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Germany's 2018 outlook steady: Eurasia Group

Lewis Sanders IV
January 3, 2018

Even with a caretaker government, Germany's outlook for 2018 is more positive than other parts of the EU, the Eurasia Group has said. Brexit and Italian elections will pose political and economic challenges for the bloc.

EU and German flags in front of Reichstag in Berlin
Image: picture-alliance/dpa/M.Skolimowska

New York City-based political risk consultancy Eurasia Group on Tuesday published its annual risk prognosis, saying that Germany and the rest of the EU are poised to remain stable despite increasingly threatening risks across the globe.

"Germany must regain its footing after a tumultuous electoral season, Italy will face a contentious election and President Emmanuel Macron's war on vested interests won't become any easier in France," said Eurasia Group in its report.

Read more: Beginning of the end for Germany's Angela Merkel?

Since September's federal elections, German Chancellor Angela Merkel's Christian Democrats have yet to form a government after talks collapsed with the Greens and the pro-business Free Democratic Party (FDP). Despite signs pointing towards a grand coalition with the Social Democrats, the process has dragged on at a sluggish pace.

"The German polity will pull together and recover from its recent jitters – at least for the next few years ... European politics will continue to keep us busy in 2018, but the eurozone should have yet another modestly encouraging year," the group said.

The Brexit challenge

However, the group's outlook on the UK's formal process to leave the EU was dim. While EU leaders announced their decision to advance talks on the bloc's post-Brexit relationship with the UK in December, questions remain on how that might look.

The forecast also suggested that domestic politics may continue to undermine Prime Minister Theresa May's Conservative government, including on Northern Ireland, where a fringe party remains key to her political survival.

Ian Bremmer on how #Brexit talks will impact the coming year

Read more: 2018: The year of Brexit decisions

May "could lose her job over her management of the Brexit process," Eurasia Group said.

Italy at a crossroads?

While Italy is headed into a tumultuous election that could witness the populist Five Star Movement, which has campaigned on leaving the eurozone, gain power, it is unlikely to translate into a major shift on Italy's relationship with the EU or the economic union.

"Italy risks coming out of its election season with a weak coalition government or even an outright radical eurosceptic one, but in neither case will the country's economy fall apart. Nor will the Italians opt to leave the eurozone or the EU."

Read more: Italy passes controversial electoral law over populist objections

For the risk consultancy, the major risks lie beyond Europe's borders, and as such, are unlikely to have as profound of an impact on the bloc. However, the outlook was significantly dim for international relations and geopolitics.

"If we had to pick one year for a big unexpected crisis – the geopolitical equivalent of the 2008 financial meltdown – it feels like 2018. Sorry."