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An “atomic bomb” is about to blow up in “the confrontation between Paris and Brussels.”
It was in these terms that Le Figaro, perhaps the most influential French newspaper, reported the European Commission’s near-certain rejection of President Francois Hollande’s 2015 budget on Oct. 29. That is the date the commission must issue a judgment on the French budget, which proposes a two-year delay in reducing the budget deficit to the EU-mandated maximum of 3 percent of gross domestic product.
German Chancellor Angela Merkel has insisted that she will not tolerate any such relaxation of the European Union’s new, toughened budget rules. Meanwhile, Hollande has stated repeatedly that France will refuse any demands from Brussels for more cuts.
A full-scale budget war between Paris and Berlin/Brussels looks inevitable, with catastrophic effects on the European economy and markets. But on closer inspection, this impending budget battle is no more lethal than the fiscal shadow-boxing in Washington last year.
To see what is really happening, we must understand the motivations of Merkel, Hollande and the new European Commission president, Jean-Claude Juncker. All three share the same objective: to preserve the euro, not blow it up with an “atom bomb.”