Gonzalo de Cadenas-Santiago, director of Economic and Financial Research at MAPFRE Economics


On July 1, Germany will take over the rotating presidency of the Council of the EU, and it seems this may be a precarious departure for Chancellor Angela Merkel, who is on the last lap of her political career. Germany has been at the forefront of the battle against COVID-19, has driven our domestic and external pan-European commitments, and has established the necessary administration infrastructure to keep the European project afloat.

A good result of a challenging program for the German EU presidency would be an agreement on the EU budget and the recovery fund, as they currently stand; progress on economic cooperation between the EU and China; and avoiding a disruptive exit of the UK from the customs union and the single market by the end of the year. Completing this mandate depends not only on her, but on her successors.
Success on these fronts would make the German presidency a success.

However, in order to obtain this, those who pick up the baton also need to focus on issues that are only just emerging. First, the recovery fund, known as the ‘next generation EU,’ needs to survive the coming weeks of intense disputes between European capitals. EU leaders will meet in person in July, under the watchful eye of the Chancellor, to try to find a still-elusive compromise. Merkel seems determined to preserve the core features of the fund, and echoes the words of Von der Leyen.

Christine Lagarde has warned leaders that the markets are only calm because they have already put a price on a commitment to joint action and responsibilities.

The message is clear: what is at stake is the euro and Europe itself. This is a difficult strategy, as Lagarde seems to suggest that central bank actions have stayed on course and that, in the absence of support from the tax authorities, the ECB might not appease those who decided not to commit to the euro.

Second, Chancellor Merkel will need an agreement with the UK to avoid further disruption once the transition period ends at the end of the year and the UK is no longer bound by EU rules. From the very beginning of the Brexit saga, increased integration in the EU and the UK’s future relationship with the rest of Europe have been closely interlinked. If the EU does not become stronger, the centrifugal forces of other Member States could gain strength and the EU as a whole could be at risk. Europe can absorb the loss of the UK, but not the loss of one of its great founding members.

Finally, with regard to China, Merkel views it as a competitor with a different political system that is also a partner in matters to do with the economy and the environment, and therefore the EU cannot afford to be as belligerent as it is becoming in other countries. It is at this point that diplomacy will be more important than ever.

She has been in power for fifteen years, and is facing the end of her final term, and instead of becoming a “lame duck,” the most important European politician of the 21st century faces a decisive moment that will shape the way her political career is remembered.