Europe paves the way for new leadership

There is no doubt that most of Europe's large countries are preparing the way for a new set of leaders who will take office shortly. Poland already has a new Prime Minister, Germany should have a new Chancellor on Tuesday, Italy has an election next year with the government parties currently trailing in the polls, Britain will probably have a new Prime Minister within a year and a half, and France's President has been politically weakened by a number of events and is likely not to stand for re-election in 2007.

The only major European Union country which is unlikely to change its leader in the near future is Spain, whose Prime Minister was elected in April last year and who seems to be doing reasonably well in office.

Unfortunately, this is not a particularly good time for European political leaders: many of them are lame ducks and have been damaged considerably by domestic and international events. The quicker a new generation takes over the better. In Britain, for example, Prime Minister Tony Blair suffered his first parliamentary defeat two weeks ago when a large number of his own backbench Labour MPs voted against his proposal to keep terrorism suspects in custody for up to 90 days without charge. This was a huge setback for Mr Blair and there is no doubt that his authority has been damaged.

Critics have argued that Mr Blair refused to see the writing on the wall even though it was obvious that he did not have a majority of MPs on his side. He did not offer any sort of compromise and went ahead with his original proposal, hoping he could charm his rebel MPs into voting with the government. This could be interpreted as a serious misjudgement or you could argue that Mr Blair should be admired for sticking to what he believes is right.

What is certain is that Mr Blair's government has been seriously undermined and weakened and many left-wing Labour MPs who resented the way Mr Blair handled Britain's participation in the Iraqi war now feel it is payback time. They want Mr Blair to step down now and pave the way for his successor, Chancellor Gordon Brown.

My gut feeling is that Mr Blair wants to remain in office until May 2007, which would mark the tenth anniversary since he won the 1997 election. I do not know if he will last that long, and with Labour rebels threatening to vote against the government's health and education reform proposals, Mr Blair's days in Downing Street could end sooner than expected.

Angela Merkel, leader of the German Christian Democrats (CDU), faces a vote of confidence in the Bundestag on Tuesday and is expected to be elected Chancellor as a result, heading a grand coalition with the Social Democrats (SPD). While outgoing Chancellor Gerhard Schröder did implement some economic reforms these were not enough to really get the German economy moving again and on a European level Mr Schröder was somewhat hostile to reform.

Ms Merkel is much more reform-friendly, however her hands are tied considerably as she has to govern in coalition with the Social Democrats. The joint government programme issued by the two parties is nothing like what the CDU had campaigned for in the election and many of her original pledges have been watered down.

France faces a presidential election in 2007 and most observers believe Interior Minister Nicolas Sarkozy will be the governing UMP's candidate to replace President Jacques Chirac. Many observers now believe Mr Chirac, first elected in 1995 and again in 2002, has run out of steam.

The French electorate's rejection of the EU Constitution in a referendum earlier this year greatly damaged Mr Chirac's credibility and authority. The riots taking place in French cities over the past few weeks have made matters worse. Coupled with all this, the French economy is still not performing well, with unemployment at 10 per cent. Under Mr Chirac only a limited number of economic reforms have taken place in France even though he has been in power for 10 years, and on a European level France has certainly not been in the forefront of promoting economic reform. It is unlikely that things will change until the next election.

Italy faces a general election next year with Prime Minister Silvio Berlusconi's coalition parties trailing in the polls against the centre-left bloc led by former European Commission President and former Prime Minister Romano Prodi. Mr Berlusconi has had a controversial four years in office: he passed a law allowing him to keep his business empire, he passed an immunity law - which was subsequently thrown out by the Constitutional Court - protecting the Prime Minister and four other office-holders from prosecution, he was then cleared of corruption last December and in April he suffered a huge defeat in regional elections which forced him to resign and form a new government.

Italy's economy has not improved dramatically under Mr Berlusconi, which explains why he is trailing in the polls. In May he won a confidence vote in his government and the reforms he wants to push through to spur economic growth. However analysts at Standard & Poor's claim the outlook for growth is poor as a result of "obstacles in the areas of physical and institutional infrastructure, regional inequalities, and structural rigidities, especially in the labour market". It will probably be difficult for Mr Berlusconi to win the next election but a lot will depend on the unity of the centre-left bloc led by Professor Prodi.

All these potential changes in leadership are bound to have an effect on the pace of economic reform in Europe, as well as European integration and transatlantic relations. How liberal (in the economic sense) will a Europe led by Gordon Brown, Angela Merkel, Nicholas Sarkozy and Romano Prodi be? It is difficult to tell. In Britain it all depends on whether Mr Brown is as committed to economic reform as Mr Blair is and whether he can discipline Labour's left-wing MPs.

In Germany it will depend on whether Ms Merkel can work with her Social Democratic coalition partners and whether the two parties have the political will to take some unpleasant economic measures. In France we will have to see whether Mr Sarkozy is really as liberal as he makes himself out to be and whether he will be the UMP presidential candidate - and whether he will be able to beat his socialist rival in the election. In Italy, Professor Prodi might be able to push through some economic reform - after all he successfully prepared Italy for the single currency when he was Prime Minister, but a lot will depend on the behaviour of some his left-wing allies.

The new generation of European leaders will probably - with the exception of Romano Prodi - be less in favour of further European integration than their predecessors and this is not necessarily a bad thing. In Poland, for example, the new minority conservative government of Kazimierz Marcinkiewicz is kept in power by three small parties which are not particularly keen on the EU: the anti-European Union, farm-based Self-Defense Party, the nationalist League of Polish Families and the left-wing Polish Peasant's Party.

European integration has probably gone far enough for the moment - and the EU is still searching for solutions in the aftermath of the defeat of the European Constitution by France and the Netherlands.

What we probably can expect is an improvement in EU-US relations as a result of Ms Merkel forming the next government in Germany and if Mr Sarkozy is elected President of France in 2007, and that is certainly a good thing.