This summer, Germany and France appeared on the cusp of leading the charge to bring the European Union closer together. However, some observers say September’s German election put those plans on pause. Philippe Brugere-Trelat, Franklin Mutual Series executive vice president and portfolio manager, Franklin Mutual European Fund, discusses the outlook for French President Emmanuel Macron’s eurozone proposals and European equities in the current political climate. Is Macron’s eurozone “wish list” in jeopardy?

Two days after the German election on September 24, French President Emmanuel Macron outlined his broad vision for the eurozone. His wish list covered a range of topics from tackling Europe’s immigration issue to establishing common defense and finance budgets.

However, based on the results of that election, which saw the far-right Alternative for Germany (AfD) gain seats in parliament for the first time, his ambitions may need to be pared back.

At any rate, German Chancellor Angela Merkel—considered Macron’s partner in eurozone reforms before the election—is unlikely to respond with her views before Christmas. Over the next few months, Merkel will likely work to build a coalition that considers the opinions of the AfD party, the Free Democratic Party (FDP) and smaller parties, such as the Left and the Greens.

I don’t think this new potential German coalition will be as open to significant changes in Europe as the previous one with Merkel’s Christian Democratic Union/Christian Social Union in Bavaria (CDU/CSU) and the Social Democratic Party (SPD). I expect more negotiations in Germany and more give and take. Merkel’s policies also seem likely to shift somewhat to the right.

On the economic side, Macron suggested the eurozone should have a finance ministry with a separate budget and finance minister. Although Merkel supported these proposals before the election, I believe that goal will now be more difficult to achieve. FDP leader Christian Linder, who has been an outspoken critic of Macron’s eurozone budget, will likely be part of Merkel’s coalition.