It would be unwise to take popular talkfests and loud one-liners for negotiations to promptly form Germany’s new government. Europe’s largest economy is now at the beginning of one of the most difficult political processes in its post-war history.Fortunately, barring more dramatic complications, the short-term impact of this Italian-looking imbroglio won’t matter much for euro-denominated asset values. The currency is firmly in the hands of the European Central Bank, a supranational institution that is, by design, the only truly and totally independent central bank in the world.Longer-term implications of German political instability for Europe and the monetary union are a different story. As things now stand, institutional reforms to create a euro area fiscal union, and to strengthen the coordination of structural policies, are effectively postponed sine die — a Latin phrase to say a back, very back, burner that may never light up.That, too, doesn’t matter. The EU and the euro area can function with the current degree of integration, overseen and arguably mismanaged by a sprawling European administrative infrastructure. They should probably copy the Trump administration’s appointees in charge of rolling back excessive bureaucracy and throwing away their thick regulatory rule books.
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