Euro-update (24): Will the French & German Left solve the Eurozone crisis?

Every week that goes by something new comes along in the tragedy unfolding in the Eurozone. Now it’s seems that the markets have started to set their sights on Italy. Beware of Belgium

So as the news seem to be all about doom and gloom, I felt the need to grasp at straws and seek comfort in the future. I’ve found some. I believe that the parties in power up until now, are on their way out. That was the case with the UK, Ireland, Greece and Portugal. It’s a mix of fatigue and economic performance, as can be seen by the survival of incumbents in Sweden.

However France and Germany are different. It seems that public opinion has shifted. In Germany, a coalition of the left would overwhelm the right if elections were held today. In France a similar movement seems to be taking place, although it is yet to gain momentum. It is also particularly difficult to get any sense of what the future will look like in the absence of surveys on voter intentions for the parliamentary elections.

Notwithstanding this uncertainty, this reemergence of the German and French left means a great deal because both are in favour of deeper integration as a solution for the present sovereign debt problems of the periphery(common statement from 21 June Fraco-German Socialist meeting, in German and the full version in French). Sigmar Gabriel, leader of the SPD,  has stated on occasion his support for a more generous approach to Greece and for Eurobonds. In this he will probably be supported by Frank-Walter Steinmeier (previously Foreign Minister) and Peer Steinbrück (previously Finance Minister). The German Greens are also likely to be favourable to this sort of demarche, given that both of it’s leaders, Claudia Roth and Cem Özdemir, were Green MEPs who will likely support deeper integration along similar lines to Joschka Fischer. This all bodes well for Germany, who should want a transfer union. As soon as the sovereign debt crisis in the periphery ends, the Euro will appreciate, and as growth picks up the ECB will increase interest rates to keep inflation at bay, which should pop the present German bubble. For let us not ilude ourselves, the present growth spurt in Germany is as much a result of high productivity caused by the Schroder structural reforms, as it is the result of low exchange rates caused by the periphery’s problems. It is a textbook example of asymmetric shocks in a monetary union without flexible wages or prices, with relatively immobile labour forces and without fiscal transfers (here and here).

The case for the relevance of the French left is a little more blurry. First of all, it seems that even the sitting UMP majority (or at least its leader) has already realised the need for deeper integration as a necessary step towards a solution to the crisis. Secondly, I wasn’t able to find much information about Aubry’s positions on the EU. If we learned anything from the Bushes, it’s that apple’s can fall far from the tree. In this case, Aubry‘s pan-European standing cannot be inferred from her father, Jacques Delors. Her common statement with Sigmar Gabriel does however point to some proximity of positions. The same cannot, however, be said of her main opponent, Francois Hollande, who seems to place more emphasis on his diet and on a debt restructure. He seems to have the support of Moscovici. Laurent Fabius is an influential but difficult card to read. After all he was the only mainstream politician arguing against the European Constitution. The same goes for Segolene Royalle. So let’s hope for Aubry…

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