are hired and paid will also be up for consideration this quarter, but large dismissals of public sector workers are unlikely. Should social unrest continue to build, French President Emmanuel Macron could take more extreme political measures, such as instigating a government reshuffle. Even more radical decisions — such as putting planned reforms to a referendum vote or holding an early legislative election — would be considered only as a last resort because of the risky and unforeseeable consequences such moves entail. For more on France's domestic problems, read our latest assessment.

Additional Forecasts

These Stratfor assessments provide additional insights for the Quarter

Key Dates to Watch

  • March 21-22: Spring European Council.
  • March 29: Official Brexit date.
  • April 28: Spain will hold an early general election.
  • May 9: The European Union will hold a summit in Romania to discuss the future of the bloc.
  • May 23-26: Elections for the European Parliament.
  • May 26: Federal and regional elections in Belgium, regional elections in 13 Spanish regions and in four German states.
  • June 20-21: Summer European Council.

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