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During the French presidential election campaign, the incumbent president, Nicolas Sarkozy, and Germany's chancellor, Angela Merkel, will be locked in an unprecedented political campaign. In effect, they will be urging France to send President 'Merkozy' to the Elysée. One might almost say ‘back to the Elysée' since in the little matter of saving the eurozone, this Franco-German duo has been in virtual occupation of the palace for a year or more. Such are the demands – some would say ‘needs' – of European politics.
French, German and European interests are more important than personal empathy. The eurozone crisis has forced a stronger Franco-German political bonding and closer policy coordination than any seen since the days when Helmut Kohl and François Mitterrand held hands at the military graves of Verdun.
And policy, we must assume, explains Merkel's readiness to place all her bets on a Sarkozy victory, even though the French president's poll ratings are in the cellar. She sees that she will have to fight for the survival of Merkozy's approach to solving the sovereign debt crisis because the Socialist front-runner for the presidency, François Hollande, is attacking the policy at its foundations. The fiscal pact is Merkozy's key to containing German domestic opposition to bailouts, while Merkel will not hear talk of eurobonds, which she says will encourage governments to back away from austerity and fiscal discipline.
If Hollande converts his current 12-14 percentage-point lead in the polls into victory, the markets will again begin to fibrillate at the potentially destabilising consequences. In the short term, they would quite probably mark down the euro and push up the yields on Spanish and Italian debt, while the credit-rating agencies would take away the triple-A grades worn with such pride by Germany, the Netherlands, Finland and Luxembourg.
Merkel would be unlikely to refuse to negotiate some kind of revision of the fiscal pact with Hollande, leaving space for economic growth initiatives that the Socialist leader says are currently missing. This would take time and carry risk. The eurozone leadership would give every impression of disarray and the markets would continue to punish accordingly. Reform and austerity programmes in Spain and Italy would be undermined.
Fiscal and debt-management policies, surveillance and monitoring of economic programmes, and even how countries fighting to regain solvency should be governed are all now matters for discussion and intervention at the European level.
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