07 May 2012

Gideon Rachman: The Greek crisis will fast expose Hollande

Will he [Hollande] stand with the Greek people against austerity? Or will he stand with the German government and the International Monetary Fund, in insisting that the Greek bailout cannot be renegotiated?

The choice Mr Hollande makes will be fateful, for France and Europe. Potentially, France’s new president could position himself as the head of Europe’s southern rebels. There is no doubt that the Spanish and Italian governments – even if nominally from different political families – have been cheering on the French socialist. They, like the Greeks, desperately want to see a challenge to German austerity orthodoxy. 

Yet any French effort to isolate Germany within the EU would be a historic shift in postwar French foreign policy – which has been built around the idea that the “Franco-German couple” should run the EU together. Allying France with the European south would also damage France’s self-image as one of the stronger economies in Europe. The perception of France in financial markets could also worsen. Most damaging of all, an open split between France and Germany would cause Europe-wide problems, opening up a seismic fault in the foundations of the EU and its single currency.

As a result, most analysts assume Mr Hollande will settle for a few face-saving gestures from Berlin, allowing him to say that he has changed the direction of the EU debate in favour of “growth”. Even before he was elected, experts in Berlin and Paris were sketching out the likely contours of an agreement.

In reality, faced with a choice between supporting Greece and supporting Germany, the French are almost certain to go with the Germans. Yet such a choice would expose Mr Hollande’s anti-austerity rhetoric as vacuous. A few gestures towards “project bonds” will be as nothing compared with the vision of France standing with the IMF and Germany to impose deep cuts on Greece, while the country’s economy shrinks and unemployment soars.

The combination of political chaos in Greece and an inflexible IMF suggests that Greece will hit a new crisis this summer. At this point, the EU will face a momentous choice. Does it step in with yet more aid for Greece, even as the IMF backs off? Or does it refuse to help Greece – accepting all the political and economic risks that come with such a choice? Faced with such a crisis, Mr Hollande’s vague and uplifting rhetoric about saving Europe from austerity is irrelevant.

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