Germany believes the long-term future of the single currency rests with France, comments Stephens in his FT article.
Ms Merkel has put a new understanding with Mr Hollande at the top of her list of priorities. Berlin knows two sides will always take a different view of, say, the respective responsibilities of surplus and deficit nations within the eurozone, but they need to stake out common ground. Far from exulting in French weakness, Ms Merkel sees it as an obstacle to bilateral co-operation.
The maddening thing is that Mr Hollande knows what must be done. Visitors to the Elysée Palace find a president clear-sighted about the imperatives of rebuilding competitiveness and shifting the burden of fiscal adjustment from higher taxes to lower spending. The problem lies in the gulf between the analysis and the willingness to act. Mr Hollande worries that if he moves too fast, the French will take to the streets. Yet by moving too slowly he is driving them toward the xenophobic extreme represented Marine Le Pen’s National Front.
Returning growth is nurturing a belief that the euro crisis is over. Recent weeks have seen US hedge funds scrambling to buy the once toxic debt of the eurozone’s weakest economies. Some will take this as a bad sign – many of the same funds were not so long ago losing large amounts of their clients’ money by betting against the survival of the single currency. I have never understood how people so supposedly smart about markets can be so expensively dumb about politics.
On this occasion, the hedgies are probably right about the short term. There are squalls ahead, perhaps one or two rough ones, but eurozone governments have not gone through the agonies of the past few years to throw in the towel now. Ms Merkel, though, is right about the long term: the euro has a future only if over time member states achieve a rough parity of competitiveness. And that has to start with France.
Politics saved the monetary union. The hedge funds missed the sheer force of political will behind the project. Rising populism across the continent, however, threatens an opposing dynamic; a public mood that comes to blame the euro for the wrenching economic and social adjustments demanded of Europe by globalisation. The single currency is safe for the time being. It would be a mistake to say the game is over.
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