+

Cookies on the Business Insider India website

Business Insider India has updated its Privacy and Cookie policy. We use cookies to ensure that we give you the better experience on our website. If you continue without changing your settings, we\'ll assume that you are happy to receive all cookies on the Business Insider India website. However, you can change your cookie setting at any time by clicking on our Cookie Policy at any time. You can also see our Privacy Policy.

Close
HomeQuizzoneWhatsappShare Flash Reads
 

Europe's next big risk is the 'Merkel-exit'

Jan 14, 2016, 21:50 IST

German Chancellor Angela Merkel waves as she attends a session of the lower house of parliament Bundestag in Berlin, January 19, 2012.Fabrizio Bensch/Reuters

Last year, everyone was worried about a "Grexit," and some folks have started mumbling about a "Brexit."

Advertisement

But now there's another big "exit" risk looming on the horizon: the "Merkel-exit."

"For the first time in a decade in power, German Chancellor Angela Merkel's political future is in question," Citi Research's chief global political analyst Tina Fordham wrote in a recent research report.

"Although in our view the Chancellor could very well weather yet another test of her leadership and go on to win a fourth term, we regard a Merkel-exit ahead of German elections (due in 2017) as one of the most destabilizing political risks for the EU, and one with the potential to impact markets," she argued.

Merkel has arguably been Europe's strongest leader since the financial crisis and was front and center handling issues like the Greek crisis and negotiating the Minsk Agreements in the last year.

Advertisement

Already back in January 2015, over half of Europeans wanted to see migration curbed.Credit Suisse

However, her decision to warmly welcome the refugees in 2015 was extremely unpopular both at home and in the rest of Europe. Her approval ratings plunged sharply to 49% in November 2015, down from 67% in August, according to data cited by Fordham.

The most recent stab to her political position follows the mass New Year's Eve sexual assaults and other attacks on women in the city of Cologne, Germany that were attributed to gangs of mostly migrant men. These attacks further inflamed the debate in the country over her policy toward the refugees.

"European policymakers are struggling to resolve the refugee and migration crisis, which follows in the wake of a list of challenges ... and is emerging as a significant source of political risk," writes Fordham.

"The potential for the refugee and migration crisis to destabilize the EU could eventually overshadow Grexit (in any case a lower risk for 2016 than in previous years). Could it also be the undoing of the European politician who has done the most to attempt to address it?" she asks in the research note.

Populism is surging as refugees bring increased political pressures.Eurasia Group

Advertisement

Notably, a weaker Merkel could mark a shift in Europe's trajectory, which Eurasia Group president Ian Bremmer and chairman Cliff Kupchan argued in their top risks for 2016 report.

"This year, Merkel's extraordinary welcome to refugees will draw fewer followers inside her own country, and virtually none outside it," they wrote in the report. "This will undermine her political position, and could encourage a domestic challenger over the coming months."

"That leaves Europe with less ability to respond collectively to any crisis (expected or otherwise)," they noted - a point that's especially significant given that, as mentioned above, Merkel has long acted as the de facto European leader in collective crises.

Additionally, Merkel has been the "biggest advocate of open Europe" - or a Europe that's open to the world, and has borders between (most) European states open to one another. So, if she is in a weaker position, "open Europe," too, could now be at risk.

"It creates a dramatic change in how Europe interacts with itself and with the rest of the world," Bremmer and Kupchan wrote. "More resentment toward Germany from others in Europe will undermine its political capital. The refugee issue will play out across Europe as the proximate cause."

Advertisement

Ultimately, the "Merkel-exit" is not something that will necessarily happen - as noted above Fordham.

But it's hard to argue against the fact that her political position has already weakened - especially given that so many people did not support her decision regarding the refugees.

And that in it of itself is a big change for Europe.

Euro/USD, 1 year chart.Bloomberg

NOW WATCH: NASA scientists are baffled by a mysterious pyramid structure they found in space

Please enable Javascript to watch this video
You are subscribed to notifications!
Looks like you've blocked notifications!
Next Article