Italy's Prime Minister Mario Draghi is pictured with French PresidentEmmanuelMacron.
The European Union's three largest economies are changing the balance of power in a big way.
France is bracing for an uncertain presidential election in the spring and Italy is waiting to find out if Mario Draghi will leave his post as prime minister.
In a note to clients in December, the group chief economist at UniCredit said that they may be in for a Watershed Moment.
The new German government will bring in significant reforms in Germany, if less headline-grabbing and straightforward then desirable, and it will also facilitate reforms in Europe.
The new government has promised to invest in technology. Its idea is to follow a sound fiscal policy from the year 2023 onward, once the swine flu has been dealt with.
European discussions on how to update the fiscal rulebook are likely to be influenced by these targets. The euro zone has strict deficit and debt targets, but they have not been enforced. In addition, others question if the targets are still valid in a post-pandemic world. The bond market could be affected by how much governments spend.
The German economy will be European growth champion in 2022.
In a note in December, analysts at ING said that the new government's investment policies will lead to stellar growth performance.
The German economy grew 2% in the second quarter of 2021, and 1.7% in the third quarter. GDP fell by almost 5% in the whole of 2020.
The supply chain issues have had a significant impact on these numbers.
The fourth wave of the pandemic is behind us, and as a result industrial production will rebound, private consumption will start to pick up and investments will flourish, and the German economy will stage an impressive comeback as European growth champion in 2022,” he said.
In October, the International Monetary Fund projected a GDP growth rate of 4.6% for Germany, which was higher than the estimates for France and Italy.
The French are going to the polls in late April. The incumbent President has not yet said if he will run for a second term. He is polling first among all the candidates.
There is plenty of time for voter polls to change as new candidates plan for the presidency.
Marine Le Pen is seen as a threat to the like minded candidate Eric Zemmour. The arrival of the center-right conservative campaign leader, Valerie Pecresse, is seen as a challenge to the candidacy of the centrist candidate, if he decides to run for a second term.
If she makes it to the second round of the election, Pecresse will be a serious contender against the favorite, still undecided, Macron. She is fourth in the polls at the moment, behind the two far-right candidates.
Analysts at ING said thatMacron will have to navigate a narrower path to reform France, notably concerning pensions, the public service and the labor market.
France would still have a pro-European leader looking to work with Germany and Italy to reform the region even if he wins the election.
Everyone wants to know if Mario Draghi will remain as the country's prime minister or if he will become the next president. There would be a new wave of political uncertainty because of the Italian Parliament.
The political equilibrium that has prevailed since the appointment of Mario Draghi as PM is set to be broken by the upcoming presidential vote, according to a note by Wolfango Piccoli.
As president, he would have less power over Italian politics.
He said thatDraghi would struggle to act on behalf of Italy from the presidential palace.
Italy would still have a pro-European president who would have a say in some of the measures that a new government may take.
The work of the prime minister could be more complicated if the ruling coalition manages the presidential election process.
The various political groups in the Italian Parliament support the head of a technocratic government. When presenting new laws, the work of Draghi could face obstacles.
In this scenario, the prime minister would remain until elections in 2023, which would allow Italy an unprecedented influence on key European policies next year, and possibly leave Italian politics less anchored over the longer term.
