06 June 2013

John Wyles: A bad time to lose your nerve

For recent evidence, look no further than last week's joint statement by Chancellor Angela Merkel and President François Hollande vacuously titled “France and Germany: Together for a stronger Europe of stability and growth". Presenting an initiative allegedly marking the 50th anniversary of the Franco-German Treaty of Friendship, they rehashed and recycled a ragbag of policies for youth unemployment, financing for SMEs and economic policy coordination that are already slowly meandering their way through the EU's decision-making processes. They also served up a breathtakingly complacent treatment for the ills of European banking – a sort of ‘banking union lite' in which any possibility of eurozone members sharing financial responsibilities for bank resolution and consolidation was kicked into the distant future.

It may be perfectly reasonable, if doomed to fail, for the German chancellor to try to blindfold her electorate to the inevitable reality that Germany will continue to pick up the largest tab for sustaining the eurozone. It is not surprising, though an enormous dereliction of responsibility, that Hollande wants to interprete European solidarity as allowing France to do what it wants when it wants. But it was meretricious of this disparate duo to pretend that they now have a roadmap to lead us promptly out of this crisis.

The Commission's weighty country-by-country analysis and recommendations evoked a previous narrative of nearly a decade ago. Then, the EU was putting on the record its concerns about the impact and consequences of the violations of the Stability and Growth Pact by France and Germany. As a disciplinary force, the pact was shown to be a drooping irrelevance. Eurozone governments continued to frolic towards higher debt and deficits, nicely positioning themselves for a devastating and doomed confrontation with a global financial crisis.

Hollande's irritable assertion that the Commission could not dictate policy to France, and did not need to because Paris knew what to do, revealed a leader who is beginning to crack under the pressure. He is responsible for the eurozone's second largest economy and during a year in office has scarcely addressed its fundamental problems. The Commission has postponed for two years France's obligation to cut the budget deficit to 3 per cent of gross domestic product, on condition that it puts in place a comprehensive structural reform process. There are very real doubts as to whether France will take the pain, even as economic competitiveness continues to deteriorate to the sound of dragging feet.

In a shift of policy bias, the Commission was bowing to the inevitable when it conceded more time to France, the Netherlands, Spain, Poland, Portugal and Slovenia to bring their deficits down to the target of 3 per cent of gross domestic product. Public support is draining fast for a Union that seems to have lost its compass and these governments would have failed, in any case, to meet the 2013 deadline. There is no real grip from the EU and too little real courage in national capitals. Will France take note and grimly embark on its own journey to structural reforms and public spending cuts? Can Italy, Spain and Portugal draw enough political strength to stay the course and tolerate record unemployment?

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