Euro zone: When political and economic difficulties are related in one direction or the other

The euro zone now faces several cases of economic difficulties that stem from political choices or political difficulties that stem from the economy. The following three examples seem salient: The united Franco-German front that was beginning to form between Emmanuel Macron and Angela Merkel in support of the creation of a euro-zone budget and coordination of tax, social and labour market polic ies be t ween the euro-zone countries seems to have disappeared, as Germany’s future chancellor - Annegret Kramp-Karrenbauer , or AKK - rejects such moves. We are therefore heading towards a “non-cooperative” euro zone; The likely economic failure of Italy’s governing coalition (between Five Star and the League), because its current policy will fail to lift investment, productivity and potential growth, may give reason to fear another episode of elevated political instability in Italy; Macron’s political difficulties risk dragging on , as there is no leeway in France to increase low wages (due to the high sensitivity of low-skilled employment to low-skilled labour costs), increase wages in sectors that compete internationally (due to France’s poor cost competitiveness) or increase public spending or reduce taxes (due to the state of public finances).