Is France inadvertently voting for the euro's break up?

Italy and Spain are already pushing the euro to the limit. With France voting to join them, the odds on the euro’s break up just shortened

The euro's closing ceremony?
John Phelan
On 23 April 2012 17:21

The almost total emptiness of the term ‘right wing’ is never better illustrated than by comparing what passes for ‘right wing’ on either side of the English Channel. During his seemingly doomed bid for reelection French president, Nicolas Sarkozy has stood on platforms where the flag of the European Union stands next to France’s tricolour, something which no British Conservative leader would dare contemplate. In the best Gaullist tradition Sarkozy is a dynamo of constant economic intervention; there is little trace of the small state philosophy which occasionally finds voice from Britain’s Conservatives.

It wasn’t always like this. When he took office in 2007 Sarkozy was fancied as a French answer to Margaret Thatcher, there to shake France’s moribund economy back to life and promising a “rupture” with the past.

Sarkozy ended up falling victim to heightened expectations. He was neither as radical as his detractors on the left made out nor as timid as mostly foreign ‘right wingers’ scorned him for. Raising the retirement age from 60 to 62 for example hardly sounds Thatcheresque but the fact that such a minor and unavoidable reform repeatedly brought millions of trade union members out onto the streets shows the scale of Sarkozy’s task.  

The truth is that the French would not support a reform agenda anything near as comprehensive as the Thatcherite rhetoric suggested. As soon as Sarkozy tried to implement the promises that the French had voted him in on they turned against him. In France it seems that reform, like so much else, exists only in the abstract.

When the financial crisis and its notably acute manifestation in the Eurozone broke out in the wake of the credit crunch of 2007 Sarkozy had a new opportunity to dust his reform agenda off and package it as the economic necessity it is. In the end he fell between two stools, on the one hand pledging to do whatever it would take to defend France’s AAA rating (which was lost anyway), on the other castigating the ‘Anglo-Saxon’ economic model which he mysteriously blames for the euro’s woes.

On Sunday Sarkozy became the first sitting French president to lose the first round of an election. A comeback looks unlikely.

His victorious opponent, the Socialist Francois Hollande, makes no concessions to economic sanity. He promises to hire 60,000 new teachers and lower the retirement age back to 60 on his way to balancing the budget by 2017. He intends to square this circle by introducing a tax of 75 percent on the ‘super rich’.

If the French are intent on slitting their own economic throats by choosing such a risible set of policies then they are, of course, quite entitled to. But in the context of the ongoing financial crisis in the Eurozone, Hollande’s economic illiteracy will have wider ramifications.

Most obviously he intends to renegotiate the euro stability pact which was signed at the end of last year. True, the pact is a waste of paper, but Hollande’s opposition to it is wrongheaded. He objects to the pacts’ limiting of euro member government borrowing apparently in the odd belief that Europe doesn’t have enough debt and actually needs more to get its economy going again.

He also wants the European Central Bank to adopt ‘growth friendly’ policies which is simply a euphemism for printing more money. In fairness Hollande isn’t the only person who thinks that we will get richer if only we have more banknotes. Mervyn King and Ben Bernanke are fervent believers, and the ECB’s various operations in support of Italian and Spanish bonds suggest that he might be pushing on an open door.

Either way it looks like tensions along the Rhine are set to rise. Germany’s entire approach to the euro crisis has been based on the idea that the solution is fiscal and that monetary policy can play no role. To this end they have pushed for spending cuts in member nations and (supposedly) tight money in Frankfurt. Sarkozy probably privately opposed both notions but wouldn’t go against Angela Merkel. Francois Hollande might be less wary of conflict with the Germans.

Even so Hollande’s almost certain election looks likely to put new stresses on the beleaguered euro. His hopeless economic policies look certain to add to France’s debt issues and these will put further upward pressure on French borrowing costs.

The euro can possibly survive debt crises in small peripheral countries: Greece or Portugal. The existential threats to the single currency come from the big members. Italy and Spain are already pushing the euro to the limit. With France voting to join them, the odds on the euro’s break up just shortened. 

John Phelan is a Contributing Editor for The Commentator and a Fellow at the CobdenCentre. He has also written for City AM and Conservative Home and he blogs at Manchester Liberal. Follow him on Twitter at @TheBoyPhelan

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