This article argues that in France, no less than in Greece, political conditions over the coming months will determine Europe's ability to keep the crisis under control.
Several factors have contributed to stabilising the eurozone over the past three months. First, Mario Draghi, the European Central Bank president, introduced a programme of large-scale cheap credit for banks. This reduced stress in Europe’s financial system and lowered borrowing costs for governments. It is noteworthy that the ECB felt no need last week to buy sovereign bonds on the secondary market. Second, the replacement of the feckless Silvio Berlusconi with the reformist Mario Monti as Italy’s prime minister calmed investors’ fears that the debt crisis would engulf the eurozone’s third biggest economy and trigger the euro’s demise. Mr Monti is showing much courage in confronting Italy’s domestic economic rigidities. Third, negotiators on all sides showed common sense in striking a deal in the early hours of Tuesday to restructure Greece’s debt, extend fresh loans and avert a disorderly default.
Yet the covenant on fiscal controls does not command a secure place in the eurozone’s tabernacle. In this respect, the most important trail to follow over the next three months will be France’s presidential and legislative elections. Opinion polls predict a victory for François Hollande, the Socialist party’s candidate for the Elysée palace. He says, if elected, he will seek to renegotiate the fiscal pact because it places too little emphasis on economic growth.
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