What if France or Germany left the EU?

Given that 2016 featured two major underdogs that have changed the balance of the world, these being Brexit and President Trump, it is logical to ask what major political and economic movements could occur in 2017 that will have a severe impact on the global economy. Events that immediately come to the forefront of the mind are the French election occurring in April, and the German election in September. With a rising of anti-European Union rhetoric sweeping both nations, it makes one wonder what could happen if either were to follow the United Kingdom’s lead and leave the Union, particularly as the French and German contributions comparatively dwarfs the UK’s.

The ideal of a ‘Frexit’ is led by Marine Le Pen, the leader of far-right wing party Front National who promotes a nationalistic, economically protectionist policy. As France currently holds a population that is to an extent anti-EU (given that its contributions largely exceed EU spending in France, and the immigration problem has severely affected the country), the prospect of Frexit is more likely than Brexit was. A study by Pew Research Center reports that over 60% of French citizens negatively view the EU, compared to Britain’s 48% of the same survey, and If Le Pen we’re to be elected, she has vowed to hold a referendum.

While the specific consequences of France seceding from EU are largely unknown (even the repercussions of Brexit are mostly unrealised), there is no doubt such an event would send ripples throughout Europe if not the world. Particularly now the UK has seceded, the weight of the EU’s needs would fall on the shoulders of other European countries. Given that France’s contribution of €19.013 billion is the second largest only to Germany’s massive €24.283 billion, this would obviously remove a relatively substantial portion of the EU’s funding that is used to better the needier parts of Europe. Furthermore, France is geographically the largest of all EU countries. To secede would mean to eliminate the EU’s biggest land mass, which would put immense pressure on the rest of Europe to take in the world’s refugees.

Germany on the other hand would leave the EU in complete tatters if it were to secede, such is its involvement and contribution to the Union. Led by Leif-Erik Holm, the right wing populist party Alternative für Deutschland voices concerns over the refugee crisis and has received much support from likeminded Germans.

Firstly, a seceding Germany would almost definitely create their own currency, probably returning to the Deutsche Mark of the old days. In pulling off a ‘Gexit,’ the new German currency would appreciate to the extent of 40% according to UBS, which would no doubt negatively affect the export markets of Germany. While the general consensus is that without Germany there is no EU, there is also the train of thought that without the might of Germany in the Union, the Euro would depreciate so as to cater for the weaker economies of Europe and therefore make their exports more attractive. However, given that Europe is important for Germany’s exports, it is unlikely that the European heavyweight would secede as the country would suffer a double hit through a less attractive exchange rate and a renegotiation of trade deals.

the consequences of either France or Germany seceding would send much larger economic quakes throughout the world than Brexit and are therefore more unlikely, though if 2016 has taught the world anything it is that anything is possible.

Source: The Economist, UBS