Europe at a Crossroads: Unity or Fragmentation in 2025?

Europe faces a choice between exit, paralysis, or integration. Exit has been tried. Paralysis is becoming untenable. Integration is our only hope left. - Mario Draghi

France’s government may fall – the premium for French government bonds is at the highest since the Eurozone sovereign debt crisis. The CAC slumped to a four-month low. Europe’s permacrisis continues…I guess that’s what happens when you fix an election and don’t let the people get who they want. Or maybe it’s just the result of sclerotic economies and a body politic trying to apply sticking plasters.

It’s a topic we discuss in this year’s Watchlist – Europe, more or less. Given the rapid pace of change, it’s worth a look now at another excerpt.

One argument says Europe is paralysed by populism and incompetence; fragmentation and more nationalism are inevitable. The other argument goes something like this: Europe has always lurched from crisis to crisis and the answer every time has been ‘more Europe’. And as we go to press, France’s Marine Le Pen, the frontrunner to become the next president, is threatened with jail time and an election ban, while steps are being taken to ban the AfD in Germany. They tried this with Trump – will Europe react the same way?

More Europe

Fragmentation leads to dreadfully slow decision-making, institutional stagnation, moribund economic growth and ultimately, some crisis of confidence about Europe’s place in the new world order. The inevitable creep of more Europe is the result. The crisis allows it to move forward. It has always happened this way; why would it be ‘different this time’? In 2025, it will be driven by likely votes in Germany and France and the spending decisions they make. 

Centralised fiscal intervention by the EU is the natural endpoint in the grand European project. For many, the euro will either fail or result in a complete fiscal union; there is no third option. The pandemic broke new ground and opened the door to states agreeing to joint debt instruments in times of crisis; and are we not already in a form of slow crisis? Draghi explicitly made the case: “We are already in crisis mode, and to ignore this is to slide into a situation you don’t want to have.” Better to risk sticking your head in the lion’s jaws than letting the rats eat you slowly. 

It’s not just the economics and a technocratic plan to ‘Make Europe Great Again’. One European school of thought is to get the economics aligned, and the politics will follow. Or, instead, do you need political consensus to make big economic decisions? As ever, it’s a six of one and half a dozen of the other.

Much will depend on what happens at the national level, as Germany and possibly France have another go at elections. 

Less Europe 

Or do we get less Europe? As we discussed in our 2024 Watchlist, there is a fight for the soul of Europe, and it seems to be heading towards more nationalism and fragmentation at the centre. 

France is heading towards an inevitable rerun of last summer’s elections, and this time, the ‘Republican Front’ may not hold back the right-wing Rassemblement National (RN). It’s not implausible that RN will win, which would create a powerful populist government at the heart of Europe. RN won the election in 2024, and it was stolen from them – sound familiar?

Germany’s own political crisis this year has made it plain just how hard it is to govern when prices are higher, energy policy has failed, and money is being found to fund immigration and foreign wars at 
the expense of the native population. The two largest economies and the emotional bedrock of ‘Europeanism’ have weak governments. 

Elections in 2025 will be pivotal, and populists will gain more ground. Although AfD will not get near government, RN might, and it will signal the winds of change for the old order. Faced with hard-right pressure Europe’s institutions will not be able to address the social and economic challenges in the bloc. Under this pressure from within, the institutions will start to crack.