The generally accepted thesis is that everything depends on Macron. The French president will need to overhaul France’s labor markets and improve its fiscal situation as a pre-condition for any Franco-German cooperation over eurozone reforms. But this is only half true. More important for the fate of the eurozone will be Merkel’s choice of coalition partner — and the party that assumes control of the finance ministry. [...]
In practice, only three reforms are really in play: first, the amount of fiscal space countries have to exploit before bumping into EU-wide fiscal ceilings; second, the completion of the eurozone’s banking union, especially in the area of a pan-European deposit insurance; and third, repurposing the eurozone’s bailout fund, the European Stability Mechanism, to give it a bigger mandate and potentially more powers. [...]
To say that the ball is firmly on the French side of the court would be to misread the situation. Merkel, who is facing an election in September, will have her own constraints. Opinion polls predict that she will secure a fourth consecutive term as chancellor, but with her center-right Christian Democrats polling at 38 percent, she will need a coalition partner.
Merkel’s Bavarian beer tent speech, in which she warned that Europe could no longer rely on the U.S., and the CDU’s “stronger Europe for a stronger Germany” slogan, both seek to create a bigger mandate for Merkel, for “more Europe.” Just how much more, however, will depend in large part on her partners in the government.
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