Friday 27 April 2012

Merkel's Intervention

Merkel's intervention in the French elections yesterday - effectively attacking Hollande by stating that there will be no renegotiation of the Fiscal Stability Treaty - strikes me as bizarre. If she's hoping that this will discredit Hollande and lead to voters voting Sarkozy, I can't see how it will work (will those who voted for the far-right be more willing to vote for the candidate closest to German policy, or the candidate who is almost setting himself up as the leader of an anti-German leadership alliance?).

It's also starting to seem a bit desperate. Hollande's position isn't really so radical: no renegotiation of the treaty itself, but some new measures before it will be adopted. Since 90% the treaty is already EU law, Merkel's discipline provisions are in reality safe from Hollande. Even the Eurobonds Hollande is proposing aren't connected to mutualising debt, but for investment in infrastructure, etc. Calls for the remit of the ECB to also have encouraging growth and employment as part of its task will find a lot of sympathy in other states too. Is Merkel really going to set her face against all of this?

The Eurozone crisis is worsening day by day and the same austerity approach isn't working for anyone (even in Ireland there is talk that a second bailout might be needed - indeed, the Yes side in favour of the Fiscal Stability Treaty relies on this need for access to bailout funds to gain support for the treaty). While economic reforms are necessary, this extreme austerity is an insane way of going about it. The German government wants its fellow Eurozone states in a strange limbo of danger, where there is enough stability that the reforms can be implemented, but sufficient economic danger to ensure governments will enact these reforms.

While the German government may think it's the only way bailout states won't flush money down the drain, the political logic doesn't - and cannot - add up. The lack of a solution simply worsens the situation and spreads the crisis to yet more Eurozone states, while draining away the political support for the Euro in general, leaving people cynical that any of this mystic summitry the European Council engages in is a waste of time. All pain, no gain.

For Merkel to refuse even  Hollande's modest proposals would be disastrous. The political winds are starting to blow against austerity, and Germany's great adapter will have a very tumultuous EU on her hands if she decides she won't give an inch.


  1. You are right that the austerity approach is not working. But the quarell is not just about this. It is about Geemanrys leadership in Europe, about the dominance of the markets over democracy, and - of course - about the right versus the left. It is a fight for the power - and the outcome will shape Europes futere for the years to come. (in German)

  2. Surprise, surprise, a socialist advocating more government spending to conjure up a magicians trick of pulling a white rabbit out of the hat and calling it growth. Hollande is deluded, and it elected will be at loggerheads constantly with Merkel on austerity, and structural reforms.
    France just as to take its economic medicine like the rest of debt Europe, its that simple.

    1. I don't think labelling Hollande a Socialist and claiming because of his political colour that he's wrong is any way to go about critiquing his proposals. It's just as easy, and is no less facile, to say that the Right have only made things worse with their fetishised austerity measures.

      I'm yet to see any indication that Europe is growing as a result of the cuts, to ignore any new ideas based on political credence is myopic and there's a lot more historical precedence for countries spending their way out of trouble and stimulating economies than there is through cuts and strangling economic activity to the ground.

  3. This move is not confined just to the left, although the left have been the most consistent on this point because of their ideological starting point, but right-wing governments in Italy and Spain are sympathetic to Hollande's policies - as a compliment to national austerity - and S&P's credit rating downgrade of Spain referenced the lack of credible growth policies.

    If austerity is the magic bullet, it's hard to see how it's working. After bubbles you get jobless recoveries - if and when you do recover - as the only growth sector is the exports of a country. Ireland has had 5 years of austerity, and despite some growth in the export sector, employment has not improved and a quick return to the bond markets does not look to be on the cards. So austerity has not delivered on either of these fronts.

    Though the policies of the left parties differ across Europe, they don't deny that reforms and cuts do need to be made; rather a greater emphasis on growth and delivering balanced budgets over a longer period is the main stance. It has yet to be explained when one-dimensional austerity will achieve its results - and exactly what kind of recovery is it aiming at so we can measure its success. Perhaps you can point me to its successes so far during this crisis?