Germany's Early Election Affects EU

In responding to his party's crippling defeat in its stronghold state of North Rhine-Westphalia with a call for a fresh ballot, the chancellor has essentially admitted defeat. His Social Democrat-Green government coalition in Berlin has long been facing an uphill battle against rampant unemployment, budget deficits, bad schools, and social problems connected to immigration.

Such were the primary issues that drove the SPD from power in Germany's largest state after 39 years at the helm. And such are the issues which raise their heads in connection with public opposition to the European constitution which faces key votes in France and the Netherlands next week.

The bombshell defeat suffered by the Social Democrats here in Germany on Sunday could not have come at a worse time for the pro-European camp.

What if...?

The consequences could be monumental and pundits everywhere are now asking the "what if" questions: What if this election signals to voters in France and Holland that Germans, too, don't want the constitution? What if talks on key EU budget issues break down because finance ministers view Schröder's government as a lame duck? And what if Schröder and his Social Democrats ultimately lose the early election he hopes to call?

Most commentators agree that the election loss in North Rhine-Westphalia is a strong indicator that Schröder's party will be ousted from office in the next election. And already, budget talks in Brussels have been clouded because of Germany's decision to hold early elections.

Whether Germany will continue to foot such a large portion of EU expenditure is now more uncertain than ever, and the implications of a potential shift in policy extend far beyond Berlin.

Budget issues

The EU is currently trying to convince Britain to forego its budget rebate, but the prospect of a power switch in Germany could sway London to resist the pressure to pay more into EU coffers.

The battle lines over the budget are roughly drawn between the EU Commission which wants as much money as possible, and the six biggest net contributors -- Germany, France, Britain, the Netherlands, Sweden and Austria -- which want to limit the budget. Voters in Germany, at least, see too much of their tax money disappearing down black holes in Brussels while their own standards of living are diminishing.

The Commission also wants money to help fund EU eastward expansion. But this is another sticking point in Germany and elsewhere in Europe, where voters fear further job losses and increased immigration. A change of government in Berlin would be a big victory for the anti-immigration camp.

As far as the new European constitution is concerned, if the referendums in France and the Netherlands fail to win support for Europe, this will almost certainly seal the defeat of Schröder and the Greens at an early federal election later this year.

Essentially, if the constitutional referendums fail, voters will be saying that Europe must stop where it is and clean up the mess before moving on.