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Europe’s Political Contagion

From financial failure to institutional collapse.

Jun 11, 2012, Vol. 17, No. 37 • By ANDREW STUTTAFORD
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François Hollande’s ultimately successful campaign for the French presidency played skillfully into some of these themes. He harnessed the social resentment that has been sharpened across large swaths of Europe by economic slowdown, prolonged financial crisis, and the drive, however meandering, for austerity, and he rode it all the way into the Élysée Palace. The eurozone’s straitjacket could, he promised, be loosened to accommodate “growth.” Doubtless Mrs. Merkel will offer some cosmetic alterations, but that will then be that, and there will be little that Hollande can do about it. Instead he will have to face the bleak reality foretold by the flawed, darkly brilliant British politician Enoch Powell in a debate on European monetary union more than three decades ago:

Surrender the right to control the exchange rate .  .  . and one has, directly or indirectly, surrendered the controls of all the economic levers of government.

As the eurozone economy twists in the wind, that’s something that President Hollande will find tricky to explain to his voters. Even if Angela Merkel, the person closest to those levers (with solvency comes power), wanted to help him out (and in some respects she might)—the chancellor appears torn between German frugality and loyalty to European “solidarity”—her ability to do so may be constrained by the way that the euro’s woes are continuing to rile up a domestic electorate already deeply skeptical of the eurozone’s bailouts, particularly when headed in Athens’s direction. It’s not easy to work out exactly what the upstart Internet freebooters of Germany’s Pirate party (in another sign of Europe’s increasingly febrile politics, they have now swept into four state legislatures) stand for. But it seems not to include bailouts.

As for the once again fashionable miracle cure, “eurobonds” issued by the eurozone as a whole, that’s finding few fans in the country that would effectively be underwriting this paper. According to a ZDF poll in late May, 79 percent of Germans rejected the idea, and even its proponents in Merkel’s principal opposition, the left of center, more-euro-than-thou Social Democrats, were showing some signs of backing away.

Merkel finds herself stuck. Her support has, until recently, held up well at the national level, but that’s been bolstered by the hard line she has been taking on the eurozone. Austerity may be enraging many beyond Germany’s borders, and it may be the wrong medicine for what ails the single currency in which Merkel evidently still believes. Too bad it’s the only approach that her voters (who are, after all, paying the bill) seem prepared to accept. If she backs down now.  .  . 

So many rocks. So many hard places.

Andrew Stuttaford works in the international financial markets and writes frequently about cultural and political issues.

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